Internal Revenue Bulletin 2020-49 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 2020–49
November 30, 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 2020-81, page 1454.
This notice sets forth updates on the corporate bond month-
ly yield curve, the corresponding spot segment rates for
November 2020 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for November 2020, and
the 30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).
NOTICE 2020-82, page 1458.
This notice provides that the IRS will treat a contribution to
a single-employer defined benefit pension plan with an ex-
tended due date of January 1, 2021 pursuant to § 3608(a)
(1) of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Pub. L. No. 116-136, as timely if it is made no
later than January 4, 2021 (which is the first business day
after January 1, 2021).
T.D. 9929, page 1220.
These final regulations respond to Executive Order 13877,
“Executive Order on Improving Price and Quality Transpar-
ency in American Healthcare to Put Patients First” and are
intended to increase consumer access to price information
for health costs when third-party payers are involved. The
final regulations set forth requirements for non-grandfathered
group health plans and health insurance issuers of non-grand-
fathered coverage offering group health insurance coverage
to disclose to a participant, beneficiary, or authorized rep-
resentative for such individual, their cost-sharing liability for
covered items or services from a particular provider. Under
the final regulations, group health plans and health insurance
issuers are required to make such information available for
covered items and services through an internet website and
through non-internet means. The final regulations also require
plans and issuers to disclose provider negotiated rates and
out-of-network provider allowed amounts through three ma-
chine-readable files posted on an internet website.
T.D. 9930, page 1400.
This document sets forth final regulations providing guid-
ance relating to the life expectancy and distribution period
tables that are used to calculate required minimum distribu-
tions from qualified retirement plans, individual retirement
accounts and annuities, and certain other tax-favored em-
ployer-provided retirement arrangements. These regulations
affect participants, beneficiaries, and plan administrators of
these qualified retirement plans and other tax-favored em-
ployer-provided retirement arrangements, as well as owners,
beneficiaries, trustees and custodians of individual retire-
ment accounts and annuities.
INCOME TAX
REG-101657-20, page 1466.
This document contains proposed regulations relating to the
foreign tax credit, including guidance on the disallowance of
a credit or deduction for foreign income taxes with respect
to dividends eligible for a dividends-received deduction; the
allocation and apportionment of interest expense, foreign in-
come tax expense, and certain deductions of life insurance
companies; the definition of a foreign income tax and a tax in
lieu of an income tax; transition rules relating to the impact
on loss accounts of net operating loss carrybacks allowed by
reason of the Coronavirus Aid, Relief, and Economic Security
Act; the definition of foreign branch category and financial
services income; and the time at which foreign taxes accrue
and can be claimed as a credit. This document also contains
proposed regulations clarifying rules relating to foreign-de-
rived intangible income
REV. PROC. 2020-48, page 1459.
This revenue procedure prescribes discount factors for the
2020 accident year for insurance companies to compute dis-
counted unpaid losses under § 846 of the Internal Revenue
Code and discounted estimated salvage recoverable under
§ 832.
Finding Lists begin on page ii.

T.D. 9922, page 1139.
This document contains final regulations that modify the for-
eign tax credit provisions following the Tax Cuts and Jobs
Act. This document contains additional changes to the exist-
ing regulations regarding the allocation and apportionment
of expenses. Additionally, this document contains guidance
on the allocation and apportionment of foreign income taxes
to categories of income for purposes of the foreign tax cred-
it. This document also contains final regulations addressing
hybrid deduction accounts, certain hybrid instruments, and
certain payments under section 951A. Finally, this document
also contains numerous other conforming changes to the ex-
isting foreign tax credit rules.
NOTICE 2020-75, page 1453.
This notice announces that the Department of the Treasury
(Treasury Department) and the Internal Revenue Service (IRS)
intend to issue proposed regulations to clarify that State and
local income taxes imposed on and paid by a partnership or an
S corporation on its income are allowed as a deduction by the
partnership or S corporation in computing its non-separately
stated taxable income or loss for the taxable year of payment.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
November 30, 2020 Bulletin No. 2020–49

Part I
245A, 861, 904, 905, 965, 1502T.D. 9922
T.D. 9922
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Guidance Related to
the Allocation and
Apportionment of
Deductions and Foreign
Taxes, Foreign Tax
Redeterminations, Foreign
Tax Credit Disallowance
Under Section 965(g),
Consolidated Groups,
Hybrid Arrangements and
Certain Payments under
Section 951A
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations
and removal of temporary regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance re-
lating to the allocation and apportionment
of deductions and creditable foreign taxes,
the definition of financial services income,
foreign tax redeterminations, availabili-
ty of foreign tax credits under the transi-
tion tax, the application of the foreign tax
credit limitation to consolidated groups,
adjustments to hybrid deduction accounts
to take into account certain inclusions in
income by a United States shareholder,
conduit financing arrangements involving
hybrid instruments, and the treatment of
certain payments under the global intangi-
ble low-taxed income provisions.
DATES: Effective Date: These regula-
tions are effective on January 11, 2021.
Applicability Dates: For dates of appli-
cability, see §§1.245A(e)-1(h)(2), 1.704-
1(b)(1)(ii)(b)(1), 1.861-8(h), 1.861-9(k),
1.861-12(k), 1.861-14(k), 1.861-17(h),
1.861-20(i), 1.881-3(f), 1.904-4(q), 1.904-
6(g), 1.904(b)-3(f), 1.904(g)-3(l), 1.905-
3(d), 1.905-4(f), 1.905-5(f), 1.951A-7(d),
1.954-1(h), 1.954-2(i), 1.960-7, 1.965-9,
1.1502-4(f), and 301.6689-1(e).
FOR FURTHER INFORMATION
CONTACT: Concerning §1.245A(e)-1,
Andrew L. Wigmore, (202) 317-5443;
concerning §§1.861-8, 1.861-9(b), 1.861-
12, 1.861-14, 1.861-17, and 1.954-2(h),
Jeffrey P. Cowan, (202) 317-4924; con-
cerning §§1.704-1, 1.861-9(e), 1.904-4(e),
1.904(b)-3, 1.904(g)-3, 1.1502-4, and
1.1502-21, Jeffrey L. Parry, (202) 317-
4916; concerning §§1.861-20, 1.904-4(c),
1.904-6, 1.960-1, and 1.960-7, Suzanne
M. Walsh, (202) 317-4908; concerning
§1.881-3, Richard F. Owens, (202) 317-
6501; concerning §§1.965-5 and 1.965-9,
Karen J. Cate, (202) 317-4667; concern-
ing §§1.905-3, 1.905-4, 1.905-5, 1.954-
1, 301.6227-1, and 301.6689-1, Cori-
na Braun, (202) 317-5004; concerning
§1.951A-2, Jorge M. Oben, at (202) 317-
6934 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
I. Rules Relating to Foreign Tax Credits
On December 7, 2018, the Department
of the Treasury (the “Treasury Depart-
ment”) and the IRS published proposed
regulations (REG-105600-18) relating to
foreign tax credits in the Federal Reg-
ister (83 FR 63200) (the “2018 FTC
proposed regulations”). The 2018 FTC
proposed regulations addressed several
significant changes that the Tax Cuts and
Jobs Act (Pub. L. 115-97, 131 Stat. 2054,
2208 (2017)) (the “TCJA”) made with
respect to the foreign tax credit rules and
related rules for allocating and apportion-
ing deductions in determining the foreign
tax credit limitation. Certain provisions
of the 2018 FTC proposed regulations
relating to §§1.78-1, 1.861-12(c)(2), and
1.965-7 were finalized as part of TD 9866,
published in the Federal Register (84 FR
29288) on June 21, 2019.
The remainder of the 2018 FTC pro-
posed regulations were finalized on De-
cember 17, 2019 in TD 9882, published
in the Federal Register (84 FR 69022)
(the “2019 FTC final regulations”). On the
same date, the Treasury Department and
the IRS published proposed regulations
(REG-105495-19) relating to foreign tax
credits in the Federal Register (84 FR
69124) (the “2019 FTC proposed regula-
tions”). The 2019 FTC proposed regula-
tions related to changes made by the TCJA
and other foreign tax credit issues. Cor-
recting amendments to the 2019 FTC final
regulations and the 2019 FTC proposed
regulations were published in the Feder-
al Register on May 15, 2020, see 85 FR
29323 (2019 FTC final regulations) and
85 FR 29368 (2019 FTC proposed regu-
lations). A public hearing on the proposed
regulations was held on May 20, 2020.
On November 7, 2007, the Federal
Register published temporary regulations
(TD 9362) at 72 FR 62771 and a notice
of proposed rulemaking by cross-refer-
ence to the temporary regulations at 72
FR 62805 relating to sections 905(c),
986(a), and 6689 of the Internal Revenue
Code (“Code”). Portions of these tempo-
rary regulations were finalized in the 2019
FTC final regulations, while certain por-
tions were reproposed in the 2019 FTC
proposed regulations.
This document contains final regula-
tions (the “final regulations”) addressing
the following issues: (1) the allocation
and apportionment of deductions under
sections 861 through 865, including rules
on the allocation and apportionment of
expenditures for research and experi-
mentation (“R&E”), stewardship, legal
damages, and certain deductions of life
insurance companies; (2) the allocation
and apportionment of foreign income tax-
es; (3) the interaction of the branch loss
and dual consolidated loss recapture rules
with section 904(f) and (g); (4) the effect
of foreign tax redeterminations of foreign
corporations, including for purposes of
the application of the high-tax exception
described in section 954(b)(4) (and for
purposes of determining tested income
under section 951A(c)(2)(A)(i)(III)), and
required notifications under section 905(c)
to the IRS of foreign tax redeterminations
Bulletin No. 2020–49 1139 November 30, 2020

and related penalty provisions; (5) the
definition of foreign personal holding
company income under section 954; (6)
the application of the foreign tax credit
disallowance under section 965(g); and
(7) the application of the foreign tax credit
limitation to consolidated groups.
II. Rules Relating to Hybrid Deduction
Accounts, Hybrid Instruments Used in
Conduit Financing Arrangements, and
Certain Payments under Section 951A
On December 28, 2018, the Treasury
Department and the IRS published pro-
posed regulations (REG-104352-18) re-
lating to hybrid arrangements, including
hybrid arrangements to which section
245A(e) applies, in the Federal Regis-
ter (83 FR 67612) (the “2018 hybrids
proposed regulations”). Those regula-
tions were finalized as part of TD 9896,
published in the Federal Register (85
FR 19802) on April 8, 2020 (the “2020
hybrids final regulations”). On the same
date, the Treasury Department and the IRS
published proposed regulations (REG-
106013-19) in the Federal Register (85
FR 19858) (the “2020 hybrids proposed
regulations”). Correcting amendments to
the 2020 hybrids final regulations and the
2020 hybrids proposed regulations were
published in the Federal Register on Au-
gust 4, 2020, August 11, 2020, and August
12, 2020. See 85 FR 47027 (2020 hybrids
final regulations), 85 FR 48485 (2020 hy-
brids proposed regulations), and 85 FR
48651 (2020 hybrids final regulations).
The 2020 hybrids proposed regulations
address hybrid deduction accounts under
section 245A(e), hybrid instruments used
in conduit financing arrangements under
section 881, and certain payments under
section 951A (relating to global intangible
low-taxed income). The Treasury Depart-
ment and the IRS received written com-
ments with respect to the 2020 hybrids
proposed regulations. All written com-
ments received in response to the 2020
hybrids proposed regulations are available
at www.regulations.gov or upon request.
A public hearing on the 2020 hybrids pro-
posed regulations was not held because
there were no requests to speak.
This document contains final regula-
tions addressing the following issues: (1)
the reduction to a hybrid deduction ac-
count under section 245A(e) by reason of
an amount included in the gross income
of a domestic corporation under section
951(a) or 951A(a) with respect to a con-
trolled foreign corporation (“CFC”); (2)
the treatment of a hybrid instrument as a
financing transaction for purposes of the
conduit financing rules under section 881;
and (3) the treatment under section 951A
of certain prepayments made to a related
CFC after December 31, 2017, and before
the CFC’s first taxable year beginning af-
ter December 31, 2017.
III. Scope of Provisions and Comments
Discussed in this Preamble
This rulemaking finalizes, without sub-
stantive change, certain provisions in the
2019 FTC proposed regulations and the
2020 hybrids proposed regulations with
respect to which the Treasury Department
and IRS did not receive any comments.
See, for example, §1.904(b)-3, §1.904(g)-
3, §1.951A-2(c)(6), §1.951A-7(d),
§1.1502-4, or §301.6689-1. These provi-
sions are generally not discussed in this
preamble.
Comments received that do not pertain
to the 2019 FTC proposed regulations or
the 2020 hybrids proposed regulations, or
that are otherwise outside the scope of this
rulemaking, are generally not addressed
in this preamble but may be considered in
connection with future guidance projects.
Summary of Comments and
Explanation of Revisions
I. Rules Under Section 245A(e) to Reduce
Hybrid Deduction Accounts
A. Overview
Section 245A(e) was added to the Code
by the TCJA. Section 245A(e) and the
2020 hybrids final regulations neutralize
the double non-taxation effects of a hy-
brid dividend or tiered hybrid dividend
by either denying the section 245A(a)
dividends received deduction with respect
to the dividend or requiring an inclusion
under section 951(a)(1)(A) with respect
to the dividend, depending on whether the
dividend is received by a domestic corpo-
ration or a CFC. The 2020 hybrids final
regulations require that certain sharehold-
ers of a CFC maintain a hybrid deduction
account with respect to each share of stock
of the CFC that the shareholder owns, and
provide that a dividend received by the
shareholder from the CFC is a hybrid div-
idend or tiered hybrid dividend to the ex-
tent of the sum of those accounts. A hybrid
deduction account with respect to a share
of stock of a CFC reflects the amount of
hybrid deductions of the CFC that have
been allocated to the share, reduced by
the amount of hybrid deductions that gave
rise to a hybrid dividend or tiered hybrid
dividend.
The 2020 hybrids proposed regulations
generally reduced a hybrid deduction ac-
count with respect to a share of stock of
a CFC by three categories of amounts
included in the gross income of a domes-
tic corporation with respect to the share,
including an “adjusted subpart F inclu-
sion” or an “adjusted GILTI inclusion”
with respect to the share. See proposed
§1.245A(e)-1(d)(4)(i)(B)(1) and (2). An
adjusted subpart F inclusion or an adjust-
ed GILTI inclusion with respect to a share
is intended to measure, in an administra-
ble manner, the extent to which a domes-
tic corporation’s inclusion under section
951(a)(1)(A) (“subpart F inclusion”) or
inclusion under section 951A (“GILTI in-
clusion amount”) attributable to the share
is likely “included in income” in the Unit-
ed States — that is, taken into account in
income and not offset by, for example,
foreign tax credits associated with the in-
clusion and, in the case of a GILTI inclu-
sion amount, the deduction under section
250(a)(1)(B).
The final regulations retain the basic
approach and structure of the 2020 hy-
brids proposed regulations that reduced
hybrid deduction accounts, with certain
revisions. Part I.B of this Summary of
Comments and Explanation of Revisions
discusses the revisions as well as com-
ments received that relate to these rules.
B. Computation of adjusted subpart F
income inclusion and adjusted GILTI
inclusion
1. In General
Comments suggested several refine-
ments or clarifications to the computation
of an adjusted subpart F inclusion or ad-
November 30, 2020 1140 Bulletin No. 2020–49

Bulletin No. 2020–49 1141 November 30, 2020
justed GILTI inclusion with respect to a
share of stock of a CFC, generally so that
the adjusted subpart F inclusion or adjust-
ed GILTI inclusion more closely reflects
the extent that the subpart F inclusion or
GILTI inclusion amount is in fact included
in income in the United States.
2. Section 904 Limitation
Under the 2020 hybrids proposed regu-
lations, an adjusted subpart F inclusion or
adjusted GILTI inclusion with respect to a
share of stock is computed by taking into
account foreign income taxes that, as a
result of the application of section 960(a)
or (d), are likely to give rise to deemed
paid credits eligible to be claimed by the
domestic corporation with respect to the
subpart F inclusion or adjusted GILTI in-
clusion. See proposed §1.245A(e)-1(d)(4)
(ii)(A) and (B). To minimize complexity,
the 2020 hybrids proposed regulations did
not take into account any limitations on
foreign tax credits when computing for-
eign income taxes that are likely to give
rise to deemed paid credits. See proposed
§1.245A(e)-1(d)(4)(ii)(D). A comment
suggested that the final regulations take
into account the limitation under section
904.
The Treasury Department and the IRS
agree with the comment for computing an
adjusted GILTI inclusion. Foreign income
taxes that by reason of section 904 do not
currently give rise to deemed paid credits
eligible to be claimed with respect to the
GILTI inclusion amount are not creditable
in another year through a carryback or
carryover. See section 904(c). Thus, there
is generally no ability for such excess for-
eign income taxes to reduce the extent that
an amount taken into account in income
by the domestic corporation is included
in income in the United States. The final
regulations therefore provide that such
foreign income taxes are not taken into
account when computing an adjusted
GILTI inclusion. See §1.245A(e)-1(d)(4)
(ii)(D)(2)(iii) and (G). If the application
of this rule results in circularity or order-
ing rule issues, a taxpayer may, solely for
purposes of computing the adjusted GILTI
inclusion, apply any reasonable method to
compute the amount of foreign income
taxes the creditability of which is limited
by section 904.
1
The final regulations do not adopt a
similar rule for computing an adjusted
subpart F inclusion. This is because for-
eign income taxes that by reason of section
904 do not currently give rise to deemed
paid credits eligible to be claimed with
respect to the subpart F inclusion may be-
come creditable in another year under sec-
tion 904(c). Consequently, for example,
the foreign income taxes could in a later
year reduce the extent that an amount is
included in income in the United States,
and could thus inappropriately result in
an outcome similar to the one that would
have occurred had the foreign income tax-
es given rise to deemed paid credits in the
year of the subpart F inclusion and thereby
reduced the extent that the subpart F inclu-
sion was subject to tax in the United States
at the full statutory rate. The Treasury De-
partment and the IRS have determined that
special rules to prevent such results would
be complex or burdensome as they would
require, for instance, tracking the credit-
ability of the foreign income taxes over
prior or later years (potentially through
a 10-year period), and then adjusting the
hybrid deduction account as the foreign
income taxes become creditable.
3. Section 250 Deduction
Under the 2020 hybrids proposed reg-
ulations, an adjusted GILTI inclusion is
computed by taking into account the por-
tion of the deduction allowed under sec-
tion 250 by reason of section 250(a)(1)(B)
that the domestic corporation is likely to
claim with respect to the GILTI inclusion
amount. See proposed §1.245A(e)-1(d)
(4)(ii)(B). The 2020 hybrids proposed
regulations did not take into account any
limitations on the deduction under section
250(a)(2)(B). See id. A comment suggest-
ed that the final regulations take into ac-
count the taxable income limitation under
section 250(a)(2).
The Treasury Department and the IRS
agree with the comment, because taking
into account the taxable income limitation
results in an adjusted GILTI inclusion that
more closely reflects the extent to which
the GILTI inclusion amount is included in
income in the United States. The final reg-
ulations thus provide a rule to this effect.
See §1.245A(e)-1(d)(4)(ii)(B) and (H).
Similar to the rule discussed in Part I.B.2
of this Summary of Comments and Expla-
nation of Revisions (related to the section
904 limitation), a taxpayer may, solely for
purposes of computing an adjusted GILTI
inclusion, apply any reasonable method to
compute the extent to which the portion of
a deduction allowed under section 250 by
reason of section 250(a)(1)(B) is limited
under section 250(a)(2)(B).
4. Limit on Reduction of a Hybrid
Deduction Account
The 2020 hybrids proposed regulations
provided a limit to ensure that an adjusted
subpart F inclusion or adjusted GILTI in-
clusion with respect to a share of stock of
a CFC does not reduce the hybrid deduc-
tion account by an amount greater than the
hybrid deductions allocated to the share
for the taxable year multiplied by a frac-
tion, the numerator of which is the subpart
F income or tested income, as applicable,
of the CFC for the taxable year and the de-
nominator of which is the CFC’s taxable
income. See proposed §1.245A(e)-1(d)
(4)(i)(B)(1)(ii) and (d)(4)(i)(B)(2)(ii). In
cases in which the CFC’s taxable income
is zero or negative, the 2020 hybrids pro-
posed regulations prevented distortions to
the fraction – which would otherwise oc-
cur because the fraction would involve di-
viding by zero or a negative number – by
providing that the fraction is considered to
be zero. See proposed §1.245A(e)-1(d)(4)
(i)(B)(1)(ii) and (d)(4)(i)(B)(2)(ii).
1
For example, in certain cases the section 904 limitation may be affected by the extent to which section 245A(e) applies to a dividend paid by the CFC (in particular, in connection with allo-
cating and apportioning deductions under §§1.861-8 through 1.861-20); the application of section 245A(e) to the dividend may depend on the extent to which a hybrid deduction account is
reduced by reason of an adjusted GILTI inclusion; and the adjusted GILTI inclusion may in turn depend on the section 904 limitation. In such a case, to avoid circularity issues, a taxpayer may
compute the section 904 limitation for purposes of determining the adjusted GILTI inclusion by, for instance, using simultaneous equations, or applying an ordering rule pursuant to which,
solely for purposes of determining the adjusted GILTI inclusion, the section 904 limitation is determined without regard to the application of section 245A(e) (as well as any other provision
the application of which depends on the extent to which section 245A(e) applies).

November 30, 2020 1142 Bulletin No. 2020–49
Distortions to the fraction could also
occur if the CFC’s taxable income is
greater than zero but less than its subpart
F income or tested income (due to losses
in one category of income) because, ab-
sent a rule to address, the fraction would
be greater than one. The final regulations
eliminate these distortions by modifying
the fraction so that the numerator and de-
nominator only reflect items of gross in-
come. See §1.245A(e)-1(d)(4)(i)(B)(1)(ii)
and (d)(4)(i)(B)(2)(ii).
5. Clarifications
Comments recommended that the fi-
nal regulations clarify whether an adjust-
ed subpart F inclusion or adjusted GILTI
inclusion can be negative and result in an
increase to the hybrid deduction account
(that is, whether the hybrid deduction
account can be reduced by a negative
amount). The final regulations clarify that
an adjusted subpart F inclusion or adjust-
ed GILTI inclusion cannot be negative and
thus cannot result in an increase to the hy-
brid deduction account. See §1.245A(e)-
1(d)(4)(ii)(A) and (B).
A comment also recommended that
the final regulations clarify whether the
computation of an adjusted subpart F in-
clusion takes into account an amount that
the domestic corporation includes in gross
income by reason of section 964(e)(4). As
noted in the comment, an amount that the
domestic corporation includes in gross in-
come by reason of section 964(e)(4) is in
many cases offset by a 100 percent div-
idends received deduction under section
245A(a), and thus no portion of the amount
is included in income in the United States
(that is, taken into account in income and
not offset by a deduction or credit particular
to the inclusion). The final regulations clar-
ify that the computation of an adjusted sub-
part F inclusion does not take into account
an amount that a domestic corporation in-
cludes in gross income by reason of section
964(e)(4), to the extent that a deduction
under section 245A(a) is allowed for the
amount. See §1.245A(e)-1(d)(4)(ii)(A).
6. Comments Outside the Scope of the
2020 Hybrids Proposed Regulations
In response to a comment, the 2020
hybrids final regulations clarified that a
deduction or other tax benefit may be a
hybrid deduction regardless of whether
it is used currently under the foreign tax
law. See §1.245A(e)-1(d)(2). The pream-
ble to the 2020 hybrids final regulations
explained that even though a deduction or
other tax benefit may not be used currently,
it could be used in another taxable period
and thus could produce double non-taxa-
tion. The preamble also noted that it could
be complex or burdensome to determine
whether a deduction or other tax benefit is
used currently and, to the extent not used
currently, to track the deduction or other
tax benefit and add it to the hybrid deduc-
tion account if it is in fact used.
Comments submitted with respect to
the 2020 hybrids proposed regulations
raised additional issues involving the ex-
tent to which a hybrid deduction account
should be adjusted based on the avail-
ability-for-use of a deduction or other tax
benefit under the foreign tax law. These
issues include the extent to which (or the
mechanism by which) a hybrid deduction
account should be adjusted when a deduc-
tion or other tax benefit reflected in the
account is subsequently disallowed under
the foreign tax law (for example, by rea-
son of a foreign audit) or an economically
equivalent adjustment is made under the
foreign tax law, or the deduction or other
tax benefit expires or otherwise cannot be
used under the foreign tax law. The Trea-
sury Department and the IRS are studying
these comments, which are outside the
scope of the 2020 hybrids proposed regu-
lations, and may address these issues in a
future guidance project.
II. Allocation and Apportionment of
Deductions and the Calculation of
Taxable Income for Purposes of Section
904(a)
A. Stewardship expenses, litigation
damages awards and settlement
payments, net operating losses, interest
expense, and other expenses
1. Stewardship Expenses
The 2019 FTC proposed regulations
made several changes to the rules for al-
locating and apportioning stewardship
expenses, which are generally expenses
incurred to oversee a related corporation.
Although the 2019 FTC proposed regula-
tions did not change the definition of stew-
ardship expenses, the regulations did pro-
vide that expenses incurred with respect
to partnerships are treated as stewardship
expenses. The 2019 FTC proposed regu-
lations also expanded the types of income
to which stewardship expenses are allo-
cated to include not only dividends but
also other inclusions received with respect
to stock. The 2019 FTC proposed regula-
tions further provided that stewardship ex-
penses are to be apportioned based on the
relative values of stock held by a taxpay-
er, as computed for purposes of allocating
and apportioning the taxpayer’s interest
expense. Additionally, the preamble to the
2019 FTC proposed regulations requested
comments regarding how to distinguish
stewardship expenses from supportive ex-
penses.
Several comments addressed the defi-
nition of stewardship expenses. Some
comments recommended that the current
regulations’ definition be retained with-
out changes. One comment recommended
that, because stewardship is among those
activities that are not treated as provid-
ing a benefit to a related party under the
section 482 regulations, such expenses
should be treated as supportive expenses.
Another recommended that the definition
of stewardship expenses be narrowed to
apply solely to expenses that result from
oversight with respect to foreign subsid-
iaries or non-affiliated domestic entities.
Comments also requested clarification on
how to identify and distinguish between
stewardship and supportive expenses and
sought greater flexibility in identifying
stewardship expenses. One comment rec-
ommended that further guidance be left to
a separate project.
The final regulations generally retain
the existing definition of stewardship ex-
penses as either duplicative or sharehold-
er activities as described in §1.482-9(l)
(3)(iii) or (iv). Therefore, stewardship
expenses either duplicate an expense in-
curred by the related entity without pro-
viding an additional benefit to that entity
or are incurred primarily to protect the
taxpayer’s investment in another entity
or to facilitate the taxpayer’s compliance
with its own reporting, legal or regulato-
ry requirements. In contrast, supportive
expenses are typically incurred in order

Bulletin No. 2020–49 1143 November 30, 2020
to enhance the income-producing capa-
bilities of the taxpayer itself, and so are
definitely related and allocable to all, or
broad classes, of the taxpayer’s gross in-
come. See §1.861-8(b)(3). The fact that
expenses attributable to stewardship ac-
tivities do not provide a benefit to the re-
lated party does not mean that the expens-
es are supportive of all of the taxpayer’s
income-producing activity. Instead, ex-
penses categorized under §§1.861-8(e)(4)
(ii) and 1.482-9(l)(3)(iii) and (iv) as stew-
ardship expenses are properly allocated
to income generated by the related party
(and included in income of the taxpayer as
a dividend or other inclusion), rather than
to income earned directly by the taxpayer.
Comments recommended that the defi-
nition of stewardship expenses be expand-
ed to include expenses incurred with re-
spect to branches and disregarded entities,
in addition to corporations and partner-
ships. The Treasury Department and the
IRS agree that stewardship expenses can
also be incurred with respect to all busi-
ness entities (whether foreign or domestic)
as described in §301.7701-2(a) and not
only those business entities that are clas-
sified as corporations or partnerships for
Federal income tax purposes. Therefore,
the final regulations at §1.861-8(e)(4)(ii)
(A) provide that stewardship expenses
incurred with respect to oversight of dis-
regarded entities are also subject to allo-
cation and apportionment under the rules
of §1.861-8(e)(4). However, the Treasury
Department and the IRS have determined
that it is inappropriate to extend the defi-
nition of stewardship expense to include
oversight expenses incurred with respect
to an unincorporated branch of the tax-
payer, since the branch’s income is in-
come of the taxpayer itself, not income of
a separate entity in which the taxpayer is
protecting its investment, and any report-
ing, legal or regulatory requirements that
apply to an unincorporated branch of the
taxpayer apply to the taxpayer itself.
Comments also requested that the final
regulations make clear that stewardship
expenses can be allocated and apportioned
to income and assets of all affiliated and
consolidated group members, noting that
a portion of the dividends and stock with
respect to domestic affiliates may be treat-
ed as exempt income or assets under sec-
tion 864(e)(3) and §1.861-8(d)(2)(ii) and
excluded from the apportionment formu-
la, which could reduce apportionment of
expenses to U.S. source income. In re-
sponse to the comments, the final regula-
tions at §1.861-8(e)(4)(ii)(A) provide that
the affiliated group rules in §1.861-14 do
not apply for purposes of allocating and
apportioning stewardship expenses. As
a result, stewardship expenses incurred
by one member of an affiliated group in
order to oversee the activities of another
member of the group are allocated and
apportioned by the investor taxpayer on a
separate entity basis, with reference to the
investor’s stock in the affiliated member.
See §1.861-8(e)(4)(ii)(A). Furthermore,
in response to comments, the final regula-
tions at §1.861-8(e)(4)(ii)(C) provide that
the exempt income and asset rules in sec-
tion 864(e)(3) and §1.861-8(d)(2) do not
apply for purposes of apportioning stew-
ardship expenses.
Comments were also received regard-
ing the rules for allocating stewardship
expenses solely to income arising from
the entity for which the stewardship ex-
penses are being incurred in order to pro-
tect that investment. One comment argued
that the rule in the prior final regulations
for allocating stewardship expenses solely
to dividend income should be retained and
should not be expanded to include inclu-
sions such as those under the GILTI rules.
In contrast, another comment agreed with
the approach to expand allocation to in-
clude shareholder-level inclusions such as
GILTI inclusions in light of the changes
made by the TCJA.
The Treasury Department and the IRS
have determined that allocating steward-
ship expenses to all types of income de-
rived from ownership of the entity, rather
than solely dividend income, is appropri-
ate because dividends do not fully capture
all of the statutory and residual groupings
to which income from stock is assigned.
Limiting the allocation of stewardship ex-
penses only to dividends would preclude
allocation to stock in a CFC or passive
foreign investment company (“PFIC”)
whose income gave rise only to subpart
F, GILTI, or PFIC inclusions, even if the
expense clearly relates to overseeing ac-
tivities that generate income in the CFC
or PFIC that give rise to such inclusions.
Therefore, the Treasury Department and
IRS agree with the comment supporting
the expansion of stewardship expense al-
location in proposed §1.861-8(e)(4)(ii)(B)
to include shareholder-level inclusions.
One comment recommended adding
dividends eligible for a section 245A de-
duction to the list of income inclusions to
which stewardship expenses are allocable.
The existing regulations are already clear,
however, that stewardship expenses are
allocable to dividends. This allocation is
not affected by the fact that dividends may
qualify for the deduction under section
245A, which does not convert the divi-
dends into exempt or excluded income for
purposes of allocating and apportioning
deductions. See §1.861-8(d)(2)(iii)(C).
To the extent that stewardship expense
is allocated and apportioned to dividend
income in the section 245A subgroup,
section 904(b)(4) requires certain adjust-
ments to the taxpayer’s foreign source
taxable income and entire taxable income
for purposes of computing the applicable
foreign tax credit limitation. Accordingly,
the final regulations are not modified in
response to the comment.
In response to a request for comments
in the 2019 FTC proposed regulations on
possible exceptions to the general rule
for the allocation and apportionment of
stewardship expenses, several comments
recommended allowing taxpayers to show
that stewardship expense factually relates
only to the relevant income of a specific
income-producing entity or entities. The
Treasury Department and the IRS agree
that stewardship expenses may be factu-
ally related to the taxpayer’s ownership
of a specific entity (or entities) and should
not be allocated and apportioned to the in-
come derived from all entities in a group
without taking into account the factual
connection between the stewardship ex-
pense and the entity being overseen. Ac-
cordingly, the final regulations at §1.861-
8(e)(4)(ii)(B) clarify that at the allocation
step (but before applying the apportion-
ment rules), only the gross income derived
from entities to which the taxpayer’s stew-
ardship expense has a factual connection
are included and, in such cases, the ap-
portionment rule applies based on the tax
book value of the taxpayer’s investment
in those particular entities. This approach
recognizes that stewardship activities are
not fungible in the same manner as inter-
est expense.

November 30, 2020 1144 Bulletin No. 2020–49
With respect to the apportionment of
stewardship expenses, several comments
recommended retaining the flexibility of
the prior final regulations, which provide
for several permissible methods of appor-
tionment, or alternatively apportioning
stewardship expenses on the basis of gross
income, rather than assets. One comment
questioned the appropriateness of apply-
ing the apportionment rule used for inter-
est expense in the context of stewardship
expenses.
The Treasury Department and the IRS
have determined that it is appropriate to
provide a single, clear rule for the appor-
tionment of stewardship expenses and that
the asset-based rule for interest expense
apportionment is the most appropriate
method. The Treasury Department and the
IRS have also determined that an explicit
rule provides certainty for both taxpayers
and the IRS and will minimize disputes.
By definition, stewardship expenses typ-
ically relate to protecting the value of the
taxpayer’s ownership interest in another
entity. Therefore, such expenses should be
apportioned on the basis of the tax book
value (or alternative tax book value) of
the taxpayer’s interest in the entity (or en-
tities) in question, since that value more
closely approximates the income generat-
ed by the entity over time, while income
distributed from an entity (or entities) and
taxed to the owner can vary from year to
year and may not properly reflect all the
income-generating activity of the entity.
Although stewardship activities may be
definitely related to indirectly-owned en-
tities, the Treasury Department and the
IRS have determined that apportioning
stewardship expenses based on the value
of an indirectly-owned entity would lead
to unnecessary complexity for taxpayers
and administrative burdens for the IRS;
instead, such expenses are apportioned
based on the values of the entities that
are owned directly by the taxpayer. See
§1.861-8(e)(4)(ii)(C).
For purposes of determining the val-
ue of an entity, the final regulations at
§1.861-8(e)(4)(ii)(C) provide that the
value of the stock in an affiliated corpo-
ration is characterized as if the corpora-
tion were not affiliated and the stock is
characterized by the taxpayer in the same
ratios in which the affiliate’s assets are
characterized for purposes of allocating
and apportioning the group’s interest
expense. The final regulations also pro-
vide that the tax book value of a taxpay-
er’s investment in a disregarded entity
is determined and characterized under
the rules that would apply if the entity’s
stock basis were regarded for purposes of
allocating and apportioning the investor
taxpayer’s interest expense.
2. Litigation Damages Awards,
Prejudgment Interest, and Settlement
Payments
The 2019 FTC proposed regulations
included special rules for the allocation
and apportionment of damages awards,
prejudgment interest, and settlement pay-
ments incurred in settlement of, or in an-
ticipation of, claims for damages arising
from product liability, events incident to
the production or sale of goods or pro-
vision of services, and investor suits.
Damages or settlement awards related to
product liability, or events incident to the
production or sale of goods or provision
of services, are allocated to the class of
gross income produced by the specific
sales of products or services that gave rise
to the claims for damages or injury, or to
the class of gross income produced by the
assets involved in the production or sales
activity, respectively. Damages awards
related to shareholder suits are allocated
to all income of the corporation and ap-
portioned based on the relative values of
all of the corporation’s assets that pro-
duce income in the statutory and residual
groupings.
One comment suggested that the pro-
posed rules lacked clearly articulated ra-
tionales, in contrast to, for example, the
rules for R&E expenditures. The Treasury
Department and the IRS have determined
that the rules included in the 2019 FTC
proposed regulations for specific types of
litigation-related expenses are consistent
with the general principles of the alloca-
tion and apportionment rules, which are
based on the factual connection between
deductions and the class of gross income
to which they relate. See §1.861-8(b)
(1). Accordingly, no change is made in
the final regulations in response to this
comment. However, the final regulations
at §1.861-8(e)(5)(ii) include a new para-
graph heading and a sentence to clarify
that the damages rule is not limited to
product liability claims.
One comment stated that the 2019 FTC
proposed regulations could be interpreted
to require a double allocation of deduc-
tions to royalty income, for example, if
a taxpayer incurs damages from a patent
infringement lawsuit and also indemnifies
its CFC for damages paid in a separate
lawsuit filed against the CFC. The Trea-
sury Department and the IRS have deter-
mined that indemnification payments, to
the extent deductible, are governed by the
generally-applicable rules for allocating
and apportioning expenses based on the
factual relationship between the deduction
and the class of gross income to which the
deduction relates. The allocation of sepa-
rate deductions that are both related to the
same class of gross income does not con-
stitute a double allocation. Accordingly,
no changes are made in the final regula-
tions in response to this comment.
The 2019 FTC proposed regulations
contained an explicit apportionment rule
for damages awards in response to in-
dustrial accidents and investor lawsuits,
but not for product liability and similar
claims. The final regulations add a sen-
tence at §1.861-8(e)(5)(ii) to clarify that
deductions relating to product liability
and similar claims are apportioned among
the statutory and residual groupings based
on the relative amounts of gross income in
the relevant class in the groupings in the
year the deductions are allowed.
Finally, several comments disagreed
with the approach in the 2019 FTC pro-
posed regulations regarding lawsuits filed
by investors against a corporation. These
comments argued that it is inappropriate
to allocate deductions for such payments
to income produced by all of the taxpay-
er’s assets, because these expenses can
have a closer factual connection to the
jurisdiction where the litigation occurs or
where the events (for example, any neg-
ligence, fraud, or malfeasance) at issue
in the lawsuit occurred. Some comments
advocated for a more flexible rule, noting
that certain shareholder claims may have
a very narrow geographic scope, whereas
other claims may relate to a broader range
of activities.
The Treasury Department and the IRS
have determined that it is inappropriate
to allocate deductions for payments with

Bulletin No. 2020–49 1145 November 30, 2020
respect to investor lawsuits on the ba-
sis of the situs of the underlying events
or the location of the lawsuit. The pur-
pose of direct investor lawsuits against a
company is generally to compensate in-
vestors for damages to their investment
in the entire company. Even where the
underlying misconduct directly relates
to only a portion of the taxpayer’s busi-
ness activities, the harm to the investor
is generally attributable to the taxpayer’s
business more generally and, therefore,
any damages payment is related to all of
the taxpayer’s income-producing activi-
ties. Moreover, any rule that attempted
to quantify the portion of damages or
settlements that relate to specific busi-
ness activities and the portion that re-
lates to more general reputational loss
would by its nature be difficult for tax-
payers to comply with and for the IRS
to administer. Furthermore, the Treasury
Department and the IRS disagree with
the comments suggesting that award
payments should be allocated based on
the geographic location in which the
lawsuit is filed, which could be governed
by contractual terms or choice-of-law
rules that have little to no factual rela-
tionship to the underlying activities to
which the lawsuit relates. Accordingly,
the comments are not adopted.
3. Net Operating Loss Deductions
The 2019 FTC proposed regulations
clarified the treatment of net operating
losses (NOLs) by specifying how the
statutory and residual grouping compo-
nents of an NOL are determined in the
taxable year of the loss and by clarify-
ing the manner in which the net operat-
ing loss deduction allowed under section
172 is allocated and apportioned in the
taxable year in which the deduction is
allowed. Comments requested that for
purposes of applying §1.861-8(e)(8)
to section 250 as the operative section,
NOLs arising in taxable years before the
TCJA’s enactment of section 250 should
not be allocated and apportioned to gross
FDDEI. On July 15, 2020, the Treasury
Department and the IRS finalized regu-
lations under section 250, which provide
that the deduction under section 172(a) is
not taken into account in computing FD-
DEI. See §1.250(b)-1(d)(2)(ii). There-
fore, the comment is moot. However, a
sentence is added to the final regulations
at §1.861-8(e)(8)(i) to clarify that in
determining the component parts of an
NOL, deductions that are considered ab-
sorbed in the year the loss arose for pur-
poses of an operative section may differ
from the deductions that are considered
absorbed for purposes of another provi-
sion of the Code that requires determin-
ing the components of an NOL. There-
fore, for example, a taxpayer’s NOL may
comprise excess deductions allocated to
foreign source general category income
for purposes of section 904, even though
for purposes of section 172(b)(1)(B)(ii)
the NOL is a farming loss comprising ex-
cess deductions allocated to U.S. source
income from farming.
4. Application of the Exempt Income/
Asset Rule to Insurance Companies in
Connection with Certain Dividends and
Tax-exempt Interest
The 2019 FTC proposed regulations
clarified in proposed §1.861-8(d)(2)(ii)
(B), (d)(2)(v), and (e)(16) the effect of
certain deduction limitations on the treat-
ment of income and assets generating div-
idends-received deductions and tax-ex-
empt interest held by insurance companies
for purposes of allocating and apportion-
ing deductions to such income and assets.
Specifically, the 2019 FTC proposed reg-
ulations provided that in the case of insur-
ance companies, exempt income includes
dividends for which a deduction is pro-
vided by sections 243(a)(1) and (2) and
245, without regard to the proration rules
under section 805(a)(4)(A)(ii) disallowing
a portion of the deduction attributable to
the policyholder’s share of the dividends
or any similar disallowance under section
805(a)(4)(D). Similarly, the regulations
provided that the term exempt income in-
cludes tax-exempt interest without regard
to the proration rules.
One comment requested that the final
regulations modify §1.861-8T(d)(2) to
permit insurance companies to adjust the
amount of income and assets that are ex-
empted in apportioning deductions. The
comment asserted that such adjustment is
required in order to reflect the addition of
section 864(e)(7)(E) and relied on legis-
lative history to a provision in proposed
technical corrections legislation (Techni-
cal Corrections Act of 1987, H.R. 2636,
100
th
Cong., section 112(g)(6)(A)) (June
10, 1987)) (the “1987 bill”) to suggest that
Congress intended to create a different re-
sult for insurance companies than for oth-
er companies.
The 1987 bill, however, was not en-
acted, and the language in section 864(e)
(7)(E) is not the same as the language
proposed in the bill. Section 864(e)(7)
(E) provides regulatory authority for the
Secretary to issue regulations regarding
any adjustments that may be appropriate
in applying section 864(e)(3) to insur-
ance companies. The legislative history
to section 864(e)(7)(E) (which was en-
acted in 1988) does not contain the same
language as did the committee reports
from the 1987 bill, and the rule that was
proposed in the 1987 bill is contrary to
subsequent case law. See Travelers In-
surance Company v. United States, 303
F.3d 1373 (2002). Therefore, the Trea-
sury Department and the IRS have con-
cluded that although section 864(e)(7)(E)
provides regulatory authority for a rule
applying section 864(e)(3) to insurance
companies, there is no indication that
Congress intended for Treasury to adopt
a rule mirroring the rule in the 1987 bill
(which Congress did not enact).
Section 864(e)(3) is clear that exempt
income includes income for which a de-
duction is allowed under sections 243
and 245, and no exception is provided in
the statute for insurance companies. Fur-
thermore, as explained in Part I.A.4 of
the Explanation of Provisions in the 2019
FTC proposed regulations, a special rule
for either tax-exempt interest of a life in-
surance company or dividends-received
deductions and tax-exempt interest of
a nonlife insurance company is not ap-
propriate because when a policyhold-
er’s share or applicable percentage is
accounted for as either a reserve adjust-
ment or a reduction to losses incurred,
no further modification to the generally
applicable rules is required to ensure that
the appropriate amount of expenses are
apportioned to U.S. source income. In-
stead, the rule suggested by the comment
would inappropriately distort the alloca-
tion and apportionment of deductions to
U.S. source income. Therefore, the com-
ment is not adopted.

November 30, 2020 1146 Bulletin No. 2020–49
5. Treatment of the Section 250
Deduction
One comment requested clarification
on the allocation and apportionment of
the deduction allowed under section 250
(“section 250 deduction”) with respect to
members of a consolidated group. In gen-
eral, under §1.1502-50(b), a consolidated
group member’s section 250 deduction is
determined based on the member’s share
of the sum of all members’ positive FD-
DEI or GILTI. Separate from this deter-
mination under §1.1502-50(b), a taxpayer
must also allocate and apportion the sec-
tion 250 deduction to gross income for
purposes of determining its foreign tax
credit limitation. For this purpose, in al-
locating and apportioning the section 250
deduction to statutory and residual group-
ings, under §1.861-8(e)(13) the portion of
the section 250 deduction attributable to
FDII is treated as definitely related and
allocable to the specific class of gross
income that is included in the taxpayer’s
FDDEI and then apportioned between the
statutory and residual groupings based on
the relative amounts of FDDEI in each
grouping. In the context of an affiliated
group, under §1.861-14T(c)(1) expenses
are generally allocated and apportioned by
treating all members of an affiliated group
as if they were a single corporation.
In response to the comment requesting
clarity on the allocation and apportion-
ment of the section 250 deduction with
respect to members of a consolidated
group, the final regulations provide that
the section 250 deduction is allocated and
apportioned as if all members of the con-
solidated group are treated as a single cor-
poration. See §1.861-14(e)(4). However,
in the case of an affiliated group that is not
a consolidated group, the section 250 de-
duction of a member of an affiliated group
is allocated and apportioned on a separate
entity basis under the rules of §1.861-8(e)
(13) and (14).
6. Other Requests for Comments on
Expense Allocation
The preamble to the 2019 FTC pro-
posed regulations requested comments
on whether future regulations should al-
low taxpayers to capitalize and amortize
certain expenses solely for purposes of
the rules in §1.861-9 for allocating and
apportioning interest expense in order to
better reflect asset values under the tax
book value method. One comment was re-
ceived recommending that such a rule be
included with respect to R&E and adver-
tising expenditures. The Treasury Depart-
ment and the IRS agree with this comment
and, accordingly, this rule is included in
a notice of proposed rulemaking in the
Proposed Rules section of this issue of
the Federal Register (the “the 2020 FTC
proposed regulations”). See Part V.A of
the Explanation of Provisions in the 2020
FTC proposed regulations.
One comment requested that a special
rule be adopted in §1.861-10T to directly
allocate certain interest expense related to
regulated utility companies. The Treasury
Department and the IRS agree that a spe-
cial rule is warranted, and have included
a rule in the 2020 FTC proposed regula-
tions. See Part V.B. of the Explanation of
Provisions in the 2020 FTC proposed reg-
ulations.
Finally, the preamble to the 2019 FTC
proposed regulations requested comments
on whether the rules in §1.861-8(e)(6)
for allocating and apportioning state in-
come taxes should be revised in light of
changes made by the TCJA and changes to
state rules for taxing foreign income. One
comment was received requesting that the
existing rules, which rely on state law to
determine the income to which state taxes
relate, be retained. The Treasury Depart-
ment and the IRS agree that no changes
to the rules in §1.861-8(e)(6) are required
at this time.
7. Examples Illustrating Allocation and
Apportionment of Certain Expenses of an
Affiliated Group of Corporations
Examples 1 through 6 in §1.861-14T(j)
apply the temporary regulations to fact
patterns involving affiliated groups of
corporations. However, Examples 1 and 4
of §1.861-14T(j) are no longer consistent
with current law, and therefore the final
regulations append an informational foot-
note to §1.861-14T(j) to reflect this fact.
The Treasury Department and the IRS are
also studying whether the remaining ex-
amples should be modified and whether
new examples should be included in fu-
ture guidance.
B. Partnership transactions
The 2019 FTC proposed regulations
revised §§1.861-9(b) and 1.954-2(h)(2)
(i) to provide that guaranteed payments
for the use of capital described in section
707(c) are treated similarly to interest de-
ductions for purposes of allocating and
apportioning deductions under §§1.861-8
through 1.861-14, and are treated as in-
come equivalent to interest under section
954(c)(1)(E). These rules were intended to
prevent the use of guaranteed payments to
avoid the rules under §§1.861-9(e)(8) and
1.954-2(h) that apply to partnership debt.
One comment stated that while guar-
anteed payments for capital are econom-
ically similar to interest payments in
some respects, guaranteed payments are,
for Federal income tax purposes, pay-
ments with respect to equity, not debt,
and regulations issued under section 707
narrowly circumscribe the situations in
which a guaranteed payment is treated as
something other than a distributive share
of partnership income. The comment rec-
ommended that guaranteed payments for
capital be treated as interest only in cases
when the taxpayer harbors an abusive mo-
tive to circumvent the relevant rule.
The Treasury Department and the IRS
have determined that guaranteed pay-
ments for the use of capital share many
of the characteristics of interest payments
that a partnership would make to a lend-
er and, therefore, should be treated as
interest equivalents for purposes of allo-
cating and apportioning deductions under
§§1.861-8 through 1.861-14 and as in-
come equivalent to interest under section
954(c)(1)(E). This treatment is consistent
with other sections of the Code in which
guaranteed payments for the use of cap-
ital are treated similarly to interest. See,
for example, §§1.469-2(e)(2)(ii) and
1.263A-9(c)(2)(iii). In addition, the fact
that a guaranteed payment for the use of
capital may be treated as a payment at-
tributable to equity under section 707(c),
or that a guaranteed payment for the use
of capital is not explicitly included in the
definition of interest in §1.163(j)-1(b)(22),
does not preclude applying the same allo-
cation and apportionment rules that apply
to interest expense attributable to debt, nor
does it preclude treating such payments
as “equivalent” to interest under section

Bulletin No. 2020–49 1147 November 30, 2020
954(c)(1)(E). Instead, the relevant statuto-
ry provisions under sections 861 and 864,
and section 954(c)(1)(E), are clear that the
rules can apply to amounts that are similar
to interest.
Finally, a rule that would require de-
termining whether the transaction had an
abusive motive would be difficult to ad-
minister. Therefore, the comment is not
adopted.
C. Treatment of section 818(f) expenses
for consolidated groups
Section 818(f)(1) provides that a life
insurance company’s deduction for life
insurance reserves and certain other de-
ductions (“section 818(f) expenses”) are
treated as items which cannot definitely
be allocated to an item or class of gross
income. When the life insurance compa-
ny is a member of an affiliated group of
corporations, proposed §1.861-14(h)(1)
provided that section 818(f) expenses are
allocated and apportioned on a separate
company basis.
One comment argued that the separate
company approach was inconsistent with
the general rule in section 864(e)(6) that
expenses other than interest that are not
directly allocable or apportioned to any
specific income-producing activity are al-
located and apportioned as if all members
of the affiliated group were a single cor-
poration. The comment also argued that
the separate company approach would
encourage consolidated groups to use in-
tercompany transactions, such as related
party reinsurance arrangements, to shift
their section 818(f) expenses and achieve
a more desirable foreign tax credit result.
The comment advocated that the regu-
lations instead adopt a single entity ap-
proach for life insurance companies that
operate businesses and manage assets and
liabilities on a group basis (a “life sub-
group” approach).
In contrast, another comment argued
that the separate company approach ad-
opted in the proposed regulations was
consistent with the fact that life insurance
companies are regulated with respect to
their reserves, investable assets, and cap-
ital. The comment, however, acknowl-
edged that a life subgroup approach may
be appropriate in certain cases, such as
when an affiliated group of life insurance
companies manages similar products on a
cross-entity, product-line basis, rather than
on an entity-by-entity basis. The comment
recommended that final regulations pro-
vide a one-time election for taxpayers to
choose either the separate company or life
subgroup approach for allocating and ap-
portioning section 818(f) expenses.
The Treasury Department and the IRS
agree that there are merits and drawbacks
to both the separate company and the life
subgroup approaches and that a one-time
election, as suggested by the comments,
should be considered. Therefore, the fi-
nal regulations at §1.861-14(h) do not
include the separate company rule for sec-
tion 818(f) expenses. The 2020 FTC pro-
posed regulations instead propose a life
subgroup approach as well as a one-time
election for taxpayers to choose the sepa-
rate company approach.
D. Allocation and apportionment of R&E
expenditures
The 2019 FTC proposed regulations
proposed several changes to §1.861-17,
including eliminating the gross income
method of apportionment, eliminating
the legally-mandated R&E rule, and lim-
iting the class of income to which R&E
expenditures could be allocated to gross
intangible income reasonably connected
with a relevant Standard Industrial Code
(SIC) category. In addition, the rule for
exclusive apportionment of R&E expen-
ditures was modified by eliminating the
possibility of increased exclusive appor-
tionment based on taxpayer-specific facts
and circumstances, and by providing that
exclusive apportionment applies solely for
purposes of section 904.
1. Scope of Gross Intangible Income
Before being revised, §1.861-17(a)
provided that R&E expenditures are re-
lated to all income reasonably connected
to a broad line of business or SIC code
category. The 2019 FTC proposed regula-
tions narrowed and clarified the class of
gross income to which R&E expenditures
are considered to relate. The 2019 FTC
proposed regulations defined the relevant
class of gross income as gross intangible
income (“GII”), which is defined as all
income attributable, in whole or in part,
to intangible property, including sales or
leases of products or services derived, in
whole or in part, from intangible property,
income from sales of intangible property,
income from platform contribution trans-
actions, royalty income, and amounts tak-
en into account under section 367(d) by
reason of a transfer of intangible proper-
ty. GII does not include dividends or any
amounts included in income under section
951, 951A, or 1293.
One comment disagreed with the ex-
clusion from GII of section 951A inclu-
sions. According to this comment, R&E
expenditures ultimately benefit foreign
subsidiaries such that allocation to in-
come described in section 904(d)(1)(A)
(the “section 951A category”) is appro-
priate and should not be treated differ-
ently from other taxpayer expenses that
reduce income in the section 951A cat-
egory. Other comments generally sup-
ported the exclusion of GILTI and oth-
er income inclusions from GII on the
grounds that a taxpayer incurring R&E
expenditures to develop intangible prop-
erty should be fully compensated for the
value of that intellectual property and,
conversely, the earnings of CFCs should
not reflect returns on intellectual property
owned by another person.
The Treasury Department and the IRS
have determined that GII should contin-
ue to exclude GILTI or other inclusions
attributable to ownership of stock in a
CFC. As described in §1.861-17(b), R&E
expenditures, whether or not ultimately
successful, are incurred to produce intan-
gible property. Under the rules of sections
367(d) and 482, the person incurring the
R&E expenditures must be compensat-
ed at arm’s length when such intangible
property is licensed, sold, or otherwise
gives rise to income of controlled parties,
and it is this income that gives rise to GII.
In transactions not involving the direct
transfer of intangible property to a related
party, the section 482 regulations require
compensation for the intangible property
embedded in the underlying transaction.
See generally §1.482-1(d)(3)(v). For ex-
ample, §1.482-3(f) requires that intangible
property embedded in tangible property be
accounted for when determining the arm’s
length price for the transaction. Similarly,
§1.482-9(m) requires that intangible prop-
erty used in a controlled services transac-

November 30, 2020 1148 Bulletin No. 2020–49
tion be accounted for in determining the
arm’s length price for the transaction.
In contrast to R&E expenditures giving
rise to income required by sections 367(d)
and 482, subpart F or GILTI inclusions re-
flect income earned by a CFC and not the
taxpayer incurring the R&E expenditures;
the fact that such taxpayer is deemed un-
der section 951 or 951A to have income
through an inclusion from a CFC licens-
ee does not mean that such income is a
result of the R&E expenditures incurred
by the taxpayer, assuming that the CFC
pays the taxpayer an arm’s length price
for the transfer of the intangible property
or, in the case of an exchange described in
sections 351 or 361, the taxpayer reports
the required annual income inclusion.
2

Therefore, including income in the section
951A category in GII would result in a
mismatch between the R&E expenditures
and the income generated by such expen-
ditures. Although (as noted in a comment)
R&E expenditures that are ultimately un-
successful could be viewed as intended to
benefit a taxpayer’s foreign subsidiaries
more broadly, the Treasury Department
and the IRS have determined that the GII
earned by the taxpayer provides a reason-
able proxy for how the taxpayer expects
to recover its R&E costs, and providing
separate rules for identifying and attrib-
uting unsuccessful R&E expenditures to a
broader class of income would be unduly
burdensome for taxpayers and difficult for
the IRS to administer.
Several comments noted that while in-
come in the section 951A category is ex-
cluded from GII, income giving rise to for-
eign-derived intangible income (“FDII”)
is included in GII. These comments gen-
erally argued that the exclusion from GII
of income in the section 951A category
and inclusion of amounts included in FDII
created a lack of parity between the two
provisions even though the methodology
and calculations of both are meant to be
similar.
The Treasury Department and the IRS
disagree with these comments. The allo-
cation and apportionment of R&E expen-
ditures to separate categories for purposes
of section 904 as the operative section and
the allocation and apportionment of R&E
expenditures to FDDEI for purposes of
section 250 as the operative section both
require identifying the class of income to
which the R&E expenditures are attrib-
utable. R&E expenditures incurred by a
United States shareholder (“U.S. share-
holder”) are not allocated and apportioned
to income in the section 951A category
because such income, which relates to an
inclusion of income earned by the CFC,
is not a return on the U.S. shareholder’s
R&E expenditures and, thus, is not includ-
ed in gross intangible income. In contrast,
income giving rise to FDII is earned di-
rectly by the same taxpayer that incurs
R&E expenditures and may include a re-
turn on those R&E expenditures. Income
that gives rise to FDII is reduced by “the
deductions (including taxes) properly al-
locable to such gross income.” See section
250(b)(3)(A)(ii) and §1.250(b)-1(d)(2).
There is no indication that Congress in-
tended to exclude R&E expenditures from
that calculation. Furthermore, because
expenses incurred by a CFC are allocat-
ed and apportioned to income of the CFC
for purposes of computing tested income
under section 951A(c)(2)(A)(ii), contrary
to the suggestion in the comments, R&E
expenditures of the CFC are in fact allo-
cated and apportioned to tested income
under §1.861-17 and reduce the ultimate
amount of the taxpayer’s GILTI inclusion.
Accordingly, the comment is not adopted.
One comment requested modifications
to the definition of GII to exclude both
acquired intangible property and income
from certain platform contribution trans-
actions described in §1.482-7(b)(1)(ii).
According to the comment, income from
these items should be excluded from GII
because a taxpayer’s R&E expenditures
could not relate to gross income from
intangible property acquired from a dif-
ferent taxpayer (as opposed to developed
by the taxpayer), or to gross income from
certain platform contributions.
The Treasury Department and the IRS
have determined that the comment does not
accurately describe the premise on which
the R&E allocation and apportionment
rules are based. R&E expenditures are not
reasonably expected to produce any current
income in the taxable year in which the
expenditures are incurred, and as the reg-
ulations explicitly recognize, the results of
R&E expenditures are speculative. Accord-
ingly, R&E expenditures are allocated to a
class of currently recognized gross income
only because it generally will be the best
available proxy for the income that the cur-
rent expense is reasonably expected to pro-
duce in the future. Specifically, although
current R&E expense of a taxpayer likely
does not directly contribute to gross intan-
gible income currently recognized, it is rea-
sonable to expect that R&E will contribute
to GII earned by the taxpayer group in the
future. The definition of GII is not intend-
ed to require a strict factual connection be-
tween the R&E expenditure and GII earned
in the taxable year, but merely that the ex-
penditures be “reasonably connected” with
a class of income. The Treasury Depart-
ment and the IRS have also determined that
requiring the comment’s suggested level of
explicit factual connection between R&E
expenditures and GII would outweigh the
administrative benefit and ease of broadly
defining GII. Moreover, in cases in which
a taxpayer has a valid cost sharing agree-
ment, even though R&E expenditures may
be allocated to PCT payments, those ex-
penses are generally apportioned based on
sales by the taxpayer or other entities rea-
sonably expected to benefit from current
research and experimentation. This ensures
that R&E expenditures offset the categories
of income included in GII that are expected
to benefit from those expenditures. Accord-
ingly, the comment is not adopted.
One comment requested clarification of
the definition of GII and specifically that the
final regulations provide that the services
income included in GII does not include
gross income allocated to or from a foreign
branch under §1.904-4(f)(2)(vi) by reason
of a disregarded payment for services per-
formed by or for the foreign branch that
contribute to earning GII of the taxpayer.
Under §1.904-4(f)(2)(vi)(B), a disre-
garded payment from a foreign branch
2
To assist in determining an arm’s length price in related party transactions, section 14221 of the TCJA and related technical corrections in the 2018 Consolidated Appropriations Act amended
sections 482 and 367(d) to clarify the methods that may be applied to determine the value of intangible property and that the definition of intangible property includes workforce, goodwill
and going concern value, or other items the value or potential value of which is not attributable to tangible property or the services of any individual. To the extent the comment reflects a
concern that arm’s length compensation for intangible property has not always been paid under sections 367(d) and 482, the comment raises issues beyond the scope of this rulemaking.

Bulletin No. 2020–49 1149 November 30, 2020
owner to its foreign branch to compensate
the foreign branch for the provision of con-
tract R&E services that, if regarded, would
be allocable to general category gross in-
tangible income attributable to the for-
eign branch owner under the principles of
§§1.861-8 through 1.861-17, would cause
the general category GII attributable to the
foreign branch owner to be adjusted down-
ward and the GII attributable to the foreign
branch and included in foreign branch cat-
egory income to be adjusted upward. Al-
though a disregarded payment for R&E ser-
vices does not give rise to gross income for
Federal income tax purposes and so does
not in and of itself constitute GII, to the
extent the disregarded payment results in
the reattribution of regarded gross income
that is GII from the general category to the
foreign branch category (or vice versa),
that income is treated as GII in the foreign
branch category (or the general category).
The final regulations at §1.861-17(b)(2)
clarify that although GII does not include
disregarded payments, certain disregarded
payments that would be allocable to GII if
regarded may result in the reassignment of
GII from the general category to the for-
eign branch category or vice versa. Part
II.D.6 of this Summary of Comments and
Explanation of Revisions further describes
comments regarding R&E expenditures
and foreign branches.
One comment sought clarification re-
garding the portion of product sales de-
rived from intangible property that would
be considered GII. The final regulations at
§1.861-17(b)(2) clarify that GII includes
the full amount of gross income from sales
or leases of products or services, if the in-
come is derived in whole or in part from
intangible property. Under the definition
of GII, there is no bifurcation or splitting
of sales income between a portion attrib-
utable to intangible property and other
amounts such as distribution or market-
ing functions. Additionally, the definition
of GII has been modified to more clearly
delineate between amounts from sales or
leases of products derived from intangible
property versus sales or licenses of intan-
gible property itself.
2. Allocation of R&E Expenditures
One comment requested modifications
to the general rule that allocates R&E ex-
penditures to GII that is reasonably con-
nected with one or more relevant SIC
code categories. The comment noted that
in some cases, taxpayers are restricted by
law or contract from exploiting research,
with the result that the research would
only generate income in a particular stat-
utory grouping after several years from
the date of the contract. Accordingly, the
comment requested that such R&E ex-
penditures be allocated to the statutory or
residual grouping of income within GII
that corresponds to the market restrictions
on the use of the R&E. Alternatively, the
comment requested that taxpayers be pro-
vided with the option to allocate R&E
expenditures in a manner consistent with
the taxpayer’s books and records to the
extent there is a clear factual relationship
between the expenditures and a particular
category of income.
The Treasury Department and the IRS
have determined that it is inappropriate to
provide exceptions to the general rule that
R&E expenditures are allocated to GII
reasonably connected with one or more
relevant SIC code categories. The two ap-
proaches suggested by the comment are
premised on a goal of seeking to “trace”
R&E expenditures to the actual income
that they are expected to produce in the fu-
ture. However, as discussed in Part II.D.1
of this Summary of Comments and Expla-
nation of Revisions, R&E expenditures
are not reasonably expected to produce
any current income in the taxable year in
which the expenditures are incurred, and
the regulations recognize that the results
of R&E expenditures are speculative. In-
stead, §1.861-17 relies on the use of cur-
rent year sales as a proxy for the income
that the expenses are reasonably expected
to produce in the future, in recognition of
the fact that it is difficult to ascertain the
composition of future income that would
be generated from R&E expenditures.
This approach generally already takes into
account the types of market or legal re-
strictions described by the comment — to
the extent that a taxpayer’s sales of prod-
ucts in the same SIC code category are
generally restricted to a particular market,
these restrictions will be reflected in its
sales and therefore are already taken into
account under the sales method provided
in proposed §1.861-17. Moreover, rules
that specially allocate particular R&E ex-
penditures based on the reasonableness
of speculative expectations about sales
that may or may not actually arise several
years in the future would be very difficult
for taxpayers to comply with and for the
IRS to administer.
Finally, allowing taxpayers to elect the
use of a books-and-records method to al-
locate R&E expenditures to less than all of
a taxpayer’s GII would lead to inappropri-
ate results, as taxpayers would only elect
such option if the additional information
reflected in the taxpayer’s books and re-
cords improved the tax result; in contrast,
the IRS would not have any such informa-
tion available to it if the taxpayer chose
not to make the election. Since this infor-
mation would generally be in the form of
predictions about future income streams,
an elective books-and-records rule would
create administrability concerns for the
IRS, which would have substantial diffi-
culty verifying whether the predictions
were reasonable. Accordingly, the com-
ments are not adopted.
One comment recommended that the
Treasury Department and the IRS re-
consider the elimination of the “legally
mandated R&E” rule from the 2019 FTC
proposed regulations, noting that the rule
seemed to be required by section 864(g)
(1)(A). As explained in the preamble to
the 2019 FTC proposed regulations, the
legally mandated R&E rule was eliminat-
ed in light of changes to the international
business environment and to simplify the
regulations, and the comment does not
argue the change is inappropriate. Addi-
tionally, the comment misstates the ap-
plication of section 864(g)(1)(A), which
is not applicable to the taxable years to
which the final regulations apply. See sec-
tion 864(g)(6). Accordingly, the comment
is not adopted.
One comment sought clarification on
the allocation of R&E expenditures where
research is conducted with respect to more
than one SIC code category. The comment
noted that the current final regulations at
§1.861-17(a)(2)(iii) mention two digit
SIC code categories, or Major Groups in
the terminology of the SIC Manual, yet
the 2019 FTC proposed regulations omit-
ted references to two digit SIC codes.
The Treasury Department and the IRS
have determined that it is appropriate to
aggregate some or all three digit SIC cat-

November 30, 2020 1150 Bulletin No. 2020–49
egories within the same Major Group, but
it is inappropriate to aggregate any three
digit SIC categories within different Ma-
jor Groups. While R&E expenditures are
speculative, it is not reasonable to ex-
pect R&E conducted for one broad line
of business to benefit an unrelated line
of business and, therefore, the allocation
and apportionment of expenses should
not be determined by aggregating differ-
ent Major Groups. For example, if a tax-
payer engages in both the manufacturing
and assembling of cars and trucks (SIC
code 371) it may aggregate that category
with another three digit category in Major
Group 37, which includes six other three
digit categories (for example, aircraft and
parts (SIC code 372) or railroad equip-
ment (SIC code 374)), but taxpayers may
not aggregate a three digit SIC code from a
Major Group with another three digit SIC
code from a different Major Group, except
as provided in §1.861-17(b)(3)(iv) (re-
quiring aggregation of R&E expenditures
related to sales-related activities with the
most closely related three digit SIC code,
other than those within the wholesale and
retail trade divisions, if the taxpayer con-
ducts material non-sales-related activities
with respect to a particular SIC code). The
final regulations are modified accordingly.
3. Exclusive Apportionment of R&E
Expenditures
i. Computation of FDII
Several comments argued that if the
Treasury Department and the IRS deter-
mine that GII should include amounts
giving rise to FDII, then the rule in
the 2019 FTC proposed regulations in
§1.861-17(c), which limits exclusive ap-
portionment of R&E expenditures solely
for purposes of applying section 904 as
the operative section, should be revised
to also allow for exclusive apportionment
for purposes of calculating a taxpayer’s
FDII deduction. The comments generally
argued that the exclusive apportionment
provision be applied such that 50 percent
of a taxpayer’s R&E expenditures should
be apportioned to income that is not for-
eign derived deduction eligible income
(“FDDEI”) provided that at least 50 per-
cent of the taxpayer’s research activities
are conducted in the United States. Com-
ments argued that such an exclusive ap-
portionment rule would encourage R&E
activity in the United States, consistent
with the general intent of the TCJA to
eliminate tax incentives for shifting activ-
ity and intellectual property overseas. Ad-
ditionally, comments asserted that R&E
expenditures provide greater value to the
location where R&E is performed and that
there is a technology “lag” before success-
ful products are exported to foreign mar-
kets.
The Treasury Department and the IRS
have determined that it is not appropriate
to apply an exclusive apportionment rule
for purposes of computing FDII. As dis-
cussed in Part II.D.1 of this Summary of
Comments and Explanation of Revisions,
R&E expenditures are not reasonably ex-
pected to produce any current income in
the taxable year in which the expenditures
are incurred, and the regulations explicitly
recognize that the results of R&E expen-
ditures are speculative. Furthermore, to
the extent there is consistently a “lag” be-
fore a taxpayer’s successful products are
exported to foreign markets, then such lag
should generally be reflected in current
year sales of newly successful products
(which relate to R&E incurred in prior
taxable years) being weighted towards
domestic markets. Therefore, the rules’
use of current year sales as a proxy for
the income that the expense is reasonably
expected to produce in the future already
takes into account to some extent the po-
tential for a “lag” between exploiting in-
tangible property in the domestic market
versus foreign markets.
In addition, the Treasury Department
and the IRS have determined that nothing
in the text of the TCJA or its legislative
history suggests that Congress intend-
ed that existing rules on allocation and
apportionment of R&E expenditures be
modified in a way to create particular in-
centives. Section 250(b)(3) requires deter-
mining the deductions that are “properly
allocable” to deduction eligible income,
and §1.250(b)-1(d)(2) confirms that the
general rules under §1.861-17 apply for
purposes of allocating and apportioning
R&E expenditures to deduction eligible
income and FDDEI. Nothing in the stat-
ute or legislative history suggests that any
alternative allocation and apportionment
rule should apply. Furthermore, adopting
an R&E allocation and apportionment
rule solely for purposes of increasing the
amount of the FDII deduction to incen-
tivize R&E activity (whether or not such
expenditures were “properly” allocable
to non-FDDEI income) would be incon-
sistent with the United States’ position,
including as stated in forums such as the
OECD’s Forum on Harmful Tax Practic-
es, that the FDII regime is not intended to
provide a tax inducement to shifting ac-
tivities or income, but is intended to neu-
tralize the effect of providing a lower U.S.
effective tax rate with respect to the active
earnings of a CFC of a domestic corpora-
tion (through a deduction for GILTI) by
also providing a lower effective U.S. tax
rate with respect to FDII earned directly
by the domestic corporation. Such pari-
ty is generally furthered by ensuring that
R&E expenditures incurred by a domestic
corporation are allocated and apportioned
to FDII in the same manner as R&E ex-
penditures incurred by a CFC are allocat-
ed and apportioned to tested income that
gives rise to GILTI.
Therefore, the final regulations pro-
vide that the exclusive apportionment rule
is limited to section 904 as the operative
section.
ii. Increased exclusive apportionment
Two comments recommended rein-
stating the rule allowing for an increased
exclusive apportionment of R&E expen-
ditures. Under the increased exclusive
apportionment rule, a taxpayer may es-
tablish to the satisfaction of the Com-
missioner that an even greater amount of
R&E expenditures should be exclusively
apportioned. One comment indicated that
there may be circumstances where an
even greater amount of R&E expenditures
should be apportioned, such as following
the termination of a cost sharing arrange-
ment (“CSA”). Another comment pointed
out that the 2019 FTC proposed regula-
tions reduce taxpayer options by eliminat-
ing both increased exclusive apportion-
ment and the gross income method.
The Treasury Department and the IRS
have determined that a rule allowing for
increased exclusive apportionment is not
warranted. The facts and circumstances
nature of the determination that would
be required and the potential for disputes

Bulletin No. 2020–49 1151 November 30, 2020
outweigh the benefits of affording taxpay-
ers additional flexibility in rare or unusual
cases. Additionally, to the extent that there
is a tendency to exploit intellectual prop-
erty in the same market where the tax-
payer conducts R&E, this will already be
reflected in current sales, as those in part
reflect the results of recently-developed
intellectual property. Accordingly, this
comment is not adopted.
iii. Mandatory application of exclusive
apportionment
Two comments generally objected to
the required application of exclusive ap-
portionment for purposes of section 904.
According to the comments, in certain
situations where a taxpayer has insuffi-
cient domestic source gross income to
absorb the apportioned R&E expendi-
tures, the resulting overall domestic loss
(“ODL”) would reduce foreign source
income in each separate category de-
scribed in §1.904-5(a)(4)(v), including
the section 951A and foreign branch cat-
egories, reducing the taxpayer’s ability to
claim foreign tax credits. The comments
recommended that taxpayers either be
allowed to elect out of exclusive appor-
tionment or alternatively that it be ap-
plied in an amount less than 50 percent
of the taxpayer’s R&E expenditures. One
comment alternatively recommended a
modification to the ODL and R&E ex-
penditure rules such that the majority of
the amounts otherwise subjected to ex-
clusive apportionment would instead be
allocated to income in the general cate-
gory rather than the section 951A or for-
eign branch categories.
The TCJA did not modify the operation
of section 904(f) or (g) with respect to the
section 951A or foreign branch categories,
nor is there any indication in the TCJA or
legislative history that Congress intended
the rules under section 904(f) and (g), or
the allocation and apportionment rules
under section 861, to apply differently in
connection with section 951A or foreign
branch category income. To the extent an
ODL account is created as the result of a
domestic loss offsetting foreign source in-
come in the section 951A or foreign branch
category under section 904(f)(5)(D), this
reduction is reversed in later years through
the recapture provisions in section 904(g)
(3), when U.S. source income is rechar-
acterized as foreign source income in the
separate categories that were offset by the
ODL. Additionally, the Treasury Depart-
ment and the IRS have determined that
the consistent application of the exclusive
apportionment rule for purposes of section
904 promotes simplicity and certainty,
whereas an optional rule would be more
difficult to administer. Accordingly, these
comments are not adopted.
4. Elimination of the Gross Income
Method
Several comments requested that the
gross income method for apportioning
R&E expenditures be retained. In gener-
al, these comments recommended allow-
ing taxpayers to choose either the gross
income method or the sales method rath-
er than being required to utilize only the
sales method, including by allowing tax-
payers to choose one method for certain
operative sections and another method
for other operative sections. Some com-
ments asserted that the mandatory use of
the sales method would inappropriately
allocate and apportion more R&E expen-
ditures to FDDEI than under the gross
income method in cases where U.S. tax-
payers license their intellectual property
for foreign use but sell products directly
to U.S. customers. One comment argued
that the sales method could be distortive
in certain situations where a taxpayer
licenses its intellectual property to enti-
ties whose sales are at least partially at-
tributable to self-developed intellectual
property. Another comment argued that
where a taxpayer’s primary type of GII is
royalty income, it will be difficult to ap-
portion R&E based on sales numbers and
that therefore the gross income method
should be maintained.
The Treasury Department and the IRS
have determined that, on balance, the
sales method results in substantially fewer
distortions than the gross income meth-
od. Before being modified by these final
regulations, taxpayers were permitted to
apportion R&E expenditures under either
a gross income or sales method. The Ex-
planation of Provisions in the 2019 FTC
proposed regulations explained that the
gross income method could produce inap-
propriate, distortive results in certain cas-
es. In particular, distortions could arise be-
cause the gross income method looks only
to gross income earned directly by the
taxpayer. Gross income that is earned by
the taxpayer and that is attributable to one
grouping (such as U.S. source income)
may reflect value unrelated to intangible
property, for example gross income from
sales that reflect value from marketing
or distribution activities of the taxpayer,
whereas gross income of such taxpayer
that is attributable to another grouping
(such as foreign source income) may ex-
clude such non-IP related value due, for
example, to the fact that such gross income
is earned solely from licensing intangible
property to a related party without the per-
formance of any marketing or distribution
activities. The distortions arise both be-
cause gross income reflects a reduction of
gross receipts for cost of goods sold but
not for related deductible expenses, and
also because the gross income method
does not distinguish between gross in-
come earned from customers (for which
the gross income generally captures all of
the value related to the product or service
arising from the IP) versus from related
parties (for which gross income generally
only captures an intermediate portion of
the value of the relevant product or ser-
vice, which will generally be enhanced by
the related party).
In contrast, the sales method provides
a consistent, reliable method with fewer
distortions than the gross income method.
In particular, the sales method focuses on
the gross receipts from sales of a product
to final customers. This approach is more
likely to achieve consistent results in the
case of the same or similar final products,
and thereby allows for a consistent com-
parison of value derived from intangible
property with respect to each grouping.
That is the case regardless of whether the
taxpayer chooses to license its intangible
property to other persons (including relat-
ed parties) for purposes of manufacturing
final products, or the taxpayer manufac-
tures products itself, and regardless of
whether other persons enhance the prod-
uct with additional value attributable to
other intangible property. Therefore, the
sales method ensures that differences in
supply chain structures do not alter the
nature of how R&E expenditures are allo-
cated and apportioned.

November 30, 2020 1152 Bulletin No. 2020–49
Alternatively, some comments rec-
ommended modifying the gross income
method. One comment recommended
modifying the gross income method to
more accurately match income to related
R&E expenditures by using only gross
income that is attributable to the intan-
gible property owned by the taxpayer.
However, the Treasury Department and
the IRS have determined that it would
lead to complexity for taxpayers and ad-
ministrative burdens for the IRS to seek
to accurately determine the share of gross
income that is attributable to intangible
property when the intangible property is
embedded in a final product. In addition,
such a rule would be unlikely to result
in significantly different results than un-
der the sales method, because the ratio
of gross income among groupings that is
attributable solely to intangible property
is likely to be broadly similar to the ratio
of gross receipts from sales within those
groupings, since the intangible component
of gross income from sales is likely to be
determined as a fraction of gross receipts,
and such fraction would generally be the
same for each grouping.
One comment argued that the gross
income method must be included in the
final regulations because it is statutorily
required under section 864(g)(1). Howev-
er, section 864(g) is not applicable to the
taxable years covered by the final regu-
lations. See section 864(g)(6). Therefore,
the comment is not adopted.
Finally, one comment recommended
allowing taxpayers to use the gross in-
come method if using the sales method
would otherwise cause the taxpayer to
have an ODL. The Treasury Department
and the IRS have determined that it would
be inappropriate to allow for the targeted
application of a method solely for the pur-
pose of avoiding the ODL rules, which are
statutorily mandated. The regulations un-
der section 861, including §1.861-17, are
premised on associating deductions in as
accurate and reasonable a manner as pos-
sible with the income to which such de-
ductions relate. It is inconsistent with this
overall policy of relating deductions to the
relevant income to revise the regulations
under section 861 simply to achieve a spe-
cific result under an operative section. Ac-
cordingly, the final regulations eliminate
the gross income method.
5. Application of Sales Method
The 2019 FTC proposed regulations
retained the rule in the prior final regula-
tions which provides that for apportion-
ment purposes, the sales method includes
certain gross receipts of related and unre-
lated entities that are reasonably expected
to benefit from the taxpayer’s R&E expen-
ditures, but does not include the receipts
of entities that have entered into a valid
CSA with the taxpayer. The 2019 FTC
proposed regulations made limited chang-
es to the sales method as it existed under
the prior final regulations.
One comment requested guidance on
the application of the sales method in the
context of foreign branch category in-
come; this comment is discussed in Part
II.D.6 of this Summary of Comments and
Explanation of Revisions.
Two comments asked for a modifica-
tion to the treatment of controlled enti-
ties that terminate an existing CSA with
a taxpayer. Under the sales method, gross
receipts from sales of products or the
provision of services within a relevant
SIC code category by controlled parties
of the taxpayer are taken into account
when apportioning the taxpayer’s R&E
expenditures if the controlled party is
reasonably expected to benefit from the
taxpayer’s research and experimentation.
Under proposed §1.861-17(d)(4)(iv), the
sales of controlled parties that enter into
a valid CSA with a taxpayer are general-
ly excluded from the apportionment for-
mula because the controlled party is not
expected to benefit from the taxpayer’s
R&E expenditures. The comments ar-
gued that when a CSA is terminated and
a taxpayer licenses newly-developed in-
tangibles to a controlled party, all gross
receipts from the controlled party are
included in the apportionment formula,
even though for some post-termination
period the controlled party may benefit
more from intangibles created by its own
R&E expenditures incurred under the pre-
viously-existing CSA rather than from the
newly-developed and licensed intangi-
bles. The comments recommended vary-
ing adjustments, including rules specific
to CSA terminations or alternatively more
generalized adjustments such as the reten-
tion of the increased exclusive apportion-
ment rule or the gross income method.
The Treasury Department and the IRS
disagree with the comments’ character-
ization of §1.861-17 as seeking directly
to match R&E expenditures with the in-
come that such expenditures generate.
According to the comments, following a
CSA termination with a controlled party,
a taxpayer’s current R&E expenditures
should not offset the controlled party’s
royalty payment to the taxpayer because
the controlled party’s gross receipts would
be attributable to the intangibles funded
by the controlled party during the period
the CSA existed. This assertion assumes
that current sales are used to apportion
R&E expenditures because they result
from a taxpayer’s current or recent re-
search and, therefore, it is inappropriate
to include gross receipts attributable to
the research of a different taxpayer. The
regulations, however, are based in part
on the acknowledgement that R&E is a
speculative, forward-looking activity that
often does not result in income or sales in
the current year, or even in future years.
As discussed in Part II.D.2 of this Sum-
mary of Comments and Explanation of
Revisions, current sales are nevertheless
used because they generally will be the
best available proxy for the income R&E
expenditures are expected to produce in
future years. Accordingly, once a CSA is
terminated, it is appropriate to include the
sales of a controlled party that previous-
ly participated in a CSA if that controlled
party is reasonably expected to benefit
from the taxpayer’s current R&E expen-
ditures to generate future sales. Addition-
ally, the Treasury Department and the IRS
have determined that attempting to distin-
guish between the sales attributable to the
controlled party’s intangible property and
those attributable to intangible property li-
censed from the taxpayer is generally dif-
ficult and uncertain and may often lead to
disputes, making such a rule difficult for
taxpayers to comply with and burdensome
for the IRS to administer. Because those
concerns also exist when a taxpayer and a
controlled party enter into a CSA, the final
regulations also do not adopt comments
requesting such a rule in that context. Fur-
thermore, the Treasury Department and
the IRS have determined that the tax con-
sequences of terminating a CSA may vary
depending on the facts and circumstances
and are considering whether it would be

Bulletin No. 2020–49 1153 November 30, 2020
appropriate to provide special rules for
these transactions, and thus it would not
be appropriate to provide special rules
in connection with §1.861-17 until these
transactions have undergone further study.
Therefore, the comments are not adopted.
Finally, several comments request-
ed a modification to the rule in proposed
§1.861-17(d)(3) and (4) providing that if a
taxpayer has previously licensed, sold, or
transferred intangible property related to
a SIC code category to a controlled or un-
controlled party, then the taxpayer is pre-
sumed to expect to do so with respect to
all future intangible property related to the
same SIC code category. The comments
argued that the 2019 FTC proposed reg-
ulations’ use of the term “presumption”
suggested that taxpayers would be unable
to rebut the presumption in appropriate
cases. In response to the comments, the fi-
nal regulations clarify that taxpayers may
rebut the presumption by demonstrating
that prior exploitation of the taxpayer’s
intangible property is inconsistent with
reasonable future expectations.
In addition, the final regulations make
other revisions to the sales method. First,
the final regulations specify under what
circumstances the sales or services of un-
controlled or controlled parties are taken
into account. In particular, the final regu-
lations specify that the gross receipts are
taken into account if the uncontrolled or
controlled party is expected to acquire
(through license, sale, or transfer) intan-
gible property arising from the taxpay-
er’s current R&E expenditures, products
in which such intangible property is em-
bedded or used in connection with the
manufacture or sale of such products, or
services that incorporate or benefit from
such intangible property. Second, the final
regulations revise §1.861-17(d)(4) to refer
to sales by controlled parties (which is de-
fined as any person that is related to the
taxpayer)), rather than controlled corpo-
rations, to clarify that, for example, sales
made by a controlled partnership that is
reasonably expected to license intangible
property from the taxpayer are fully taken
into account under the sales method. Fi-
nally, the final regulations revise §1.861-
17(f)(3) to provide that if a partnership
incurs R&E expenditures (and is not also
an uncontrolled party or controlled party
described in §1.861-17(d)(3) or (4)) and
makes related sales, then those sales are
considered made by the partners in pro-
portion to their distributive shares of gross
income attributable to the sales.
6. Foreign Branch Category Income and
R&E Expenditures
Two comments addressed the interac-
tion of §1.861-17 and foreign branch cat-
egory income. One comment requested
that a portion of sales earned by a foreign
branch should be attributed to the gen-
eral category for purposes of apportion-
ing R&E expenditures in circumstances
where a foreign branch utilizes intellectu-
al property of the foreign branch owner to
earn GII and pays a disregarded royalty to
its U.S. owner. Under §1.904-4(f)(2)(vi)
(A), the amount of foreign branch catego-
ry income would be adjusted downward
and the foreign branch owner’s general
category income would be adjusted up-
ward by the amount of the disregarded
royalty. According to the comment, after
exclusive apportionment (as applicable),
the 2019 FTC proposed regulations would
apportion entirely to foreign branch cate-
gory income the remaining R&E expense,
which should instead be apportioned to
the general category income originally at-
tributable to the GII of the foreign branch
that was reassigned by reason of the disre-
garded royalty.
The Treasury Department and the IRS
have determined that the 2019 FTC pro-
posed regulations, in combination with
§1.904-4(f)(2)(vi), already operate in the
manner requested by the comment. Under
proposed §1.861-17(d)(1)(iii), gross re-
ceipts are assigned to the statutory group-
ing (or groupings) or residual grouping to
which the GII related to the sale, lease,
or service is assigned. Adjustments to the
amounts of gross income attributable to a
foreign branch by reason of disregarded
payments change the separate category
grouping to which the gross income is as-
signed, but do not change the total amount,
character, or source of a United States
person’s gross income. See §1.904-4(f)(2)
(vi)(A). After application of §1.904-4(f)
(2)(vi), GII related to the foreign branch’s
sales is assigned to the general category
in the amount of the disregarded royalty
payment, and only the balance of the GII
is assigned to the foreign branch catego-
ry. Accordingly, a proportionate amount
of the gross receipts from sales made by
the foreign branch to which a disregarded
royalty payment would be allocable is as-
signed to the general and foreign branch
categories in the same ratio as the disre-
garded royalty payment bears to the gross
income attributable to the sales. The final
regulations in §1.861-17(d)(1)(iii) clar-
ify that the assignment of gross receipts
occurs after gross income in the separate
categories is adjusted under §1.904-4(f)
(2)(vi) and clarify through an example the
formula used to reassign gross receipts as
a result of a disregarded reallocation trans-
action. See §1.861-17(g)(6) (Example 6).
The second comment requested chang-
es to the treatment of foreign branches
that provide contract R&E services for
the benefit of the foreign branch owner.
According to the comment, when dis-
regarded payments made by the foreign
branch owner in respect of the provision
of contract R&E services by a foreign
branch cause GII to be reallocated to the
foreign branch, R&E expenditures in-
curred by the foreign branch owner may
be apportioned to foreign branch catego-
ry income in a manner inconsistent with
the economics of the branch’s activities
as a services provider, creating disparate
tax results compared to those that would
obtain if the services were performed by
a CFC. The comment suggested that the
foreign branch’s regarded costs of provid-
ing the research services that give rise to
the disregarded payment from the foreign
branch owner should reduce the amount
of GII that was assigned to the foreign
branch category, or more generally that
GII should not be assigned to the foreign
branch category by reason of disregarded
payments for research services.
The Treasury Department and the IRS
agree that R&E expenditures, includ-
ing deductible expenses for the foreign
branch’s costs in providing research ser-
vices to the foreign branch owner, may
be apportioned to foreign branch catego-
ry income that is GII, including GII that
is treated as attributable to the foreign
branch category under §1.904-4(f)(2)(vi)
by reason of disregarded payments from
the foreign branch owner compensating
the foreign branch for its research ser-
vices that will generate GII for the foreign
branch owner, and that the apportionment

November 30, 2020 1154 Bulletin No. 2020–49
is based upon gross receipts assigned to
the statutory groupings. However, as not-
ed in §1.904-4(f)(2)(vi)(A), the reattribu-
tion of gross income between the general
and foreign branch categories by reason of
disregarded payments cannot change the
character of a taxpayer’s realized gross
income. The Treasury Department and
the IRS have determined that the differ-
ent characterization of services income
earned by a CFC, which may not be GII,
and sales income reflecting GII that is at-
tributed to a foreign branch by reason of
disregarded payments for services, results
from the Federal income tax treatment of
disregarded payments, which do not give
rise to gross income, and that it is not ap-
propriate effectively to override the char-
acterization of gross income by modifying
the rules for allocating and apportioning
recognized R&E expenditures. Accord-
ingly, the comment is not adopted.
7. Contract Research Arrangements
In the Explanation of Provisions in the
2019 FTC proposed regulations, the Trea-
sury Department and the IRS requested
comments on whether contract research
arrangements involving expenditures that
are reimbursed by a foreign affiliate are
generally paid or incurred by a U.S. tax-
payer such that a deduction under section
174 would be allowable for such expen-
ditures, and whether any special rules for
such arrangements should be considered.
Generally, the comments received stated
that where contract research is performed
in the United States and is connected with
a U.S.-based multinational’s trade or busi-
ness, a deduction under section 174, rather
than section 162, may be appropriate.
The Treasury Department and the IRS
have determined that it is beyond the
scope of the final regulations to determine
whether contract research expenses are, or
are not, eligible to be deducted under ei-
ther section 162 or 174.
8. Amended Returns and Applicability
Dates
One comment requested clarification
of the applicability date provisions of the
§1.861-17 portion of the 2019 FTC pro-
posed regulations. The comment noted
that it was unclear whether a taxpayer
that originally elected to apply the gross
income method on its 2018 tax return
would be eligible to amend its 2018 tax
return to apply the sales method. The 2019
FTC final regulations included a provision
addressing the binding election contained
in former §1.861-17(e)(1). Under this pro-
vision, as modified in the 2019 FTC final
regulations at §1.861-17(e)(3), taxpayers
otherwise subject to the binding election
were permitted to change their election.
On May 15, 2020, correcting amendments
to the 2019 FTC final regulations were is-
sued in 85 FR 29323. These amendments
make clear that the change in method can
occur on an original or an amended re-
turn. See also Part VII of this Summary of
Comments and Explanation of Revisions
for a discussion of the ability for taxpayers
to rely on the proposed or final versions
of §1.861-17 for taxable years before the
years in which the final regulations are
applicable. Accordingly, changes to the
applicability date provisions are not nec-
essary in response to this comment.
Finally, one comment requested that
the applicability of the regulations under
section 250 be deferred until after §1.861-
17 is finalized. Because the applicability
of the regulations under section 250 has
been deferred until taxable years begin-
ning on or after January 1, 2021, which
is consistent with the applicability date
of §1.861-17, the comment is moot. See
§1.250-1(b).
E. Application of section 904(b) to net
operating losses
Proposed §1.904(b)-3(d)(2) contained
a coordination rule providing that for
purposes of determining the source and
separate category of a net operating loss,
the separate limitation loss and overall
foreign loss rules of section 904(f) and
the overall domestic loss rules of section
904(g) are applied without taking into ac-
count the adjustments required under sec-
tion 904(b). No comments were received
on this provision, which is finalized with-
out change.
One comment requested that the final
regulations include a rule switching off
the application of section 904(b)(4) with
respect to pre-2018 U.S. source NOLs that
offset foreign source income and created
ODL accounts in pre-2018 taxable years,
because in certain cases the increase in
the denominator of the foreign tax cred-
it limitation fraction required by section
904(b)(4) could limit the utilization of
foreign tax credits that would otherwise
be allowed by reason of the recapture of
the ODL.
Nothing in section 904(b)(4) allows for
the rule to be applied differently in cas-
es when a taxpayer recaptures a pre-2018
ODL versus a post-2017 ODL or has no
ODL recapture at all. Instead, the adjust-
ments required by section 904(b)(4) apply
in all taxable years beginning after 2017.
Therefore, the comment is not adopted.
III. Conduit Financing Rules Under
§1.881-3 to Address Hybrid Instruments
A. Overview
The conduit financing regulations in
§1.881-3 allow the IRS to disregard the
participation of one or more intermedi-
ate entities in a “financing arrangement”
where such entities are acting as conduit
entities, and to recharacterize the financ-
ing arrangement as a transaction directly
between the remaining parties for purpos-
es of imposing tax under sections 871,
881, 1441 and 1442. In general,

a financ-
ing arrangement exists when through a se-
ries of transactions one person advances
money or other property (the financing
entity), another person receives money or
other property (the financed entity), the
advance and receipt are effected through
one or more other persons (intermediate
entities), and there are “financing trans-
actions” linking each of those parties. See
§1.881-3(a)(2)(i). An instrument that for
U.S. tax purposes is stock (or a similar
interest, such as an interest in a partner-
ship) is not a financing transaction under
the existing conduit financing regulations,
unless it is “redeemable equity” or is oth-
erwise described in §1.881-3(a)(2)(ii)(B)
(1).
The 2020 hybrids proposed regulations
expanded the definition of a financing
transaction, such that an instrument that
for U.S. tax purposes is stock or a simi-
lar interest is a financing transaction if:
(i) under the tax law of a foreign country
where the issuer is a tax resident or has
a taxable presence, such as a permanent
establishment, the issuer is allowed a de-

Bulletin No. 2020–49 1155 November 30, 2020
duction or another tax benefit, including
a deduction with respect to equity, for an
amount paid, accrued, or distributed with
respect to the instrument; or (ii) under the
issuer’s tax laws, a person related to the
issuer is entitled to a refund, including a
credit, or similar tax benefit for taxes paid
by the issuer upon a payment, accrual,
or distribution with respect to the equity
interest and without regard to the related
person’s tax liability in the issuer’s ju-
risdiction. See proposed §1.881-3(a)(2)
(ii)(B)(1)(iv) and (v). The 2020 hybrids
proposed regulations relating to conduit
financing arrangements were proposed to
apply to payments made on or after the
date that final regulations are published in
the Federal Register.
B. Scope of instruments treated as
financing transactions
A comment agreed that a financing
transaction should include an instrument
that is stock or a similar interest for U.S.
tax purposes but debt under the tax law of
the issuer’s country because, according to
the comment, cases of potential conduit
abuse are likely to involve “classic” hy-
brid instruments not covered by the types
of equity described in §1.881-3(a)(2)(ii)
(B)(1). However, the comment recom-
mended that an instrument that is equity
for purposes of both U.S. tax law and the
issuer’s tax law not be treated as a financ-
ing transaction, except in limited circum-
stances, such as if the instrument is issued
by a special purpose company formed to
facilitate the avoidance of tax under sec-
tion 881 and the instrument gives rise to
a notional deduction or a refund or credit
to a related person. According to the com-
ment, the proposed rule that treated an in-
strument that is equity for both U.S. and
foreign tax purposes as a financing trans-
action was overbroad – as it could deem an
operating company to have entered into a
financing transaction simply because for-
eign tax law provides for notional interest
deductions or a similar regime of general
applicability – or was unclear or vague in
certain cases.
If the final regulations were to retain
the proposed rules treating other types of
equity instruments as financing transac-
tions, the comment requested several clar-
ifications, modifications, and limitations
with respect to the rules. These included:
(i) treating an instrument that is equity in
a partnership for U.S. tax purposes and
under the issuer’s tax law as a financing
transaction only if the partnership is a hy-
brid entity that claims treaty benefits; (ii)
either eliminating or clarifying the rule
providing that an instrument can be a fi-
nancing transaction by reason of gener-
ating tax benefits in a jurisdiction where
the issuer has a permanent establishment;
and (iii) modifying the applicability date
for payments under existing financing ar-
rangements.
Consistent with the comment, the fi-
nal regulations adopt without substantive
change the rule that included as a financ-
ing transaction an instrument that is stock
or a similar interest (including an interest
in a partnership) for U.S. tax purposes
but debt under the tax law of the country
of which the issuer is a tax resident. See
§1.881-3(a)(2)(ii)(B)(1)(iv). In addition,
the final regulations provide that if the is-
suer is not a tax resident of any country,
such as an entity treated as a partnership
under foreign tax law, the instrument is
a financing transaction if the instrument
is debt under the tax law of the country
where the issuer is created, organized, or
otherwise established. See id.
The final regulations do not include the
rules under the 2020 hybrids proposed reg-
ulations that treated as a financing transac-
tion an instrument that is stock or a similar
interest for U.S. tax purposes but gives rise
to notional interest deductions or other tax
benefits (such as a deduction or credit al-
lowed to a related person) under foreign tax
law. The Treasury Department and the IRS
plan to finalize those rules separately, in or-
der to allow additional time to consider the
comments received. In addition, the Trea-
sury Department and the IRS are continu-
ing to study instruments that generate tax
benefits in the jurisdiction where the issuer
has a permanent establishment and may ad-
dress these instruments in future guidance.
IV. Foreign Tax Credit Limitation Under
Section 904
A. Definition of financial services entity
In order to promote simplification and
greater consistency with other Code provi-
sions that have complementary policy ob-
jectives, §1.904-4(e)(2) of the 2019 FTC
proposed regulations proposed to define a
financial services entity as an individual or
a corporation “predominantly engaged in
the active conduct of a banking, insurance,
financing, or similar business,” and pro-
posed to define financial services income
as “income derived in the active conduct of
a banking, insurance, financing, or similar
business.” These modified definitions are
generally consistent with sections 954(h),
1297(b)(2)(B), and 953(e); the 2019 FTC
proposed regulations also included conform-
ing changes to the rules for affiliated groups
in proposed §1.904-4(e)(2)(ii) and partner-
ships in proposed §1.904-4(e)(2)(i)(C).
Comments stated that the 2019 FTC
proposed regulations increased uncertain-
ty and resulted in the disqualification of
certain banks or insurance companies that
would qualify as financial services entities
under the existing final regulations. Com-
ments also suggested that it was inappropri-
ate to seek to align the relevant definitions
in section 904 with those in section 954
because of the differing policies and scope
of the two rules. Comments suggested vari-
ous modifications to more closely align the
revisions with the existing approach under
§1.904-4(e), or in the alternative, with-
drawing the proposed rules entirely.
The Treasury Department and the IRS
have determined that revisions to the fi-
nancial services entity rules in §1.904-
4(e) continue to be necessary in light of
statutory changes made in 2004 (under
the American Jobs Creation Act of 2004,
Pub. L. 108-357) and the changes to the
look-through rules in §1.904-5 in the 2019
FTC final regulations, which were precip-
itated by the revisions to section 904(d)
under the TCJA. However, the Treasury
Department and the IRS have determined
the changes to §1.904-4(e) should be re-
proposed to allow further opportunity for
comment. Therefore, the 2020 FTC pro-
posed regulations contain new proposed
regulations under §1.904-4(e), as well as a
delayed applicability date. See Part IX.B.
of the Explanation of Provisions in the
2020 FTC proposed regulations.
B. Allocation and apportionment of
foreign income taxes
Proposed §1.861-20 provided detailed
guidance on how to match foreign income

November 30, 2020 1156 Bulletin No. 2020–49
taxes with income, particularly in the case
of differences in how U.S. and foreign law
compute taxable income with respect to
the same transactions. Proposed §1.861-
20(c) provided that foreign tax expense
is allocated and apportioned among the
statutory and residual groupings by first
assigning the items of gross income under
foreign law (“foreign gross income”) on
which a foreign tax is imposed to a group-
ing, then allocating and apportioning de-
ductions under foreign law to that income,
and finally allocating and apportioning the
foreign tax among the groupings. See pro-
posed §1.861-20(c).
Proposed §1.861-20(d)(2)(ii)(B) pro-
vided that if a taxpayer recognizes an item
of foreign gross income that is attributable
to a base difference, then the item of for-
eign gross income is assigned to the resid-
ual grouping, with the result that no credit
is allowed if the tax on that item is paid by
a CFC. The proposed regulations provided
an exclusive list of items that are excluded
from U.S. gross income and that, if tax-
able under foreign law, are treated as base
differences.
Several comments requested that dis-
tributions described in sections 301(c)
(2) and 733, representing nontaxable re-
turns of capital, be removed from the list
of base differences on the grounds that
foreign tax on such distributions is more
likely to result from timing differences.
Some comments argued that the foreign
law characterization of the distribution
should govern the determination of the
income group to which the foreign tax is
allocated. Other comments suggested that
foreign tax on return of capital distribu-
tions should be associated with passive
category capital gains, because by reduc-
ing basis such distributions may increase
the amount of capital gain recognized for
U.S. tax purposes in the future.
The purpose of the rules in §1.861-
20, as well as §1.904-6, is to allocate and
apportion foreign income taxes to group-
ings of income determined under Federal
income tax law, and the final regulations
at §1.861-20(d)(1), consistent with the
approach in former §1.904-6, provide that
Federal income tax law applies to charac-
terize foreign gross income and assign it
to a grouping. Characterizing items solely
based on foreign law, with no compari-
son to the U.S. tax base, would altogeth-
er eliminate base differences, which are
expressly referenced in section 904(d)(2)
(H)(i).
However, the Treasury Department
and the IRS have determined that in most
cases, a foreign tax imposed on distribu-
tions described in sections 301(c)(2) and
733 is likely to represent tax on earnings
and profits of the distributing entity that
are accounted for at different times under
U.S. and foreign tax law, such as earnings
of a hybrid partnership, earnings that are
accelerated and subsequently eliminated
for U.S. tax purposes by reason of a sec-
tion 338 election, or earnings and profits
of lower-tier entities, rather than tax on
amounts that are permanently excluded
from the U.S. tax base. Although in some
cases involving net basis foreign income
taxes imposed at the shareholder level,
distributions described in sections 301(c)
(2) and 733 may reflect a timing difference
in the recognition of unrealized gain with
respect to the equity of the distributing en-
tity, the Treasury Department and the IRS
have determined that these situations are
less likely to occur than timing differenc-
es in the recognition of earnings subject
to withholding taxes because of the prev-
alence of foreign participation exemption
regimes. Moreover, treating the foreign
tax on distributions as representing a tim-
ing difference on earnings and profits of
the distributing entity is more consistent
with the general approach in the Code and
regulations to the treatment of distribu-
tions as representing a tax on the earnings
(see, for example, sections 904(d)(3) and
(4), and 960(b)) and with treating gain on
stock sales as related in part to earnings
and profits (see section 1248(a)).
Therefore, these distributions are re-
moved from the list of base differences,
and the final regulations at §1.861-20(d)
(3)(ii)(B)(2) generally associate a foreign
law dividend that gives rise to a return of
capital distribution under section 301(c)
(2) with hypothetical earnings of the dis-
tributing corporation, measured based on
the groupings to which the tax book value
of the corporation’s stock is assigned un-
der the asset method in §1.861-9. Similar
rules are included in the 2020 FTC pro-
posed regulations for partnership distribu-
tions described in section 733.
The Treasury Department and the IRS
have determined that similar rules should
apply in appropriate cases to associate a
portion of foreign tax imposed on an item
of foreign gross income constituting gain
recognized on the sale or other disposition
of stock in a corporation or a partnership
interest with amounts that constitute non-
taxable basis recovery for U.S. tax pur-
poses. Such similar treatment is appropri-
ate to minimize differences in the foreign
tax credit consequences of a sale or a dis-
tribution in redemption of the taxpayer’s
interest. Proposed rules on the allocation
of foreign income tax on such dispositions
are included in the 2020 FTC proposed
regulations.
Proposed §1.861-20 addressed the as-
signment to statutory and residual group-
ings of foreign gross income arising from
disregarded payments between a foreign
branch (as defined in §1.904-4(f)(3)) and
its owner. If the foreign gross income
item arises from a payment made by a
foreign branch to its owner, proposed
§1.861-20(d)(3)(ii)(A) generally assigned
the item by deeming the payment to be
made ratably out of the foreign branch’s
accumulated after-tax income, calcu-
lated based on the tax book value of the
branch’s assets in each grouping. If the
item of foreign gross income arises from
a disregarded payment to a foreign branch
from its owner, proposed §1.861-20(d)(3)
(ii)(B) generally assigned the item to the
residual grouping, with the result that any
taxes imposed on the disregarded payment
would be allocated and apportioned to the
residual grouping as well. In addition,
proposed §1.904-6(b)(2) included spe-
cial rules assigning foreign gross income
items arising from certain disregarded
payments for purposes of applying section
904 as the operative section.
Several comments asserted that for-
eign tax on disregarded payments from a
foreign branch owner to a foreign branch
should not be allocated and apportioned
to the residual grouping, which results in
an effective denial of foreign tax credits
in the case of a branch of a CFC, because
items of foreign gross income that arise
from disregarded payments of items such
as interest or royalties should give rise to
creditable foreign income taxes despite
being nontaxable for Federal income tax
purposes. Some comments recommended
adopting a tracing regime similar to the
rules in §1.904-4(f) to trace foreign gross

Bulletin No. 2020–49 1157 November 30, 2020
income that a taxpayer includes by reason
of a disregarded payment to current year
income of the payor for purposes of de-
termining the grouping to which tax on
the disregarded payment is allocated and
apportioned. Comments also requested
that the final regulations clarify whether
the rule for remittances or contributions
applies in the case of payments between
two foreign branches.
The Treasury Department and the IRS
generally agree with the comments that
rules similar to the rules in §1.904-4(f)
should apply under §1.861-20 to trace
foreign gross income that a taxpayer in-
cludes by reason of a disregarded payment
to the current year income of the payor to
which the disregarded payment would be
allocable if regarded for U.S. tax purpos-
es. However, in order to provide taxpayers
additional opportunity to comment, the
final regulations reserve on the alloca-
tion and apportionment of foreign tax on
disregarded payments, and new proposed
rules are contained in the 2020 FTC pro-
posed regulations. See Part V.F.4 of the
Explanation of Provisions in the 2020
FTC proposed regulations. Similarly, the
special rules in proposed §1.904-6(b)(2)
for assigning foreign gross income items
arising from certain disregarded payments
for purposes of applying section 904 as
the operative section are reproposed in the
2020 FTC proposed regulations. The oth-
er special rules in proposed §1.861-20(d)
(3) for allocating foreign tax in connection
with a taxpayer’s investment in a corpo-
ration or a disregarded entity are reorga-
nized, and some of the definitions in pro-
posed §1.861-20(b) are correspondingly
revised, in the final regulations to group
the rules on the basis of how the entity
is classified, and whether the transaction
giving rise to the item of foreign gross
income results in the recognition of gross
income or loss, for U.S. tax purposes. The
rule in proposed §1.904-6(b)(3) relating to
dispositions of property resulting in cer-
tain disregarded reallocation transactions
is removed and reproposed as part of pro-
posed §1.861-20 as contained in the 2020
FTC proposed regulations.
Finally, one comment requested that
§§1.904-1 and 1.904-6 clarify that the
tax allocation rules apply to taxes paid to
United States territories, which are gener-
ally treated as foreign countries for pur-
poses of the foreign tax credit. The final
regulations clarify this point by including
a cross reference to §1.901-2(g), which
defines a foreign country to include the
territories. See §1.861-20(b)(6).
V. Foreign Tax Redeterminations Under
Section 905(c) and Penalty Provisions
Under Section 6689
Portions of the temporary regulations
relating to sections 905(c), 986(a), and
6689 (TD 9362) (the ‘‘2007 temporary
regulations’’) were reproposed in order to
provide taxpayers an additional opportu-
nity to comment on those rules in light of
the changes made by the TCJA. In partic-
ular, the rules in the 2007 temporary reg-
ulations that were reproposed in the 2019
FTC proposed regulations were: (1) pro-
posed §1.905-3(b)(2), which addressed
foreign taxes deemed paid under section
960, (2) proposed §1.905-4, which in gen-
eral provided the procedural rules for how
to notify the IRS of a foreign tax redeter-
mination, and (3) proposed §301.6689-1,
which provided rules for the penalty for
failure to notify the IRS of a foreign tax
redetermination. In addition, the 2019
FTC proposed regulations contained a
transition rule in proposed §§1.905-3(b)
(2)(iv) and 1.905-5 to address foreign tax
redeterminations of foreign corporations
that relate to taxable years that predated
the amendments made by the TCJA.
A. Adjustments to foreign taxes paid by
foreign corporations
One comment requested clarification
on whether multiple payments to foreign
tax authorities under a single assessment
(for example, payments to stop the run-
ning of interest and penalties) each result
in a foreign tax redetermination under sec-
tion 905(c).
Under §1.905-3(a) of the 2019 FTC fi-
nal regulations, each payment of tax that
has accrued in a later year in excess of the
amount originally accrued results in a sep-
arate foreign tax redetermination. How-
ever, the 2019 FTC proposed regulations
at §1.905-4(b)(1)(iv), which is finalized
without change, only required one amend-
ed return for each affected prior year to re-
flect all foreign tax redeterminations that
occur in the same taxable year. In the case
of payments that are made across multi-
ple taxable years, §1.905-4(b)(1)(iv) of
the final regulations also provides that,
if more than one foreign tax redetermi-
nation requires a redetermination of U.S.
tax liability for the same affected year and
those redeterminations occur within the
same taxable year or within two consec-
utive taxable years, the taxpayer may file
for the affected year one amended return
and one statement under §1.905-4(c) with
respect to all of the redeterminations. Oth-
erwise, separate amended returns for each
affected year are required to reflect each
foreign tax redetermination. Accordingly,
no changes are made in response to this
comment.
The comment also requested that the
Treasury Department and the IRS clarify
whether contested taxes that are paid be-
fore the contest is resolved are considered
to accrue for foreign tax credit purposes
when paid or whether they represent an
advance payment against a future liability
that does not accrue until the final liability
is determined. Proposed rules addressing
this issue are included in the 2020 FTC
proposed regulations. See Part X.D.3 of
the Explanation of Provisions in the 2020
FTC proposed regulations.
B. Deductions for foreign income taxes
One comment requested clarification
on whether the general rules under section
905(c) apply to taxpayers who elect to
take a deduction, rather than a credit, for
creditable foreign taxes in the prior year
to which the adjusted taxes relate. Addi-
tionally, the comment requested that the
Treasury Department and the IRS clarify
whether the ten-year statute of limitations
under section 6511(d)(3)(A) applies to re-
fund claims based on such deductions.
In the case of a U.S. taxpayer that di-
rectly pays or accrues foreign income
taxes, no U.S. tax redetermination is re-
quired in the case of a foreign tax rede-
termination of such taxes if the taxpayer
did not claim a foreign tax credit in the
taxable year to which such taxes relate.
See §1.905-3(b)(1) (a redetermination of
U.S. tax liability is required with respect
to foreign income tax claimed as a credit
under section 901). However, in the case
of a U.S. shareholder of a CFC that pays
or accrues foreign income tax, proposed

November 30, 2020 1158 Bulletin No. 2020–49
§1.905-3(b)(2)(i) and (ii), which are final-
ized without substantive change, provided
that a redetermination of U.S. tax liability
is required to account for the effect of a
foreign tax redetermination even in situa-
tions in which the foreign tax credit is not
changed, such as for purposes of comput-
ing earnings and profits or applying the
high-tax exception described in section
954(b)(4), including in the case of a U.S.
shareholder that chooses to deduct foreign
income taxes rather than to claim a foreign
tax credit. Additional guidance addressing
the accrual rules for creditable foreign tax-
es that are deducted or claimed as a credit
is included in §1.461-4(g)(6)(B)(iii) and
in the 2020 FTC proposed regulations.
The question of whether section
6511(d)(3)(A) applies to refunds relating
to foreign taxes that are deducted, instead
of taken as a foreign tax credit, is beyond
the scope of this rulemaking. See, how-
ever, Trusted Media Brands, Inc. v. Unit-
ed States, 899 F.3d 175 (2d. Cir. 2018)
(holding that section 6511(d)(3)(A) only
applies to refund claims based on foreign
tax credits). In addition, the 2020 FTC
proposed regulations include proposed
amendments to the regulations under sec-
tion 901(a), which provides that an elec-
tion to claim foreign income taxes as a
credit for a particular taxable year may
be made or changed at any time before
the expiration of the period prescribed
for claiming a refund of U.S. tax for that
year. See Part X.B.2 of the Explanation
of Provisions in the 2020 FTC proposed
regulations.
C. Application to GILTI high-tax
exclusion
Proposed §1.905-3(b)(2)(ii) provided
that the required adjustments to U.S. tax
liability by reason of a foreign tax rede-
termination of a foreign corporation in-
clude not only adjustments to the amount
of foreign taxes deemed paid and related
section 78 dividend, but also adjustments
to the foreign corporation’s income and
earnings and profits and the amount of the
U.S. shareholder’s inclusions under sec-
tions 951 and 951A in the year to which
the redetermined foreign tax relates.
One comment requested that final reg-
ulations clarify whether a U.S. tax rede-
termination is required when the foreign
tax redetermination affects whether the
taxpayer is eligible for the GILTI high-
tax exclusion. Specifically, the comment
stated that because a redetermination of
U.S. tax liability is required when the for-
eign tax redetermination affects whether
a taxpayer is eligible for the subpart F
high-tax election under section 954(b)
(4), a similar result should apply for tax-
payers that make (or seek to make) the
GILTI high-tax exclusion election, and
that taxpayers should be allowed to make
the election on an annual basis. Further,
the comment suggested that if taxpayers
are allowed to make an annual election
under the final GILTI high-tax exclusion
regulations, then taxpayers should be
permitted to make or revoke the election
on an amended return following a foreign
tax redetermination.
Proposed §1.905-3(b)(2)(ii) provided
that the required U.S. tax redetermina-
tion applies for purposes of determining
amounts excluded from a CFC’s gross
tested income under section 951A(c)(2)
(A)(i)(III), and this provision is retained in
the final regulations with minor modifica-
tions. Furthermore, under final regulations
issued on July 23, 2020 (TD 9902, 85 FR
44620), taxpayers may make the GILTI
high-tax exclusion election on an annual
basis and may do so on an amended return
filed within 24 months of the unextended
due date of the original income tax return.
See §1.951A-2(c)(7)(viii)(A)(1)(i).
D. Foreign tax redeterminations of
successor entities
Proposed §1.905-3(b)(3) provided that
if at the time of a foreign tax redetermina-
tion the person with legal liability for the
tax (the ‘‘successor’’) is a different person
than the person that had legal liability for
the tax in the year to which the redeter-
mined tax relates (the ‘‘original taxpay-
er’’), the required redetermination of U.S.
tax liability is made as if the foreign tax
redetermination occurred in the hands of
the original taxpayer. The proposed reg-
ulations further provided that Federal in-
come tax principles apply to determine the
tax consequences if the successor remits,
or receives a refund of, a tax that in the
year to which the redetermined tax relates
was the legal liability of, and thus consid-
ered paid by, the original taxpayer.
One comment suggested that proposed
§1.905-3(b)(3), as drafted, did not clearly
address cases where the ownership of a
disregarded entity changes. The comment
recommended clarifying that in the case
of a disregarded entity, the owner of the
disregarded entity is treated as the person
with legal liability for the tax or the person
with the legal right to a refund, as appli-
cable.
The Treasury Department and the IRS
have determined that no clarification is
necessary. Existing regulations make clear
that the owner of a disregarded entity is
considered to be legally liable for the tax.
See §1.901-2(f)(4)(ii) (legal liability for
income taxes imposed on a disregarded
entity).
The same comment stated that the pre-
amble to the proposed regulations incor-
rectly suggested that under U.S. tax prin-
ciples the payment of tax by a successor
entity owned by the original taxpayer (for
example, by a CFC that was formerly a
disregarded entity) is treated as a distribu-
tion. The comment further recommended
addressing the issue of contingent liabili-
ties in future guidance. The Treasury De-
partment and the IRS agree that there may
be multiple ways to characterize the tax
consequences of tax paid by a successor
in the example described in the preamble
to the proposed regulations. Furthermore,
the Treasury Department and the IRS have
determined that the issue of contingent
foreign tax liabilities in connection with
foreign tax redeterminations under section
905(c) requires further study and may be
considered as part of future guidance.
E. Notification to the IRS of foreign tax
redeterminations and related penalty
provisions
1. Notification Through Amended
Returns
In general, proposed §1.905-4(b)(1)
(i) provided that any taxpayer for which a
redetermination of U.S. tax liability is re-
quired must notify the IRS of the foreign
tax redetermination by filing an amended
return.
Several comments suggested that tax-
payers should be allowed to report adjust-
ments to U.S. tax liability in prior years by
reason of foreign tax redeterminations on

Bulletin No. 2020–49 1159 November 30, 2020
an attachment to their Federal income tax
return for the taxable year in which the re-
determination occurs, instead of requiring
taxpayers to file amended tax returns for
the taxable year in which the adjusted for-
eign tax was claimed as a credit and any
intervening years in which the foreign tax
redetermination affected U.S. tax liabili-
ty. Specifically, comments suggested that
taxpayers could be allowed to file a state-
ment with their return for the taxable year
in which the foreign tax redetermination
occurs notifying the IRS of overpayments
or underpayments of U.S. tax and appli-
cable interest due for prior taxable years
that resulted from the foreign tax redeter-
mination. One comment suggested that
taxpayers could be required to maintain
books and records reflecting all the adjust-
ments that would normally accompany an
amended return, without actually being
required to prepare and file such a return.
Another comment suggested that the IRS
could amend Schedule E on Form 5471 to
include this type of information about the
changes to prior year U.S. tax liabilities
that result from foreign tax redetermina-
tions. Comments noted that providing an
alternative to filing amended Federal in-
come tax returns would relieve taxpayers
from having to file amended state tax re-
turns.
The Treasury Department and the IRS
have determined that, based on exist-
ing processes, the only manner in which
taxpayers can properly notify the IRS of
a change in U.S. tax liability for a prior
taxable year that results from a foreign
tax redetermination is by filing an amend-
ed return reflecting all the necessary U.S.
tax adjustments. In addition, the Treasury
Department and the IRS have determined
that the type of statement suggested by
the comments, reflecting a recomputation
of Federal income tax liability for a pri-
or year, could be viewed by state tax au-
thorities as the functional equivalent of an
amended Federal income tax return that
may not necessarily operate to relieve tax-
payers of their obligations to file amended
state tax returns. In any event, taxpayer
requests for relief from state tax filing ob-
ligations are properly directed to state tax
authorities, rather than to the Treasury De-
partment and the IRS. Therefore, the com-
ments are not adopted. However, the Trea-
sury Department and the IRS continue to
study whether new processes or forms can
be developed to streamline the filing re-
quirements while ensuring that the IRS re-
ceives the necessary information to verify
that taxpayers have made the required ad-
justments to their U.S. tax liability. Under
§1.905-4(b)(3) of the final regulations, the
IRS may prescribe alternative notification
requirements through forms, instructions,
publications, or other guidance.
Comments also suggested that the no-
tification due date should be extended (for
example, to up to three years from the due
date of the original return for the taxable
year in which the foreign tax redetermina-
tion occurred).
The Treasury Department and the IRS
have determined that deferring the due
date of the required amended returns be-
yond the due date (with extensions) of
the return for the year in which the for-
eign tax redetermination occurs would not
substantially reduce compliance burdens
and could be more difficult for the IRS to
administer, because the same filing obli-
gations would be required, though with re-
spect to foreign tax redeterminations that
occurred three years earlier rather than
in the current taxable year. In addition,
taxpayers have an economic incentive to
promptly file amended returns claiming a
refund of U.S. tax in cases where a for-
eign tax redetermination reduces, rath-
er than increases, U.S. tax liability; the
Treasury Department and the IRS have
determined that it is appropriate to require
comparable promptness when a foreign
tax redetermination increases U.S. tax due
in order to permit timely verification of
the required U.S. tax adjustments when
the relevant documentation and personnel
are more readily available. Accordingly,
the comments are not adopted. However,
a transition rule is added at §1.905-4(b)
(6) to give taxpayers an additional year to
file required notifications with respect to
foreign tax redeterminations occurring in
taxable years ending on or after December
16, 2019, and before November 12, 2020.
Comments also requested that the final
regulations provide that for foreign tax
redeterminations below a certain de mi-
nimis threshold (for example, 10 percent
of foreign taxes as originally accrued, or
$5 million), taxpayers should be allowed
to account for the foreign tax redetermi-
nations by making adjustments to current
year taxes and foreign tax credits claimed
in the taxable year in which the foreign tax
redetermination occurs, rather than by ad-
justing U.S. tax liability in the prior year
or years in which the adjusted foreign tax-
es were claimed as a credit. Alternatively,
some comments requested that for foreign
tax redeterminations below a de minimis
or materiality threshold, taxpayers should
be completely relieved of adjusting U.S.
tax liability and from all notification and
amended return requirements.
The Treasury Department and the IRS
have determined that, as amended by the
TCJA, section 905(c) mandates retroac-
tive adjustments to U.S. tax liability when
foreign taxes claimed as credits are rede-
termined. The TCJA repealed section 902
and the regulatory authority at the end of
section 905(c)(1) to prescribe alternative
adjustments to multi-year pools of earn-
ings and taxes of foreign corporations in
lieu of the required adjustments to U.S.
tax liability for the affected years. Re-
characterizing prior year taxes as current
year taxes would have substantive effects
on the amounts of a taxpayer’s GILTI and
subpart F inclusions, the applicable car-
ryover periods for excess credits, the ap-
plicable currency translation conventions,
the amounts of interest owed by or due to
the taxpayer, and the applicable statutes
of limitation for refund or assessment.
Therefore, the comments are not adopted.
Finally, a comment requested that
§1.905-4(b)(1)(ii) be amended to allow a
taxpayer that avails itself of special proce-
dures under Revenue Procedure 94-69 to
notify the IRS of a foreign tax redetermi-
nation when the taxpayer makes a Reve-
nue Procedure 94-69 disclosure during an
audit for the taxable year for which U.S.
tax liability is increased by reason of the
foreign tax redetermination.
In relevant part, Revenue Procedure
94-69 provides special procedures for a
taxpayer in the Large Corporate Compli-
ance program (formerly the Coordinated
Examination Program or Coordinated
Industry Case program) to avoid the po-
tential application of the accuracy-relat-
ed penalty currently described in section
6662. Under Revenue Procedure 94-69, a
taxpayer may file a written statement that
is treated as a qualified amended return
within 15 days after the IRS requests it.
However, Revenue Procedure 94-69 does

November 30, 2020 1160 Bulletin No. 2020–49
not provide any protection for penalties
under section 6689 for failure to file a no-
tice of a foreign tax redetermination, and
it requires a statement that is less detailed
than the notification statement required
under §1.905-4(b)(1)(ii). Further, section
905(c) contemplates that the burden is on
the taxpayer to notify the IRS of a foreign
tax redetermination, whereas Revenue
Procedure 94-69 places the burden on the
IRS to request information. Finally, the
notification requirement under §1.905-
4(b)(1)(ii) affords a taxpayer more time to
satisfy its reporting obligation as opposed
to the 15-day notification requirement in
Revenue Procedure 94-69. Therefore, the
comment is not adopted.
2. Foreign Tax Redeterminations of Pass-
through Entities
Proposed §1.905-4(b)(2) generally
provided that a pass-through entity that
reports creditable foreign income tax to its
partners, shareholders, or beneficiaries is
required to notify the IRS and its partners,
shareholders, or beneficiaries if there is a
foreign tax redetermination with respect
to such foreign income tax. See proposed
§1.905-4(c) for the information required
to be provided with the notification. Ad-
ditionally, proposed §1.905-4(b)(2)(ii)
provided that if a redetermination of U.S.
tax liability would require a partnership
adjustment as defined in §301.6241-1(a)
(6), the partnership must file an adminis-
trative adjustment request (“AAR”) under
section 6227 without regard to the time
restrictions on filing an AAR in section
6227(c). See also §1.6227-1(g).
One comment suggested that S corpo-
rations should be allowed to follow simi-
lar notification procedures as partnerships
that are subject to sections 6221 through
6241 (enacted in §1101 of the Biparti-
san Budget Act of 2015, Pub. L. 114-74
(‘‘BBA’’) and as amended by the Pro-
tecting Americans from Tax Hikes Act of
2015, Pub. L. 114-113, div Q, and by sec-
tions 201 through 207 of the Tax Techni-
cal Corrections Act of 2018, contained in
Title II of Division U of the Consolidated
Appropriations Act of 2018, Pub. L. 115-
141).
By their terms, the BBA rules only ap-
ply to partnerships and not S corporations,
except in the limited circumstance in which
an S corporation is a partner in a partner-
ship subject to the BBA rules. See sections
6226(b)(4) and 6227(b). But in cases where
the S corporation is not a partner in a BBA
partnership that made the election, there is
no provision under BBA or any other provi-
sion of the Code to allow the S corporation
to pay the imputed underpayment on be-
half of its shareholders. Because the statute
does not generally allow for S corporations
to pay imputed underpayments on behalf
of its shareholders, the approach suggested
by the comment is not viable and therefore
the comment is not adopted. However, as
described in Part V.E.1 of this Summary of
Comments and Explanation of Revisions,
the Treasury Department and the IRS con-
tinue to study whether new processes or
forms can be developed to streamline the
amended return requirements, including in
the case of S corporations that report for-
eign tax redeterminations to their share-
holders.
3. Foreign Tax Redeterminations of
LB&I Taxpayers
Proposed §1.905-4(b)(4) provided a
limited alternative notification require-
ment for U.S. taxpayers that are under the
jurisdiction of the IRS’s Large Business &
International (“LB&I”) Division. Under
proposed §1.905-4(b)(4)(i)(B), the alter-
native notification requirement is avail-
able only if certain conditions are met,
including that an amended return reflect-
ing a foreign tax redetermination would
otherwise be due while the return for the
affected taxable year is under examina-
tion, and that the foreign tax redetermina-
tion results in a downward adjustment to
the amount of foreign tax paid or accrued,
or included in the computation of foreign
taxes deemed paid.
Several comments suggested broaden-
ing the scope of proposed §1.905-4(b)(4)
to include upward adjustments to foreign
taxes paid or accrued. The comments also
recommended that the special notification
rules apply when multiple foreign tax re-
determinations involving different foreign
jurisdictions occur in the same taxable
year and result in offsetting adjustments,
for example, if there is an additional pay-
ment of foreign tax in one jurisdiction and
a refund of a comparable amount in anoth-
er jurisdiction.
The proposed regulations limited the
alternative notification requirement to cas-
es where the foreign tax redetermination
results in a downward adjustment to the
amount of foreign taxes paid or accrued
because failure to comply with the noti-
fication requirements exposes taxpayers
to penalties under section 6689 only if the
foreign tax redetermination results in an
underpayment of U.S. tax. As provided in
§1.905-4(b)(1)(iii), if a foreign tax rede-
termination results in an overpayment of
U.S. tax, in order to claim a refund of U.S.
tax the taxpayer must file an amended re-
turn within the period specified in section
6511. See section 6511(d)(3)(A), provid-
ing a special 10-year period of limitations
for refund claims based on foreign tax
credits. However, in unusual circumstanc-
es, an increase in foreign tax liability for a
prior year may result in an underpayment
(rather than an overpayment) of U.S. tax
(for example, if an increase in foreign in-
come tax liability causes a CFC to have a
tested loss or to qualify for the high-tax
exclusion of section 954(b)(4), reduc-
ing the amount of foreign taxes deemed
paid). In addition, in some cases the com-
plexity of the required computations may
make it difficult for taxpayers to identify
easily which particular foreign tax rede-
terminations will ultimately result in an
underpayment of U.S. tax. Accordingly,
the final regulations extend the alterna-
tive notification procedures to cover the
case of any adjustment (whether upward
or downward) of foreign taxes by reason
of a foreign tax redetermination that in-
creases U.S. tax liability, and so would
otherwise require the filing of an amend-
ed return while the affected year of the
LB&I taxpayer is under examination. In
addition, the final regulations provide that
an LB&I taxpayer that has a foreign tax
redetermination that decreases U.S. tax
liability for an affected year that is under
examination may (but is not required to)
notify the examiner of the adjustment in
lieu of filing an amended return to claim a
refund (within the time period provided in
section 6511). However, because section
6511(d)(3) generally allows taxpayers 10
years to seek a U.S. tax refund attributable
to foreign tax credits and the regulations
do not preclude taxpayers from filing such
an amended return before the audit of an
affected year is completed, the IRS may

Bulletin No. 2020–49 1161 November 30, 2020
either accept the alternative notification
or require the taxpayer to file an amend-
ed return. The additional flexibility added
to the final regulations will assure time-
ly notification of, and penalty protection
for taxpayers with respect to, all foreign
tax redeterminations that may increase or
decrease U.S. tax liability for an affected
taxable year, including in the case of off-
setting foreign tax redeterminations that
occur in the same taxable year.
Finally, comments recommended that
examiners should be granted authority to
accept notifications of foreign tax redeter-
minations outside the periods specified in
§1.905-4(b)(4)(ii)(A) through (C) and for
affected taxable years that are not current-
ly under examination. For example, the
comments suggested that the notification
deadline for an LB&I taxpayer should be
extended upon the taxpayer’s request and
at the examiner’s discretion.
The Treasury Department and the IRS
have determined that amended returns re-
flecting additional U.S. tax due should be
timely filed in order to ensure examiners
have sufficient time to take into account any
redetermination of U.S. tax liability without
prolonging the audit. In addition, the spe-
cial notification rules are not extended to
taxpayers that are not currently under ex-
amination. The alternative notification rules
in §1.905-4(b)(4) are predicated on the fact
that the examiner is in the process of deter-
mining whether to propose adjustments to
the items included on the taxpayer’s return
for the taxable year under examination, and
it is appropriate to defer the requirement
to file an amended return reflecting the ef-
fect of a foreign tax redetermination on the
taxpayer’s U.S. tax liability for that taxable
year until the examination has concluded.
These considerations do not apply to affect-
ed taxable years that are not currently un-
der examination when an amended return
would otherwise be due. Accordingly, these
comments are not adopted.
F. Transition rule relating to the TCJA
Proposed §§1.905-3(b)(2)(iv) and
1.905-5 provided a transition rule pro-
viding that post-2017 redeterminations
of pre-2018 foreign income taxes of for-
eign corporations must be accounted for
by adjusting the foreign corporation’s
taxable income and earnings and profits,
post-1986 undistributed earnings, and
post-1986 foreign income taxes (or pre-
1987 accumulated profits and pre-1987
foreign income taxes, as applicable) in the
pre-2018 year to which the redetermined
foreign taxes relate.
The preamble to the 2019 FTC pro-
posed regulations requested comments
on whether an alternative adjustment to
account for post-2017 foreign tax rede-
terminations with respect to pre-2018 tax-
able years of foreign corporations, such
as an adjustment to the foreign corpora-
tion’s taxable income and earnings and
profits, post-1986 undistributed earnings,
and post-1986 foreign income taxes as of
the foreign corporation’s last taxable year
beginning before January 1, 2018, may
provide for a simplified and reasonably
accurate alternative.
Several comments supported this sug-
gestion. A comment further noted that
certain taxpayers should be excluded from
any alternative rule where it would be dis-
tortive. For example, the comment sug-
gested excluding taxpayers that distributed
material amounts of earnings and profits,
as well as taxpayers who took advantage of
the subpart F high-tax exception in the for-
eign corporation’s final pre-TCJA taxable
year. Another comment noted that taxpay-
ers should be allowed to adjust the foreign
corporation’s final pre-2018 year only if the
adjustments would not cause a deficit in the
foreign corporation’s tax pool in that final
year. A comment also suggested that the al-
ternative rule should provide that in case of
foreign corporations that ceased to be sub-
ject to the pooling regime before 2018 (for
example, due to a liquidation or sale to a
foreign acquiror), the required adjustments
should be made in the foreign corporation’s
last year in which the pooling rules are rel-
evant). Additionally, several comments
suggested that foreign tax redeterminations
of foreign corporations below a certain
threshold should not require a redetermina-
tion or adjustment of a taxpayer’s section
965(a) inclusion or the amount of foreign
taxes deemed paid with respect to such sec-
tion 965(a) inclusion. Instead, some com-
ments suggested that the redetermination
be taken into account in the post-2017 year
of the redetermination.
In response to comments, the final
regulations under §1.905-5(e) provide an
irrevocable election for a foreign corpora-
tion’s controlling domestic shareholders
to account for all foreign tax redetermina-
tions that occur in taxable years ending on
or after November 2, 2020, with respect to
pre-2018 taxable years of foreign corpo-
rations as if they occurred in the foreign
corporation’s last taxable year beginning
before January 1, 2018 (the “last pool-
ing year”). The rules in §§1.905-3T and
1.905-5T (as contained in 26 CFR part 1
revised as of April 1, 2019) will apply for
purposes of determining whether a partic-
ular foreign tax redetermination must in-
stead be accounted for in the year to which
the redetermined foreign tax relates, in-
stead of in the last pooling year. The elec-
tion is made by the foreign corporation’s
controlling domestic shareholders, and is
binding on all persons who are, or were in
a prior year to which the election applies,
U.S. shareholders of the foreign corpora-
tion with respect to which the election is
made for all of its subsequent foreign tax
redeterminations, as well as foreign tax
redeterminations of other members of the
same CFC group as the foreign corpora-
tion for which the election is made. For
this purpose, the definition of a CFC group
in §1.905-5(e)(2)(iv)(B) is modeled off
the definition contained in §1.951A-2(c)
(7)(viii)(E)(2).
No exception is provided that would
allow taxpayers to avoid redetermination
or adjustment of the amount of a taxpay-
er’s section 965(a) inclusion or foreign
income taxes deemed paid with respect
to such section 965(a) inclusion if under
section 905(c) a foreign tax redetermi-
nation with respect to a foreign corpo-
ration’s pre-2018 year requires such an
adjustment to the taxpayer’s U.S. tax li-
ability. As discussed in Part V.E.1 of this
Summary of Comments and Explanation
of Revisions, section 905(c) mandates ret-
roactive adjustments to U.S. tax liability
when foreign taxes claimed as credits are
redetermined, and there is no technical or
policy basis on which to exclude such ad-
justments when the U.S. tax liability aris-
es as a result of section 965 as opposed to
another section of the Code.
G. Protective claims
One comment requested guidance on
how to file protective refund claims to ac-
count for contested foreign taxes that may

November 30, 2020 1162 Bulletin No. 2020–49
result in foreign tax redeterminations af-
ter the expiration of the applicable statute
of limitations. Providing guidance on the
procedures for filing protective claims is
beyond the scope of this rulemaking.
VI. Foreign Income Taxes Taken into
Account Under Section 954(b)(4)
The 2019 FTC proposed regulations in-
cluded a clarification relating to schemes
involving jurisdictions that do not impose
corporate income tax on a CFC until its
earnings are distributed. The proposed
regulations clarified that foreign income
taxes that have not accrued because they
are contingent on a future distribution are
not taken into account for purposes of de-
termining the amount of foreign income
taxes paid or accrued with respect to an
item of income.
No comments were received with re-
spect to this provision, and the rules are
finalized without change. In addition,
proposed §1.905-1(d)(1) in the 2020 FTC
proposed regulations further clarifies that
taxes contingent on a future distribution
are not treated as accrued.
VII. Applicability Dates
A. Regulations relating to foreign tax
credits
The 2019 FTC proposed regula-
tions provided that the rules in proposed
§§1.861-8, 1.861-9, 1.861-12, 1.861-14,
1.904-4(c)(7) and (8), 1.904(b)-3, 1.905-
3, 1.905-4, 1.905-5, 1.954-1, 1.954-2,
1.965-5(b)(2), and 301.6689-1 are appli-
cable to taxable years that end on or after
December 16, 2019. Certain provisions,
such as §§1.704-1(b)(4)(viii)(d)(1), 1.861-
17, 1.861-20, 1.904-6, and 1.960-1, were
proposed to be applicable to taxable years
beginning after December 31, 2019, while
proposed §§1.904-4(e) and 1.904(g)-3
were proposed to be applicable to taxable
years ending on or after the date the final
regulations are filed. Proposed §1.1502-4
was proposed to be applicable to taxable
years for which the original consolidated
Federal income tax return is due (without
extensions) after December 17, 2019.
Several comments requested that the
applicability dates to the 2019 FTC pro-
posed regulations generally be delayed
to taxable years beginning on or after
the final regulations are published to al-
low more time for taxpayers to adapt to
the new rules, and also requested that the
regulations allow taxpayers the flexibility
to rely on either the 2019 FTC proposed
regulations or the final regulations for any
preceding taxable years.
The Treasury Department and the IRS
agree that the applicability date of the ex-
pense allocation rules in §§1.861-8 and
1.861-14, which particularly in the case of
stewardship expenses contain significant
changes relative to the 2019 FTC proposed
regulations, should be delayed to allow tax-
payers more time to comply with the revi-
sions made in the final regulations. There-
fore, the applicability dates of §§1.861-8
and 1.861-14 are revised to apply to taxable
years beginning after December 31, 2019
(consistent with the later applicability date
provided for §§1.861-17, 1.861-20, 1.904-
6, and 1.960-1). In addition, although the
applicability date of the notification re-
quirements for foreign tax redeterminations
in §1.905-4 is adopted as proposed to apply
to foreign tax redeterminations occurring
in taxable years ending on or after Decem-
ber 16, 2019, a transition rule is added to
the final regulations to provide taxpayers
an additional year to file required notifica-
tions with respect to foreign tax redetermi-
nations occurring in taxable years ending
before November 12, 2020. Also, because
section 1503(a) provides that regulations
under section 1502 only apply to consoli-
dated tax returns if they are prescribed be-
fore the last day prescribed by law for the
filing of such return, the applicability date
of §1.1502-4 is revised to apply to taxable
years for which the original consolidated
Federal income tax return is due (without
extensions) after January 11, 2021. How-
ever, the other provisions in the 2019 FTC
proposed regulations which were proposed
to apply to taxable years ending on or after
December 16, 2019 (§§1.861-9, 1.861-12,
1.904-4(c)(7) and (8), 1.904(b)-3, 1.905-3,
1.905-5, 1.954-1, 1.954-2, 1.965-5(b)(2),
and 301.6689-1), generally received mini-
mal or no comments and have been adopt-
ed with no or minimal changes. Therefore,
the Treasury Department and the IRS have
determined that taxpayers with 2019 calen-
dar years have been sufficiently on notice
of these rules and little benefit would be
afforded by providing a delayed applicabil-
ity date or an election to apply either the
proposed or final regulations to preceding
years, given that these rules have not sig-
nificantly changed between the proposed
and final regulations.
The 2019 FTC proposed regulations
provided that, with respect to §1.861-17,
taxpayers that use the sales method for tax-
able years beginning after December 31,
2017, and before January 1, 2020 (or tax-
payers that use the sales method only for
their last taxable year that begins before
January 1, 2020), may rely on proposed
§1.861-17 if they apply it consistently with
respect to such taxable year and any subse-
quent year. Therefore, a taxpayer using the
sales method for its taxable year beginning
in 2018 may rely on proposed §1.861-17
but must also apply the sales method (rely-
ing on proposed §1.861-17) for its taxable
year beginning in 2019.
These final regulations provide that a
taxpayer may choose to apply §1.861-17
(as contained in these final regulations) to
taxable years beginning before January 1,
2020, provided that it applies the final reg-
ulations in their entirety, and provided that
if a taxpayer applies the final regulations
to the taxable year beginning in 2018, the
taxpayer must also apply the final regula-
tions for the subsequent taxable year begin-
ning in 2019. Alternatively, and consistent
with the 2019 FTC proposed regulations, a
taxpayer may rely on proposed §1.861-17
in its entirety for taxable years beginning
after December 31, 2017, and beginning
before January 1, 2020. A taxpayer that
applies either the proposed or final version
of §1.861-17 to a taxable year beginning
on or after January 1, 2018, and beginning
before January 1, 2020, must apply it with
respect to all operative sections (including
both section 250 and 904). See §1.861-8(f).
B. Rules relating to hybrid arrangements
and section 951A
Under the 2020 hybrids proposed reg-
ulations, the rules under section 245A(e)
relating to hybrid deduction accounts were
proposed to be applicable to taxable years
ending on or after the date that final regula-
tions are published in the Federal Register,
although a taxpayer could choose to consis-
tently apply those final regulations to earlier
taxable years. See proposed §1.245A(e)-
1(h)(2). In addition, the 2020 hybrids pro-

Bulletin No. 2020–49 1163 November 30, 2020
posed regulations provided that a taxpayer
could consistently rely on the proposed
rules with respect to earlier taxable years.
Further, under the 2020 hybrids pro-
posed regulations, the rules under section
881 relating to conduit financing arrange-
ments were proposed to be applicable to
payments made on or after the date that
final regulations are published in the Fed-
eral Register. See proposed §1.881-3(f).
Finally, the rules under section 951A re-
lating to disqualified payments were pro-
posed to be applicable to taxable years
of foreign corporations ending on or af-
ter April 7, 2020, and to taxable years of
United States shareholders in which or
with which such taxable years end. See
proposed §1.951A-7(d).
As discussed in Part III.B of this Sum-
mary of Comments and Explanation of
Revisions, a comment recommended
modifying the applicability date for the
rules under section 881 if the final regu-
lations were to include some of the pro-
posed rules, such as the rule that treated
as a financing transaction an instrument
that is equity for both U.S. and foreign tax
purposes and that gives rise to notional
interest deductions. The final regulations
do not include those rules. In addition,
no comments suggested a modification to
the applicability dates for the other rules
under the 2020 hybrids proposed regu-
lations. Therefore, the final regulations
adopt applicability dates consistent with
the proposed applicability dates under
the 2020 hybrids proposed regulations.
See §§1.245A(e)-1(h)(2); 1.881-3(f); and
1.951A-7(d). The final regulations also
clarify that for a taxpayer to apply the final
rules under section 245A(e) to a taxable
year ending before November 12, 2020,
the taxpayer must consistently apply those
rules to that taxable year and any subse-
quent taxable year ending before Novem-
ber 12, 2020. See §1.245A(e)-1(h)(2).
Special Analyses
I. Regulatory Planning and Review
Executive Orders 13771, 13563 and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits (including potential econom-
ic, environmental, public health and safe-
ty effects, distributive impacts, and equi-
ty). Executive Order 13563 emphasizes
the importance of quantifying both costs
and benefits, reducing costs, harmonizing
rules, and promoting flexibility. For pur-
poses of Executive Order 13771, this final
rule is regulatory.
These final regulations have been des-
ignated as subject to review under Exec-
utive Order 12866 pursuant to the Mem-
orandum of Agreement (MOA) (April 11,
2018) between the Treasury Department
and the Office of Management and Bud-
get (OMB) regarding review of tax reg-
ulations. The Office of Information and
Regulatory Affairs has designated these
regulations as economically significant
under section 1(c) of the MOA. Accord-
ingly, the OMB has reviewed these reg-
ulations.
A. Background and need for the final
regulations
1. Regulations Relating to Foreign Tax
Credits
Before the Tax Cuts and Jobs Act
(TCJA), the United States taxed its citi-
zens, residents, and domestic corporations
on their worldwide income. However, to
the extent that a foreign jurisdiction and
the United States taxed the same income,
this framework could have resulted in
double taxation. The U.S. foreign tax
credit (FTC) regime alleviated potential
double taxation by allowing a non-refund-
able credit for foreign income taxes paid
or accrued that could be applied to reduce
the U.S. tax on foreign source income.
Although TCJA eliminated the U.S. tax
on some foreign source income, the Unit-
ed States continues to tax other foreign
source income, and to provide foreign tax
credits against this U.S. tax. The changes
made by TCJA to international taxation
necessitate certain changes in this FTC
regime.
The FTC calculation operates by defin-
ing different categories of foreign source
income (a “separate category”) based on
the type of income.
3
Foreign taxes paid or
accrued as well as deductions for expens-
es borne by U.S. parents and domestic
affiliates that support foreign operations
are also allocated to the separate catego-
ries under similar principles. The taxpayer
can then use foreign tax credits allocated
to each category against the U.S. tax owed
on income in that category. This approach
means that taxpayers who pay foreign tax-
es on income in one category cannot claim
a credit against U.S. taxes owed on in-
come in a different category, an important
feature of the FTC regime. For example,
suppose a domestic corporate taxpayer
has $100 of active foreign source income
in the “general category” and $100 of pas-
sive foreign source income, such as inter-
est income, in the “passive category.” It
also has $50 of foreign taxes associated
with the “general category” income and
$0 of foreign taxes associated with the
“passive category” income. The allowable
FTC is determined separately for the two
categories. Therefore, none of the $50 of
“general category” FTCs can be used to
offset U.S. tax on the “passive category”
income. This taxpayer has a pre-FTC U.S.
tax liability of $42 (21 percent of $200)
but can claim an FTC for only $21 (21
percent of $100) of this liability, which is
the U.S. tax owed with respect to active
foreign source income in the general cat-
egory. The $21 represents what is known
as the taxpayer’s foreign tax credit limita-
tion. The taxpayer may carry the remain-
ing $29 of foreign taxes ($50 minus $21)
back to the prior taxable year and then
forward for up to 10 years (until used),
and is allowed a credit against U.S. tax on
general category foreign source income in
the carryover year, subject to certain re-
strictions.
The final regulations are needed to ad-
dress changes introduced by the TCJA and
to respond to outstanding issues raised in
comments to foreign tax credit regulations
issued in 2018. In particular, the com-
ments highlighted the following areas of
concern: (a) uncertainty concerning ap-
3
Prior to the TCJA, these categories were primarily the passive income and general income categories. The TCJA added new separate categories for global intangible low-taxed income (the
section 951A category) and foreign branch income

November 30, 2020 1164 Bulletin No. 2020–49
propriate allocation of R&E expenditures
across FTC categories, and (b) the need to
treat loans from partnerships to partners
the same as loans from partners to part-
nerships with respect to aligning interest
income to interest expense. In addition,
the final regulations are needed to expand
the application of section 905(c) to cas-
es where a foreign tax redetermination
changes a taxpayer’s eligibility for the
high-taxed exception under subpart F and
GILTI.
In addition to the 2018 FTC final reg-
ulations, the Treasury Department and the
IRS also issued final regulations in 2019
(84 FR 69022) (2019 FTC final regula-
tions) and proposed regulations (84 FR
69124) (2019 FTC proposed regulations),
which are being finalized in this docu-
ment, and are issuing additional proposed
regulations simultaneously with these fi-
nal regulations.
2. Regulations Relating to Hybrid
Arrangements and to Section 951A
The TCJA introduced two new provi-
sions, sections 245A(e) and 267A, that af-
fect the treatment of hybrid arrangements,
and a new section 951A, which imposes
tax on United States shareholders with re-
spect to certain earnings of their CFCs.
4

The Treasury Department and the IRS
previously issued final regulations under
sections 245A(e) and 267A (2020 hybrids
final regulations) as well as proposed
regulations under sections 245A(e), 881,
and 951A (2020 hybrids proposed regula-
tions). See TD 9896, 85 FR 19802; REG-
106013-19, 85 FR 19858. The Treasury
Department and the IRS are issuing addi-
tional final regulations relating to finalize
the 2020 hybrids proposed regulations.
Section 245A(e) disallows the divi-
dends received deduction (DRD) for any
dividend received by a U.S. shareholder
from a CFC if the dividend is a hybrid div-
idend. In addition, section 245A(e) treats
hybrid dividends between CFCs with a
common U.S. shareholder as subpart F
income. The statute defines a hybrid div-
idend as an amount received from a CFC
for which a deduction would be allowed
under section 245A(a) and for which the
CFC received a deduction or other tax
benefit in a foreign country. This disal-
lowance of the DRD for hybrid dividends
and the treatment of hybrid dividends as
subpart F income neutralizes the double
non-taxation that might otherwise be pro-
duced by these dividends.
5
The 2020 hy-
brids final regulations require that taxpay-
ers maintain “hybrid deduction accounts”
to track a CFC’s (or a person related to
a CFC’s) hybrid deductions allowed in
foreign jurisdictions across sources and
years. The 2020 hybrids final regulations
then provide that a dividend received by a
U.S. shareholder from the CFC is a hybrid
dividend to the extent of the sum of those
accounts.
These final regulations also include
rules regarding conduit financing arrange-
ments.
6
Under the regulations in §1.881-
3 (the “conduit financing regulations”), a
“financing arrangement” means a series
of transactions by which one entity (the
financing entity) advances money or oth-
er property to another entity (the financed
entity) through one or more intermediar-
ies, and there are “financing transactions”
linking each of those parties. If the IRS
determines that a principal purpose of
such an arrangement is to avoid U.S. tax,
the IRS may disregard the participation
of intermediate entities. As a result, U.S.-
source payments from the financed entity
are, for U.S. withholding tax purposes,
treated as being made directly to the fi-
nancing entity.
For example, consider a foreign entity
that is seeking to finance its U.S. subsid-
iary but is not entitled to U.S. tax treaty
benefits; thus, U.S.-source payments made
to this entity are not entitled to reduced
withholding tax rates. Instead of lending
money directly to the U.S. subsidiary, the
foreign entity might loan money to an af-
filiate residing in a treaty jurisdiction and
have the affiliate lend on to the U.S. sub-
sidiary in order to access U.S. tax treaty
benefits.
Under the conduit financing regula-
tions, if the IRS determines that a princi-
pal purpose of such an arrangement is to
avoid U.S. tax, the IRS may disregard the
participation of the affiliate. As a result,
U.S.-source interest payments from the
U.S. subsidiary are, for U.S. withholding
tax purposes, treated as being made direct-
ly to the foreign entity.
In general, the conduit financing reg-
ulations apply only if “financing transac-
tions,” as defined under the regulations,
link the financing entity, the intermediate
entities, and the financed entity. Under the
prior conduit financing regulations, be-
fore the finalization of these regulations,
an instrument that is equity for U.S. tax
purposes generally will not be treated as a
“financing transaction” unless it provides
the holder significant redemption rights or
the issuer has a right to redeem that like-
ly will be exercised. This is the case even
if the instrument is treated as debt under
the laws of the foreign jurisdiction (for
example, perpetual debt). As a result, the
prior conduit financing regulations would
not apply to an equity instrument in the
absence of such attributes, and the U.S.-
source payment might be entitled to a low-
er rate of U.S. withholding tax.
These final regulations also implement
items in section 951A of the TCJA. Section
951A provides for the taxation of glob-
al intangible low-taxed income (GILTI),
effective beginning with the first taxable
year of a CFC that begins after December
31. 2017. The existing final regulations
under section 951A address the treatment
of a deduction or loss attributable to ba-
4
Hybrid arrangements are tax-avoidance tools used by certain multinational corporations (MNCs) that have operations both in the U.S. and a foreign country. These hybrid arrangements
use differences in tax treatment by the U.S. and a foreign country to reduce taxes in one or both jurisdictions. Hybrid arrangements can be “hybrid entities,” in which a taxpayer is treated
as a flow-through or disregarded entity in one country but as a corporation in another, or “hybrid instruments,” which are financial transactions that are treated as debt in one country and as
equity in another.
5
The tax treatment under which certain payments are deductible in one jurisdiction and not included in income in a second jurisdiction is referred to as a deduction/no-inclusion outcome
(“D/NI outcome”).
6
On December 22, 2008, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-113462-08) that proposed adding §1.881-3(a)(2)(i)(C) to the conduit financ-
ing regulations. The preamble to the proposed regulations provides that the Treasury Department and the IRS are also studying transactions where a financing entity advances cash or other
property to an intermediate entity in exchange for a hybrid instrument (that is, an instrument treated as debt under the tax laws of the foreign country in which the intermediary is resident and
equity for U.S. tax purposes), and states that they may issue separate guidance to address the treatment under §1.881-3 of certain hybrid instruments.

Bulletin No. 2020–49 1165 November 30, 2020
sis created by certain transfers of proper-
ty from one CFC to a related CFC after
December 31, 2017, but before the date
on which section 951A first applies to the
transferring CFC’s income. Those regula-
tions state that such a deduction or loss is
allocated to residual CFC gross income;
that is, income that is not attributable to
tested income, subpart F income, or in-
come effectively connected with a trade
or business in the United States.
B. Overview of the final regulations
1. Regulations Relating to Foreign Tax
Credits
These final regulations address the fol-
lowing issues: (1) the allocation and appor-
tionment of deductions under sections 861
through 865, including new rules on the
allocation and apportionment of research
and experimentation (R&E) expenditures;
(2) the allocation of foreign income taxes
to the foreign income to which such tax-
es relate; (3) the interaction of the branch
loss and dual consolidated loss recapture
rules with sections 904(f) and (g); (4) the
effect of foreign tax redeterminations of
foreign corporations on the application of
the high-tax exception described in sec-
tion 954(b)(4) (including for purposes of
determining tested income under section
951A(c)(2)(A)(i)(III)), and required noti-
fications under section 905(c) to the IRS
of foreign tax redeterminations and relat-
ed penalty provisions; (5) the definition of
foreign personal holding company income
under section 954; (6) the application of
the foreign tax credit disallowance under
section 965(g); and (7) the application of
the foreign tax credit limitation to consol-
idated groups.
2. Regulations Relating to Hybrid
Arrangements and to Section 951A
These final regulations address three
main issues. First, these final regulations
address adjustments to hybrid deduction
accounts under section 245A(e) and the
2020 hybrids final regulations. The 2020
hybrids final regulations stipulate that hy-
brid deduction accounts should generally
be reduced to the extent that earnings and
profits of the CFC that have not been sub-
ject to foreign tax as a result of certain hy-
brid arrangements are included in income
in the United States by some provision
other than section 245A(e). These final
regulations provide new rules for reduc-
ing hybrid deduction accounts by reason
of income inclusions attributable to sub-
part F, GILTI, and sections 951(a)(1)(B)
and 956. An inclusion due to subpart F
or GILTI reduces a hybrid deduction ac-
count only to the extent that the inclusion
is not offset by a deduction or credit, such
as a foreign tax credit, that likely will be
afforded to the inclusion. Because deduc-
tions and credits are not available to offset
income inclusions under section 951(a)(1)
(B) and 956, these inclusions reduce a hy-
brid deduction account dollar-for-dollar.
Second, these final regulations ad-
dress conduit financing arrangements un-
der §1.881-3 by expanding the types of
transactions classified as financing trans-
actions. These final regulations state that
if a financial instrument is debt under the
tax law of the foreign jurisdiction where
the issuer is a resident, or, if the issuer is
not a tax resident of any country, where it
is created, organized, or otherwise estab-
lished, then it may now be characterized
as a financing transaction even though
the instrument is equity for U.S. tax pur-
poses. Accordingly, the conduit financing
regulations would apply to multiple-party
financing arrangements using these types
of instruments. This change is consistent
with the policy of §1.881-3 and also helps
to align the conduit regulations with the
policy of section 267A by discouraging the
exploitation of differences in treatment of
financial instruments across jurisdictions.
While section 267A and the 2020 hybrids
final regulations apply only if the D/NI
outcome is a result of the use of a hybrid
entity or instrument, the conduit financing
regulations apply regardless of causation
and instead look to whether there is a tax
avoidance plan. Thus, this new rule, to a
limited extent, will address economically
similar transactions that section 267A and
the 2020 hybrids final regulations do not
cover.
Finally, these final regulations address
certain payments made after December
31, 2017, but before the date of the start of
the first fiscal year for the transferor CFC
for which 951A applies (the “disquali-
fied period”) in which payments, such as
pre-payments of royalties, create income
during the disqualified period and a cor-
responding deduction or loss claimed in
taxable years after the disqualified period.
Absent these final regulations, those de-
ductions or losses could have been used
to reduce tested income or increase tested
losses, among other benefits. However,
under these final regulations, these de-
ductions will no longer provide such a tax
benefit, and will instead be allocated to re-
sidual CFC income, similar to deductions
or losses from certain property transfers in
the disqualified period under the existing
final regulations under section 951A.
C. Economic analysis
1. Baseline
In this analysis, the Treasury Depart-
ment and the IRS assess the benefits and
costs of these final regulations relative to
a no-action baseline reflecting anticipated
Federal income tax-related behavior in the
absence of these regulations.
2. Summary of Economic Effects
i. Regulations relating to foreign tax
credits
The final regulations provide certainty
and clarity to taxpayers regarding the al-
location of income, expenses, and foreign
income taxes to the separate categories.
In the absence of the enhanced specificity
provided by these provisions of the regu-
lations, similarly-situated taxpayers might
interpret the foreign tax credit provisions
of the Code differently, potentially result-
ing in inefficient patterns of economic
activity. For example, in the absence of
the final regulations, one taxpayer might
have chosen not to undertake research
(that is, incur R&E expenses) in a par-
ticular location, based on that taxpayer’s
interpretation of the tax consequences of
such expenditures, that another taxpayer,
making a different interpretation of the tax
treatment of R&E, might have chosen to
pursue. If this difference in interpretations
confers a competitive advantage on the
less productive enterprise, U.S. economic
performance may suffer. Thus, the guid-
ance provided in these regulations helps to
ensure that taxpayers face more uniform
incentives when making economic deci-

November 30, 2020 1166 Bulletin No. 2020–49
sions. In general, economic performance
is enhanced when businesses face more
uniform signals about tax treatment.
To the extent that taxpayers would
generally, in the absence of this final
guidance, have interpreted the foreign tax
credit rules as being less favorable to the
taxpayer than the final regulations pro-
vide, the final regulations may result in
additional international activity by these
taxpayers relative to the no-action base-
line. This additional activity may include
both activities that are beneficial to the
U.S. economy (perhaps because they rep-
resent enhanced international opportuni-
ties for businesses with U.S. owners) and
activities that are not beneficial (perhaps
because they are accompanied by reduced
activity in the United States). The Trea-
sury Department and the IRS recognize
that additional foreign economic activity
by U.S. taxpayers may be a complement
or substitute to activity within the United
States and that to the extent these regula-
tions change this activity, relative to the
no-action baseline or alternative regulato-
ry approaches, a mix of results may occur.
The Treasury Department and the IRS
have not undertaken quantitative estimates
of the economic effects of the foreign tax
credit provisions of the regulations. The
Treasury Department and the IRS do not
have readily available data or models to
estimate with reasonable precision (i) the
tax stances that taxpayers would likely
take in the absence of the final regulations
or under alternative regulatory approach-
es; (ii) the difference in business decisions
that taxpayers might make between the fi-
nal regulations and the no-action baseline
or alternative regulatory approaches as
a result of these tax stances; or (iii) how
this difference in those business decisions
would affect measures of U.S. economic
performance.
In the absence of such quantitative es-
timates, the Treasury Department and the
IRS have undertaken a qualitative analysis
of the economic effects of the final reg-
ulations relative to the no-action baseline
and relative to alternative regulatory ap-
proaches. This analysis is presented in
Parts I.C.3.i through iii of this Special
Analyses.
ii. Regulations relating to hybrid
arrangements and section 951A
These provisions of the final regula-
tions provide certainty and clarity to tax-
payers regarding (i) adjustments to hybrid
deduction accounts under section 245A(e)
and the 2020 hybrids final regulations;
(ii) the determination of withholding tax-
es on payments made pursuant to conduit
financing arrangements under §1.881-3;
and (iii) the allocation of deductions for
certain payments between related CFCs
for purposes of section 951A and the final
regulations under section 951A.
In the absence of this clarity, the like-
lihood that different taxpayers would in-
terpret the rules regarding hybrid arrange-
ments and certain deductible payments
under the final regulations under section
951A differently would be exacerbated. In
general, overall economic performance is
enhanced when businesses face more uni-
form signals about tax treatment. Certain-
ty and clarity over tax treatment generally
also reduce compliance costs for taxpay-
ers.
For those statutory provisions for
which similar taxpayers would generally
adopt similar interpretations of the statute
even in the absence of guidance, the final
regulations provide value by helping to
ensure that those interpretations are con-
sistent with the intent and purpose of the
statute. Because the tax treatment in these
final regulations advances the intent and
purpose of the statute, this guidance en-
hances U.S. economic performance, rela-
tive to the no-action baseline or alternative
regulatory approaches, within the context
of Congressional intent.
These provisions of the final regula-
tions will further enhance U.S. econom-
ic performance by helping to ensure that
similar economic arrangements face simi-
lar tax treatments. Disparate tax treatment
of similar economic transactions may
create economic inefficiencies by leading
taxpayers to undertake less productive
economic activities.
The Treasury Department and the IRS
have not undertaken quantitative esti-
mates of the economic effects of these
provisions of the final regulations because
they do not have readily available data or
models to estimate with reasonable pre-
cision (i) the types or volume of hybrid
arrangements or certain disqualified pay-
ments between related CFCs that would
likely be covered under these regulations,
under the no-action baseline, or under al-
ternative regulatory approaches; or (ii)
the effects of those hybrid arrangements
or disqualified payments on businesses’
overall economic performance, including
possible differences in compliance costs.
In the absence of such quantitative es-
timates, the Treasury Department and the
IRS have undertaken a qualitative analysis
of the economic effects of the final reg-
ulations relative to the no-action baseline
and relative to alternative regulatory ap-
proaches. This analysis is presented in
Parts I.C.3.iv through vi of this Special
Analyses.
iii. Summary of economic effects of all
provisions
The Treasury Department and the IRS
project that the final regulations will have
economic effects greater than $100 mil-
lion per year ($2020) relative to the no-ac-
tion baseline. This determination is based
on the substantial size of many of the busi-
nesses potentially affected by these regu-
lations and the general responsiveness of
business activity to effective tax rates,
7

one component of which is the creditabil-
ity of foreign taxes. Based on these two
magnitudes, even modest changes in the
treatment of foreign taxes or the alloca-
tion of deductions between related CFCs
provided by the final regulations, relative
to the no-action baseline, can be expected
to have annual effects greater than $100
million ($2020).
3. Economic Effects of Specific
Provisions
i. Rules for allocating R&E expenditures
under the sales method
a. Background
Under long-standing foreign tax credit
rules, taxpayers must allocate expendi-
7
See E. Zwick and J. Mahon, “Tax Policy and Heterogeneous Investment Behavior,” at American Economic Review 2017, 107(1): 217-48 and articles cited therein.

Bulletin No. 2020–49 1167 November 30, 2020
tures to income categories. In the case of
research and experimentation (R&E) ex-
penditures, taxpayers can elect between a
“sales method” and a “gross income meth-
od” to allocate the R&E expenses.
8
The TCJA created some uncertain-
ty regarding the application of the sales
method because of the introduction of the
section 951A category. In particular, com-
ments raised issues regarding whether any
R&E expenditures should be allocated to
the section 951A category. The fact that
sales by CFCs generate tested income and
tested income is generally assigned to the
section 951A category might imply that
R&E expenditures should be allocated to
the section 951A category. But the fact
that royalty payments from the CFC to the
U.S. taxpayer (e.g., in remuneration for IP
held by the parent that is licensed to the
CFC to create the products that are sold)
are in the general category implies that
R&E expenditures should be allocated to
the general category.
The gross income method is based on
a different apportionment factor (gross
income) as compared to the sales meth-
od (gross receipts). However, the gross
income method is subject to certain con-
ditions that require the result to be with-
in a certain band around the result under
the sales method, because historically the
Treasury Department and the IRS have
considered that the gross income meth-
od could lead to anomalous results and
could be more easily manipulated than
the sales method.
9
The uncertainty with
respect to R&E expense allocation under
the sales method needed resolution, and
because the gross income method is tied
to the sales method, any changes to the
sales method required consideration of the
gross income method.
b. Options considered for the final
regulations
The Treasury Department and the IRS
considered three options with respect to
the allocation of R&E expenditures to
the section 951A category for purposes of
calculating the FTC limitation. The first
option was to confirm that R&E expen-
ditures are allocated to the section 951A
category under the sales method and to
otherwise leave their treatment under the
gross income method unchanged. The sec-
ond option was to revise the sales method
to provide that R&E expenditures are only
allocated to the income that represents
the taxpayer’s return on intellectual prop-
erty (thus, R&E expenditures could not
be allocated to income from the taxpay-
er’s CFC sales) and otherwise leave their
treatment under the gross income method
unchanged. The third option was to revise
the sales method as considered in the sec-
ond option and eliminate the gross income
method for purposes of allocating R&E
expenditures.
The final regulations adopt the third
option. This option allows for the provi-
sion of an allocation and apportionment
method for R&E expenditures that gener-
ally matches the expense reasonably with
the income it generates. The matching of
income and expenses generally produces
a more efficient tax system contingent on
the overall Code relative to the alternative
options. Additionally, because this option
results in no R&E expense being allo-
cated to section 951A category income,
it does not incentivize taxpayers with
excess credits (which cannot be carried
over to prior or future taxable years and
therefore become unusable) in the section
951A category to perform R&E through
foreign subsidiaries; instead, the chosen
option generally incentivizes choosing the
location of R&E based on economic con-
siderations rather than tax-related reasons,
contingent on the overall Code. Finally,
because the final regulations adopt the
principle of allocating and apportioning
R&E expenditures to IP-related income of
the U.S. taxpayer, the gross income meth-
od is no longer relevant, because it allo-
cates and apportions R&E expenditures
to the section 951A category, and section
951A category gross income is not IP in-
come to the U.S. taxpayer.
c. Number of affected taxpayers
The Treasury Department and the IRS
have determined that the population of af-
fected taxpayers consists of any U.S. tax-
payer with R&E expenditures and foreign
operations. There are around 2,500 such
taxpayers in currently available tax filings
from tax year 2018. Based on Statistics of
Income data, approximately $40 billion of
R&E expenses of such taxpayers were al-
located to foreign source income, out of a
total of $190 billion in qualified research
expenses reported by such taxpayers.
10
ii. Application of section 905(c) to
changes affecting the high-tax exception
a. Background
Section 905(c) provides special rules
for a foreign tax redetermination (FTR),
which is when the amount of foreign tax
paid in an earlier year (origin year) is
changed in a later year (FTR year). This
redetermination may be necessary, for ex-
ample, because the taxpayer gets a refund
or because a foreign audit determines that
the taxpayer owes additional foreign tax.
Since these additional taxes (or refunds)
relate to the origin year, an FTR affects
a taxpayer’s origin year tax position (as
well as FTC carryovers from that year).
Before the TCJA, FTRs of foreign cor-
porations generally resulted in prospec-
tive “pooling adjustments” to foreign tax
credits. Under this approach, taxpayers
simply added to or reduced the amount of
foreign taxes in their foreign subsidiary’s
FTC “pool” going forward rather than
amend the deemed paid taxes claimed on
their origin year return. TCJA eliminated
the pooling mechanism for taxes (because
the adoption of a participation exemption
system along with the elimination of de-
8
If the taxpayer chooses the gross income method, 25 percent of the R&E expenditures are exclusively apportioned to the source where more than 50 percent of the taxpayer’s R&E activities
occur (generally the United States), and the other 75 percent is apportioned ratably. If a taxpayer chooses the sales method then 50 percent of the R&E expenditures are exclusively apportioned
on the same basis, and the other 50 percent is apportioned ratably.
9
The gross income method is more susceptible to manipulation because taxpayers can manage the type and amount of their foreign gross income by, for example, not paying a dividend and
because presuming a factual relationship between the R&E expenditure and the related class of income based on the relative amounts of a taxpayer’s gross income was more attenuated than
a factual relationship based on sales.
10
Note, however, that these taxpayers might have additional R&E expenses which are not qualified R&E expenses. The tax data do not separately identify such expenses.

November 30, 2020 1168 Bulletin No. 2020–49
ferral made it unnecessary) and replaced
it with a system where taxes are deemed
paid each year with an inclusion or distri-
bution of previously taxed earnings and
profits (“PTEP”).
The 2019 FTC final regulations make
clear that an FTR of a United States tax-
payer must always be accounted for in the
origin year, and that the taxpayer must file
an amended return reflecting any resulting
change in the taxpayer’s U.S. tax liability.
Section 905(c) provides tools to enforce
this amended return requirement. It sus-
pends the statute of limitations with respect
to the assessment of any additional U.S.
tax liability that results from an FTR, and
imposes a civil penalty on taxpayers who
fail to notify the IRS (through an amend-
ed return) of an FTR. To reflect the repeal
of the pooling mechanism, the final regu-
lations generally require taxpayers to ac-
count for FTRs of foreign subsidiaries on
an amended return that reflects revised for-
eign taxes deemed paid under section 960
and any resulting change in the taxpayer’s
U.S. tax liability. However, the 2019 FTC
final regulations require U.S. tax redetermi-
nations only by reason of FTRs that affect
the amount of foreign tax credit taxpayers
claimed in the origin year. The rules do not
apply to other tax effects, such as when the
FTR changes the amount of earnings and
profits the taxpayer’s CFC had in the origin
year, or affects whether or not the CFC’s
income qualifies for the high-tax exception
under GILTI or subpart F.
The interaction of FTRs and the high-
tax exception under GILTI and subpart F
increases the importance of filing an origin
year amended return. In particular, FTRs
can give rise to inaccurate origin year U.S.
liability calculations in the absence of an
amended return precisely because they
can change taxpayers’ eligibility for the
high-tax exception. Therefore, the final
regulations provide that the section 905(c)
rules cover situations in which the FTR
affects not only the amount of FTCs tax-
payers claimed in the origin year, but also
whether or not their CFC’s income quali-
fied for the high-tax exception.
b. Options considered for the final
regulations
The Treasury Department and the IRS
considered two options in applying sec-
tion 905(c) in connection with the high-
tax exception. The first option was to limit
section 905(c) to changes in the amount of
FTCs. The second option was to provide
that section 905(c) applies in connection
with the high-tax exceptions under GILTI
and subpart F.
The final regulations adopt the second
option. The first option would lead to fre-
quent occurrences of inaccurate results
with respect to the GILTI and subpart F
high- tax exceptions because it is common
for foreign audits to change the amount of
tax paid in a prior year. Furthermore, tax-
payers would have an incentive to overpay
their CFC’s foreign tax in the origin year,
claim the high-tax exception to avoid sub-
part F or GILTI inclusions, wait for the 3
year statute of limitations to pass, and then
claim a foreign tax refund with the foreign
authorities. Without section 905(c) apply-
ing, taxpayers would have no obligation
or threat of penalty for not amending the
origin year return. Although there are FTC
regulations that deny a credit if taxpayers
make a noncompulsory payment of tax
(i.e., taxpayers paid more foreign tax than
is necessary under foreign law), those
rules are challenging to administer. While
taxpayers have the burden to prove that
they were legally required to pay the tax,
the IRS may need to engage foreign tax
law experts to establish that the taxpayer
could have successfully fought paying it.
The second option provides a more ac-
curate tax calculation than the first option,
and it is instrumental in avoiding abuse.
The increased number of amended returns
relative to the alternative regulatory ap-
proach will increase compliance costs for
taxpayers, but the Treasury Department
and the IRS consider that, in light of the
high-tax exception, accurate origin year
tax liability calculations necessitate these
increased costs.
c. Number of affected taxpayers
The Treasury Department and the IRS
determined that the final regulations po-
tentially affect those U.S. taxpayers that
pay foreign taxes and have a redetermina-
tion of that tax. Although data reporting the
number of taxpayers subject to an FTR in a
given year are not readily available, some
taxpayers currently subject to FTRs will
file amended returns. The Treasury De-
partment and the IRS estimate that there
were between 8,900 and 13,500 taxpayers
with foreign affiliates that filed amended
returns in 2018. However, the elimination
of the pooling mechanism and the expand-
ed incidence of deemed paid taxes in con-
nection with the GILTI regime may sig-
nificantly increase the number of taxpayers
filing amended returns, and the expansion
of the section 905(c) requirement to file an
amended return to instances where a FTR
changes eligibility for the high-tax excep-
tion under GILTI or subpart F (but does not
affect the taxpayer’s foreign tax credit) has
the potential to modestly increase that num-
ber. The Treasury Department and the IRS
have determined that a high upper bound
for the number of taxpayers subject to a
FTR that will be required to file amended
returns (that is, taxpayers affected by this
provision) can be derived by estimating the
number of taxpayers with a potential GILTI
or subpart F inclusion. Based on currently
available tax filings for taxable year 2018,
there were about 16,500 C corporations
with CFCs that filed at least one Form 5471
with their Form 1120 return. In addition, for
the same year, there were about 41,000 in-
dividuals with CFCs that e-filed at least one
Form 5471 with their Form 1040 return.
In 2018, there were about 3,250 S cor-
porations with CFCs that filed at least
one Form 5471 with their 1120S return.
The identified S corporations had an es-
timated 23,000 shareholders. Finally, the
Treasury Department and the IRS estimate
that there were approximately 7,500 U.S.
partnerships with CFCs that e-filed at least
one Form 5471 as Category 4 or 5 filers
in 2018. The identified partnerships had
approximately 1.7 million partners, as in-
dicated by the number of Schedules K-1
filed by the partnerships. This number in-
cludes both domestic and foreign partners,
so it substantially overstates the number
of partners that would actually be affected
by the final regulations because it includes
foreign partners.
iii. Extension of the partnership loan rule
to loans from the partnership to a U.S.
partner
a. Background
The 2019 FTC final regulations pro-
vide a rule that aligns interest income

Bulletin No. 2020–49 1169 November 30, 2020
and expense when a U.S. partner makes
a loan to the partnership. Under this
matching rule, the partner’s gross inter-
est income is apportioned between U.S.
and foreign sources in each separate
category based on the partner’s interest
expense apportionment ratios. This rule
minimizes the artificial increase in for-
eign source taxable income based solely
on offsetting amounts of interest income
and expense from a related party loan
to a partnership. Comments in response
to the 2018 FTC proposed regulations
requested an equivalent rule when the
partnership makes a loan to a U.S. part-
ner.
b. Options considered for the final
regulations
The Treasury Department and the
IRS considered two options with respect
to this rule. The first option was to not
provide a rule, because the abuse the
Treasury Department and the IRS were
concerned about was not relevant with
respect to loans from the partnership to
the partner. In the absence of a match-
ing rule, the U.S. partner’s U.S. source
taxable income would be artificially in-
creased but this income is not eligible to
be sheltered by FTCs. The second option
was to provide an identical rule for loans
from the partnership to the partner as
was provided in the 2019 FTC final reg-
ulations for loans from the partner to the
partnership. The final regulations adopt
the second option. This symmetry helps
to ensure that similar economic transac-
tions are treated similarly.
c. Number of affected taxpayers
The Treasury Department and the IRS
consider the population of affected tax-
payers to consist of any U.S. partner in
a partnership which has a loan from the
partnership to the partner or certain other
parties related to the partner. The Trea-
sury Department and the IRS estimate that
there are approximately 450 partnerships
and 5,000 partners that would be affected
by this regulation.
iv. Section 245A(e) – Adjustment of
hybrid deduction account
a. Background
Under the 2020 hybrids final regula-
tions, taxpayers must maintain hybrid
deduction accounts to track income of a
CFC that was sheltered from foreign tax
due to hybrid arrangements, so that it may
be included in U.S. income under section
245A(e) when paid as a dividend. The final
regulations address how hybrid deduction
accounts should be adjusted to account for
earnings and profits of a CFC included
in U.S. income due to certain provisions
other than section 245A(e). The final reg-
ulations provide rules reducing a hybrid
deduction account for three categories of
inclusions: subpart F inclusions, GILTI
inclusions, and inclusions under sections
951(a)(1)(B) and 956.
b. Options considered for the final
regulations
One option for addressing the treat-
ment of earnings and profits included
in U.S. income due to provisions other
than section 245A(e) would be to not is-
sue additional guidance beyond current
tax rules and thus not to adjust hybrid
deduction accounts to account for such
inclusions. This would be the simplest
approach among those considered, but
under this approach, some income could
be subject to double taxation in the Unit-
ed States. For example, if no adjustment
is made, to the extent that a CFC’s earn-
ings and profits were sheltered from
foreign tax as a result of certain hybrid
arrangements, the section 245A DRD
would be disallowed for an amount of
dividends equal to the amount of the
sheltered earnings and profits, even if
some of the sheltered earnings and prof-
its were included in the income of a U.S.
shareholder under the subpart F rules.
The U.S. shareholder would be subject
to tax on both the dividends and on the
subpart F inclusion. Owing to this dou-
ble taxation, the final regulations do not
adopt this approach.
A second option would be to reduce
hybrid deduction accounts by amounts
included in gross income under the three
categories; that is, without regard to de-
ductions or credits that may offset the in-
clusion. While this option is also relatively
simple, it could lead to double non-tax-
ation and thus would give rise to results
not intended by the statute. Subpart F and
GILTI inclusions may be offset by – and
thus may not be fully taxed in the United
States as a result of – foreign tax credits
and, in the case of GILTI, the section 250
deduction.
11
Therefore, this option for re-
ducing hybrid deduction accounts may
result in some income that was sheltered
from foreign tax due to hybrid arrange-
ments also escaping full U.S. taxation.
This double non-taxation is economically
inefficient because otherwise similar ac-
tivities are taxed differently, potentially
leading to inefficient business decisions.
A third option, which is the option fi-
nalized by the Treasury Department and
the IRS, is to reduce hybrid deduction
accounts by the amount of the inclusions
from the three categories, but only to the
extent that the inclusions are likely not
offset by foreign tax credits or, in the case
of GILTI, the section 250 deduction. For
subpart F and GILTI inclusions, the final
regulations stipulate adjustments to be
made to account for the foreign tax credits
and the section 250 deduction available
for GILTI inclusions. These adjustments
are intended to provide a precise, admin-
istrable manner for measuring the extent
to which a subpart F or GILTI inclusion is
included in U.S. income and not shielded
by foreign tax credits or deductions. This
option results in an outcome aligned with
statutory intent, as it generally ensures that
the section 245A DRD is disallowed (and
thus a dividend is included in U.S. income
without any regard for foreign tax credits)
only for amounts that were sheltered from
foreign tax by reason of a hybrid arrange-
ment but that have not yet been subject to
U.S. tax.
Relative to a no-action baseline, these
final regulations provide taxpayers with
new instructions regarding how to adjust
hybrid deduction accounts to account for
11
Deductions or credits are not available to offset income inclusions under sections 951(a)(1)(B) and 956, the third category of income inclusions that reduce hybrid deduction accounts
addressed by these final regulations.

November 30, 2020 1170 Bulletin No. 2020–49
earnings and profits that are included in
U.S. income by reason of certain provi-
sions other than section 245A(e). This
new instruction avoids possible double
taxation. Double taxation is inconsistent
with the intent and purpose of the statute
and is economically inefficient because
it may result in otherwise similar income
streams facing different tax treatment,
incentivizing taxpayers to finance opera-
tions with specific income streams and ac-
tivities that may not be the most economi-
cally productive.
The Treasury Department and the
IRS have not estimated the difference in
compliance costs under each of the three
options for the treatment of earnings and
profits included in U.S. income due to
provisions other than section 245A(e) be-
cause they do not have readily available
data or models that can provide such es-
timates.
c. Number of affected taxpayers
The Treasury Department and IRS es-
timate that this provision will impact an
upper bound of approximately 2,000 tax-
payers. This estimate is based on the top
10 percent of taxpayers (by gross receipts)
that filed a domestic corporate income
tax return for tax year 2017 with a Form
5471 attached, because only domestic
corporations that are U.S. shareholders of
CFCs are potentially affected by section
245A(e).
12
This estimate is an upper bound on the
number of large corporations affected be-
cause it is based on all transactions, even
though only a portion of such transactions
involve hybrid arrangements. The tax data
do not report whether these reported div-
idends were part of a hybrid arrangement
because such information was not relevant
for calculating tax before the TCJA. In
addition, this estimate is an upper bound
because the Treasury Department and the
IRS anticipate that fewer taxpayers would
engage in hybrid arrangements going
forward as the statute and §1.245A(e)-1
would make such arrangements less bene-
ficial to taxpayers. Further, it is anticipat-
ed that the final regulations will result in
only a small increase in compliance costs
for those taxpayers who do engage in hy-
brid arrangements (relative to the base-
line) because a reduction to hybrid deduc-
tion accounts under these final regulations
generally uses information required to be
computed under other provisions of the
Code.
v. Conduit financing regulations to
address hybrid instruments
a. Background
The conduit financing regulations allow
the IRS to disregard intermediate entities
in a multiple-party financing arrangement
for the purposes of determining withhold-
ing tax rates if the instruments used in the
arrangement are considered “financing
transactions.” Financing transactions gen-
erally exclude instruments that are treat-
ed as equity for U.S. tax purposes unless
they have significant redemption-type
features. Thus, in the absence of further
guidance, the conduit financing regula-
tions would not apply to an equity instru-
ment in the absence of such features. This
would allow payments made under these
arrangements to continue to be eligible for
reduced withholding tax rates through a
conduit structure.
b. Options considered for the final
regulations
One option for addressing the cur-
rent disparate treatment would be to not
change the conduit financing regulations,
which currently treat equity as a financing
transaction only if it has specific redemp-
tion-type features; this is the no-action
baseline. This option is not adopted by the
Treasury Department and the IRS, since it
is inconsistent with the Treasury Depart-
ment’s and the IRS’s ongoing efforts to
address financing transactions that use hy-
brid instruments, as discussed in the 2008
proposed regulations.
A second option, which is adopted in
the final regulations, is to treat as a financ-
ing transaction an instrument that is equity
for U.S. tax purposes but debt under the
tax law of the issuer’s jurisdiction of resi-
dence or, if the issuer is not a tax resident
of any country, the tax law of the country
in which the issuer is created, organized or
otherwise established. This approach will
prevent taxpayers from using this type
of hybrid instrument to engage in treaty
shopping through a conduit jurisdiction.
However, this approach does not cover
certain cases, such as if a jurisdiction of-
fers a tax benefit to non-debt instruments
(for example, a notional interest deduction
with respect to equity). The Treasury De-
partment and the IRS adopt this second
option in these final regulations because it
will, in a manner that is clear and admin-
istrable, prevent a basic form of inappro-
priate avoidance of the conduit financing
regulations.
A third option considered, which was
proposed in the 2020 hybrids proposed
regulations, would be to treat as a financ-
ing transaction any instrument that is equi-
ty for U.S. tax purposes and which entitles
its issuer or its shareholder a deduction or
similar tax benefit in the issuer’s resident
jurisdiction or in the jurisdiction where the
resident has a permanent establishment.
This rule would be broader than the sec-
ond option. It would cover all instruments
that give rise to deductions or similar tax
benefits, such as credits, rather than only
those instruments that are treated as debt
under foreign law. This rule would also
cover instruments where a financing pay-
ment is attributable to a permanent estab-
lishment of the issuer, and the tax law of
the permanent establishment’s jurisdiction
allows a deduction or similar treatment
for the instrument. This approach would
prevent issuers from routing transactions
through their permanent establishments to
avoid the anti-conduit rules. The Treasury
Department and the IRS did not adopt this
third option in these final regulations. As
discussed in Part III.B of the Summary of
Comments and Explanation of Revisions,
the Treasury Department and the IRS plan
to finalize this rule separately to allow
additional time to consider the comments
received.
Relative to a no-action baseline, the
final regulations are likely to incentivize
some taxpayers to shift away from con-
duit financing arrangements and hybrid
arrangements, a shift that is likely to re-
12
Because of the complexities involved, primarily only large taxpayers engage in hybrid arrangements. The estimate that the top 10 percent of otherwise-relevant taxpayers (by gross receipts)
are likely to engage in hybrid arrangements is based on the judgment of the Treasury Department and IRS.

Bulletin No. 2020–49 1171 November 30, 2020
sult in little to no overall economic loss,
or even an economic gain, because con-
duit arrangements are generally not eco-
nomically productive arrangements and
are typically pursued only for tax-related
reasons. The Treasury Department and the
IRS recognize, however, that as a result
of these provisions, some taxpayers may
face a higher effective tax rate, which may
lower their economic activity.
The Treasury Department and the IRS
have not undertaken more precise quanti-
tative estimates of either of these econom-
ic effects because they do not have readily
available data or models to estimate with
reasonable precision: (i) the types or vol-
ume of conduit arrangements that taxpay-
ers would likely use under the final reg-
ulations or under the no-action baseline;
or (ii) the effects of those arrangements
on businesses’ overall economic perfor-
mance, including possible differences in
compliance costs.
c. Number of affected taxpayers
The Treasury Department and the IRS
estimate that the number of taxpayers
potentially affected by the final conduit
financing regulations will be an upper
bound of approximately 7,000 taxpayers.
This estimate is based on the top 10 per-
cent of taxpayers (by gross receipts) that
filed a domestic corporate income tax re-
turn with a Form 5472, “Information Re-
turn of a 25% Foreign-Owned U.S. Corpo-
ration or a Foreign Corporation Engaged
in a U.S. Trade or Business,” attached
because primarily foreign entities that ad-
vance money or other property to a related
U.S. entity through one or more foreign
intermediaries are potentially affected by
the conduit financing regulations.
13
This estimate is an upper bound on
the number of large corporations affected
because it is based on all domestic corpo-
rate arrangements involving foreign relat-
ed parties, even though only a portion of
such arrangements are conduit financing
arrangements that use hybrid instruments.
The tax data do not report whether these
arrangements were part of a conduit fi-
nancing arrangement because such infor-
mation is not provided on tax forms. In
addition, this estimate is an upper bound
because the Treasury Department and the
IRS anticipate that fewer taxpayers would
engage in conduit financing arrangements
that use hybrid instruments going forward
as the proposed conduit financing regula-
tions would make such arrangements less
beneficial to taxpayers.
vi. Rules under section 951A to address
certain disqualified payments made
during the disqualified period
a. Background
The final section 951A regulations in-
clude a rule that addresses certain trans-
actions involving disqualified transfers
of property between related CFCs during
the disqualified period that may have the
effect of reducing GILTI inclusions due
to timing differences between when in-
come is included and when resulting de-
ductions, such as depreciation expenses,
are claimed. The disqualified period of a
CFC is the period between December 31,
2017, which is the last earnings and profits
measurement date under section 965, and
the beginning of the CFC’s first taxable
year that begins after December 31, 2017,
which is the first taxable year with respect
to which section 951A is effective. The
final regulations refine this rule to extend
its applicability to other transactions for
which similar timing differences can arise.
b. Options considered for the final
regulations
The Treasury Department and the IRS
considered two options with respect to
providing a rule that would apply to cer-
tain transactions during the disqualified
period in addition to disqualified transfers.
The first option was to not provide a rule
that would apply to additional transac-
tions. This option was not adopted in the
final regulations, since it would result in
certain transactions involving payments
during the disqualified period giving rise
to reduced GILTI inclusions simply due to
timing differences. In addition, this option
would not provide a similar tax treatment
for transactions involving payments as for
disqualified transfers of property occur-
ring during the disqualified period.
The second option, which is the op-
tion adopted in the final regulations, is to
provide an identical rule for disqualified
payments between related CFCs as was
provided in the section 951A final regu-
lations for disqualified transfers of prop-
erty between related CFCs during the dis-
qualified period. This symmetry helps to
ensure that similar economic transactions
are treated similarly.
In the absence of such a rule, certain
payments between related CFCs made
during the disqualified period may give
rise to lower income inclusions for their
U.S. shareholders. For example, suppose
that a CFC licensed property to a related
CFC for ten years and received pre-pay-
ments of royalties during the disqualified
period from the related CFC. Since these
prepayments were received by the licensor
CFC during the disqualified period, they
would not have affected amounts included
under section 965 nor given rise to GILTI
tested income. However, the licensee CFC
that made the payments would not have
claimed the total of the corresponding
deductions during the disqualified period,
since the timing of deductions are general-
ly tied to economic performance over the
period of use. The licensee CFC would
claim deductions over the ten years of the
contract, and since these deductions would
be claimed during taxable years when sec-
tion 951A is in effect, these deductions
would reduce GILTI tested income or in-
crease GILTI tested loss. Thus, this type of
transaction could lower overall income in-
clusions for the U.S. shareholder of these
CFCs in a manner that does not accurately
reflect the earnings of the CFCs over time.
Under the final regulations, all deduc-
tions attributable to disqualified payments
to a related CFC during the disqualified
period are allocated and apportioned to
residual CFC gross income. These deduc-
tions will not thereby reduce tested, sub-
part F or effectively connected income.
This rule provides similar treatment to
transactions involving payments as the
rule in the section 951A final regulations
provides to property transfers between re-
lated CFCs during the disqualified period.
13
Because of the complexities involved, primarily only large taxpayers engage in conduit financing arrangements. The estimate that the top 10 percent of otherwise-relevant taxpayers (by
gross receipts) are likely to engage in conduit financing arrangements is based on the judgment of the Treasury Department and IRS.

November 30, 2020 1172 Bulletin No. 2020–49
Relative to a no-action baseline, the
final regulations harmonize the treatment
of similar transactions. Since this rule ap-
plies to deductions resulting from transac-
tions that occurred during the disqualified
period and not to any new transactions,
the Treasury Department and the IRS do
not expect changes in taxpayer behavior
under the final regulations, relative to the
no-action baseline.
c. Number of affected taxpayers
The Treasury Department and the IRS
estimate that the number of taxpayers
potentially affected by this rule will be
an upper bound of approximately 25,000
to 35,000 taxpayers. This estimate is
based on filers of income tax returns
with a Form 5471 attached because only
filers that are U.S. shareholders of CFCs
or that have at least a 10 percent owner-
ship in a foreign corporation would be
subject to section 951A. This estimate
is an upper bound because it is based on
all filers subject to section 951A, even
though only a portion of such taxpayers
may have engaged in the pre-payment
transactions during the disqualified peri-
od described in the proposed regulations.
Therefore, the Treasury Department and
the IRS estimate that the number of tax-
payers potentially affected by this rule
will be substantially less than 25,000 to
35,000 taxpayers.
II. Paperwork Reduction Act
A. Regulations relating to foreign tax
credits
For purposes of the Paperwork Re-
duction Act of 1995 (44 U.S.C. 3507(d))
(“PRA”), there is a collection of informa-
tion in §§1.905-4 and 1.905-5(b) and (e).
When a redetermination of U.S. tax li-
ability is required by reason of a foreign
tax redetermination (FTR), the final reg-
ulations generally require the taxpayer to
notify the IRS of the FTR and provide cer-
tain information necessary to redetermine
the U.S. tax due for the year or years af-
fected by the FTR. If there is no change in
the U.S. tax liability as a result of the FTR
or if the FTR is caused by certain de mini-
mis fluctuations in foreign currency rates,
the taxpayer may simply attach the noti-
fication to their next filed tax return and
make any appropriate adjustments in that
year. However, taxpayers are generally
required to file an amended return (or an
administrative adjustment request in the
case of certain partnerships) for the year
or years affected by the FTR along with
an updated Form 1116 Foreign Tax Cred-
it (Individual, Estate, or Trust) (covered
under OMB Control Number 1545-0074
individual, or 1545-0121 and 1545-0092
estate and trust) or Form 1118 Foreign Tax
Credit-Corporations (OMB Control Num-
ber 1545-0123), and a written statement
providing specific information relating
to the FTR (covered under OMB Control
Number 1545-1056). Since the burden for
filing amended income tax returns and the
Forms 1116 and 1118 is covered under the
OMB Control Numbers listed in the prior
sentence, the burden estimates for OMB
Control Number 1545-1056 only cover
the burden for the written statements. Sec-
tions 1.905-5(b) and 1.905-5(e) only apply
to foreign tax redeterminations of foreign
corporations that relate to a taxable year of
the foreign corporation beginning before
January 1, 2018. Section 1.905-4 applies
to all other foreign tax redeterminations.
Section 1.905-5(b) and (e) reference the
same notification and information require-
ments as §1.905-4, subject to certain mod-
ifications.
For purposes of the PRA, the report-
ing burden associated with §§1.905-4 and
1.905-5(b) and (e) will be reflected in the
PRA submission associated with OMB
control number 1545-1056, which is set to
expire on December 31, 2020. The num-
ber of respondents to this collection was
estimated to be in a range from 8,900 to
13,500 and the total estimated burden time
was estimated to be 56,000 hours and total
estimated monetized costs of $2,583,840
($2017). The IRS will be requesting a
revision of the paperwork burden under
OMB control number 1545-1056 prior to
its expiration date.
For taxpayers who are required to file
an amended return (along with related
Form 1116 or Form 1118) in order to
report an FTR, and for purposes of the
PRA, the reporting burden for filing the
amended return will be reflected in OMB
control numbers 1545-0123 (relating to
business filers, which represents a to-
tal estimated burden time, including all
related forms and schedules, of 3.344
billion hours and total estimated mone-
tized costs of $61.558 billion ($2019)),
1545-0074 (relating to individual filers,
which represents a total estimated bur-
den time, including all related forms and
schedules, of 1.717 billion hours and to-
tal estimated monetized costs of $33.267
billion ($2019)), 1545-0092 (relating
to estate and trust filers with respect to
all related forms and schedules except
Form 1116, which represents a total esti-
mated burden time, including all related
forms and schedules except Form 1116,
of 307,844,800 hours and total estimat-
ed monetized costs of $14.077 billion
($2018)), and 1545-0121 (relating to
estate and trust filers but solely with re-
spect to Form 1116, which represents a
total estimated burden time related solely
to Form 1116 of 25,066,693 hours and to-
tal estimated monetized costs of $1.744
billion ($2018)). In general, burden esti-
mates for OMB control numbers 1545-
0123 and 1545-0074 include, and there-
fore do not isolate, the estimated burden
of the foreign tax credit-related forms.
These reported burdens are therefore in-
sufficient for future calculations of the
burden imposed by the final regulations.
However, with respect to estate and trust
filers (OMB control numbers 1545-0121
and 1545-0092) the burdens with respect
to foreign tax credit-related forms are
isolated in OMB control number 1545-
0121 which relates solely to Form 1116,
and, therefore may be sufficient to deter-
mine future burdens imposed by the fi-
nal regulations. These particular burden
estimates, except OMB control number
1545-0121, have also been reported for
other regulations related to the taxation
of cross-border income and the Treasury
Department and the IRS urge readers to
recognize that these numbers are dupli-
cates and to guard against overcounting
the burden that international tax provi-
sions imposed prior to the TCJA.
As a result of the changes made in the
TCJA to the foreign tax credit rules gen-
erally, and to section 905(c) specifically,
the Treasury Department and the IRS an-
ticipate that the number of respondents
may increase among taxpayers who file
Form 1120 series returns. The possible
increase in the number of respondents is
due to the increase in foreign tax credits

Bulletin No. 2020–49 1173 November 30, 2020
claimed by taxpayers in connection with
the new GILTI regime and the elimina-
tion of adjustments to pools of post-1986
earnings and profits and post-1986 for-
eign income taxes as an alternative to
filing an amended return following the
changes made in the TCJA. These chang-
es to the burden estimate will be reflected
in the PRA submission for the renewal of
OMB control number 1545-1056 as well
as in the OMB control numbers 1545-
0074 (for individuals) and 1545-0123
(for business taxpayers).
The estimates for the number of im-
pacted filers with respect to the collections
of information described in this Part II of
the Special Analyses are based on filers of
income tax returns that file a Form 1065,
Form 1040, or Form 1120 series for years
2015 through 2017 because only filers of
these forms are generally subject to the
collection of information requirement.
The IRS estimates the number of impact-
ed filers to be the following:
Tax Forms Impacted
Collection of InformationNumber of respondents
(estimated)
Forms to which the information may be attached
§1.905-48,900 - 13,500Form 1065 series, Form 1040 series, and Form 1120 series
§1.905-5(b)8,900 - 13,500Form 1065 series, Form 1040 series, and Form 1120 series
§1.905-5(e)8,900 - 13,500Form 1065 series, Form 1040 series, and Form 1120 series
Source: IRS data (MeF, DCS, and Compliance Data Warehouse)
No burden estimates specific to the final
regulations are currently available. The
Treasury Department and the IRS have
not estimated the burden, including that of
any new information collections, related
to the requirements under the final regula-
tions. Those estimates would capture both
changes made by the TCJA and those that
arise out of discretionary authority exer-
cised in the final regulations.
The Treasury Department and the IRS
request comments on all aspects of the
forms that reflect the information collec-
tion burdens related to the final regulations,
including estimates for how much time it
would take to comply with the paperwork
burdens related to the forms described and
ways for the IRS to minimize the paper-
work burden. Proposed revisions (if any) to
these forms that reflect the information col-
lections related to the final regulations will
be made available for public comment at
https://apps.irs.gov/app/picklist/list/draft-
TaxForms.html and will not be finalized
until after these forms have been approved
by OMB under the PRA.
B. Regulations relating to hybrid
arrangements and section 951A
Pursuant to §1.6038-2(f)(14), certain
U.S. shareholders of a CFC must provide
information relating to the CFC and the
rules of section 245A(e) on Form 5471,
“Information Return of U.S. Persons With
Respect to Certain Foreign Corporations,”
(OMB control number 1545-0123), as the
form or other guidance may prescribe.
The final regulations do not impose any
additional information collection re-
quirements relating to section 245A(e).
However, the final regulations provide
guidance regarding certain computations
required under section 245A(e), and such
could affect the information required to
be reported on Form 5471. For purposes
of the PRA, the reporting burden associ-
ated with §1.6038-2(f)(14) is reflected in
the PRA submission for Form 5471. See
the chart at the end of this Part II.B of this
Special Analyses section for the status of
the PRA submission for Form 5471. As
described in the Special Analyses section
in the 2020 hybrids final regulations, and
as set forth in the chart below, the Trea-
sury Department and the IRS estimate the
number of affected filers to be 2,000.
Pursuant to §1.6038-5, certain U.S.
shareholders of a CFC must provide in-
formation relating to the CFC and the
U.S. shareholder’s GILTI inclusion under
section 951A on new Form 8992, “U.S.
Shareholder Calculation of Global Intan-
gible Low-Taxed Income (GILTI),” (OMB
control number 1545-0123), as the form
or other guidance may prescribe. The final
regulations do not impose any additional
information collection requirements relat-
ing to section 951A. However, the final
regulations provide guidance regarding
computations required under section 951A
for taxpayers who engaged in certain trans-
actions during the disqualified period, and
such guidance could affect the information
required to be reported by these taxpayers
on Form 8992. For purposes of the PRA,
the reporting burden associated with the
collection of information under §1.6038-
5 is reflected in the PRA submission for
Form 8992. See the chart at the end of this
Part II.B of the Special Analyses for the
status of the PRA submission for Form
8992. As discussed in the Special Analyses
of the preamble to the proposed regulations
under section 951A (REG-104390-18, 83
FR 51072), and as set forth in the chart
below, the Treasury Department and the
IRS estimate the number of filers subject
to §1.6038-5 to be 25,000 to 35,000. Since
the final regulations only apply to taxpay-
ers who engaged in certain transactions
during the disqualified period, the Treasury
Department and the IRS estimate that the
number of filers affected by the final reg-
ulations and subject to the collection of in-
formation in §1.6038-5 will be significant-
ly less than 25,000 to 35,000.
There is no existing collection of in-
formation relating to conduit financing
arrangements, and the final regulations
do not impose any new information col-
lection requirements relating to conduit
financing arrangements. Therefore, a PRA
analysis is not required with respect to
the final regulations relating to conduit fi-
nancing arrangements.
As a result, the Treasury Department
and the IRS estimate the number of filers
affected by the final regulations for hybrid
arrangements and section 951A to be the
following.

November 30, 2020 1174 Bulletin No. 2020–49
Tax Forms Impacted
Collection of informationNumber of respondents (estimated,
rounded to nearest 1,000)
Forms in which information may be
collected
§1.6038-2(f)(14)2,000Form 5471 (Schedule I)
§1.6038-525,000 – 35,000Form 8992
Source: IRS data (MeF, DCS, and Compliance Data Warehouse)
The current status of the PRA sub-
missions related to the tax forms associ-
ated with the information collections in
§§1.6038-2(f)(14) and 1.6038-5 is provid-
ed in the accompanying table. The report-
ing burdens associated with the informa-
tion collections in §§1.6038-2(f)(14) and
1.6038-5 are included in the aggregated
burden estimates for OMB control num-
ber 1545-0123, which represents a total
estimated burden time for all forms and
schedules for corporations of 3.157 billion
hours and total estimated monetized costs
of $58.148 billion ($2017). The overall
burden estimates provided in 1545-0123
are aggregate amounts that relate to the
entire package of forms associated with
the OMB control number, and are there-
fore not suitable for future calculations
needed to assess the burden specific to
certain regulations, such as the informa-
tion collections under §1.6038-2(f)(14) or
§1.6038-5.
No burden estimates specific to the
final regulations are currently available.
The Treasury Department and the IRS
have not identified any burden estimates,
including those for new information col-
lections, related to the requirements under
the final regulations. The Treasury De-
partment and the IRS estimate PRA bur-
dens on a taxpayer-type basis rather than a
provision-specific basis. Changes in those
estimates from the estimates reported
here will capture both changes made by
the TCJA and those that arise out of dis-
cretionary authority exercised in the final
regulations.
The Treasury Department and the IRS
request comments on the forms that re-
flect the information collection burdens
related to the final regulations, including
estimates for how much time it would take
to comply with the paperwork burdens re-
lated to the forms described and ways for
the IRS to minimize the paperwork bur-
den. Proposed revisions (if any) to these
forms that reflect the information collec-
tions related to the final regulations will
be made available for public comment at
https://apps.irs.gov/app/picklist/list/draft-
TaxForms.html and will not be finalized
until after these forms have been approved
by OMB under the PRA.
FormType of FilerOMB Num-
ber(s)
Status
Form 5471Business (NEW Model)1545-0123Approved by OIRA 1/30/2020 until 1/31/2021.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
Individual (NEW Model)1545-0074Approved by OIRA 1/30/2020 until 1/31/2021.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201909-1545-021
Form 8992Business (NEW Model)1545-0123Approved by OIRA 1/30/2020 until 1/31/2021.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that these final regulations will not
have a significant economic impact on a
substantial number of small entities within
the meaning of section 601(6) of the Reg-
ulatory Flexibility Act.
A. Regulations relating to foreign tax
credits
These final regulations provide guid-
ance needed to comply with statutory
changes and affect individuals and corpo-
rations claiming foreign tax credits. The
domestic small business entities that are
subject to the foreign tax credit rules in
the Code and in these final regulations are
generally those domestic small business
entities that are at least 10 percent corpo-
rate shareholders of foreign corporations,
and so are eligible to claim dividends-re-
ceived deductions or compute foreign
taxes deemed paid under section 960 with
respect to inclusions under subpart F and
section 951A from CFCs. Other aspects of
these final regulations also affect domes-
tic small business entities that operate in
foreign jurisdictions or that have income
from sources outside of the United States.
Based on 2017 Statistics of Income data,
the Treasury Department and the IRS
computed the fraction of taxpayers own-
ing a CFC by gross receipts size class. The
smaller size classes have a relatively small
fraction of taxpayers that own CFCs,
which suggests that many domestic small
business entities would be unaffected by
these regulations.
Many of the important aspects of
these final regulations, including all
of the rules in §§1.861-8(d)(2)(ii)(B),
1.904-4(c)(7), 1.904-6(f), 1.905-3(b)(2),
1.905-5, 1.954-1, 1.954-2, and 1.965-
5(b)(2) apply only to U.S. persons that
operate a foreign business in corporate

Bulletin No. 2020–49 1175 November 30, 2020
form, and, in most cases, only if the for-
eign corporation is a CFC. Other provi-
sions in these final regulations, including
the rules in §§1.861-8(d)(2)(v) and (e)
(16), 1.861-14, 1.1502-4, and 1.1502-
21, generally apply only to members of
a consolidated group and insurance com-
panies or other members of the financial
services industry earning income from
sources outside of the United States. It is
infrequent for domestic small entities to
operate as part of an affiliated group, to
be taxed as an insurance company, or to
constitute a financial services entity, and
also earn income from sources outside
of the United States. Consequently, the
Treasury Department and the IRS expect
that these final regulations are unlikely to
affect a substantial number of domestic
small business entities; however, ade-
quate data are not available at this time to
certify that a substantial number of small
entities would be unaffected.
The Treasury Department and the IRS
have determined that these final regula-
tions will not have a significant econom-
ic impact on domestic small business
entities. Based on published informa-
tion from 2017, foreign tax credits as a
percentage of three different tax-related
measures of annual receipts (see Table
for variables) by corporations are sub-
stantially less than the 3 to 5 percent
threshold for significant economic im-
pact for businesses in all categories of
business receipts. The amount of foreign
tax credits in 2017 is an upper bound on
the change in foreign tax credits resulting
from these final regulations.
Size (by
Business
Receipts)

under
$500,000
$500,000
under
$1,000,000
$1,000,000
under
$5,000,000
$5,000,000
under
$10,000,000
$10,000,000
under
$50,000,000
$50,000,000
under
$100,000,000
$100,000,000
under
$250,000,000
$250,000,000
or
more
FTC/Total
Receipts0.12%0.00%0.00%0.01%0.01%0.01%0.02%0.28%
FTC/(Total
Receipts-To-
tal Deduc-
tions)0.61%0.03%0.09%0.05%0.35%0.71%1.38%9.89%
FTC/
Business
Receipts0.84%0.00%0.00%0.00%0.01%0.01%0.02%0.05%
Source: RAAS: KDA: (Tax Year 2017 SOI Data)
Although §1.905-4 contains a collec-
tion of information requirement, the small
businesses that are subject to the require-
ments of §1.905-4 are domestic small en-
tities with significant foreign operations.
The data to assess precise counts of small
entities affected by §1.905-4 are not read-
ily available. However, as demonstrated
in the accompanying Table in this Part III,
foreign tax credits do not have a significant
economic impact for any gross-receipts
class of business entities. Accordingly, it
is hereby certified that the requirements of
§1.905-4 will not have a significant eco-
nomic impact on a substantial number of
small entities.
Pursuant to section 7805(f), the pro-
posed regulations preceding these final
regulations (REG-105495-19) were sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business-
es and no comments were received.
B. Regulations relating to hybrid
arrangements and section 951A
The final regulations amend certain
computations required under section
245A(e) or section 951A. As discussed
in the Special Analyses accompanying
the preambles to the 2020 hybrids final
regulations and the proposed regulations
under section 951A (REG-104390-18, 83
FR 51072), as well as in Part II.B of the
Special Analyses, the Treasury Depart-
ment and the IRS project that a substan-
tial number of domestic small business
entities will not be subject to sections
245A(e) and 951A, and therefore, the ex-
isting requirements in §§1.6038-2(f)(14)
and 1.6038-5 will not have a significant
economic impact on a substantial number
of small entities.
The small entities that are subject to
section 245A(e) and §1.6038-2(f)(14) are
controlling U.S. shareholders of a CFC
that engage in a hybrid arrangement, and
the small entities that are subject to sec-
tion 951A and §1.6038-5 are U.S. share-
holders of a CFC. A CFC is a foreign cor-
poration in which more than 50 percent of
its stock is owned by U.S. shareholders,
measured either by value or voting power.
A U.S. shareholder is any U.S. person that
owns 10 percent or more of a foreign cor-
poration’s stock, measured either by value
or voting power, and a controlling U.S.
shareholder of a CFC is a U.S. person that
owns more than 50 percent of the CFC’s
stock.
The Treasury Department and the IRS
estimate that there are only a small number
of taxpayers having gross receipts below
either $25 million (or $41.5 million for fi-
nancial entities) who would potentially be
affected by these regulations.
14
The Trea-
sury Department and the IRS’s estimate
of those entities who could potentially be
affected is based on their review of those
14
This estimate is limited to those taxpayers who report gross receipts above $0.

November 30, 2020 1176 Bulletin No. 2020–49
taxpayers who filed a domestic corporate
income tax return in 2016 with gross re-
ceipts below either $25 million (or $41.5
million for financial institutions) who also
reported dividends on a Form 5471. The
Treasury Department and the IRS estimate
that this number is between 1 and 6 percent
of all affected entities regardless of size.
The Treasury Department and the IRS
cannot readily identify from these data
amounts that are received pursuant to hy-
brid arrangements because those amounts
are not separately reported on tax forms.
Thus, dividends received as reported on
Form 5471 are an upper bound on the
amount of hybrid arrangements by these
taxpayers.
The Treasury Department and the IRS
estimated the upper bound of the relative
cost of the statutory and regulatory hybrids
provisions, as a percentage of revenue, for
these taxpayers as (i) the statutory tax rate
of 21 percent multiplied by dividends re-
ceived as reported on Form 5471, divided
by (ii) the taxpayer’s gross receipts. Based
on this calculation, the Treasury Depart-
ment and the IRS estimate that the upper
bound of the relative cost of these statutory
and regulatory provisions is above 3 percent
for more than half of the small entities de-
scribed in the preceding paragraph. Because
this estimate is an upper bound, a smaller
subset of these taxpayers (including poten-
tially zero taxpayers) is likely to have a cost
above three percent of gross receipts.
Pursuant to section 7805(f), the pro-
posed regulations preceding these final
regulations (REG-106013-19) were sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business-
es and no comments were received.
IV. 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 be-
fore issuing a final rule that includes any
Federal mandate that may result in expen-
ditures 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 infla-
tion. This rule does not include any Fed-
eral mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive order. This rule does not
have federalism implications and does
not impose substantial direct compliance
costs on state and local governments or
preempt state law within the meaning of
the Executive order.
VI. Congressional Review Act
The Administrator of the Office of In-
formation and Regulatory Affairs of the
OMB has determined that this Treasury
decision is a major rule for purposes of the
Congressional Review Act (5 U.S.C. 801
et seq.) (‘‘CRA’’). Under section 801(3) of
the CRA, a major rule takes effect 60 days
after the rule is published in the Federal
Register. Accordingly, the Treasury De-
partment and IRS are adopting these final
regulations with the delayed effective date
generally prescribed under the Congres-
sional Review Act.
Drafting Information
The principal authors of the final reg-
ulations are Corina Braun, Karen J. Cate,
Jeffrey P. Cowan, Jorge M. Oben, Richard
F. Owens, Jeffrey L. Parry, Tracy M. Vil-
lecco, Suzanne M. Walsh, and Andrew L.
Wigmore of the Office of Associate Chief
Counsel (International). However, other
personnel from the Treasury Department
and the IRS participated in their develop-
ment.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 301
Income taxes, Penalties, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising the entry for
§1.861-14 and adding an entry for §1.905-
4 in numerical order to read in part as fol-
lows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 1.861-14 also issued under 26
U.S.C. 864(e)(7).
* * * * *
Section 1.905-4 also issued under 26
U.S.C. 989(c)(4), 26 U.S.C. 6227(d), 26
U.S.C. 6241(11), and 26 U.S.C. 6689(a).
* * * * *
Par. 2. Section 1.245A(e)-1 is amended
by:
1. Adding paragraphs (d)(4)(i)(B) and
(d)(4)(ii).
2. Adding a sentence at the end of the
introductory text of paragraph (g).
3. Adding paragraphs (g)(1)(v) and (h)
(2).
The additions read as follows:
§1.245A(e)-1 Special rules for hybrid
dividends.
* * * * *
(d) * * *
(4) * * *
(i) * * *
(B) Second, the account is decreased
(but not below zero) pursuant to the rules
of paragraphs (d)(4)(i)(B)(1) through (3)
of this section, in the order set forth in this
paragraph (d)(4)(i)(B).
(1) Adjusted subpart F inclusions—(i)
In general. Subject to the limitation in para-
graph (d)(4)(i)(B)(1)(ii) of this section, the
account is reduced by an adjusted subpart
F inclusion with respect to the share for the
taxable year, as determined pursuant to the
rules of paragraph (d)(4)(ii) of this section.
(ii) Limitation. The reduction pursuant
to paragraph (d)(4)(i)(B)(1)(i) of this sec-

Bulletin No. 2020–49 1177 November 30, 2020
tion cannot exceed the hybrid deductions
of the CFC allocated to the share for the
taxable year multiplied by a fraction, the
numerator of which is the sum of the items
of gross income of the CFC that give rise
to subpart F income (determined without
regard to an amount treated as subpart F
income by reason of section 964(e)(4)(A)
(i), to the extent that a deduction under
section 245A(a) is allowed for a portion of
the amount included under section 964(e)
(4)(A)(ii) in the gross income of a domes-
tic corporation) of the CFC for the taxable
year and the denominator of which is the
sum of all the items of gross income of the
CFC for the taxable year.
(iii) Special rule allocating otherwise
unused adjusted subpart F inclusions
across accounts in certain cases. This
paragraph (d)(4)(i)(B)(1)(iii) applies after
each of the specified owner’s hybrid de-
duction accounts with respect to its shares
of stock of the CFC are adjusted pursuant
to paragraph (d)(4)(i)(B)(1)(i) of this sec-
tion but before the accounts are adjusted
pursuant to paragraph (d)(4)(i)(B)(2) of
this section, to the extent that one or more
of the hybrid deduction accounts would
have been reduced by an amount pursuant
to paragraph (d)(4)(i)(B)(1)(i) of this sec-
tion but for the limitation in paragraph (d)
(4)(i)(B)(1)(ii) of this section (the aggre-
gate of the amounts that would have been
reduced but for the limitation, the unused
reduction amount, and the accounts that
would have been reduced by the unused
reduction amount, the unused reduction
amount accounts). When this paragraph
(d)(4)(i)(B)(1)(iii) applies, the specified
owner’s hybrid deduction accounts oth-
er than the unused reduction amount ac-
counts (if any) are ratably reduced by the
lesser of the unused reduction amount
and the difference of the following two
amounts: the hybrid deductions of the
CFC allocated to the specified owner’s
shares of stock of the CFC for the taxable
year multiplied by the fraction described
in paragraph (d)(4)(i)(B)(1)(ii) of this
section; and the reductions pursuant to
paragraph (d)(4)(i)(B)(1)(i) of this sec-
tion with respect to the specified owner’s
shares of stock of the CFC.
(2) Adjusted GILTI inclusions—(i) In
general. Subject to the limitation in para-
graph (d)(4)(i)(B)(2)(ii) of this section,
the account is reduced by an adjusted
GILTI inclusion with respect to the share
for the taxable year, as determined pursu-
ant to the rules of paragraph (d)(4)(ii) of
this section.
(ii) Limitation. The reduction pursuant
to paragraph (d)(4)(i)(B)(2)(i) of this sec-
tion cannot exceed the hybrid deductions
of the CFC allocated to the share for the
taxable year multiplied by a fraction, the
numerator of which is the sum of the items
of gross tested income of the CFC for the
taxable year and the denominator of which
is the sum of all the items of gross income
of the CFC for the taxable year.
(iii) Special rule allocating otherwise
unused adjusted GILTI inclusions across
accounts in certain cases. This paragraph
(d)(4)(i)(B)(2)(iii) applies after each of
the specified owner’s hybrid deduction
accounts with respect to its shares of stock
of the CFC are adjusted pursuant to para-
graph (d)(4)(i)(B)(2)(i) of this section but
before the accounts are adjusted pursuant
to paragraph (d)(4)(i)(B)(3) of this sec-
tion, to the extent that one or more of the
hybrid deduction accounts would have
been reduced by an amount pursuant to
paragraph (d)(4)(i)(B)(2)(i) of this section
but for the limitation in paragraph (d)(4)(i)
(B)(2)(ii) of this section (the aggregate of
the amounts that would have been reduced
but for the limitation, the unused reduc-
tion amount, and the accounts that would
have been reduced by the unused reduc-
tion amount, the unused reduction amount
accounts). When this paragraph (d)(4)(i)
(B)(2)(iii) applies, the specified owner’s
hybrid deduction accounts other than the
unused reduction amount accounts (if
any) are ratably reduced by the lesser of
the unused reduction amount and the dif-
ference of the following two amounts: the
hybrid deductions of the CFC allocated to
the specified owner’s shares of stock of
the CFC for the taxable year multiplied by
the fraction described in paragraph (d)(4)
(i)(B)(2)(ii) of this section; and the reduc-
tions pursuant to paragraph (d)(4)(i)(B)(2)
(i) of this section with respect to the spec-
ified owner’s shares of stock of the CFC.
See paragraph (g)(1)(v)(C) of this section
for an illustration of the application of this
paragraph (d)(4)(i)(B)(2)(iii).
(3) Certain section 956 inclusions.
The account is reduced by an amount in-
cluded in the gross income of a domestic
corporation under sections 951(a)(1)(B)
and 956 with respect to the share for the
taxable year of the domestic corporation
in which or with which the CFC’s taxable
year ends, to the extent so included by rea-
son of the application of section 245A(e)
and this section to the hypothetical distri-
bution described in §1.956-1(a)(2).
* * * * *
(ii) Rules regarding adjusted subpart
F and GILTI inclusions. (A) The term
adjusted subpart F inclusion means, with
respect to a share of stock of a CFC for a
taxable year of the CFC, a domestic cor-
poration’s pro rata share of the CFC’s sub-
part F income included in gross income
under section 951(a)(1)(A) (determined
without regard to an amount included in
gross income by the domestic corpora-
tion by reason of section 964(e)(4)(A)(ii),
to the extent a deduction under section
245A(a) is allowed for the amount) for the
taxable year of the domestic corporation
in which or with which the CFC’s taxable
year ends, to the extent attributable to the
share (as determined under the principles
of section 951(a)(2) and §1.951-1(b) and
(e)), adjusted (but not below zero) by—
(1) Adding to the amount the associ-
ated foreign income taxes with respect to
the amount; and
(2) Subtracting from such sum the quo-
tient of the associated foreign income tax-
es divided by the percentage described in
section 11(b).
(B) The term adjusted GILTI inclu-
sion means, with respect to a share of
stock of a CFC for a taxable year of the
CFC, a domestic corporation’s GILTI in-
clusion amount (within the meaning of
§1.951A-1(c)(1)) for the U.S. sharehold-
er inclusion year (within the meaning of
§1.951A-1(f)(7)), to the extent attribut-
able to the share (as determined under
paragraph (d)(4)(ii)(C) of this section),
adjusted (but not below zero) by—
(1) Adding to the amount the associ-
ated foreign income taxes with respect to
the amount;
(2) Multiplying such sum by the differ-
ence of 100 percent and the section 250(a)
(1)(B)(i) deduction percentage; and
(3) Subtracting from such product the
quotient of 80 percent of the associated
foreign income taxes divided by the per-
centage described in section 11(b).
(C) A domestic corporation’s GILTI
inclusion amount for a U.S. shareholder

November 30, 2020 1178 Bulletin No. 2020–49
inclusion year is attributable to a share of
stock of the CFC based on a fraction—
(1) The numerator of which is the do-
mestic corporation’s pro rata share of the
tested income of the CFC for the U.S.
shareholder inclusion year, to the extent
attributable to the share (as determined
under the principles of §1.951A-1(d)(2));
and
(2) The denominator of which is the
aggregate of the domestic corporation’s
pro rata share of the tested income of
each tested income CFC (as defined in
§1.951A-2(b)(1)) for the U.S. shareholder
inclusion year.
(D) The term associated foreign in-
come taxes means—
(1) With respect to a domestic cor-
poration’s pro rata share of the subpart
F income of the CFC included in gross
income under section 951(a)(1)(A) and
attributable to a share of stock of a CFC
for a taxable year of the CFC, current year
tax (as described in §1.960-1(b)(4)) allo-
cated and apportioned under §1.960-1(d)
(3)(ii) to the subpart F income groups (as
described in §1.960-1(b)(30)) of the CFC
for the taxable year, to the extent allocated
to the share under paragraph (d)(4)(ii)(E)
of this section; and
(2) With respect to a domestic corpora-
tion’s GILTI inclusion amount under sec-
tion 951A attributable to a share of stock
of a CFC for a taxable year of the CFC,
the product of—
(i) Current year tax (as described in
§1.960-1(b)(4)) allocated and apportioned
under §1.960-1(d)(3)(ii) to the tested in-
come groups (as described in §1.960-1(b)
(33)) of the CFC for the taxable year, to
the extent allocated to the share under
paragraph (d)(4)(ii)(F) of this section;
(ii) The domestic corporation’s inclu-
sion percentage (as described in §1.960-
2(c)(2)); and
(iii) The section 904 limitation fraction
with respect to the domestic corporation
for the U.S. shareholder inclusion year.
(E) Current year tax allocated and ap-
portioned to a subpart F income group of
a CFC for a taxable year is allocated to a
share of stock of the CFC by multiplying
the foreign income tax by a fraction—
(1) The numerator of which is the do-
mestic corporation’s pro rata share of the
subpart F income of the CFC for the tax-
able year, to the extent attributable to the
share (as determined under the principles
of section 951(a)(2) and §1.951-1(b) and
(e)); and
(2) The denominator of which is the
subpart F income of the CFC for the tax-
able year.
(F) Current year tax allocated and ap-
portioned to a tested income group of a
CFC for a taxable year is allocated to a
share of stock of the CFC by multiplying
the foreign income tax by a fraction—
(1) The numerator of which is the
domestic corporation’s pro rata share
of tested income of the CFC for the tax-
able year, to the extent attributable to the
share (as determined under the principles
§1.951A-1(d)(2)); and
(2) The denominator of which is the
tested income of the CFC for the taxable
year.
(G) The term section 904 limitation
fraction means, with respect to a domestic
corporation for a U.S. shareholder inclu-
sion year, a fraction—
(1) The numerator of which is the
amount of foreign tax credits for the U.S.
shareholder inclusion year that, by reason
of sections 901 and 960(d) and taking into
account section 904, the domestic corpo-
ration is allowed for the separate category
set forth in section 904(d)(1)(A) (amounts
includible in gross income under section
951A); and
(2) The denominator of which is the
amount of foreign tax credits for the U.S.
shareholder inclusion year that, by reason
of sections 901 and 960(d) and without
regard to section 904, the domestic corpo-
ration would be allowed for the separate
category set forth in section 904(d)(1)(A)
(amounts includible in gross income un-
der section 951A).
(H) The term section 250(a)(1)(B)(i)
deduction percentage means, with respect
to a domestic corporation for a U.S. share-
holder inclusion year, a fraction—
(1) The numerator of which is the
amount of the deduction under section
250 allowed to the domestic corporation
for the U.S. shareholder inclusion year by
reason of section 250(a)(1)(B)(i) (taking
into account section 250(a)(2)(B)); and
(2) The denominator of which is the
domestic corporation’s GILTI inclusion
amount for the U.S. shareholder inclusion
year.
* * * * *
(g) * * * No amounts are included in
the gross income of US1 under section
951(a)(1)(A), 951A(a), or 951(a)(1)(B)
and section 956.
(1) * * *
(v) Alternative facts – account reduced
by adjusted GILTI inclusion. The facts
are the same as in paragraph (g)(1)(i) of
this section, except that for taxable year 1
FX has $130x of gross tested income and
$10.5x of current year tax (as described
in §1.960-1(b)(4)) that is allocated and
apportioned under §1.960-1(d)(3)(ii) to
the tested income groups of FX. US1’s
ability to credit the $10.5x of current year
tax is not limited under section 904(a).
In addition, FX has $119.5x of tested in-
come ($130x of gross tested income, less
the $10.5x of current year tax deductions
properly allocable to the gross tested in-
come). Further, of US1’s pro rata share of
the tested income ($119.5x), $80x is at-
tributable to Share A and $39.5x is attrib-
utable to Share B (as determined under the
principles of §1.951A-1(d)(2)). Moreover,
US1’s net deemed tangible income return
(as defined in §1.951A-1(c)(3)) for taxable
year 1 is $71.7x, and US1 does not own
any stock of a CFC other than its stock of
FX. Thus, US1’s GILTI inclusion amount
(within the meaning of §1.951A-1(c)(1))
for taxable year 1, the U.S. shareholder in-
clusion year, is $47.8x (net CFC tested in-
come of $119.5x, less net deemed tangible
income return of $71.7x) and US1’s inclu-
sion percentage (as described in §1.960-
2(c)(2)) is 40 ($47.8x/$119.5x). The de-
duction allowed to US1 under section
250 by reason of section 250(a)(1)(B)(i)
is not limited as a result of section 250(a)
(2)(B). At the end of year 1, US1’s hybrid
deduction account with respect to Share A
is: first, increased by $80x (the amount of
hybrid deductions allocated to Share A);
and second, decreased by $10x (the sum
of the adjusted GILTI inclusion with re-
spect to Share A, and the adjusted GILTI
inclusion with respect to Share B that is
allocated to the hybrid deduction account
with respect to Share A) to $70x. See para-
graphs (d)(4)(i)(A) and (B) of this section.
In year 2, the entire $30x of each dividend
received by US1 from FX during year 2
is a hybrid dividend, because the sum of
US1’s hybrid deduction accounts with re-
spect to each of its shares of FX stock at
the end of year 2 ($70x) is at least equal to

Bulletin No. 2020–49 1179 November 30, 2020
the amount of the dividends ($60x). See
paragraph (b)(2) of this section. At the end
of year 2, US1’s hybrid deduction account
with respect to Share A is decreased by
$60x (the amount of the hybrid deductions
in the account that give rise to a hybrid
dividend or tiered hybrid dividend during
year 2) to $10x. See paragraph (d)(4)(i)
(C) of this section. Paragraphs (g)(1)(v)
(A) through (C) of this section describe
the computations pursuant to paragraph
(d)(4)(i)(B)(2) of this section.
(A) To determine the adjusted GILTI
inclusion with respect to Share A for
taxable year 1, it must be determined to
what extent US1’s $47.8x GILTI inclu-
sion amount is attributable to Share A.
See paragraph (d)(4)(ii)(B) of this sec-
tion. Here, $32x of the inclusion is attrib-
utable to Share A, calculated as $47.8x
multiplied by a fraction, the numerator of
which is $80x (US1’s pro rata share of the
tested income of FX attributable to Share
A) and denominator of which is $119.5x
(US1’s pro rata share of the tested income
of FX, its only CFC). See paragraph (d)
(4)(ii)(C) of this section. Next, the associ-
ated foreign income taxes with respect to
the $32x GILTI inclusion amount attribut-
able to Share A must be determined. See
paragraphs (d)(4)(ii)(B) and (D) of this
section. Such associated foreign income
taxes are $2.8x, calculated as $10.5x (the
current year tax allocated and apportioned
to the tested income groups of FX) multi-
plied by a fraction, the numerator of which
is $80x (US1’s pro rata share of the tested
income of FX attributable to Share A) and
the denominator of which is $119.5x (the
tested income of FX), multiplied by 40%
(US1’s inclusion percentage), multiplied
by 1 (the section 904 limitation fraction
with respect to US1’s GILTI inclusion
amount). See paragraphs (d)(4)(ii)(D),
(F), and (G) of this section. Thus, pursuant
to paragraph (d)(4)(ii)(B) of this section,
the adjusted GILTI inclusion with respect
to Share A is $6.7x, computed by—
(1) Adding $2.8x (the associated for-
eign income taxes with respect to the $32x
GILTI inclusion attributable to Share A) to
$32x, which is $34.8x;
(2) Multiplying $34.8x (the sum of the
amounts in paragraph (g)(1)(v)(A)(1) of
this section) by 50% (the difference of 100
percent and the section 250(a)(1)(B)(i) de-
duction percentage), which is $17.4x; and
(3) Subtracting $10.7x (calculated as
$2.24x (80% of the $2.8x of associated
foreign income taxes) divided by .21 (the
percentage described in section 11(b))
from $17.4x (the product of the amounts
in paragraph (g)(1)(v)(A)(2) of this sec-
tion), which is $6.7x.
(B) Pursuant to computations similar
to those discussed in paragraph (g)(1)(v)
(A) of this section, the adjusted GILTI in-
clusion with respect to Share B is $3.3x.
However, the hybrid deduction account
with respect to Share B is not reduced by
such $3.3x, because of the limitation in
paragraph (d)(4)(i)(B)(2)(ii) of this sec-
tion, which, with respect to Share B, limits
the reduction pursuant to paragraph (d)(4)
(i)(B)(2)(i) of this section to $0 (calculat-
ed as $0, the hybrid deductions allocated
to the share for the taxable year, multiplied
by 1, the fraction described in paragraph
(d)(4)(i)(B)(2)(ii) of this section (comput-
ed as $130x, the sole item of gross tested
income, divided by $130x, the sole item
of gross income)). See paragraphs (d)(4)
(i)(B)(2
)(i) and (ii) of this section.
(C) US1’s hybrid deduction account
with respect to Share A is reduced by the
entire $6.7x adjusted GILTI inclusion with
respect to the share, as such $6.7x does
not exceed the limit in paragraph (d)(4)(i)
(B)(2)(ii) of this section ($80x, calculated
as $80x, the hybrid deductions allocated
to the share for the taxable year, multi-
plied by 1, the fraction described in para-
graph (d)(4)(i)(B)(2)(ii) of this section).
See paragraphs (d)(4)(i)(B)(2)(i) and (ii)
of this section. In addition, the hybrid
deduction account is reduced by another
$3.3x, the amount of the adjusted GILTI
inclusion with respect to Share B that is
allocated to the hybrid deduction account
with respect to Share A. See paragraph (d)
(4)(i)(B)(2)(iii) of this section. As a result,
pursuant to paragraph (d)(4)(i)(B)(2) of
this section, US1’s hybrid deduction ac-
count with respect to Share A is reduced
by $10x ($6.7x plus $3.3x).
* * * * *
(h) * * *
(2) Special rules. Paragraphs (d)(4)(i)
(B) and (d)(4)(ii) of this section (decrease
of hybrid deduction accounts; rules re-
garding adjusted subpart F and GILTI in-
clusions) apply to taxable years ending on
or after November 12, 2020. However, a
taxpayer may choose to apply paragraphs
(d)(4)(i)(B) and (d)(4)(ii) of this section
to a taxable year ending before November
12, 2020, so long as the taxpayer consis-
tently applies paragraphs (d)(4)(i)(B) and
(d)(4)(ii) of this section to that taxable
year and any subsequent taxable year end-
ing before November 12, 2020.
Par. 3. Section 1.704-1 is amended by:
1. In paragraph (b)(1)(ii)(b)(1), revis-
ing the fourth sentence and adding a new
fifth sentence.
2. Revising paragraph (b)(4)(viii)(d)
(1).
The revisions and addition read as fol-
lows:
§1.704-1 Partner’s distributive share.
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(b) * * *
(1) * * * Except as provided in the next
sentence, the provisions of paragraphs (b)
(4)(viii)(a)(1), (b)(4)(viii)(c)(1), (b)(4)
(viii)(c)(2)(ii) and (iii), (b)(4)(viii)(c)(3)
and (4), and (b)(4)(viii)(d)(1) (as in effect
on July 24, 2019) and in paragraphs (b)(6)
(i), (ii), and (iii) of this section (Examples
1, 2, and 3) apply for partnership taxable
years that both begin on or after January 1,
2016, and end after February 4, 2016. For
partnership taxable years beginning after
December 31, 2019, paragraph (b)(4)(viii)
(d)(1) of this section applies. * * *
* * * * *
(4) * * *
(viii) * * *
(d) * * * (1) In general. CFTEs are
allocated and apportioned to CFTE cat-
egories in accordance with §1.861-20 by
treating each CFTE category as a statutory
grouping (with no residual grouping). See
paragraphs (b)(6)(ii) and (iii) of this sec-
tion (Examples 2 and 3), which illustrate
the application of this paragraph (b)(4)
(viii)(d)(1) in the case of serial disregard-
ed payments subject to withholding tax. In
addition, if as described in §1.861-20(e),
foreign law does not provide for the direct
allocation or apportionment of expenses,
losses or other deductions allowed under
foreign law to a CFTE category of in-
come, then such expenses, losses or other
deductions must be allocated and appor-
tioned to gross income as determined un-

November 30, 2020 1180 Bulletin No. 2020–49
der foreign law in a manner that is consis-
tent with the allocation and apportionment
of such items for purposes of determining
the net income in the CFTE categories for
Federal income tax purposes pursuant to
paragraph (b)(4)(viii)(c)(3) of this section.
* * * * *
Par. 4. Section 1.861-8 is amended by:
1. Adding a sentence to the end of para-
graph (a)(1).
2. In paragraph (d)(1), removing the
language Ҥ1.1502-4(d)(1) and the last
sentence of” in the fifth sentence and re-
moving the last sentence.
3. Revising paragraph (d)(2)(ii)(B).
4. Adding paragraph (d)(2)(v).
5. Revising paragraph (e)(4)(ii).
6. Redesignating paragraph (e)(5) as
paragraph (e)(5)(i).
7. Adding a heading for paragraph (e)
(5) and paragraphs (e)(5)(ii) and (iii).
8. Revising the first sentence of para-
graph (e)(6)(i) and paragraphs (e)(7) and
(8).
9. Adding paragraphs (e)(16) and (g)
(15) through (18).
10. Revising paragraph (h).
The additions and revisions read as fol-
lows:
§1.861-8 Computation of taxable income
from sources within the United States and
from other sources and activities.
(a) * * *
(1) * * * The term section 861 regula-
tions means this section and §§1.861-8T,
1.861-9, 1.861-9T, 1.861-10, 1.861-10T,
1.861-11, 1.861-11T, 1.861-12, 1.861-
12T, 1.861-13, 1.861-14, 1.861-14T,
1.861-17, and 1.861-20.
* * * * *
(d) * * *
(2) * * *
(ii) * * *
(B) Certain stock and dividends. The
term exempt income includes the por-
tion of the dividends that are deductible
under section 243(a)(1) or (2) (relating
to the dividends received deduction) or
section 245(a) (relating to the dividends
received deduction for dividends from
certain foreign corporations). Thus, for
purposes of apportioning deductions us-
ing a gross income method, gross income
does not include a dividend to the extent
that it gives rise to a dividends-received
deduction under either section 243(a)
(1), section 243(a)(2), or section 245(a).
In addition, for purposes of apportioning
deductions using an asset method, assets
do not include that portion of the value of
the stock (determined in accordance with
§1.861-9(g), and, as relevant, §§1.861-
12 and 1.861-13) equal to the portion of
dividends that would be offset by a de-
duction under either section 243(a)(1),
section 243(a)(2), or section 245(a), to the
extent the stock generates, has generated,
or can reasonably be expected to generate
such dividends. For example, in the case
of stock for which all dividends would be
allowed a deduction of 50 percent under
section 243(a)(1), 50 percent of the value
of the stock is treated as an exempt asset.
In the case of stock which generates, has
generated, or can reasonably be expected
to generate qualifying dividends deduct-
ible under section 243(a)(3), such stock
does not constitute an exempt asset. How-
ever, such stock and the qualifying divi-
dends thereon are eliminated from con-
sideration in the apportionment of interest
expense under the affiliated group rule set
forth in §1.861-11T(c), and in the appor-
tionment of other expenses under the affil-
iated group rules set forth in §1.861-14T.
* * * * *
(v) Dividends-received deduction and
tax-exempt interest of insurance compa-
nies—(A) In general. For purposes of
characterizing gross income or assets as
exempt or not exempt under this section,
the following rules apply on a company
wide basis pursuant to the rules in para-
graphs (d)(2)(v)(A)(1) and (2) of this sec-
tion.
(1
) In the case of an insurance com-
pany taxable under section 801, the term
exempt income includes the portion of
dividends received that satisfy the re-
quirements of deductibility under sections
243(a)(1) and (2) and 245(a) but without
regard to any disallowance under section
805(a)(4)(A)(ii) of the policyholder’s
share of the dividends or any similar dis-
allowance under section 805(a)(4)(D),
and also includes tax-exempt interest but
without reduction for the policyholder’s
share of tax-exempt interest that reduces
the closing balance of items described in
section 807(c), as provided under section
807(a)(2)(B) and 807(b)(1)(B). The term
exempt assets includes the corresponding
portion of assets that generates, has gen-
erated, or can reasonably be expected to
generate exempt income described in the
preceding sentence. See §1.861-8(e)(16)
for a special rule concerning the allocation
of reserve expenses to dividends received
by a life insurance company.
(2) In the case of an insurance com-
pany taxable under section 831, the term
exempt income includes the portion of in-
terest and dividends deductible under sec-
tions 832(c)(7) and (12) or sections 834(c)
(1) and (7). Exempt income also includes
the amounts reducing the losses incurred
under section 832(b)(5) to the extent such
amounts are not already taken into ac-
count in the preceding sentence. The term
exempt assets includes the corresponding
portion of assets that give rise to exempt
income described in the preceding two
sentences.
(B) Examples. The following examples
illustrate the application of paragraph (d)
(2)(v)(A) of this section.
(1) Example 1—(i) Facts. USC is a domestic life
insurance company that has $300x of gross income,
consisting of $100x of foreign source general cate-
gory income and $200x of U.S. source passive cat-
egory interest income, $100x of the latter of which
is tax-exempt interest income from municipal bonds
under section 103. USC’s opening balance of its sec-
tion 807(c) reserves is $50,000x and USP’s closing
balance of its section 807(c) reserves is $50,130x.
Under section 807(b)(1)(B), USP’s closing balance
of its section 807(c) reserves, $50,130x, is reduced
by the amount of the policyholder’s share of tax-ex-
empt interest. The policyholder’s share of tax-ex-
empt interest under section 812(b) is equal to 30
percent of the $100x of tax-exempt interest ($30x).
Therefore, under sections 803(a)(2) and 807(b),
USP’s reserve deduction is $100x ($50,130x of re-
serve deduction minus $30x (30 percent of $100x of
tax-exempt interest), minus $50,000x). USC has no
other income or deductions.
(ii) Analysis — allocation. Under section 818(f)
(1), USC’s reserve deduction is treated as an item
that cannot be definitely allocated to an item or class
of gross income. Accordingly, under paragraph (b)
(5) of this section, USC’s reserve deduction is alloca-
ble to all of USC’s gross income as a class.
(iii) Analysis — apportionment. Under paragraph
(c)(3) of this section, the reserve deduction is ratably
apportioned between the statutory grouping (foreign
source general category income) and the residual
grouping (U.S. source income) on the basis of the
relative amounts of gross income in each group-
ing. For purposes of apportioning deductions under
§1.861-8T(d)(2)(i)(B), exempt income is not taken
into account. Under paragraph (d)(2)(v)(A)(1) of this
section, in the case of an insurance company taxable
under section 801, exempt income includes tax-ex-
empt interest without regard to any reduction for the
policyholder’s share. USC has U.S. source income
of $200x of which $100x is tax-exempt without re-

Bulletin No. 2020–49 1181 November 30, 2020
gard to the reduction for the policyholder’s share of
tax-exempt interest that reduces the closing balance
of items described in section 807(c). Thus, the gross
income taken into account in apportioning USC’s
reserve deduction is $100x of foreign source gener-
al category gross income and $100x of U.S. source
gross income. Of USC’s $100x reserve deduction,
$50x ($100x x $100x/$200x) is apportioned to for-
eign source general category gross income and $50x
($100x x $100x/$200x) is apportioned to U.S. source
gross income.
(2) Example 2—(i) Facts. USC is a domestic life
insurance company that has $300x of gross income
consisting of $100x of foreign source general cate-
gory income and $200x of U.S. source general cate-
gory dividend income eligible for the 50% dividends
received deduction (DRD) under section 243(a)(1).
Under section 805(a)(4)(A)(ii), USC is allowed a
50% DRD on the company’s share of the dividend
received. Under section 812(a), the company’s share
of the dividend is equal to 70% of the dividend in-
come eligible for the DRD under section 243(a)
(1), which results in a DRD of $70x (50% x 70% x
$200x), and under section 812(b), the policyholder’s
share of the dividend is equal to 30% of the dividend
income eligible for the DRD under section 243(a)(1),
which would result in a DRD of $30x (50% x 30% x
$200x). USC is entitled to a $130x deduction for an
increase in its life insurance reserves under sections
803(a)(2) and 807(b). Unlike for tax-exempt interest
income, there is no adjustment under section 807(b)
(1)(B) to the reserve deduction for the policyholder’s
share of dividends that would be offset by the DRD
under section 243(a)(1). USC has no other income
or deductions.
(ii) Analysis — allocation. Under section 818(f)
(1), USC’s reserve deduction is treated as an item
that cannot be definitely allocated to an item or
class of gross income except that, under §1.861-8(e)
(16), an amount of reserve expenses of a life insur-
ance company equal to the DRD that is disallowed
because it is attributable to the policyholder’s share
of dividends is treated as definitely related to such
dividends. Thus, USC has a life insurance reserve
deduction of $130x, of which $30x (equal to the pol-
icyholder’s share of the DRD that would have been
allowed under section 243(a)(1)) is directly allocat-
ed and apportioned to U.S. source dividend income.
Under paragraph (b)(5) of this section, the remaining
portion of USC’s reserve deduction ($100x) is allo-
cable to all of USC’s gross income as a class.
(iii) Analysis — apportionment. Under para-
graph (c)(3) of this section, the deduction is rat-
ably apportioned between the statutory grouping
(foreign source general category income) and the
residual grouping (U.S. source income) on the ba-
sis of the relative amounts of gross income in each
grouping. For purposes of apportioning deductions
under §1.861-8T(d)(2)(i)(B), exempt income is not
taken into account. Under paragraph (d)(2)(v)(A)
(1) of this section, in the case of an insurance com-
pany taxable under section 801, exempt income
includes dividends deductible under section 805(a)
(4) without regard to any reduction to the DRD for
the policyholder’s share in section 804(a)(4)(A)(ii).
Thus, the gross income taken into account in appor-
tioning $100x of USC’s remaining reserve deduction
is $100x of foreign source general category gross
income and $100x of U.S. source gross income. Of
USC’s $100x remaining reserve deduction, $50x
($100x x $100x/$200x) is apportioned to foreign
source general category gross income and $50x
($100x x $100x/$200x) is apportioned to U.S. source
gross income.
* * * * *
(e) * * *
(4) * * *
(ii) Stewardship expenses—(A) In
general. Stewardship expenses are those
expenses resulting from “duplicative ac-
tivities” (as defined in §1.482-9(l)(3)(iii))
or “shareholder activities” (as defined in
§1.482-9(l)(3)(iv)) that are undertaken for
a person’s own benefit as an investor in a
related entity, which for purposes of this
paragraph (e)(4)(ii) includes a business
entity as described in §301.7701-2(a) of
this chapter that is classified for Federal
income tax purposes as either a corpora-
tion or a partnership, or is disregarded as
an entity separate from its owner (“disre-
garded entity”). Thus, for example, stew-
ardship expenses include expenses of an
activity the sole effect of which is to pro
-
tect the investor’s capital investment in
the entity or to facilitate compliance by the
investor with reporting, legal, or regulato-
ry requirements applicable specifically to
the investor. If an investor has a foreign or
international department which exercises
oversight functions with respect to related
entities and, in addition, the department
performs other functions that generate
other foreign-source income (such as fees
for services rendered outside of the Unit-
ed States for the benefit of foreign related
corporations or foreign-source royalties),
some part of the deductions with respect
to that department are considered definite-
ly related to the other foreign-source in-
come. In some instances, the operations of
a foreign or international department will
also generate U.S. source income (such as
fees for services performed in the United
States). Stewardship expenses are allocat-
ed and apportioned on a separate entity
basis without regard to the affiliated group
rules in §1.861-14. See §1.861-14(e)(1)
(i).
(B) Allocation. In the case of steward-
ship expenses incurred to oversee a cor-
poration, the expenses are considered defi-
nitely related and allocable to dividends
received or amounts included, or to be re-
ceived or included, under sections 78, 301,
951, 951A, 1291, 1293, and 1296, from
the corporation. In the case of stewardship
expenses incurred to oversee a partner-
ship, the expenses are considered defi-
nitely related and allocable to a partner’s
distributive share of partnership income.
In the case of stewardship expenses in-
curred to oversee a disregarded entity, the
expenses are considered definitely related
and allocable to all gross income attribut-
able to the disregarded entity. Stewardship
expenses are allocated to income from a
particular entity (or entities) related to the
taxpayer if the expense is definitely relat-
ed to the oversight of that entity or entities
as provided in §1.861-8(b)(1) under all the
facts and circumstances.
(C) Apportionment. Stewardship ex-
penses must be apportioned between the
statutory and residual groupings based on
the relative values of the entity or entities
in each grouping that are owned by the in-
vestor taxpayer, and without regard to the
relative amounts of gross income in the
statutory and residual groupings to which
the stewardship expense is allocated. In
the case of stewardship expenses incurred
to oversee a lower-tier entity owned indi-
rectly by the taxpayer, the stewardship ex-
penses must be apportioned based on the
relative values of the owner or owners of
the lower-tier entity that are owned direct-
ly by the taxpayer. In the case of steward-
ship expenses incurred to oversee a corpo-
ration, the corporation’s value is the value
of its stock as determined and character-
ized under the asset method in §1.861-9
(and, as relevant, §§1.861-12 and 1.861-
13) for purposes of allocating and appor-
tioning the taxpayer’s interest expense.
For purposes of the preceding sentence, if
the corporation is a member of the same
affiliated group as the investor, the value
of the corporation’s stock is determined
under the asset method in §1.861-9 and
is characterized by the investor in propor-
tion to how the corporation’s assets are
characterized for purposes of apportion-
ing the group’s interest expense. In the
case of stewardship expenses incurred to
oversee a partnership, the partnership’s
value is determined and characterized un-
der the asset method in §1.861-9 (taking
into account any adjustments under sec-
tions 734(b) and 743(b)). In the case of
stewardship expenses incurred to oversee
a disregarded entity, the disregarded enti-
ty’s character and value is determined us-

November 30, 2020 1182 Bulletin No. 2020–49
ing the principles of the asset method in
§1.861-9 as if the disregarded entity were
treated as a corporation for Federal in-
come tax purposes. For purposes of deter-
mining the tax book value of assets under
this paragraph (e)(4)(ii)(C), section 864(e)
(3) and §1.861-8(d)(2) do not apply.
(5) Legal and accounting fees and ex-
penses; damages awards, prejudgment
interest, and settlement payments—* * *
(ii) Product liability and other claims
for damages. Except as otherwise provid-
ed in this paragraph (e)(5), awards for lit-
igation or arbitral damages, prejudgment
interest, and payments in settlement of
or in anticipation of claims for damages,
including punitive damages, arising from
claims relating to sales, licenses, or leases
of products or the provision of services,
are definitely related and allocable to the
class of gross income of the type produced
by the specific sales or leases of the prod-
ucts or provision of services that gave rise
to the claims for damage or injury. Such
damages and payments may include, but
are not limited to, product liability or pat-
ent infringement claims. The deductions
are apportioned among the statutory and
residual groupings on the basis of the rel-
ative amounts of gross income in the rel-
evant class in each grouping in the year
in which the deductions are allowed. If
the claims arise from an event incident
to the production or sale of products or
provision of services (such as an industri-
al accident), the payments are definitely
related and allocable to the class of gross
income ordinarily produced by the assets
that are involved in the event. The deduc-
tions are apportioned among the statutory
and residual groupings on the basis of the
relative values (as determined under the
asset method in §1.861-9 for purposes of
allocating and apportioning the taxpayer’s
interest expense) of the assets that were
involved in the event or that were used to
produce or sell products or services in the
relevant class in each grouping; such val-
ues are determined in the year the deduc-
tions are allowed.
(iii) Investor lawsuits. If the claims
are made by investors in a corporation
and arise from negligence, fraud, or other
malfeasance of the corporation (or its rep-
resentatives), then the damages, prejudg-
ment interest, and settlement payments
paid by the corporation are definitely re-
lated and allocable to all income of the
corporation and are apportioned among
the statutory and residual groupings based
on the relative value of the corporation’s
assets in each grouping (as determined un-
der the asset method in §1.861-9 for pur-
poses of allocating and apportioning the
taxpayer’s interest expense) in the year the
deductions are allowed.
(6) * * *
(i) * * * The deduction for foreign in-
come, war profits, and excess profits taxes
allowed by section 164 is allocated and
apportioned among the applicable statuto-
ry and residual groupings under §1.861-
20. * * *
* * * * *
(7) Losses on the sale, exchange, or oth-
er disposition of property. See §§1.865-1
and 1.865-2 for rules regarding the alloca-
tion and apportionment of certain losses.
(8) Net operating loss deduction—(i)
Components of net operating loss. A net
operating loss is separated into compo-
nents that are assigned to statutory or re-
sidual groupings by reference to the losses
in each such statutory or residual grouping
that are not allocated to reduce income in
other groupings in the taxable year of the
loss. For example, for purposes of apply-
ing this paragraph (e)(8)(i) with respect to
section 904 as the operative section, the
source and separate category components
of a net operating loss are determined
by reference to the amounts of separate
limitation loss and U.S. source loss (de-
termined without regard to adjustments
required under section 904(b)) that are not
allocated to reduce U.S. source income or
income in other separate categories under
the rules of sections 904(f) and 904(g)
for the taxable year in which the net op-
erating loss arose. See §1.904(g)-3(d)
(2). See §1.1502-4 for rules applicable in
computing the foreign tax credit limitation
and determining the source and separate
category of a net operating loss of a con-
solidated group. Similarly, for purposes of
applying this paragraph (e)(8)(i) with re-
spect to another operative section (as de-
scribed in §1.861-8(f)(1)), a net operating
loss is divided into component parts based
on the amounts of the deductions that are
assigned to the relevant statutory and re-
sidual groupings and that are not absorbed
in the taxable year in which the loss is
incurred under the rules of that operative
section. Deductions that are considered
absorbed for purposes of an operative
section may differ from the deductions
that are considered absorbed for purpos-
es of another provision of the Code that
requires determining the components of a
net operating loss.
(ii) Allocation and apportionment of
section 172 deduction. A net operating
loss deduction allowed under section 172
is allocated and apportioned to statutory
and residual groupings by reference to
the statutory and residual groupings of the
components of the net operating loss (as
determined under paragraph (e)(8)(i) of
this section) that is deducted in the taxable
year. Except as provided under the rules
for an operative section, a partial net op-
erating loss deduction is treated as ratably
comprising the components of a net oper-
ating loss. See, for example, §1.904(g)-3,
which is an exception to the general rule
described in the previous sentence and
provides rules for determining the source
and separate category of a partial net op-
erating loss deduction for purposes of sec-
tion 904 as the operative section.
* * * * *
(16) Special rule for the allocation
and apportionment of reserve expenses
of a life insurance company. An amount
of reserve expenses of a life insurance
company equal to the dividends received
deduction that is disallowed because it is
attributable to the policyholders’ share of
dividends received is treated as definitely
related to such dividends. See paragraph
(d)(2)(v)(B)(2) of this section (Example
2).
* * * * *
(g) * * *
(15) Example 15: Payment in settlement of claim
for damages allocated to specific class of gross in-
come—(i) Facts. USP, a domestic corporation, sells
Product A in the United States. USP also owns and
operates a disregarded entity (FDE) in Country X.
FDE, which constitutes a foreign branch of USP
within the meaning of §1.904-4(f)(3)(vii), sells
Product A inventory in Country X. FDE’s function-
al currency is the U.S. dollar. In each of its taxable
years from 2018 through 2020, USP earns $2,000x
of U.S. source gross income from sales of Product
A to customers in the United States. USP also sells
Product A to FDE for an arm’s length price and FDE
sells Product A to customers in Country X. After the
application of section 862(a)(6), §1.861-7(c), and the
disregarded payment rules of §1.904-4(f)(2)(vi), the
sales of Product A in Country X result in $1,500x
of general category foreign source gross income and
$500x of foreign branch category foreign source

Bulletin No. 2020–49 1183 November 30, 2020
gross income in each of 2018 and 2019 and $2,500x
of general category foreign source gross income and
$500x of foreign branch category foreign source
gross income in 2020. FDE is sued for damages in
2019 after Product A harms a customer in Country X
in 2018. In 2020, FDE makes a deductible payment
of $60x to the Country X customer in settlement of
the legal claims for damages.
(ii) Analysis. Under paragraph (e)(5)(ii) of this
section, the deductible settlement payment is defi-
nitely related and allocable to the class of gross in-
come of the type produced by the specific sales of
property that gave rise to the damages claims, that is
USP’s gross income from sales of Product A in Coun-
try X. Claims that might arise from damages caused
by Product A to customers in the United States are
irrelevant in allocating the deduction for the settle-
ment payments made to the customer in Country X.
For purposes of determining USP’s foreign tax credit
limitation under section 904(d), because in 2020 that
class of gross income consists of both foreign source
foreign branch category income and foreign source
general category income, the settlement payment of
$60x is apportioned between gross income in the two
categories in proportion to the relative amounts of
gross income in each category in 2020, the year the
deduction is allowed. Therefore, $10x ($60x x $500x
/ $3,000x) is apportioned to foreign source foreign
branch category income, and the remaining $50x
($60x x $2,500x / $3,000x) is apportioned to foreign
source general category income.
(16) Example 16: Legal damages payment aris-
ing from event incident to production and sale—(i)
Facts—The facts are the same as in paragraph (g)
(15) of this section (the facts in Example 15) except
that instead of a product liability lawsuit relating to a
2018 event, in 2019 there is a disaster at a warehouse
owned by USP in the United States arising from the
negligence of an employee. The warehouse is used
to store Product A inventory intended for sale both
by USP in the United States and by FDE in Country
X. In 2020, the warehouse asset is characterized un-
der §1.861-9T(g)(3)(ii) as a multiple category asset
that is assigned 10% to the foreign source foreign
branch category, 50% to the foreign source general
category, and 40% to the residual grouping of U.S.
source income. The inventory of Product A in the
warehouse is destroyed and USP employees as well
as residents in the vicinity of the warehouse are in-
jured. USP’s reputation in the United States suffers
such that USP expects to subsequently lose market
share in the United States. In 2020, USP makes de-
ductible damages payments totaling $50x to injured
employees and the nearby residents, all of whom are
in the United States.
(ii) Analysis. USP’s warehouse in the United
States is used in connection with sales of Product A to
customers in both the United States and Country X.
Thus, under paragraph (e)(5)(ii) of this section, the
$50x damages payment arises from an event incident
to the sales of Product A and is therefore definitely
related and allocable to the class of gross income or-
dinarily produced by the asset (the warehouse) that
is involved in the event — that is, the gross income
from sales of Product A by USP in the United States
and by FDE in Country X. Under paragraph (e)(5)(ii)
of this section, the $50x deduction for the damages
payment is apportioned for purposes of applying sec-
tion 904(d) on the basis of the relative value in each
grouping (as determined under §1.861-9(g) for pur-
poses of allocating and apportioning USP’s interest
expense) of USP’s warehouse, the asset involved in
the event, in 2020, the year the deduction is allowed.
USP’s warehouse is a multiple category asset as de-
scribed in §1.861-9T(g)(3)(ii) and 10% of the value
of USP’s warehouse is properly characterized as an
asset generating foreign source foreign branch cate-
gory in 2020. Accordingly, $5x (10% x $50x) of the
deduction is apportioned to foreign source foreign
branch category income. Additionally, 50% of the
value of USP’s warehouse is properly characterized
as an asset generating foreign source general cate-
gory income in 2020 and, accordingly, $25x (50% x
$50x) is apportioned to such grouping. The remain-
ing $20x (40% x $50x) is apportioned to U.S. source
income.
(17) Example 17: Payment following a change
in law—(i) Facts. The facts are the same as in para-
graph (g)(16) of this section (the facts in Example
16), except that the disaster at USP’s warehouse oc-
curred not in 2019 but in 2016 and thus before the
enactment of the section 904(d) separate category
for foreign branch category income. The deductible
damages payments are made in 2020.
(ii) Analysis. USP’s U.S. warehouse was used in
connection with making sales of Product A in both
the United States and Country X. Under paragraph
(e)(5)(ii) of this section, the 2020 damages payment
arises from an event incident to the sales of Product
A and is therefore definitely related and allocable to
the class of gross income ordinarily produced by the
asset (the warehouse) that is involved in the event,
that is the gross income from sales of Product A by
USP in the United States and by FDE in Country X.
Under the law in effect in 2016, the income earned
from the Product A sales in Country X was solely
general category income. Under paragraph (e)(5)
(ii) of this section, the damages payment is definite-
ly related and allocable to the class of gross income
consisting of sales of Product A by USP in the United
States and by FDE in Country X, and apportioned
to the statutory and residual groupings based on the
relative value in each grouping (as determined un-
der §1.861-9(g) for purposes of allocating and ap-
portioning USP’s interest expense) of USP’s ware-
house, the asset involved in the event, in 2020, the
year in which the deduction is allowed. Accordingly,
for purposes of determining USP’s foreign tax credit
limitation under section 904(d), the 2020 deductible
damages payment of $50x is allocated and appor-
tioned in the same manner as in paragraph (g)(16)(ii)
of this section (the analysis in Example 16).
(18) Example 18: Stewardship and supportive
expenses—(i) Facts—(A) Overview. USP, a domes-
tic corporation, manufactures and sells Product A in
the United States. USP directly owns 100% of the
stock of USSub, a domestic corporation, and each
of CFC1, CFC2, and CFC3, which are all controlled
foreign corporations. USP and USSub file separate
returns for U.S. Federal income tax purposes but are
members of the same affiliated group as defined in
section 243(b)(2). USSub, CFC1, CFC2, and CFC3
perform similar functions in the United States and
in the foreign countries T, U, and V, respective-
ly. USP’s tax book value in the stock of USSub is
$15,000x. USP’s tax book value in the stock of each
of CFC1, CFC2, and CFC3 is, respectively, $5,000x,
$10,000x, and $15,000x.
(B) USP Department expenses. USP’s supervi-
sion department (the Department) incurs expenses
of $1,500x. The Department is responsible for the
supervision of its four subsidiaries and for rendering
certain services to the subsidiaries, and the Depart-
ment provides all the supportive functions necessary
for USP’s foreign activities. The Department per-
forms three types of activities. First, the Department
performs services that cost $900x outside the Unit-
ed States for the direct benefit of CFC2 for which a
marked-up fee is paid by CFC2 to USP. Second, the
Department provides services at a cost of $60x re-
lated to license agreements that USP maintains with
subsidiaries CFC1 and CFC2 and which give rise
to foreign source general category income to USP.
Third, the Department performs activities described
in §1.482-9(l)(3)(iii) that are in the nature of share-
holder oversight, that duplicate functions performed
by all four of the subsidiaries’ own employees,
and that do not provide an additional benefit to the
subsidiaries. For example, a team of auditors from
USP’s accounting department periodically audits the
subsidiaries’ books and prepares internal reports for
use by USP’s management. Similarly, USP’s trea-
surer periodically reviews the subsidiaries’ financial
policies for the board of directors of USP. These
activities do not provide an additional benefit to the
related corporations. The Department’s oversight ac-
tivities are related to all the subsidiaries. The cost of
the duplicative activities is $540x.
(C) USP’s income. USP earns the following
items of income: first, under section 951(a), USP has
$2,000x of subpart F income that is passive category
income. Second, USP has a GILTI inclusion amount
of $2,000x. Third, USP earns $1,000x of royalties,
paid by CFC1 and CFC2, that are foreign source
general category income. Finally, USP receives a fee
of $1,000x from CFC2 that is foreign source general
category income.
(ii) Analysis—(A) Character of USP Department
services. The first and second activities (the services
rendered for the benefit of CFC2, and the provision
of services related to license agreements with CFC1
and CFC2) are not properly characterized as stew-
ardship expenses because they are not incurred sole-
ly to protect the corporation’s capital investment in
the related corporation or to facilitate compliance by
the corporation with reporting, legal, or regulatory
requirements applicable specifically to the corpora-
tion. The third activity described is in the nature of
shareholder oversight and is characterized as stew-
ardship as described in paragraph (e)(4)(ii)(A) of this
section because the expense is related to duplicative
activities.
(B) Allocation. First, the deduction of $900x for
expenses related to services rendered for the benefit
of CFC2 is definitely related (and therefore alloca-
ble) to the fees for services that USP receives from
CFC2. Second, the $60x of deductions attributable
to USP’s license agreements with CFC1 and CFC2
are definitely related (and therefore allocable) solely
to royalties received from CFC1 and CFC2. Third,
based on the relevant facts and circumstances and
the Department’s oversight activities, the steward-
ship deduction of $540x is related to the oversight of
all of USP’s subsidiaries and therefore is definitely

November 30, 2020 1184 Bulletin No. 2020–49
related (and therefore allocable) to dividends and
inclusions received or included from all the subsid-
iaries.
(C) Apportionment. (1) No apportionment of
USP’s deduction of $900x for expenses related to the
services performed for CFC2 is necessary because
the class of gross income to which the deduction
is allocated consists entirely of a single statutory
grouping, foreign source general category income.
(2) No apportionment of USP’s deduction of
$60x attributable to the services related to license
agreements is necessary because the class of gross
income to which the deduction is allocated consists
entirely of a single statutory grouping, foreign source
general category income.
(3) For purposes of apportioning USP’s $540x
stewardship expenses in determining the foreign tax
credit limitation, the statutory groupings are foreign
source general category income, foreign source pas-
sive category income, and foreign source section
951A category income. The residual grouping is U.S.
source income.
(4) USP’s deduction of $540x for the Depart-
ment’s stewardship expenses which are allocable to
dividends and amounts included from the subsidiar-
ies are apportioned using the same value of USP’s
stock in USSub, CFC1, CFC2, and CFC3 that is used
for purposes of allocating and apportioning USP’s
interest expense. Pursuant to paragraph (e)(4)(ii)(A)
of this section and §1.861-14(e)(1)(i), the value of
USP’s stock in USSub is included for purposes of
apportioning USP’s stewardship expense. The value
of USSub’s stock is $15,000x, and USSub only owns
assets that generate income in the residual grouping
of gross income from U.S. sources. Therefore, for
purposes of apportioning USP’s stewardship ex-
pense, all of the $15,000x value of the USSub stock
is characterized as an asset generating U.S. source
income. Although USSub stock would be eliminat-
ed from consideration as an asset under paragraph
(d)(2)(ii)(B) of this section, for purposes of appor-
tioning USP’s stewardship expense section 864(e)
(3) and paragraph (d)(2) of this section do not ap-
ply. USP uses the asset method described in §1.861-
12T(c)(3)(ii) to characterize the stock in its CFCs.
After application of §1.861-13(a), USP determines
that with respect to its three CFCs in the aggregate
it has $15,000x of section 951A category stock in
the non-section 245A subgroup, $6,000x of gener-
al category stock in the section 245A subgroup, and
$9,000x of passive category stock in the non-section
245A subgroup. Although under paragraph (d)(2)
(ii)(C)(2) of this section $7,500x of the stock that is
section 951A category stock is an exempt asset, for
purposes of apportioning USP’s stewardship expense
section 864(e)(3) and paragraph (d)(2) of this section
do not apply. Finally, even though USP may be al-
lowed a section 245A deduction with respect to div-
idends from the CFCs, no portion of the value of the
stock of the CFCs is eliminated, because the section
245A deduction does not create exempt income or
result in the stock being treated as an exempt asset.
See section 864(e)(3) and paragraph (d)(2)(iii)(C) of
this section.
(5) Taking into account the characterization of
USP’s stock in USSub, CFC1, CFC2, and CFC3
with a total value of $45,000x ($15,000x + $6,000x
+ $9,000x + $15,000x), the $540x of Department
expenses is apportioned as follows: $180x ($540x
x $15,000x / $45,000x) to section 951A catego-
ry income, $72x ($540x x $6,000x / $45,000x) to
general category income, $108x ($540x x $9,000x
/ $45,000x) to passive category income, and $180x
($540x x $15,000x / $45,000x) to the residual group-
ing of U.S. source income. Section 904(b)(4)(B)(i)
and §1.904(b)-3 apply to $72x of the stewardship
expense apportioned to the CFCs’ stock that is char-
acterized as being in the section 245A subgroup in
the general category.
* * * * *
(h) Applicability date. (1) Except as
provided in this paragraph (h), this section
applies to taxable years that both begin
after December 31, 2017, and end on or
after December 4, 2018.
(2) Paragraphs (d)(2)(ii)(B), (d)(2)(v),
(e)(4) and (5), (e)(6)(i), (e)(8) and (16),
and (g)(15) through (18) of this section
apply to taxable years that begin after De-
cember 31, 2019. For taxable years that
both begin after December 31, 2017, and
end on or after December 4, 2018, and
also begin on or before December 31,
2019, see §1.861-8(d)(2)(ii)(B), (e)(4) and
(5), (e)(6)(i), and (e)(8) as in effect on De-
cember 17, 2019.
(3) The last sentence of paragraph (d)
(2)(ii)(C)(1) of this section and paragraph
(f)(1)(vi)(N) of this section apply to tax-
able years beginning on or after January
1, 2021.
Par. 5. Section 1.861-8T is amended by
revising paragraph (d)(2)(ii)(B) to read as
follows:
§1.861-8T Computation of taxable
income from sources within the United
States and from other sources and
activities (temporary).
* * * * *
(d) * * *
(2) * * *
(ii) * * *
(B) Certain stock and dividends. For
further guidance, see §1.861-8(d)(2)(ii)
(B).
* * * * *
Par. 6. Section 1.861-9 is amended by:
1. Revising paragraph (a).
2. Adding paragraph (b).
3. Revising paragraphs (e)(8)(vi)(C)
and (D).
4. Adding paragraph (e)(9).
5. Revising paragraph (k).
The revisions and additions read as fol-
lows:
§1.861-9 Allocation and apportionment
of interest expense and rules for asset-
based apportionment.
(a) In general. For further guidance,
see §1.861-9T(a).
(b) Interest equivalent—(1) Certain ex-
penses and losses—(i) General rule. Any
expense or loss (to the extent deductible)
incurred in a transaction or series of inte-
grated or related transactions in which the
taxpayer secures the use of funds for a pe-
riod of time is subject to allocation and ap-
portionment under the rules of this section
and §1.861-9T(b) if such expense or loss
is substantially incurred in consideration
of the time value of money. However, the
allocation and apportionment of a loss un-
der this paragraph (b) and §1.861-9T(b)
does not affect the characterization of such
loss as capital or ordinary for any purpose
other than for purposes of the section 861
regulations (as defined in §1.861-8(a)(1)).
(ii) Examples. For further guidance,
see §1.861-9T(b)(1)(ii).
(2) Certain foreign currency borrow-
ings. For further guidance, see §1.861-
9T(b)(2) through (7).
(3) through (7) [Reserved]
(8) Guaranteed payments. Any deduc-
tions for guaranteed payments for the use
of capital under section 707(c) are allocat-
ed and apportioned in the same manner as
interest expense.
* * * * *
(e) * * *
(8) * * *
(vi) * * *
(C) Downstream partnership loan. The
term downstream partnership loan means
a loan to a partnership for which the loan
receivable is held, directly or indirectly
through one or more other partnerships or
other pass-through entities (as defined in
§1.904-5(a)(4)), by a person (or any per-
son in the same affiliated group as such
person) that owns an interest, directly or
indirectly through one or more other part-
nerships or other pass-through entities, in
the partnership.
(D) Downstream partnership loan in-
terest expense (DPL interest expense).
The term downstream partnership loan
interest expense, or DPL interest expense,
means an item of interest expense paid
or accrued with respect to a downstream
partnership loan, without regard to wheth-

Bulletin No. 2020–49 1185 November 30, 2020
er the expense was currently deductible
(for example, by reason of section 163(j)
or the election to waive deductions pursu-
ant to §1.59A-3(c)(6)).
* * * * *
(9) Special rule for upstream partner-
ship loans—(i) In general. For purposes
of apportioning interest expense that is not
directly allocable under paragraph (e)(4)
of this section or §1.861-10T, an upstream
partnership loan debtor’s (UPL debtor)
pro rata share of the value of the upstream
partnership loan (as determined under
paragraph (h)(4)(i) of this section) is not
considered an asset of the UPL debtor tak-
en into account as described in paragraphs
(e)(2) and (3) of this section.
(ii) Treatment of interest expense and
interest income attributable to an up-
stream partnership loan. If a UPL debtor
(or any other person in the same affiliat-
ed group as the UPL debtor) takes into
account a distributive share of upstream
partnership loan interest income (UPL
interest income), the UPL debtor (or any
other person in the same affiliated group
as the UPL debtor) assigns an amount of
its distributive share of the UPL interest
income equal to the matching expense
amount for the taxable year that is attribut-
able to the same loan to the same statutory
and residual groupings using the same ra-
tios as the statutory and residual groupings
of gross income from which the upstream
partnership loan interest expense (UPL
interest expense) is deducted by the UPL
debtor (or any other person in the same af-
filiated group as the UPL debtor). There-
fore, the amount of the distributive share
of UPL interest income that is assigned to
each statutory and residual grouping is the
amount that bears the same proportion to
the matching expense amount as the UPL
interest expense in that statutory or residu-
al grouping bears to the total UPL interest
expense of the UPL debtor (or any other
person in the same affiliated group as the
UPL debtor).
(iii) Anti-avoidance rule for third par-
ty back-to-back loans. If, with a principal
purpose of avoiding the rules in this para-
graph (e)(9), a partnership makes a loan
to a person that is not related (within the
meaning of section 267(b) or 707) to the
lender, the unrelated person makes a loan
to a direct or indirect partner in the part-
nership (or any person in the same affili-
ated group as a direct or indirect partner),
and the first loan would constitute an up-
stream partnership loan if made directly
to the direct or indirect partner (or person
in the same affiliated group as a direct or
indirect partner), then the rules of this
paragraph (e)(9) apply as if the first loan
was made directly by the partnership to
the partner (or affiliate of the partner),
and the interest expense paid by the part-
ner is treated as made with respect to the
first loan. Such a series of loans will be
subject to the recharacterization rule in
this paragraph (e)(9)(iii) without regard
to whether there was a principal purpose
of avoiding the rules in this paragraph
(e)(9) if the loan to the unrelated person
would not have been made or maintained
on substantially the same terms but for
the loan of funds by the unrelated person
to the direct or indirect partner (or affili-
ate of the partner). The principles of this
paragraph (e)(9)(iii) also apply to similar
transactions that involve more than two
loans and regardless of the order in which
the loans are made.
(iv) Interest equivalents. The principles
of this paragraph (e)(9) apply in the case
of a partner, or any person in the same af-
filiated group as the partner, that takes into
account a distributive share of income and
has a matching expense amount (treating
any interest equivalent described in para-
graph (b) of this section and §1.861-9T(b)
as interest income or expense for purposes
of paragraph (e)(9)(v)(B) of this section)
that is allocated and apportioned in the
same manner as interest expense under
paragraph (b) of this section and §1.861-
9T(b).
(v) Definitions. For purposes of this
paragraph (e)(9), the following definitions
apply.
(A) Affiliated group. The term
affili-
ated group has the meaning provided in
§1.861-11(d)(1).
(B) Matching expense amount. The
term matching expense amount means the
lesser of the total amount of the UPL in-
terest expense taken into account direct-
ly or indirectly by the UPL debtor for the
taxable year with respect to an upstream
partnership loan or the total amount of
the distributive shares of the UPL interest
income of the UPL debtor (or any other
person in the same affiliated group as the
UPL debtor) with respect to the loan.
(C) Upstream partnership loan. The
term upstream partnership loan means a
loan by a partnership to a person (or any
person in the same affiliated group as such
person) that owns an interest, directly or
indirectly through one or more other part-
nerships or other pass-through entities (as
defined in §1.904-5(a)(4)(iv)), in the part-
nership.
(D) Upstream partnership loan debtor
(UPL debtor). The term upstream partner-
ship loan debtor, or UPL debtor, means
the person that has the payable with re-
spect to an upstream partnership loan. If a
partnership has the payable, then any part-
ner in the partnership (other than a part-
ner described in paragraph (e)(4)(i) of this
section) is also considered a UPL debtor.
(E) Upstream partnership loan inter-
est expense (UPL interest expense). The
term upstream partnership loan interest
expense, or UPL interest expense, means
an item of interest expense paid or ac-
crued with respect to an upstream partner-
ship loan, without regard to whether the
expense was currently deductible (for ex-
ample, by reason of section 163(j) or the
election to waive deductions pursuant to
§1.59A-3(c)(6)).
(F) Upstream partnership loan interest
income (UPL interest income). The term
upstream partnership loan interest in-
come, or UPL interest income, means an
item of gross interest income received or
accrued with respect to an upstream part-
nership loan.
(vi) Examples. The following examples
illustrate the application of this paragraph
(e)(9).
(A) Example 1—(1) Facts. US1, a domestic cor-
poration, directly owns 60% of PRS, a foreign part-
nership that is not engaged in a U.S. trade or busi-
ness. The remaining 40% of PRS is directly owned
by US2, a domestic corporation that is unrelated to
US1. US1, US2, and PRS all use the calendar year
as their taxable year. In Year 1, PRS loans $1,000x
to US1. For Year 1, US1 has $100x of interest ex-
pense with respect to the loan and PRS has $100x
of interest income with respect to the loan. US1’s
distributive share of the interest income is $60x. Un-
der paragraph (e)(2) of this section, $75x of US1’s
interest expense with respect to the loan is allocated
and apportioned to U.S. source income and $25x is
allocated and apportioned to foreign source foreign
branch category income. Under paragraph (h)(4)(i)
of this section, US1’s share of the total value of the
loan between US1 and PRS is $600x.
(2) Analysis. The loan by PRS to US1 is an up-
stream partnership loan and US1 is an UPL debtor.
Under paragraph (e)(9)(iv)(B) of this section, the
matching expense amount is $60x, the lesser of the

November 30, 2020 1186 Bulletin No. 2020–49
UPL interest expense taken into account by US1
with respect to the loan for the taxable year ($100x)
and US1’s distributive share of the UPL interest in-
come ($60x). Under paragraph (e)(9)(ii) of this sec-
tion, US1 assigns $45x of the UPL interest income to
U.S. source income ($60x x $75x / $100x) and $15x
of the UPL interest income to foreign source foreign
branch category income ($60x x $25x / $100x).
Under paragraph (e)(9)(i) of this section, the disre-
garded portion of the upstream partnership loan is
$600x, and is not taken into account as described in
paragraphs (e)(2) and (3) of this section.
(B) Example 2—(1) Facts. The facts are the same
as in paragraph (e)(9)(vi)(A)(1) of this section (the
facts in Example 1), except that US1 and US2 are
part of the same affiliated group with the same ratio
of U.S. and foreign assets that US1 had in paragraph
(e)(9)(vi)(A)(1), US2’s distributive share of the in-
terest income is $40x, and under paragraph (h)(4)(i)
of this section US2’s share of the total value of the
loan between US1 and PRS is $400x.
(2) Analysis. The loan by PRS to US1 is an up-
stream partnership loan and US1 is an UPL debtor.
Under paragraph (e)(9)(iv)(B) of this section, the
matching expense amount is $100x, the lesser of
the UPL interest expense taken into account by US1
with respect to the loan for the taxable year ($100x)
and the total amount of US1 and US2’s distributive
shares of the UPL interest income ($100x). Under
paragraph (e)(9)(ii) of this section, US1 and US2 as-
sign $75x of their total UPL interest income to U.S.
source income ($100x x $75x / $100x) and $25x of
their total UPL interest income to foreign source
foreign branch category income ($100x x $25x /
$100x). Under paragraph (e)(9)(i) of this section, the
disregarded portion of the upstream partnership loan
is $1,000x, the total amount of US1 and US2’s share
of the loan between US1 and PRS, and is not taken
into account as described in paragraphs (e)(2) and (3)
of this section.
* * * * *
(k) Applicability date. (1) Except as
provided in paragraph (k)(2) of this sec-
tion, this section applies to taxable years
that both begin after December 31, 2017,
and end on or after December 4, 2018.
(2) Paragraphs (b)(1)(i), (b)(8), and (e)
(9) of this section apply to taxable years
that end on or after December 16, 2019.
For taxable years that both begin after
December 31, 2017, and end on or after
December 4, 2018, and also end before
December 16, 2019, see §1.861-9T(b)(1)
(i) as contained in 26 CFR part 1 revised
as of April 1, 2019.
Par. 7. Section 1.861-9T is amended
by revising paragraph (b)(1)(i) and adding
paragraph (b)(8) to read as follows:
§1.861-9T Allocation and apportionment
of interest expense (temporary).
* * * * *
(b) * * *
(1) * * *
(i) General rule. For further guidance,
see §1.861-9(b)(1)(i).
* * * * *
(8) Guaranteed payments. For further
guidance, see §1.861-9(b)(8).
* * * * *
Par. 8. Section 1.861-12 is amended by
revising paragraph (e), adding paragraphs
(f) and (g), and revising paragraph (k) to
read as follows:
§1.861-12 Characterization rules and
adjustments for certain assets.
* * * * *
(e) Portfolio securities that constitute
inventory or generate primarily gains. For
further guidance, see §1.861-12T(e).
(f) Assets connected with capitalized,
deferred, or disallowed interest—(1) In
general. In the case of any asset in con-
nection with which interest expense ac-
cruing during a taxable year is capitalized,
deferred, or disallowed under any provi-
sion of the Code, the value of the asset
for allocation and apportionment purpos-
es is reduced by the principal amount of
indebtedness the interes t on which is so
capitalized, deferred, or disallowed. As-
sets are connected with debt (the interest
on which is capitalized, deferred, or dis
-
allowed) only if using the debt proceeds
to acquire or produce the asset causes the
interest to be capitalized, deferred, or dis-
allowed.
(2) Examples. The following examples
illustrate the application of paragraph (f)
(1) of this section.
(i) Example 1: Capitalized interest under section
263A—(A) Facts. X is a domestic corporation that
uses the tax book value method of apportionment.
X has $1,000x of indebtedness and incurs $100x of
interest expense. Using $800x of the $1,000x debt
proceeds to produce tangible property, X capitalizes
$80x of interest expense under the rules of section
263A. X deducts the remaining $20x of interest ex-
pense.
(B) Analysis. Because interest on $800x of debt
is capitalized under section 263A by reason of the
use of debt proceeds to produce the tangible proper-
ty, $800x of the principal amount of X’s debt is con-
nected to the tangible property under paragraph (f)
(1) of this section. Therefore, for purposes of appor-
tioning the remaining $20x of X’s interest expense,
the adjusted basis of the tangible property is reduced
by $800x.
(ii) Example 2: Disallowed interest under section
163(l)—(A) Facts. X, a domestic corporation, owns
100% of the stock of Y, a domestic corporation. X
and Y file a consolidated return and use the tax book
value method of apportionment. In Year 1, X makes
a loan of $1,000x to Y (Loan A) and Y then uses the
Loan A proceeds to acquire in a cash purchase all the
stock of a foreign corporation, Z. Interest on Loan
A is payable in U.S. dollars or, at the option of Y, in
stock of Z.
(B) Analysis. Under section 163(l), Loan A is
a disqualified debt instrument because interest on
Loan A is payable at the option of Y in stock of a
related party to Y. Because Loan A is a disqualified
debt instrument, section 163(l)(1) disallows Y’s
interest deduction for interest payable on Loan A.
However, the value of the Z stock is not reduced un-
der paragraph (f)(1) of this section because the use of
the Loan A proceeds to acquire the stock of Z is not
the cause of Y’s interest deduction being disallowed.
Rather, the Loan A terms allowing interest to be paid
in stock of Z is the cause of Y’s interest deduction
being disallowed under section 163(l). Therefore, no
adjustment is made to Y’s adjusted basis in the stock
of Z for purposes of allocating the interest expense
of X and Y.
(g) Special rules for FSCs. For further
guidance, see §1.861-12T(g) through (j).
* * * * *
(k) Applicability date. (1) Except as
provided in paragraph (k)(2) of this sec-
tion, this section applies to taxable years
that both begin after December 31, 2017,
and end on or after December 4, 2018.
(2) Paragraph (f) of this section applies
to taxable years that end on or after De-
cember 16, 2019. For taxable years that
both begin after December 31, 2017, and
end on or after December 4, 2018, and
before December 16, 2019, see §1.861-
12T(f) as contained in 26 CFR part 1 re-
vised as of April 1, 2019.
Par. 9. Section 1.861-12T is amended
by revising paragraph (f) to read as fol-
lows:
§1.861-12T Characterization rules
and adjustments or certain assets
(temporary).
* * * * *
(f) Assets connected with capitalized,
deferred, or disallowed interest. For fur-
ther guidance, see §1.861-12(f).
* * * * *
§1.861-13T [REMOVED]
Par. 10. Section 1.861-13T is removed.
Par. 11. Section 1.861-14 is amended
by:
1. Removing the last sentence in para-
graph (d)(1) and paragraphs (d)(3) through
(e)(5).

Bulletin No. 2020–49 1187 November 30, 2020
2. Adding paragraph (d)(3), reserved
paragraph (d)(4), paragraph (e) heading,
and paragraphs (e)(1) through (5).
3. Removing the heading for paragraph
(e)(6).
4. Redesignating paragraph (e)(6)(i) as
paragraph (e)(6).
5. Revising the heading for newly re-
designated paragraph (e)(6).
6. Removing paragraphs (e)(6)(ii) and
(f) through (j).
7. Adding paragraph (f), reserved para-
graph (g), paragraph (h), reserved para-
graphs (i) and (j), and paragraph (k).
The additions and revisions read as fol-
lows:
§1.861-14 Special rules for allocating
and apportioning certain expenses (other
than interest expense) of an affiliated
group of corporations.
* * * * *
(d) * * *
(3) Inclusion of financial corporations.
For further guidance, see §1.861-14T(d)
(3) through (4).
(4) [Reserved]
(e) Expenses to be allocated and ap-
portioned under this section—(1) Ex-
penses not directly allocable to specific
income-producing activities or property.
(i) The expenses that are required to be
allocated and apportioned under the rules
of this section are expenses that are not
directly allocable to specific income-pro-
ducing activities or property solely of
the member of the affiliated group that
incurred the expense, including (but not
limited to) certain expenses related to re-
search and experimental expenses, sup-
portive functions, deductions under sec-
tion 250, legal and accounting expenses,
and litigation damages awards, prejudg-
ment interest, and settlement payments.
Interest expense of members of an affil-
iated group of corporations is allocated
and apportioned under §1.861-11T and
not under the rules of this section. Ex-
penses that are included in inventory costs
or that are capitalized are not subject to
allocation and apportionment under the
rules of this section. In addition, steward-
ship expenses are not subject to allocation
and apportionment under the rules of this
section; instead, stewardship expenses of
a taxpayer are allocated and apportioned
on a separate entity basis without treating
members of the affiliated group as a single
taxpayer. See §1.861-8(e)(4)(ii)(A).
(ii) For further guidance, see §1.861-
14T(e)(1)(ii).
(2) Research and experimental expen-
ditures. R&E expenditures (as defined in
§1.861-17(a)) in the case of an affiliated
group are allocated and apportioned under
the rules of §1.861-17 as if all members of
the affiliated group were a single taxpayer.
Thus, R&E expenditures are allocated to all
gross intangible income of all members of
the affiliated group reasonably connected
with the relevant broad SIC code category.
If fewer than all members of the affiliated
group derive gross intangible income rea-
sonably connected with that relevant broad
SIC code category, then such expenditures
are apportioned under the rules of this para-
graph (e)(2) only among those members, as
if those members were a single taxpayer.
(3) Expenses related to support-
ive functions. For further guidance, see
§1.861-14T(e)(3).
(4) Section 250 deduction. Except as
provided in this paragraph (e)(4), the de-
duction allowed under section 250(a) (the
section 250 deduction) to a member of an
affiliated group is allocated and appor-
tioned on a separate entity basis under the
rules of §1.861-8(e)(13) and (14). Howev-
er, the section 250 deduction of a member
of a consolidated group is not directly al-
locable to specific income-producing ac-
tivities or property solely of the member
of the affiliated group that is allowed the
deduction. See §1.1502-50 for rules on ap-
plying section 250 and §§1.250-1 through
1.250(b)-6 to a member of a consolidated
group. In such case, the section 250 de-
duction is allocated and apportioned as if
all members of the consolidated group are
treated as a single corporation.
(5) Legal and accounting fees and ex-
penses; damages awards, prejudgment
interest, and settlement payments. Legal
and accounting fees and expenses, as well
as litigation or arbitral damages awards,
prejudgment interest, and settlement pay-
ments, are allocated and apportioned under
the rules of §1.861-8(e)(5). To the extent
that under §1.861-14T(c)(2) and (e)(1)(ii)
such expenses are not directly allocable
to specific income-producing activities or
property of one or more members of the
affiliated group, such expenses must be al-
located and apportioned as if all members
of the affiliated group were a single cor-
poration. Specifically, such expenses must
be allocated to a class of gross income that
takes into account the gross income which
is generated, has been generated, or is rea-
sonably expected to be generated by the
other members of the affiliated group. If the
expenses relate to the gross income of fewer
than all members of the affiliated group as
determined under §1.861-14T(c)(2), then
those expenses must be apportioned under
the rules of §1.861-14T(c)(2), as if those
fewer members were a single corporation.
Such expenses must be apportioned tak-
ing into account the apportionment factors
contributed by the members of the group
that are treated as a single corporation.
(6) Charitable contribution expenses.
* * *
(f) Computation of FSC or DISC com-
bined taxable income. For further guid-
ance, see §1.861-14T(f) and (g).
(g) [Reserved]
(h) Special rule for the allocation and
apportionment of reserve expenses of a
life insurance company. Section 1.861-
8(e)(16) applies for purposes of allocating
and apportioning reserve expenses with
respect to dividends received by a life in-
surance company. The remaining reserve
expenses of such company are allocated
and apportioned under the rules of §1.861-
8 and this section.
(i) through (j) [Reserved]
(k) Applicability date. This section ap-
plies to taxable years beginning after De-
cember 31, 2019.
Par. 12. Section 1.861-14T is amended
by:
1. Revising paragraphs (e)(1)(i) and (e)
(2)(i).
2. Removing and reserving paragraph
(e)(2)(ii).
3. Revising paragraphs (e)(4) and (5)
and (h).
4. Adding footnote 1 at the end of para-
graph (j) introductory text.
The revisions and additions read as fol-
lows:
§1.861-14T Special rules for allocating
and apportioning certain expenses (other
than interest expense) of an affiliated
group of corporations (temporary).
* * * * *

November 30, 2020 1188 Bulletin No. 2020–49
(e) * * *
(1) * * *
(i) For further guidance, see §1.861-
14(e)(1)(i).
* * * * *
(2) * * *
(i) For further guidance, see §1.861-
14(e)(2)(i) and (ii).
* * * * *
(4) Section 250 deduction. For further
guidance, see §1.861-14(e)(4).
(5) Legal and accounting fees and ex-
penses; damages awards, prejudgment
interest, and settlement payments. For fur-
ther guidance, see §1.861-14(e)(5).
* * * * *
(h) Special rule for allocation of reserve
expenses of life insurance companies. For
further guidance, see §1.861-14(h).
* * * * *
(j) * * *
1
Examples 1 and 4 of this paragraph
(j) apply to taxable years beginning before
January 1, 2018.
* * * * *
Par. 13. Section 1.861-17 is revised to
read as follows:
§1.861-17 Allocation and apportionment
of research and experimental
expenditures.
(a) Scope. This section provides rules
for the allocation and apportionment of
research and experimental expenditures
that a taxpayer deducts, or amortizes and
deducts, in a taxable year under section
174 or section 59(e) (applicable to expen-
ditures that are allowable as a deduction
under section 174(a)) (R&E expendi-
tures). R&E expenditures do not include
any expenditures that are not deductible
expenses by reason of the second sentence
under §1.482-7(j)(3)(i) (relating to CST
Payments (as defined in §1.482-7(b)(1))
owed to a controlled participant in a cost
sharing arrangement).
(b) Allocation—(1) In general. The
method of allocation and apportionment
of R&E expenditures set forth in this
section recognizes that research and ex-
perimentation is an inherently specula-
tive activity, that findings may contribute
unexpected benefits, and that the gross
income derived from successful research
and experimentation must bear the cost
of unsuccessful research and experimen-
tation. In addition, the method set forth
in this section recognizes that successful
R&E expenditures ultimately result in the
creation of intangible property that will
be used to generate income. Therefore,
R&E expenditures ordinarily are consid-
ered deductions that are definitely related
to gross intangible income (as defined in
paragraph (b)(2) of this section) reason-
ably connected with the relevant SIC code
category (or categories) of the taxpayer
and therefore allocable to gross intangible
income as a class related to the SIC code
category (or categories) and apportioned
under the rules in this section. For purpos-
es of the allocation under this paragraph
(b)(1), a taxpayer’s SIC code category (or
categories) are determined in accordance
with the provisions of paragraph (b)(3)
of this section. For purposes of this sec-
tion, the term intangible property means
intangible property (as defined in section
367(d)(4)), including intangible property
either created or acquired by the taxpayer,
that is derived from R&E expenditures.
(2) Definition of gross intangible in-
come. The term gross intangible income
means all gross income earned by a tax-
payer that is attributable to a sale or li-
cense of intangible property (including
income from platform contribution trans-
actions described in §1.482-7(b)(1)(ii),
royalty income from the licensing of in-
tangible property, or amounts taken into
account under section 367(d) by reason of
a transfer of intangible property), and the
full amount of gross income from sales or
leases of products or services if the income
is derived directly or indirectly (in whole
or in part) from intangible property. Gross
intangible income also includes a distrib
-
utive share of any amounts described in
the previous sentence, but does not in-
clude dividends or any amounts included
in income under section 951, 951A, or
1293. See §1.904-4(f)(2)(vi) for rules ad-
dressing the assignment of gross income,
including gross intangible income, to a
separate category by reason of certain dis-
regarded payments to or from a taxpayer’s
foreign branch.
(3) SIC code categories—(i) Alloca-
tion based on SIC code categories. Or-
dinarily, a taxpayer’s R&E expenditures
are incurred to produce gross intangible
income that is reasonably connected with
one or more relevant SIC code categories.
Except as provided in paragraph (b)(3)
(iv) of this section, where research and
experimentation is conducted with respect
to more than one SIC code category, the
taxpayer may aggregate the categories for
purposes of allocation and apportionment,
provided the categories are in the same
Major Group. However, the taxpayer may
not subdivide any categories. Where re-
search and experimentation is not clearly
related to any SIC code category (or cat-
egories), it will be considered conducted
with respect to all of the taxpayer’s SIC
code categories.
(ii) Use of three digit standard industri-
al classification codes. A taxpayer deter-
mines the relevant Major Groups and SIC
code categories by reference to the two
digit and three digit classification, respec-
tively, of the Standard Industrial Classifi-
cation Manual (SIC code). The SIC Man-
ual is available at https://www.osha.gov/
pls/imis/sic_manual.html.
(iii) Consistency. Once a taxpayer se-
lects a SIC code category or Major Group
for the first taxable year for which this
section applies to the taxpayer, it must
continue to use that category in following
years unless the taxpayer establishes to the
satisfaction of the Commissioner that, due
to changes in the relevant facts, a change
in the category is appropriate. Therefore,
once a taxpayer elects a permissible ag-
gregation of three digit SIC code catego-
ries into a two digit Major Group, it must
continue to use that two digit category in
following years unless the taxpayer estab-
lishes to the satisfaction of the Commis-
sioner that, due to changes in the relevant
facts, a change is appropriate.
(iv) Wholesale trade and retail trade
categories. A taxpayer must use a SIC
code category within the divisions of
“wholesale trade” or “retail trade” if it is
engaged solely in sales-related activities
with respect to a particular category of
products. In the case of a taxpayer that
conducts material non-sales-related ac-
tivities with respect to a particular cate-
gory of products, all R&E expenditures
related to sales of the products must be
allocated and apportioned as if the ex-
penditures were reasonably connected to
the most closely related three digit SIC
code category other than those within the
wholesale and retail trade divisions. For
example, if a taxpayer engages in both

Bulletin No. 2020–49 1189 November 30, 2020
the manufacturing and assembling of
cars and trucks (SIC code 371) and in a
wholesaling activity related to motor ve-
hicles and motor vehicle parts and sup-
plies (SIC code 501), the taxpayer must
allocate and apportion all R&E expendi-
tures related to both activities as if they
relate solely to the manufacturing SIC
code 371. By contrast, if the taxpayer
engages only in the wholesaling activity
related to motor vehicles and motor vehi-
cle parts and supplies, the taxpayer must
allocate and apportion all R&E expendi-
tures to the wholesaling SIC code 501.
(c) Exclusive apportionment. Solely
for purposes of applying this section to
section 904 as the operative section, an
amount equal to fifty percent of a tax-
payer’s R&E expenditures in a SIC code
category (or categories) is apportioned
exclusively to the residual grouping of
U.S. source gross intangible income if re-
search and experimentation that accounts
for at least fifty percent of such R&E ex-
penditures was performed in the United
States. Similarly, an amount equal to fifty
percent of a taxpayer’s R&E expenditures
in a SIC code category (or categories) is
apportioned exclusively to the statutory
grouping (or groupings) of foreign source
gross intangible income in that SIC code
category if research and experimentation
that accounts for more than fifty percent
of such R&E expenditures was performed
outside the United States. If there are
multiple separate categories with foreign
source gross intangible income in the SIC
code category, the fifty percent of R&E
expenditures apportioned under the previ-
ous sentence is apportioned ratably to for-
eign source gross intangible income based
on the relative amounts of gross receipts
from gross intangible income in the SIC
code category in each separate category,
as determined under paragraph (d) of this
section. Solely for purposes of determin-
ing whether fifty percent or more of R&E
expenditures in a year are performed with-
in or without the United States under this
paragraph (c), a taxpayer’s R&E expendi-
tures with respect to a taxable year are de-
termined by taking into account only the
R&E expenditures incurred in such tax-
able year (without regard to whether such
expenditures are capitalized under section
59(e) or any other provision in the Code),
and do not include amounts that were cap-
italized in a prior taxable year and are de-
ducted in such taxable year.
(d) Apportionment based on gross
receipts from sales of products or ser-
vices—(1) In general. A taxpayer’s R&E
expenditures not apportioned under para-
graph (c) of this section are apportioned
between the statutory grouping (or among
the statutory groupings) within the class
of gross intangible income and the resid-
ual grouping within such class according
to the rules in paragraphs (d)(1)(i) through
(iv) of this section. See paragraph (b) of
this section for defining the class of gross
intangible income in relation to SIC code
categories.
(i) A taxpayer’s R&E expenditures not
apportioned under paragraph (c) of this
section are apportioned in the same pro-
portions that:
(A) The amounts of the taxpayer’s
gross receipts from sales and leases of
products (as measured by gross receipts
without regard to cost of goods sold) or
services that are related to gross intangible
income within the statutory grouping (or
statutory groupings) and in the residual
grouping bear, respectively; to
(B) The total amount of such gross re-
ceipts in the class.
(ii) For purposes of this paragraph (d),
gross receipts from sales and leases of
products are related to gross intangible in-
come if intangible property is embedded
or used in connection with the manufac-
ture or sale of such products, and gross
income from services is related to gross
intangible income if intangible property
is incorporated in or directly or indirect-
ly benefits such services. See paragraph
(g)(7) of this section (Example 7). The
amount of the gross receipts used to ap-
portion R&E expenditures also includes
gross receipts from sales and leases of
products or services of any controlled or
uncontrolled party to the extent described
in paragraphs (d)(3) and (4) of this section.
A royalty or other amount paid to the tax-
payer for intangible property constitutes
gross intangible income, but is not consid-
ered part of gross receipts arising from the
sale or lease of a product or service, and
so is not taken into account in apportion-
ing the taxpayer’s R&E expenditures to its
gross intangible income.
(iii) The statutory grouping (or group-
ings) or residual grouping to which the
gross receipts are assigned is the group-
ing to which the gross intangible income
related to the sale, lease, or service is as-
signed. In cases where the gross intangi-
ble income of the taxpayer is income not
described in paragraph (d)(3) or (4) of this
section, the grouping to which the taxpay-
er’s gross receipts and the gross intangible
income are assigned is the same. In cas-
es where the taxpayer’s gross intangible
income is related to sales, leases, or ser-
vices described in paragraph (d)(3) or (4)
of this section, the gross receipts that will
be used for purposes of this paragraph (d)
are the gross receipts of the controlled and
uncontrolled parties that are taken into ac-
count under paragraphs (d)(3) and (4) of
this section. The grouping to which the
controlled or uncontrolled parties’ gross
receipts are assigned is determined based
on the grouping of the taxpayer’s gross in-
tangible income attributable to the license,
sale, or other transfer of intangible proper-
ty to such controlled or uncontrolled party
as described in paragraph (d)(3)(i) or (d)
(4)(i) of this section, and not the group-
ing to which the gross receipts would be
assigned if the assignment were based on
the income earned by the controlled or un-
controlled party. See paragraph (g)(1) of
this section (Example 1). For purposes of
applying this paragraph (d)(1)(iii) to sec-
tion 250 or section 904 as the operative
section, the assignment of gross receipts
to the general and foreign branch catego-
ries is made after taking into account the
assignment of gross intangible income to
those categories as adjusted by reason of
disregarded payments under the rules of
§1.904-4(f)(2)(vi), and by making similar
adjustments to gross receipts under the
principles of §1.904-4(f)(2)(vi).
(iv) For purposes of applying this sec-
tion to section 904 as the operative section,
because a United States person’s gross in-
tangible income cannot include income
assigned to the section 951A category,
no R&E expenditures of a United States
person are apportioned to foreign source
income in the section 951A category.
(2) Apportionment in excess of gross
income. Amounts apportioned under this
section may exceed the amount of gross
income related to the SIC code category
within the statutory or residual grouping.
In such case, the excess is applied against
other gross income within the statutory or

November 30, 2020 1190 Bulletin No. 2020–49
residual grouping. See §1.861-8(d)(1) for
applicable rules where the apportionment
results in an excess of deductions over
gross income within the statutory or resid-
ual grouping.
(3) Sales or services of uncontrolled
parties—(i) In general. For purposes of
the apportionment within a class under
paragraph (d)(1) of this section, if a tax-
payer reasonably expects an uncontrolled
party to (through a license, purchase, or
transfer): acquire intangible property that
would arise from the taxpayer’s current
R&E expenditures; acquire products in
which such intangible property is em-
bedded or used in connection with the
manufacture or sale of such products; or
receive services that incorporate or direct-
ly or indirectly benefit from such intangi-
ble property, then the gross receipts of the
uncontrolled party from sales, licenses,
leases, or services of the particular prod-
ucts or services in which the taxpayer’s
intangible property is embedded or incor-
porated or which the taxpayer’s intangible
property directly or indirectly benefitted
are taken into account. If the taxpayer has
previously licensed, sold, or transferred
intangible property related to a SIC code
category to an uncontrolled party, the tax-
payer is presumed to expect to license,
sell, or transfer to that uncontrolled party
all future intangible property related to the
same SIC code category. The presumption
described in the preceding sentence may
be rebutted by the taxpayer with facts that
demonstrate that the taxpayer reasonably
expects not to license, sell, or transfer
future intangible property to the uncon-
trolled party.
(ii) Definition of uncontrolled party.
For purposes of this paragraph (d)(3), the
term uncontrolled party means a person
that is not a controlled party as defined in
paragraph (d)(4)(ii) of this section.
(iii) Sales of components. In the case of
a sale or lease of a product by an uncon-
trolled party that is derived from the tax-
payer’s intangible property but is incorpo-
rated as a component of a larger product
(for example, where the product incorpo-
rating the intangible property is a compo-
nent of a large machine), only the portion
of the gross receipts from the larger prod-
uct that are attributable to the component
derived from the intangible property is in-
cluded. For purposes of the preceding sen-
tence, a reasonable estimate based on the
principles of section 482 must be made.
See paragraph (g)(4)(ii)(B)(3) of this sec-
tion (Example 4).
(iv) Reasonable estimates of gross re-
ceipts. If the amount of gross receipts of
an uncontrolled party is unknown, a rea-
sonable estimate of gross receipts must
be made annually. Appropriate economic
analyses, based on the principles of sec-
tion 482, must be used to estimate gross
receipts. See paragraph (g)(5)(ii)(B)(3)(ii)
of this section (Example 5).
(4) Sales or services of controlled
parties—(i) In general. For purposes of
the apportionment within a class under
paragraph (d)(1) of this section, if the
controlled party is reasonably expected
to (through a license, sale, or transfer):
acquire intangible property that would
arise from the taxpayer’s current R&E
expenditures; acquire products in which
such intangible property is embedded or
used in connection with the manufac-
ture or sale of such products; or receive
services that incorporate or directly or
indirectly benefit from such intangible
property, then the gross receipts of the
controlled party from all of its sales, li
-
censes, leases, or services are taken into
account. Except to the extent provided in
paragraph (d)(4)(iv) of this section, if the
taxpayer has previously licensed, sold, or
transferred intangible property related to
a SIC code category to a controlled par-
ty, the taxpayer is presumed to expect to
license, sell, or transfer to that controlled
party all future intangible property relat-
ed to the same SIC code category. The
presumption described in the preceding
sentence may be rebutted by the taxpayer
with facts that demonstrate that the tax-
payer will not license, sell, or transfer fu-
ture intangible property to the controlled
party.
(ii) Definition of a controlled party. For
purposes of this paragraph (d)(4), the term
controlled party means any person that
has a relationship to the taxpayer specified
in section 267(b) or 707(b), or is a mem-
ber of a controlled group of corporations
(within the meaning of section 267(f)) to
which the taxpayer belongs. Because an
affiliated group is treated as a single tax-
payer, a member of an affiliated group is
not a controlled party. See paragraph (e)
of this section.
(iii) Gross receipts not to be taken into
account more than once. Sales, licenses,
leases, or services among the taxpayer,
controlled parties, and uncontrolled par-
ties are not taken into account more than
once; in such a situation, the amount of
gross receipts of the selling person must
be subtracted from the gross receipts of
the buying person. Therefore, the gross re-
ceipts taken into account under paragraph
(d)(4)(i) of this section generally reflect
the gross receipts from sales made to end
users.
(iv) Effect of cost sharing arrange-
ments. If the controlled party has entered
into a cost sharing arrangement, in accor-
dance with the provisions of §1.482-7,
with the taxpayer for the purpose of devel-
oping intangible property, then the taxpay-
er is not reasonably expected to license,
sell, or transfer to that controlled party,
directly or indirectly, intangible property
that would arise from the taxpayer’s share
of the R&E expenditures with respect to
the cost shared intangibles as defined in
§1.482-7(j)(1)(i). Therefore, solely for
purposes of apportioning a taxpayer’s
R&E expenditures (which do not include
the amount of CST Payments received by
the taxpayer; see paragraph (a) of this sec-
tion) that are intangible development costs
(as defined in §1.482-7(d)) with respect to
a cost sharing arrangement, the controlled
party’s gross receipts are not taken into
account for purposes of paragraphs (d)(1)
and (d)(4)(i) of this section.
(5) Application of section 864(e)(3).
Section 864(e)(3) and §1.861-8(d)(2) do
not apply for purposes of this section.
(e) Affiliated groups. See §1.861-14(e)
(2) for rules on allocating and apportion-
ing R&E expenditures of an affiliated
group (as defined in §1.861-14(d)).
(f) Special rules for partnerships—(1)
R&E expenditures. For purposes of ap-
plying this section, if R&E expenditures
are incurred by a partnership in which the
taxpayer is a partner, the taxpayer’s R&E
expenditures include the taxpayer’s dis-
tributive share of the partnership’s R&E
expenditures.
(2) Purpose and location of expendi-
tures. In applying exclusive apportion-
ment under paragraph (c) of this section,
a partner’s distributive share of R&E
expenditures incurred by a partnership is
treated as incurred by the partner for the

Bulletin No. 2020–49 1191 November 30, 2020
same purpose and in the same location as
incurred by the partnership.
(3) Apportionment based on gross
receipts. In applying the remaining ap-
portionment under paragraph (d) of this
section, if a taxpayer is a partner in a
partnership that incurs R&E expenditures
described in paragraph (f)(1) of this sec-
tion and the taxpayer is not reasonably
expected to license, sell, or transfer to the
partnership (directly or indirectly) intan-
gible property that would arise from the
taxpayer’s current R&E expenditures, in
the manner described in paragraph (d)(3)
(i) or (d)(4)(i) of this section, then the tax-
payer’s gross receipts in a SIC code cate-
gory include only the taxpayer’s share of
any gross receipts in the SIC code catego-
ry of the partnership. For purposes of the
preceding sentence, the taxpayer’s share
of gross receipts is proportionate to the
taxpayer’s distributive share of the part-
nership’s gross income in the product cat-
egory. However, if the taxpayer is reason-
ably expected to license, sell, or transfer
to the partnership (directly or indirectly)
intangible property that would arise from
the taxpayer current R&E expenditures, in
the manner described in paragraph (d)(3)
(i) or (d)(4)(i) of this section, then the tax-
payer’s gross receipts in a SIC code cate-
gory include the full amount of any gross
receipts in the SIC code category of the
partnership as provided in paragraph (d)
(3)(i) or (d)(4)(i) of this section.
(g) Examples. The following examples
illustrate the application of the rules in this
section.
(1) Example 1: Controlled party and single prod-
uct—(i) Facts. X, a domestic corporation, is a manu-
facturer and distributor of small gasoline engines for
lawnmowers. Gasoline engines are a product within
the category, Engines and Turbines (SIC Industry
Group 351). Y, a wholly owned foreign subsidiary of
X, also manufactures and sells these engines abroad.
X owns no other foreign subsidiaries. During Year
1, X incurred R&E expenditures of $60,000x, which
it deducts under section 174 as a current expense,
to invent and patent a new and improved gasoline
engine. All of the research and experimentation was
performed in the United States. Also in Year 1, the
domestic gross receipts of X from sales of gasoline
engines total $500,000x and foreign gross receipts of
Y from sales of gasoline engines total $300,000x. X
provides technology for the manufacture of engines
to Y through a license that requires the payment of
an arm’s length royalty. Because X has licensed its
intangible property to Y related to the SIC code, it
is presumed to reasonably expect to license the in-
tangible property that would be developed from the
current research and experimentation. In Year 1, X’s
gross income is $210,000x, of which $140,000x is
U.S. source income from domestic sales of gasoline
engines, $40,000x is income included under section
951A, all of which relates to Y’s foreign source in-
come from sales of gasoline engines, $20,000x is
foreign source royalties from Y, and $10,000x is U.S.
source interest income. None of the foreign source
royalties are allocable to passive category income of
Y, and therefore, under §§1.904-4(d) and 1.904-5(c)
(3), the foreign source royalties are general category
income to X.
(ii) Analysis—(A) Allocation. The R&E expen-
ditures were incurred in connection with developing
intangible property related to small gasoline engines
and they are definitely related to X’s items of gross
intangible income related to the SIC code category
351, namely gross income from the sale of small gas-
oline engines in the United States and royalties re-
ceived from subsidiary Y, a foreign manufacturer of
gasoline engines. Accordingly, under paragraph (b)
of this section, the R&E expenditures are allocable
to the class of gross intangible income related to SIC
code category 351, all of which is general category
income of X. X’s U.S. source interest income and
income included under section 951A are not within
this class of gross intangible income and, therefore,
no portion of the R&E expenditures are allocated to
the U.S. source interest income or foreign source in-
come in the section 951A category.
(B) Apportionment—(1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory grouping of gross in-
tangible income is foreign source general category
income and the residual grouping of gross intangible
income is U.S. source income.
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimental activity was performed in
the United States, 50% of the R&E expenditures, or
$30,000x ($60,000x x 50%), is apportioned exclu-
sively to the residual grouping of U.S. source gross
intangible income. The remaining 50% of the R&E
expenditures is then apportioned between the statu-
tory and residual groupings on the basis of the rel-
ative amounts of gross receipts from sales of small
gasoline engines by X and Y that are related to the
U.S. source sales income and foreign source royalty
income, respectively.
(3) Apportionment based on gross receipts. After
taking into account exclusive apportionment, X has
$30,000x ($60,000x – $30,000x) of R&E expendi-
tures that must be apportioned between the statutory
and residual groupings. Under paragraph (d)(4) of
this section, Y’s gross receipts within the SIC code
are taken into account in apportioning X’s R&E ex-
penditures. Although X has gross intangible income
of $140,000x from domestic sales and $20,000x in
royalties from Y, X’s R&E expenditures are appor-
tioned to that gross intangible income on the basis
of the relative amounts of gross receipts arising from
the sale of products by X and Y (and not the rela-
tive amounts of X’s gross intangible income) in the
statutory and residual groupings. Therefore, under
paragraphs (d)(1) and (4) of this section $11,250x
($30,000x x $300,000x / ($500,000x + $300,000x))
is apportioned to the statutory grouping of X’s gross
intangible income attributable to its license of intan-
gible property to Y, or foreign source general cate-
gory income. No portion of the gross receipts by X
or Y are disregarded under section 864(e)(3), regard-
less of whether the income related to those sales is
eligible for a deduction under section 250(a)(1)(A).
The remaining $18,750x ($30,000x x $500,000x /
($500,000x + $300,000x)) is apportioned to the re-
sidual grouping of gross intangible income, or U.S.
source income.
(4) Summary. Accordingly, for purposes of the
foreign tax credit limitation, $11,250x of X’s R&E
expenditures are apportioned to foreign source gen-
eral category income, and $48,750x ($30,000x +
$18,750x) of X’s R&E expenditures are apportioned
to U.S. source income.
(2) Example 2: Controlled party and two prod-
ucts in same SIC code category—(i) Facts. The facts
are the same as in paragraph (g)(1)(i) of this section
(the facts in Example 1), except that X also spends
$30,000x in Year 1 for research on steam turbines,
all of which is performed in the United States, and X
has steam turbine gross receipts in the United States
of $400,000x. X’s foreign subsidiary Y neither man-
ufactures nor sells steam turbines. The steam turbine
research is in addition to the $60,000x in R&E expen-
ditures incurred by X on gasoline engines for lawn-
mowers. X thus has $90,000x of R&E expenditures.
X’s gross income is $260,000x, of which $140,000x
is U.S. source income from domestic sales of gaso-
line engines, $50,000x is U.S. source income from
domestic sales of steam turbines, $40,000x is income
included under section 951A all of which relates to
foreign source income derived from Y’s sales of gas-
oline engines, $20,000x is foreign source royalties
from Y, and $10,000x is U.S. source interest income.
(ii) Analysis—(A) Allocation. X’s R&E expen-
ditures generate gross intangible income from sales
of small gasoline engines and steam turbines. Both
of these products are in the same three digit SIC
code category, Engines and Turbines (SIC Industry
Group 351). Therefore, under paragraph (a) of this
section, X’s R&E expenditures are definitely related
to all items of gross intangible income attributable
to SIC code category 351. These items of X’s gross
intangible income are gross income from the sale
of small gasoline engines and steam turbines in the
United States and royalties from foreign subsidiary
Y, a foreign manufacturer and seller of small gaso-
line engines. X’s U.S. source interest income and in-
come included under section 951A is not within this
class of gross intangible income and, therefore, no
portion of X’s R&E expenditures are allocated to the
U.S. source interest income or income in the section
951A category.
(B) Apportionment—(
1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory grouping of gross in-
tangible income is foreign source general category
income and the residual grouping of gross intangible
income is U.S. source income.
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimental activity was performed in
the United States, 50% of the R&E expenditures,
or $45,000x ($90,000x x 50%), are apportioned
exclusively to the residual grouping of U.S. source
gross intangible income. The remaining 50% of the
R&E expenditures is then apportioned between the
statutory and residual groupings on the basis of the

November 30, 2020 1192 Bulletin No. 2020–49
relative amounts of gross receipts of small gasoline
engines and steam turbines by X and Y with respect
to which gross intangible income is foreign source
general category income and U.S. source income.
(3) Apportionment based on gross receipts. After
taking into account exclusive apportionment, X has
$45,000x ($90,000x – $45,000x) of R&E expendi-
tures that must be apportioned between the statutory
and residual groupings. Although X has gross intan-
gible income of $190,000x from domestic sales and
$20,000x in royalties from Y, X’s R&E expenditures
are apportioned to that gross intangible income on
the basis of the relative amounts of gross receipts
arising from the sale of products by X and Y (and not
the relative amounts of X’s gross intangible income)
in the statutory and residual groupings. Even though
a portion of the R&E expenditures that must be ap-
portioned are attributable to research performed with
respect to steam turbines, and Y does not sell steam
turbines, because Y is reasonably expected to license
all intangible property related to SIC code category
351 from X, including intangible property related
to steam turbines, under paragraphs (d)(1) and (4)
of this section $11,250x ($45,000x x $300,000x /
($500,000x + $400,000x + $300,000x)) is appor-
tioned to the statutory grouping of gross intangible
income, or foreign source general category income
attributable to the royalty income to which the gross
receipts of Y are related. The remaining $33,750x
($45,000x x ($500,000x + $400,000x) / ($500,000x
+ $400,000x + $300,000x)) is apportioned to the re-
sidual grouping of gross intangible income, or U.S.
source gross income.
(4) Summary. Accordingly, for purposes of the
foreign tax credit limitation, $11,250x of X’s R&E
expenditures are apportioned to foreign source gen-
eral category income and $78,750x ($45,000x +
$33,750x) of X’s R&E expenditures are apportioned
to U.S. source income.
(3) Example 3: Cost sharing arrangement—(i)
Facts—(A) Acquisitions and transfers by X. The
facts are the same as in paragraph (g)(1)(i) of this
section (the facts in Example 1) except that, in Year
2, X and Y terminate the license for the manufacture
of engines that was in place in Year 1 and enter into
a cost sharing arrangement, in accordance with the
provisions of §1.482-7, to share the costs and risks
of developing the intangible property related to the
engines. Pursuant to the cost sharing arrangement,
X has the exclusive rights to exploit the cost shared
intangibles within the United States, and Y has the
exclusive rights to exploit the cost shared intangibles
outside the United States. X’s and Y’s shares of the
reasonably anticipated benefits from the cost shared
intangibles are 70% and 30%, respectively. In Year 2,
Y makes a PCT Payment (as defined in §1.482-7(b)
(1)(ii)) of $50,000x that is characterized and sourced
as a royalty for a license of small gasoline engine
technology.
(B) Gross receipts and R&E expenditures. In
Year 2, X and Y continue to sell gasoline engines,
with gross receipts of $600,000x in the United States
by X and $400,000x abroad by Y. X incurs intan-
gible development costs associated with the cost
shared intangibles of $100,000x in Year 2, which
consist exclusively of research activities conducted
in the United States. Y also makes a $30,000x CST
Payment (as defined in §1.482-7(b)(1)(i)) under
the cost sharing arrangement. X is entitled to de-
duct $70,000x of its intangible development costs
($100,000x less the $30,000x CST Payment by Y)
by reason of the second sentence under §1.482-7(j)
(3)(i) (relating to CST Payments).
(C) Gross income of X. In Year 2, X’s gross in-
come is $360,000x, of which $200,000x is U.S.
source income from domestic sales of small gasoline
engines, $50,000x is foreign source general category
income attributable to the PCT Payment, $100,000x
is income included under section 951A (all of which
relates to foreign source income derived from engine
sales by Y), and $10,000x is U.S. source interest in-
come.
(ii) Analysis—(A) Allocation. The $70,000x of
R&E expenditures incurred in Year 2 by X in con-
nection with small gasoline engines are definitely
related to the items of gross intangible income re-
lated to the SIC code category, namely gross income
from the sale of small gasoline engines in the United
States and PCT Payments from Y. Accordingly, un-
der paragraph (a) of this section, the R&E expendi-
tures are allocable to this class of gross intangible
income. X’s U.S. source interest income and income
included under section 951A are not within this class
of gross intangible income and, therefore, no portion
of X’s R&E expenditures is allocated to X’s U.S.
source interest income or section 951A category in-
come.
(B) Apportionment—(1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory grouping of gross in-
tangible income is foreign source general category
income, and the residual grouping of gross intangible
income is U.S. source income.
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimentation in Year 2 was performed
in the United States, 50% of the R&E expenditures,
or $35,000x ($70,000x x 50%), is apportioned ex-
clusively to the residual grouping of gross intangible
income, U.S. source income.
(3) Apportionment based on gross receipts. Al-
though X has gross intangible income of $200,000x
from domestic sales and $50,000x as a PCT Payment
from Y, X’s R&E expenditures are apportioned to its
gross intangible income on the basis of the relative
amounts of gross receipts arising from the sale of
products by X (and not the relative amounts of X’s
gross intangible income) in the statutory and residual
groupings. Under paragraph (d)(4)(iv) of this section,
because of the cost sharing arrangement, Y’s gross
receipts from sales are not taken into account in ap-
portioning X’s R&E expenditures that are intangible
development costs with respect to the cost sharing
arrangement. Because all of the gross receipts from
sales that are taken into account under paragraph (d)
(1) of this section relate to gross intangible income
that is included in the residual grouping, $35,000x is
apportioned to the residual grouping of gross intan-
gible income, or U.S. source income.
(4) Summary. Accordingly, for purposes of the
foreign tax credit limitation, $70,000x of X’s R&E
expenditures are apportioned to U.S. source income.
(4) Example 4: Uncontrolled party—(i) Facts—
(A) X’s R&E expenditures. X, a domestic corpora-
tion, is engaged in continuous research and exper-
imentation to improve the quality of the products
that it manufactures and sells, which are floodlights,
flashlights, fuse boxes, and solderless connectors.
All of these products are in the same three digit SIC
code category, Electric Lighting and Wiring Equip-
ment (SIC Industry Group 364). X incurs $100,000x
of R&E expenditures in Year 1 that is performed
exclusively in the United States. As a result of this
research activity, X acquires patents that it uses in its
own manufacturing activity.
(B) License to Y and Z. In Year 1, X licenses
its floodlight patent to Y and Z, uncontrolled par-
ties, for use in their own territories, Countries Y
and Z, respectively. Y pays X a royalty of $3,000x
plus $0.20x for each unit sold. Gross receipts from
sales of floodlights by Y for the taxable year are
$135,000x (30,000 units at $4.50x per unit), and the
royalty is $9,000x ($3,000x + $0.20x/unit × 30,000
units). Y has sales of other products of $500,000x.
Z pays X a royalty of $3,000x plus $0.30x for each
unit sold. Z manufactures 30,000 floodlights in the
taxable year, and the royalty is $12,000x ($3,000x +
$0.30x/unit × 30,000 units). The dollar value of Z’s
gross receipts from floodlight sales is not known to
X because, in this case, the floodlights are not sold
separately by Z but are instead used as a component
in Z’s manufacture of lighting equipment for the-
aters. However, a reasonable estimate of Z’s gross
receipts attributable to the floodlights, based on the
principles of section 482, is $120,000x. The gross
receipts from sales of all Z’s products, including the
lighting equipment for theaters, are $1,000,000x.
Because X has licensed its intangible property to
Y and Z related to the SIC code, it is presumed to
reasonably expect to license the intangible property
that would be developed from the current research
and experimentation.
(C) X’s gross receipts and gross income. X’s
gross receipts from sales of floodlights for the tax-
able year are $500,000x and its sales of its other
products (flashlights, fuse boxes, and solderless
connectors) are $400,000x. X has gross income of
$500,000x, consisting of U.S. source gross income
from domestic sales of floodlights, flashlights, fuse
boxes, and solderless connectors of $479,000x,
and foreign source gross income from royalties of
$9,000x and $12,000x from foreign corporations Y
and Z, respectively. The royalty income is general
category income to X under §1.904-4(b)(2)(ii).
(ii) Analysis—(A) Allocation. X’s R&E expendi
-
tures are definitely related to all of the gross intangi-
ble income from the products that it produces, which
are floodlights, flashlights, fuse boxes, and solderless
connectors. All of these products are in SIC code cat-
egory 364. Therefore, under paragraph (b) of this
section, X’s R&E expenditures are definitely related
to the class of gross intangible income related to SIC
code category 364 and to all items of gross intangible
income attributable to the class. These items of X’s
gross intangible income are gross income from the
sale of floodlights, flashlights, fuse boxes, and sol-
derless connectors in the United States and royalties
from Corporations Y and Z.
(B) Apportionment—(1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory grouping of gross in-
tangible income is foreign source general category
income, and the residual grouping of gross intangible
income is U.S. source income.

Bulletin No. 2020–49 1193 November 30, 2020
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimentation was performed in the
United States, 50% of the R&E expenditures, or
$50,000x ($100,000x x 50%), is apportioned exclu-
sively to the residual grouping of U.S. source gross
intangible income.
(3) Apportionment based on gross receipts. Af-
ter taking into account exclusive apportionment,
X has $50,000x ($100,000x – $50,000x) of R&E
expenditures that must be apportioned between the
statutory and residual groupings. Under paragraph
(d)(3)(i) of this section, gross receipts from sales
of Y and Z are taken into account in apportioning
X’s R&E expenditures. Although X has gross in-
tangible income of $479,000x from domestic sales
and $21,000x in royalties from Y and Z, X’s R&E
expenditures are apportioned to its gross intangi-
ble income on the basis of the relative amounts of
gross receipts arising from the sale of products by
X, Y and Z (and not the relative amounts of X’s
gross intangible income) in the statutory and re-
sidual groupings. In addition, under paragraph (d)
(3)(iii) of this section only the portion of Z’s gross
receipts that are attributable to the floodlights that
incorporate the intangible property licensed from
X, rather than Z’s total gross receipts, are used
for purposes of apportionment. All of X’s gross
receipts from sales in the entire SIC code catego-
ry are included for purposes of apportionment on
the basis of gross intangible income attributable to
those sales. Under paragraph (d)(1) of this section,
$11,039x ($50,000x × ($135,000x + $120,000x) /
($900,000x + $135,000x + $120,000x)) is appor-
tioned to the statutory grouping of gross intangible
income, or foreign source general category income.
The remaining $38,961x ($50,000x × $900,000x /
($900,000x + $135,000x + $120,000x)) is appor-
tioned to the residual grouping of gross intangible
income, or U.S. source income.
(4) Summary. Accordingly, for purposes of the
foreign tax credit limitation, $11,039x of X’s R&E
expenditures are apportioned to foreign source gen-
eral category income and $88,961x ($50,000x +
$38,961x) of X’s R&E expenditures are apportioned
to U.S. source income.
(5) Example 5: Uncontrolled party and subli-
cense—(i) Facts. X, a domestic corporation, is a
cloud storage service provider. Cloud storage ser-
vices are a service within the category, Computer
Programming, Data Processing, and other Computer
Related Services (SIC Industry Group 737). During
Year 1, X incurs R&E expenditures of $50,000x to
invent and copyright new storage monitoring and
management software. All of the research and exper-
imentation is performed in the United States. X uses
this software in its own business to provide services
to customers. X also licenses a version of the soft-
ware that can be used by other businesses that pro-
vide cloud storage services. X licenses the software
to uncontrolled party U, which sub-licenses the soft-
ware to other businesses that provide cloud storage
services to customers. U does not use the software
except to sublicense it. As a part of the licensing
agreement with U, U and its sub-licensees are only
permitted to use the software in certain countries out-
side of the United States. Under the contract with U,
U pays X a royalty of 50% on the amount it receives
from its sub-licensees that use the software to pro-
vide services to customers. Because X has licensed
its intangible property to U related to the SIC code
and U has sublicensed it to other businesses, it is pre-
sumed that X is reasonably expected to license the
intangible property that would be developed from its
current research and experimentation to U and that
U would sublicense it to other businesses. In Year
1, X earns $300,000x of gross receipts from provid-
ing cloud storage services within the United States.
Further, in Year 1 U receives $10,000x of royalty
income from its sub-licensees and pays a royalty
of $5,000x to X. Thus, X earns $300,000x of U.S.
source general category gross income and also earns
$5,000x of foreign source general category royalty
income from licensing its software to U for use out-
side of the United States.
(ii) Analysis—(A) Allocation. The R&E expen-
ditures were incurred in connection with the devel-
opment of cloud computing software and they are
definitely related to the items of gross intangible
income related to the SIC Code category, namely
gross income from the storage monitoring and man
-
agement software in the United States and royalties
received from U. Accordingly, under paragraph (b)
of this section, the R&E expenditures are allocable
to this class of gross intangible income.
(B) Apportionment—(1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory grouping of gross in-
tangible income is foreign source general category
income, and the residual grouping of gross intangible
income is U.S. source income.
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimental activity was performed in
the United States, 50% of the R&E expenditures, or
$25,000x ($50,000x x 50%), is apportioned exclu-
sively to the residual grouping of U.S. source gross
intangible income.
(3) Apportionment based on gross receipts—(i)
In general. After taking into account exclusive ap-
portionment, X has $25,000x ($50,000x – $25,000x)
of R&E expenditures that must be apportioned be-
tween the statutory and residual groupings. Because
X has licensed its intangible property related to the
SIC code to U and U has licensed it to the sub-licens-
ees, under paragraph (d)(3)(i) of this section, gross
receipts from sales of U’s sublicensees are taken into
account in apportioning X’s R&E expenditures. Al-
though X has gross intangible income of $300,000x
from domestic sales of services and $5,000x in roy-
alties from U, X’s R&E expenditures are apportioned
to its gross intangible income on the basis of the rel-
ative amounts of gross receipts arising from the sale
of services by X and U’s sub-licensees (and not the
relative amounts of X’s gross intangible income) in
the statutory and residual groupings.
(ii) Determination of U’s sub-licensee’s gross re-
ceipts. Under paragraph (d)(3)(iv) of this section, X
can make a reasonable estimate of the gross receipts
of U’s sub-licensees from services incorporating the
intangible property licensed by X by estimating, af-
ter an appropriate economic analysis, that U would
charge a royalty of 5% of the sub-licensee’s sales. U
received a royalty of $10,000x from the sub-licens-
ees. X then determines U’s sub-licensees’ foreign
sales by dividing the total royalty payments received
by U by the royalty estimated rate ($10,000x / .05 =
$200,000x).
(iii) Results of apportionment based on gross
receipts. Therefore, under paragraphs (d)(1) and (3)
of this section, $10,000x ($25,000x x $200,000x
/ ($300,000x + $200,000x)) is apportioned to the
statutory grouping of gross intangible income,
or foreign source general category income. The
remaining $15,000x ($25,000x x $300,000x /
($300,000x + $200,000x)) is apportioned to the re-
sidual grouping of gross intangible income, or U.S.
source income.
(4) Summary. Accordingly, for purposes of the
foreign tax credit limitation, $10,000x of X’s R&E
expenditures are apportioned to foreign source gen-
eral category income and $40,000x ($25,000x +
$15,000x) of X’s R&E expenditures are apportioned
to U.S. source income.
(6) Example 6: Foreign branch—(i) Facts—(A)
Overview for X. X, a domestic corporation, owns
FDE, a disregarded entity that is a foreign branch
within the meaning of §1.904-4(f)(3)(vii). FDE con-
ducts activities solely in Country Y. FDE’s function-
al currency is the U.S. dollar. X is a manufacturer
and distributor of small gasoline engines for lawn-
mowers in the United States. Gasoline engines are
a product within the category, Engines and Turbines
(SIC Industry Group 351). FDE also manufactures
and distributes small gasoline engines but only in
Country Y. During Year 1, X incurred R&E expen-
ditures of $60,000x, which it deducts under section
174 as a current expense, to invent and patent a new
and improved gasoline engine. All of the research
and experimentation was performed in the United
States. Also in Year 1, the domestic gross receipts
of X from gasoline engines total $500,000x. X pro-
vides technology for the manufacture of engines to
FDE through a license. FDE compensates X for the
technology with an arm’s length royalty payment of
$10,000x, which is disregarded for Federal income
tax purposes.
(B) Overview for FDE. FDE accrues and records
on its books and records $100,000x of gross income
from sales of gasoline engines to unrelated persons.
FDE’s gross income is non-passive category income
and is foreign source income. In Year 1, the foreign
gross receipts of FDE from sales of gasoline engines
total $300,000x. The disregarded royalty payment
from FDE to X is not recorded on FDE’s separate
books and records (as adjusted to conform to Fed-
eral income tax principles) within the meaning of
paragraph §1.904-4(f)(2)(i) because it is disregard-
ed for Federal income tax purposes. However, the
$10,000x disregarded royalty payment would be al-
locable to foreign source gross income attributable to
FDE under §1.904-4(f)(2)(vi)(B)(1)(ii). Therefore,
under §1.904-4(f)(2)(vi)(A) the amount of foreign
source gross income attributable to FDE is adjusted
downwards and the amount of foreign source gross
income attributable to X is adjusted upward to take
the $10,000x disregarded royalty payment into ac-
count.
(C) Assignment of X’s gross income to separate
categories. In Year 1, X has U.S. source general cate-
gory gross income of $140,000x from domestic sales
of gasoline engines. After application of §1.904-4(f)
(2)(vi)(A) to the disregarded payment made by FDE,
X has $10,000x of foreign source general category

November 30, 2020 1194 Bulletin No. 2020–49
gross income and X also has $90,000x of foreign
source foreign branch category gross income.
(ii) Analysis—(A) Allocation. The R&E expen-
ditures were incurred in connection with developing
intangible property related to small gasoline engines
and are definitely related to the items of gross intan-
gible income related to the SIC code category 351,
namely gross income from the sale of small gasoline
engines in both the United States and Country Y.
(B) Apportionment—(1) In general. For pur-
poses of applying this section to section 904 as the
operative section, the statutory groupings of gross in-
tangible income are foreign source general category
income and foreign source foreign branch category
income, and the residual grouping of gross intangible
income is U.S. source income.
(2) Exclusive apportionment. Under paragraph
(c) of this section, because at least 50% of X’s re-
search and experimental activity was performed in
the United States, 50% of the R&E expenditures,
or $30,000 ($60,000x x 50%), is apportioned ex-
clusively to the residual grouping of U.S. source
gross intangible income. The remaining 50% of
the R&E expenditures is then apportioned between
the statutory and residual groupings on the basis of
the relative amounts of gross receipts from sales
of small gasoline engines that are related to U.S.
source income, foreign source general category in-
come, and foreign source foreign branch category
income.
(3) Apportionment based on gross receipts. Af-
ter taking into account exclusive apportionment, X
has $30,000x ($60,000x - $30,000x) of R&E ex-
penditures that must be apportioned between the
statutory and residual groupings. Because X’s gross
intangible income is not described in paragraph (d)
(3) or (4) of this section (that is, there is no gross
intangible income related to sales, leases or services
from controlled or uncontrolled parties that are in-
corporating intangible property that was licensed,
sold, or transferred to controlled or uncontrolled
parties), the groupings to which the taxpayer’s
gross receipts and gross intangible income are as-
signed is the same. However, because the assign-
ment of X’s gross income to the foreign branch and
general categories is made by taking into account
disregarded payments under §1.904-4(f)(2)(vi),
the assignment of gross receipts between the gen-
eral category and foreign branch category must be
determined by making similar adjustments to X’s
gross receipts under the principles of §1.904-4(f)(2)
(vi). See paragraph (d)(1)(iii) of this section. For-
eign gross receipts of FDE from gasoline engines
total $300,000x. However, those gross receipts
are adjusted under the principles of §1.904-4(f)
(2)(vi) for purposes of apportioning the remaining
R&E expenditures by reducing the gross receipts
initially assigned to the foreign branch category by
an amount equal to the ratio of the royalty income
to FDE’s gross income that is initially assigned to
the foreign branch category. Accordingly, since the
disregarded royalty payment of $10,000x caused
an adjustment equal to 10% of FDE’s initial gross
income of $100,000x, 10% of the gross receipts or
$30,000x (10% x $300,000x) are similarly assigned
to the grouping of foreign source general catego-
ry income, and the remaining $270,000x of gross
receipts are assigned to the grouping of foreign
source foreign branch category income. Therefore,
under paragraph (d)(1) of this section, $1,125x
($30,000x x $30,000x / ($500,000x + $270,000x
+ $30,000x)) is apportioned to the statutory group-
ing of X’s gross intangible income attributable to
foreign source general category income. $10,125x
($30,000x x $270,000x / ($500,000x + $270,000x
+ $30,000x)) is apportioned to the statutory group-
ing of X’s foreign source foreign branch catego-
ry income. The remaining $18,750x ($30,000x x
$500,000x / ($500,000x + $270,000x + $30,000x))
is apportioned to the residual grouping of gross in-
tangible income or U.S. source income.
(7) Example 7: Indirectly derived gross intangi-
ble income—(i) Facts. P, a domestic corporation, de-
velops and publishes an internet website that persons
use (referred to as “users” and collectively referred
to as “user base”) without a fee. P incurs R&E ex-
penditures to update software code and write new
software code to maintain the website and develop
new products that are incorporated into the website.
P’s activities consist of services that fall within SIC
code category 737 (computer programming, data
processing, and other computer related services). P
sells space on its website for businesses to advertise
to its user base in exchange for a fee. P’s technology
allows it to collect data on users and to use that data
to effectively target advertisements. P does not grant
rights to the technology or other intangible property
to the businesses advertising on its website. In Year
1, P incurs R&E expenditures of $60,000x, which it
deducts under section 174. All the research and ex-
perimentation is performed in the United States. Also
in Year 1, P earns gross receipts of $200,000x from
the sale of advertisements, all of which gives rise to
U.S. source gross income.
(ii) Analysis—(A) Allocation. The R&E ex-
penditures were incurred in connection with de-
veloping intangible property used for P’s website.
Accordingly, they are definitely related and alloca-
ble to gross intangible income derived directly or
indirectly (in whole or in part) from that intangible
property. Because P’s advertising sales are depen-
dent on the users attracted to its website, P’s gross
income from advertising is indirectly derived from
intangible property and is included in gross intan-
gible income. Accordingly, under paragraph (b) of
this section, the R&E expenditures are allocable to
the class of gross intangible income related to SIC
code category 737, which consists of U.S. source
income.
(B) Apportionment. Because all gross receipts
from services that the intangible property directly or
indirectly benefits result in U.S. source income, no
apportionment is required.
(h) Applicability date. This section
applies to taxable years beginning after
December 31, 2019. However, taxpayers
may choose to apply this section to tax-
able years beginning on or after January
1, 2018, and before January 1, 2020, pro-
vided they apply this section in its entirety
and for any subsequent year beginning be-
fore January 1, 2020.
Par. 14. Section 1.861-20 is added to
read as follows:
§1.861-20 Allocation and apportionment
of foreign income taxes.
(a) Scope. This section provides rules
for the allocation and apportionment of
foreign income taxes, including allo-
cating and apportioning foreign income
taxes to separate categories for purpos-
es of the foreign tax credit. The rules of
this section apply except as modified
under the rules for an operative section
(as described in §1.861-8(f)(1)). See, for
example, §§1.704-1(b)(4)(viii)(d)(1),
1.904-6, 1.960-1(d)(3)(ii), and 1.965-5(b)
(2). Paragraph (b) of this section provides
definitions for the purposes of this section.
Paragraph (c) of this section provides the
general rule for allocation and apportion-
ment of foreign income taxes. Paragraph
(d) of this section provides rules for as-
signing foreign gross income to statutory
and residual groupings. Paragraph (e) of
this section provides rules for allocating
and apportioning foreign law deductions
to foreign gross income in the statutory
and residual groupings. Paragraph (f) of
this section provides rules for apportion-
ing foreign income taxes among statutory
and residual groupings. Paragraph (g) of
this section provides examples that illus-
trate the application of this section. Para-
graph (h) of this section provides the ap-
plicability date for this section.
(b) Definitions. The following defini-
tions apply for purposes of this section.
(1) Corporation. The term corpora-
tion has the same meaning as set forth in
§301.7701-2(b) of this chapter, and so in-
cludes a reverse hybrid.
(2) Corresponding U.S. item. The
term corresponding U.S. item means the
item of U.S. gross income or U.S. loss, if
any, that arises from the same transaction
or other realization event from which an
item of foreign gross income also arises.
An item of U.S. gross income or U.S. loss
is a corresponding U.S. item even if the
item of foreign gross income that arises
from the same transaction or realization
event differs in amount from the item of
U.S. gross income or U.S. loss. A corre-
sponding U.S. item does not include an
item of gross income that is exempt, ex-
cluded, or eliminated from U.S. gross in-
come, nor does it include an item of U.S.
gross income or U.S. loss that is not re-
alized, recognized or taken into account

Bulletin No. 2020–49 1195 November 30, 2020
by the taxpayer in the U.S. taxable year
in which the taxpayer paid or accrued the
foreign income tax, except as provided in
the next sentence. If a taxpayer pays or ac-
crues a foreign income tax that is imposed
on foreign taxable income that includes
an item of foreign gross income by reason
of a transaction or other realization event
that also gave rise to an item of U.S. gross
income or U.S. loss, but the U.S. and for-
eign taxable years end on different dates
and the event occurred in the last U.S. tax-
able year that ends before the end of the
foreign taxable year, then the item of U.S.
gross income or U.S. loss is a correspond-
ing U.S. item.
(3) Disregarded entity. The term dis-
regarded entity means an entity described
in §301.7701-2(c)(2) of this chapter that
is disregarded as an entity separate from
its owner for Federal income tax purposes.
(4) Foreign capital gain amount. The
term foreign capital gain amount means
the portion of a distribution that under for-
eign law gives rise to gross income of a
type described in section 301(c)(3)(A).
(5) Foreign dividend amount. The term
foreign dividend amount means the por-
tion of a distribution that is taxable as a
dividend under foreign law.
(6) Foreign gross income. The term
foreign gross income means the items of
gross income included in the base upon
which a foreign income tax is imposed.
This includes all items of foreign gross
income included in the foreign tax base,
even if the foreign taxable year begins in
the U.S. taxable year that precedes the
U.S. taxable year in which the taxpayer
pays or accrues the foreign income tax.
(7) Foreign income tax. The term for-
eign income tax means an income, war
profits, or excess profits tax within the
meaning of §1.901-2(a) that is a separate
levy within the meaning of §1.901-2(d)
and that is paid or accrued to any foreign
country (as defined in §1.901-2(g)).
(8) Foreign law CFC. The term foreign
law CFC means an entity that is a body
corporate under foreign law, certain of
the earnings of which are taxable to its
shareholder under a foreign law inclusion
regime.
(9) Foreign law disposition. The term
foreign law disposition means an event
that foreign law treats as a taxable disposi-
tion or deemed disposition of property but
that Federal income tax law does not treat
as a disposition causing the recognition of
gain or loss (for example, marking proper-
ty to market under foreign law).
(10) Foreign law distribution. The term
foreign law distribution means an event
that foreign law treats as a taxable distri-
bution (other than by reason of a foreign
law inclusion regime) but that Federal
income tax law does not treat as a distri-
bution of property within the meaning of
section 317(a) (for example, a stock divi-
dend described in section 305 or a foreign
law consent dividend).
(11) Foreign law inclusion regime. A
foreign law inclusion regime is a foreign
law tax regime similar to the subpart F
or GILTI regime described in sections
951 through 959, or the PFIC regime de-
scribed in sections 1293 through 1295
(relating to qualified electing funds), that
imposes a tax on a shareholder of an entity
based on an inclusion in the shareholder’s
taxable income of certain of the entity’s
current earnings, whether or not the for-
eign law deems the entity’s earnings to be
distributed.
(12) Foreign law inclusion regime in-
come
. The term foreign law inclusion re-
gime income means the items of foreign
gross income included by a taxpayer with
respect to a foreign law CFC by reason of
a foreign law inclusion regime.
(13) Foreign law pass-through income.
The term foreign law pass-through in-
come means the items of a reverse hybrid,
computed under foreign law, that give rise
to an inclusion in a taxpayer’s foreign
gross income under the laws of a foreign
country imposing tax by reason of the tax-
payer’s ownership of the reverse hybrid.
(14) Foreign taxable income. The term
foreign taxable income means foreign
gross income reduced by the deductions
that are allowed under foreign law.
(15) Foreign taxable year. The term
foreign taxable year has the meaning set
forth in section 7701(a)(23), applied by
substituting “under foreign law” for the
phrase “under subtitle A.”
(16) Partnership. The term partner-
ship has the same meaning as set forth in
§301.7701-2(c)(1) of this chapter.
(17) Reverse hybrid. The term reverse
hybrid means a corporation that is a fiscal-
ly transparent entity (under the principles
of §1.894-1(d)(3)) or a branch under the
laws of a foreign country imposing tax on
the income of the entity.
(18) Taxpayer. The term taxpayer has
the meaning described in §1.901-2(f)(1).
(19) U.S. capital gain amount. The
term U.S. capital gain amount means gain
recognized by a taxpayer on the sale or ex-
change of stock or, in the case of a distri-
bution with respect to stock, the portion of
the distribution to which section 301(c)(3)
(A) applies. However, a U.S. capital gain
amount does not include any portion of
the gain recognized by a taxpayer that is
treated as a dividend under section 964(e)
or 1248.
(20) U.S. dividend amount. The term
U.S. dividend amount means the portion
of a distribution that is made out of earn-
ings and profits under Federal income tax
law, including distributions out of previ-
ously taxed earnings and profits described
in section 959(a) or (b). It also includes
amounts included in gross income as a
dividend by reason of section 1248 or sec-
tion 964(e).
(21) U.S. gross income. The term U.S.
gross income means the items of gross
income that a taxpayer recognizes and
includes in taxable income under Federal
income tax law for its U.S. taxable year.
(22) U.S. loss. The term U.S. loss
means the item of loss that a taxpayer rec-
ognizes and includes in taxable income
under Federal income tax law for its U.S.
taxable year.
(23) U.S. return of capital amount. The
term U.S. return of capital amount means,
in the case of the sale or exchange of
stock, the adjusted basis of the stock, and
in the case of a distribution with respect
to stock, the portion of a distribution to
which section 301(c)(2) applies.
(24) U.S. taxable year. The term U.S.
taxable year has the same meaning as that
of the term taxable year set forth in sec
-
tion 7701(a)(23).
(c) General rule. A foreign income tax
is allocated and apportioned to the statuto-
ry and residual groupings that include the
items of foreign gross income included in
the base on which the tax is imposed. Each
foreign income tax (that is, each separate
levy) is allocated and apportioned sep-
arately under the rules in this section. A
foreign income tax is allocated and appor-
tioned to or among the statutory and resid-
ual groupings under the following steps:

November 30, 2020 1196 Bulletin No. 2020–49
(1) First, by assigning the items of for-
eign gross income to the groupings under
the rules of paragraph (d) of this section;
(2) Second, by allocating and appor-
tioning the deductions that are allowed
under foreign law to the foreign gross in-
come in the groupings under the rules of
paragraph (e) of this section; and
(3) Third, by allocating and apportion-
ing the foreign income tax by reference to
the foreign taxable income in the group-
ings under the rules of paragraph (f) of
this section.
(d) Assigning items of foreign gross in-
come to the statutory and residual group-
ings—(1) In general. Each item of foreign
gross income is assigned to a statutory or
residual grouping. The amount of the item
is determined under foreign law. How-
ever, Federal income tax law applies to
characterize the item and the transaction
or other realization event from which the
item arose, and to assign it to a group-
ing. Except as provided in paragraph (d)
(3) of this section, if a taxpayer pays or
accrues a foreign income tax that is im-
posed on foreign taxable income that in-
cludes an item of foreign gross income
with respect to which the taxpayer also
realizes, recognizes, or takes into account
a corresponding U.S. item, then the item
of foreign gross income is assigned to
the grouping to which the corresponding
U.S. item is assigned. See paragraph (g)
(2) of this section (Example 1). If the cor-
responding U.S. item is a U.S. loss (or
zero), the foreign gross income is assigned
to the grouping to which a gain would be
assigned had the transaction or other re-
alization event given rise to a gain, rather
than a U.S. loss (or zero), for Federal in-
come tax purposes, and not (if different)
to the grouping to which the U.S. loss is
allocated and apportioned in computing
U.S. taxable income. Paragraph (d)(3) of
this section provides special rules regard-
ing the assignment of the item of foreign
gross income in particular circumstances.
(2) Items of foreign gross income with
no corresponding U.S. item—(i) In gener-
al. The rules in paragraphs (d)(2)(ii) and
(iii) of this section apply for purposes of
characterizing an item of foreign gross
income and assigning it to a grouping if
the taxpayer does not realize, recognize,
or take into account a corresponding U.S.
item. But see paragraphs (d)(3)(i)(C) and
(d)(3)(iii) of this section for special rules
with respect to items of foreign gross
income attributable to foreign law pass-
through income and foreign law inclusion
regime income.
(ii) Foreign gross income from U.S.
nonrecognition event, or U.S. recognition
event that falls in a different U.S. taxable
year—(A) In general. If a taxpayer rec-
ognizes an item of foreign gross income
arising from a transaction or other foreign
realization event that does not result in the
recognition of gross income or loss under
Federal income tax law in the same U.S.
taxable year in which the foreign income
tax is paid or accrued or (in the circum-
stance described in the last sentence of
paragraph (b)(2) of this section) in the
immediately preceding U.S. taxable year,
then the item of foreign gross income is
characterized and assigned to the group-
ing to which the corresponding U.S. item
(or the items described in paragraph (d)(3)
of this section that are used to assign cer-
tain items of foreign gross income to the
statutory and residual groupings) would
be assigned if the event giving rise to the
foreign gross income resulted in the rec-
ognition of gross income or loss under
Federal income tax law in the U.S. taxable
year in which the foreign income tax is
paid or accrued.
(B) Foreign law distributions. An item
of foreign gross income that a taxpayer
includes as a result of a foreign law dis-
tribution with respect to either stock or
a partnership interest is assigned to the
same statutory or residual groupings to
which the foreign gross income would
be assigned if a distribution of property
in the amount of the taxable distribution
under foreign law were made for Federal
income tax purposes on the date on which
the foreign law distribution occurred. See
paragraph (g)(6) of this section (Example
5). See paragraph (d)(3)(i)(B) of this sec-
tion for rules regarding the assignment of
foreign gross income arising from a distri-
bution with respect to stock. For purposes
of applying paragraph (d)(3)(i)(B) of this
section to a foreign law distribution, the
U.S. dividend amount, U.S. capital gain
amount, and U.S. return of capital amount
are computed as if the distribution oc-
curred on the date the distribution occurs
for foreign law purposes. See §1.960-1(d)
(3)(ii) for rules for assigning foreign gross
income arising from a foreign law distri-
bution to income groups or PTEP groups
for purposes of section 960 as the opera-
tive section.
(C) Foreign law dispositions. A foreign
gross income item of gain that a taxpay-
er includes as a result of a foreign law
disposition of property is assigned to the
grouping to which a corresponding U.S.
item of gain or loss would be assigned on
a taxable disposition of the property un-
der Federal income tax law in exchange
for an amount equal to the gross receipts
or other value used under foreign law to
determine the amount of the items of for-
eign gross income arising from the for-
eign law disposition in the U.S. taxable
year in which the taxpayer paid or accrued
the foreign income tax. For example, an
item of foreign gross income that results
from a deemed disposition of stock under
a foreign law mark-to-market regime is
assigned under the rules of this paragraph
(d)(2)(ii)(C) as though a taxable disposi-
tion of the stock occurred under Federal
income tax law for an amount equal to
the fair market value determined under
foreign law for purposes of marking the
stock to market. See paragraph (g)(3) of
this section (Example 2).
(iii) Foreign gross income of a type that
is recognized but excluded from U.S. gross
income—(A) In general. If a taxpayer rec-
ognizes an item of foreign gross income
that is a type of recognized gross income
that Federal income tax law excludes from
U.S. gross income, then the item of foreign
gross income is assigned to the grouping
to which the item of gross income would
be assigned if it were included in U.S.
gross income. See paragraph (g)(4) of this
section (Example 3). Notwithstanding the
first sentence of this paragraph (d)(2)(iii)
(A), foreign gross income that is attribut-
able to a base difference is assigned under
paragraph (d)(2)(iii)(B) of this section.
(B) Base differences. If a taxpayer rec-
ognizes an item of foreign gross income
that is attributable to a base difference,
then the item of foreign gross income is
assigned to the residual grouping. But see
§1.904-6(b)(1) (assigning foreign gross
income attributable to a base difference
to foreign source income in the separate
category described in section 904(d)(2)
(H)(i)) for purposes of applying section
904 as the operative section). An item of

Bulletin No. 2020–49 1197 November 30, 2020
foreign gross income is attributable to a
base difference under this paragraph (d)
(2)(iii)(B) only if the item results from the
receipt of one of the following items:
(1) Death benefits described in section
101;
(2) Gifts and inheritances described in
section 102;
(3) Contributions to capital described
in section 118;
(4) Money or other property in ex-
change for stock described in section
1032 (including by reason of a transfer
described in section 351(a)); or
(5) Money or other property in ex-
change for a partnership interest described
in section 721.
(3) Special rules for assigning certain
items of foreign gross income to a statu-
tory or residual grouping—(i) Items of
foreign gross income that a taxpayer in-
cludes by reason of its ownership of an
interest in a corporation—(A) Scope. The
rules of this paragraph (d)(3)(i) apply to
characterize and assign to a statutory or
residual grouping an item of foreign gross
income that a taxpayer includes in foreign
taxable income as a result of its ownership
of an interest in a corporation with respect
to which there is a distribution under both
foreign and Federal income tax law or an
inclusion of foreign law pass-through in-
come.
(B) Foreign gross income items aris-
ing from a distribution with respect to a
corporation—(1) In general. If there is a
distribution by a corporation that is treat-
ed as a distribution of property for both
foreign law and Federal income tax pur-
poses, a taxpayer first applies the rules
of paragraph (d)(3)(i)(B)(2) of this sec-
tion, and then (if necessary) applies the
rules of paragraph (d)(3)(i)(B)(3) of this
section to characterize and assign to the
statutory and residual groupings the items
of foreign gross income that constitute
the foreign dividend amount and the for-
eign capital gain amount, if any, that arise
from the distribution. See paragraph (g)
(5) of this section (Example 4). For pur-
poses of this paragraph (d)(3)(i)(B), the
U.S. dividend amount, U.S. capital gain
amount, and U.S. return of capital amount
that result from a distribution (including a
distribution that occurs on the same date,
but in different taxable years, for foreign
law purposes and Federal income tax pur-
poses) are computed on the date the dis-
tribution occurred for Federal income tax
purposes. See paragraph (d)(2)(ii)(B) of
this section for rules for assigning foreign
gross income arising from any portion of
a distribution that is a foreign law distri-
bution. See §1.960-1(d)(3)(ii) for rules
for assigning foreign gross income arising
from a distribution described in this para-
graph (d)(3)(i)(B) to income groups or
PTEP groups for purposes of section 960
as the operative section.
(2) Foreign dividend amounts. The
foreign dividend amount is, to the extent
of the U.S. dividend amount, assigned to
the same statutory and residual grouping
(or ratably to the groupings) from which
a distribution of the U.S. dividend amount
is made under Federal income tax law. If
the foreign dividend amount exceeds the
U.S. dividend amount, the excess foreign
dividend amount is an item of foreign
gross income that is, to the extent of the
U.S. return of capital amount, assigned
to the same statutory and residual group-
ing (or ratably to the groupings) to which
earnings equal to the U.S. return of capital
amount would be assigned if they were
recognized for Federal income tax pur
-
poses in the U.S. taxable year in which
the distribution is made. These earnings
are deemed to arise in the statutory and
residual groupings in the same propor-
tions as the proportions in which the tax
book value of the stock of the distributing
corporation is (or would be if the taxpayer
were a United States person) assigned to
the groupings under the asset method in
§1.861-9 in the U.S. taxable year in which
the distribution is made. Any additional
excess of the foreign dividend amount
over the sum of the U.S. dividend amount
and the U.S. return of capital amount is
an item of foreign gross income that is as-
signed to the statutory or residual group-
ing (or ratably to the groupings) to which
the U.S. capital gain amount is assigned.
(3) Foreign capital gain amounts. The
foreign capital gain amount is, to the ex-
tent of the U.S. capital gain amount, as-
signed to the statutory and residual group-
ings to which the U.S. capital gain amount
is assigned under Federal income tax law.
If the foreign capital gain amount exceeds
the U.S. capital gain amount, the excess is,
to the extent of the U.S. return of capital
amount, assigned to the statutory and re-
sidual groupings to which earnings equal
to the U.S. return of capital amount would
be assigned if they were recognized in the
U.S. taxable year in which the distribution
is made. These earnings are deemed to
arise in the statutory and residual group-
ings in the same proportions as the pro-
portions in which the tax book value of
the stock of the distributing corporation is
(or would be if the taxpayer were a Unit-
ed States person) assigned under the asset
method in §1.861-9 in the U.S. taxable
year in which the distribution is made.
Any excess of the foreign capital gain
amount over the sum of the U.S. capital
gain amount and the U.S. return of capital
amount is assigned ratably to the statutory
and residual groupings to which the U.S.
dividend amount is assigned.
(C) Foreign law pass-through income
from a reverse hybrid. An item of foreign
law pass-through income that a taxpayer
includes in its foreign taxable income as a
result of its direct or indirect ownership of
a reverse hybrid is assigned to a statutory
or residual grouping by treating the tax-
payer’s items of foreign law pass-through
income as the foreign gross income of the
reverse hybrid, and applying the rules in
this paragraph (d) by treating the reverse
hybrid as the taxpayer in the reverse hy-
brid’s U.S. taxable year with or within
which its foreign taxable year (under the
law of the foreign jurisdiction imposing
the owner-level tax) ends. See §1.904-
6(f) for special rules that apply for pur-
poses of section 904 with respect to items
of foreign gross income that under this
paragraph (d)(3)(iii) would be assigned to
a separate category that includes income
that gives rise to inclusions under section
951A.
(ii) [Reserved]
(iii) Foreign law inclusion regime in-
come. A gross item of foreign law inclusion
regime income that a taxpayer includes in
its capacity as a shareholder under foreign
law of a foreign law CFC under a foreign
law inclusion regime is assigned to the
same statutory and residual groupings as
the item of foreign gross income of the
foreign law CFC that gives rise to the item
of foreign law inclusion regime income of
the taxpayer. The assignment is made by
treating the gross items of foreign law in-
clusion regime income of the taxpayer as
the items of foreign gross income of the

November 30, 2020 1198 Bulletin No. 2020–49
foreign law CFC and applying the rules in
this paragraph (d) by treating the foreign
law CFC as the taxpayer in its U.S. tax-
able year with or within which its foreign
taxable year (under the law of the foreign
jurisdiction imposing the shareholder-lev-
el tax) ends. See paragraphs (g)(7) and (8)
of this section (Examples 6 and 7). See
§1.904-6(f) for special rules with respect
to items of foreign gross income relating
to items of the foreign law CFC that give
rise to inclusions under section 951A for
purposes of applying section 904 as the
operative section.
(iv) Gain on sale of disregarded en-
tity. An item of foreign gross income
arising from gain recognized on the sale,
exchange, or other disposition of a dis-
regarded entity that is characterized as a
disposition of assets for Federal income
tax purposes is assigned to statutory and
residual groupings in the same proportion
as the gain that would be treated as for-
eign gross income in each grouping if the
transaction were treated as a disposition
of assets for foreign tax law purposes. See
paragraph (g)(9) of this section (Example
8).
(e) Allocating and apportioning de-
ductions (allowed under foreign law) to
foreign gross income in a grouping—(1)
Application of foreign law expense alloca-
tion rules. In order to determine foreign
taxable income in each statutory group-
ing, or the residual grouping, foreign
gross income in each grouping is reduced
by deducting any expenses, losses, or oth-
er amounts that are deductible under for-
eign law that are specifically allocable to
the items of foreign gross income in the
grouping under the laws of that foreign
country. If expenses are not specifical-
ly allocated under foreign law, then the
expenses are allocated and apportioned
among the groupings under the principles
of foreign law. Thus, for example, if for-
eign law provides that expenses will be
apportioned on a gross income basis, the
foreign law deductions are apportioned on
the basis of the relative amounts of foreign
gross income assigned to each grouping.
(2) Application of U.S. expense al-
location rules in the absence of foreign
law rules. If foreign law does not provide
rules for the allocation or apportionment
of expenses, losses or other deductions to
particular items of foreign gross income,
then the principles of the section 861 reg-
ulations (as defined in §1.861-8(a)(1))
apply in allocating and apportioning such
expenses, losses, or other deductions to
foreign gross income. For example, in
the absence of foreign law expense allo-
cation rules, the principles of the section
861 regulations apply to allocate definite-
ly related expenses to particular catego-
ries of foreign gross income and provide
the methods for apportioning foreign law
expenses that are definitely related to
more than one statutory grouping or that
are not definitely related to any statutory
grouping. For purposes of this paragraph
(e)(2), the apportionment of expenses
required to be made under the principles
of the section 861 regulations need not
be made on other than a separate com-
pany basis. If the taxpayer applies the
principles of the section 861 regulations
for purposes of allocating foreign law
deductions under this paragraph (e), the
taxpayer must apply the principles in the
same manner as the taxpayer applies such
principles in determining the income or
earnings and profits for Federal income
tax purposes of the taxpayer (or of the
foreign branch, controlled foreign corpo-
ration, or other entity that paid or accrued
the foreign taxes, as the case may be). For
example, a taxpayer must use the modi-
fied gross income method under §1.861-
9T when applying the principles of that
section for purposes of this paragraph (e)
to determine the amount of foreign tax-
able income in each grouping if the tax-
payer applies the modified gross income
method in determining the income and
earnings and profits of a controlled for-
eign corporation for Federal income tax
purposes.
(f) Allocation and apportionment of
foreign income tax. Foreign income tax
is allocated to the statutory or residual
grouping or groupings to which the items
of foreign gross income are assigned un-
der the rules of paragraph (d) of this sec-
tion. If foreign gross income is assigned
to more than one grouping, then the for-
eign income tax is apportioned among the
statutory and residual groupings by mul-
tiplying the foreign income tax by a frac-
tion, the numerator of which is the foreign
taxable income in a grouping and the de-
nominator of which is all foreign taxable
income on which the foreign income tax
is imposed. If foreign law, including by
reason of an income tax convention, ex-
empts certain types of income from tax,
or if foreign taxable income is reduced to
or below zero by foreign law deductions,
then no foreign income tax is allocated
and apportioned to that income. A with-
holding tax (as defined in section 901(k)
(1)(B)) is allocated and apportioned to
the foreign gross income from which it is
withheld. If foreign law, including by rea-
son of an income tax convention, provides
for a specific rate of tax with respect to
certain types of income (for example, cap-
ital gains), or allows credits only against
tax on particular items or types of income
(for example, credit for foreign withhold-
ing taxes), then such provisions are taken
into account in determining the amount of
foreign tax imposed on such foreign tax-
able income.
(g) Examples. The following examples
illustrate the application of this section
and §1.904-6.
(1) Presumed facts. Except as other-
wise provided in this paragraph (g), the
following facts are assumed for purpos-
es of the examples in paragraphs (g)(2)
through (9) of this section:
(i) USP and US2 are domestic corpora-
tions, which are unrelated;
(ii) USP elects to claim a foreign tax
credit under section 901;
(iii) CFC, CFC1, and CFC2 are con-
trolled foreign corporations organized in
Country A, and are not reverse hybrids;
(iv) All parties have a U.S. dollar func-
tional currency and a U.S. taxable year
and foreign taxable year that correspond
to the calendar year;
(v) No party has expenses for Country
A tax purposes or expenses for U.S. tax
purposes (other than foreign income tax
expense); and
(vi) Section 904 is the operative sec-
tion, and terms have the meaning provided
in this section or §§1.904-4 and 1.904-5.
(2) Example 1: Corresponding U.S. item—(i)
Facts. USP conducts business in Country A that
gives rise to a foreign branch (as defined in §1.904-
4(f)(3)). In Year 1, in a transaction that is a sale for
purposes of the laws of Country A and Federal in-
come tax law, the foreign branch transfers Asset X
to US2 for $1,000x. For Country A tax purposes,
USP earns $600x of gross income from the sale of
Asset X and incurs foreign income tax of $80x. For
Federal income tax purposes, USP earns $800x of
foreign branch category income from the sale of
Asset X.

Bulletin No. 2020–49 1199 November 30, 2020
(ii) Analysis. For purposes of allocating and ap-
portioning the $80x of Country A foreign income
tax, the $600x of Country A gross income from the
sale of Asset X is first assigned to separate catego-
ries. The $800x of foreign branch category income
from the sale of Asset X is the corresponding U.S.
item to the Country A item of gross income. Under
paragraph (d)(1) of this section, because USP rec-
ognizes a corresponding U.S. item with respect to
the Country A item of gross income in the same U.S.
taxable year, the $600x of Country A gross income
is assigned to the same separate category as the cor-
responding U.S. item. This is the case even though
the amount of gross income recognized for Federal
income tax purposes differs from the amount recog-
nized for Country A tax purposes. Accordingly, the
$600x of Country A gross income is assigned to the
foreign branch category. Additionally, because all of
the Country A taxable income is assigned to a single
separate category, the $80x of Country A tax is also
allocated to the foreign branch category. No appor-
tionment of the $80x is necessary because the class
of gross income to which the tax is allocated con-
sists entirely of a single statutory grouping, foreign
branch category income.
(3) Example 2: Foreign law disposition—(i)
Facts. USP owns all of the outstanding stock of
CFC, which conducts business in Country A. CFC
sells Asset X for $1,000x. For Country A tax pur-
poses, CFC’s basis in Asset X is $600x, the sale of
Asset X occurs in Year 1, and CFC recognizes $400x
of foreign gross income and incurs $80x of foreign
income tax. For Federal income tax purposes, CFC’s
basis in Asset X is $500x, the sale of Asset X occurs
in Year 2, and CFC recognizes $500x of general cat-
egory income.
(ii) Analysis. For purposes of allocating and ap-
portioning the $80x of Country A foreign income tax
in Year 1, the $400x of Country A gross income from
the sale of Asset X is first assigned to separate cate-
gories. There is no corresponding U.S. item because
the sale occurs on a different date and in a different
U.S. taxable year for U.S. and foreign tax purpos-
es. Under paragraph (d)(2)(ii)(C) of this section,
the item of foreign gross income (the $400x from
the sale of Asset X) is characterized and assigned to
the groupings to which the corresponding U.S. item
would be assigned if for Federal income tax purposes
Asset X were sold for $1,000x in Year 1, the same
U.S. taxable year in which the foreign income tax
accrued. This is the case even though the amount of
gross income that would be recognized for Federal
income tax purposes differs from the amount rec-
ognized for Country A tax purposes. Accordingly,
the $400x of Country A gross income is assigned
to the general category. Additionally, because all of
the Country A taxable income is assigned to a single
separate category, the $80x of Country A tax is also
allocated to the general category. No apportionment
of the $80x is necessary because the class of gross
income to which the deduction is allocated consists
entirely of a single statutory grouping, general cate-
gory income.
(4) Example 3: Foreign gross income excluded
from U.S. gross income—(i) Facts. USP conducts
business in Country A. In Year 1, USP earns $200x of
interest income on a State or local bond. For Country
A tax purposes, the $200x of income is included in
gross income and incurs $10x of foreign income tax.
For Federal income tax purposes, the $200x is ex-
cluded from gross income under section 103.
(ii) Analysis. For purposes of allocating and ap-
portioning the $10x of Country A foreign income
tax, the $200x of Country A gross income is first
assigned to separate categories. There is no corre-
sponding U.S. item because the interest income is
excluded from U.S. gross income. Thus, the rules
of paragraph (d)(2) of this section apply to char-
acterize and assign the foreign gross income to
the groupings to which a corresponding U.S. item
would be assigned if it were recognized under
Federal income tax law in that U.S. taxable year.
The interest income is excluded from U.S. gross
income but is otherwise described or identified
by section 103. Accordingly, under paragraph (d)
(2)(iii)(A) of this section, the $200x of Country A
gross income is assigned to the separate category
to which the interest income would be assigned
under Federal income tax law if the income were
included in gross income. Under section 904(d)(2)
(B)(i), the interest income would be passive cate-
gory income. Accordingly, the $200x of Country A
gross income is assigned to the passive category.
Additionally, because all of the Country A taxable
income is assigned to a single separate category, the
$10x of Country A tax is also allocated to the pas-
sive category (subject to the rules in §1.904-4(c)).
No apportionment of the $10x is necessary because
the class of gross income to which the deduction
is allocated consists entirely of a single statutory
grouping, passive category income.
(5) Example 4: Actual distribution—(1) Facts.
USP owns all of the outstanding stock of CFC1,
which in turn owns all of the outstanding stock of
CFC2. CFC1 and CFC2 conduct business in Country
A. In Year 1, CFC2 distributes $300x to CFC1. For
Country A tax purposes, $100x of the distribution is
the foreign dividend amount, $160x is treated as a
nontaxable return of capital, and the remaining $40x
is the foreign capital gain amount. CFC1 incurs $20x
of foreign income tax with respect to the foreign div-
idend amount and $4x of foreign income tax with
respect to the foreign capital gain amount. The $20x
and $4x of foreign income tax are each a separate
levy within the meaning of §1.901-2(d). For Federal
income tax purposes, $150x of the distribution is the
U.S. dividend amount, $100x is the U.S. return of
capital amount, and the remaining $50x is the U.S.
capital gain amount. Under section 904(d)(3)(D) and
§§1.904-4(d) and 1.904-5(c)(4), the $150x of U.S.
dividend amount consists solely of general category
income in the hands of CFC1. Under section 904(d)
(2)(B)(i) and §1.904-4(b)(2)(i)(A), the $50x of U.S.
capital gain amount is passive category income to
CFC1.
(ii) Analysis—(A) In general. Because the $20x
of Country A foreign income tax and the $4x of
Country A foreign income tax are separate levies,
the taxes are allocated and apportioned separately.
For purposes of allocating and apportioning each
foreign income tax, the relevant item of Country A
gross income (the foreign dividend amount or for-
eign capital gain amount) is first assigned to sepa-
rate categories. The U.S. dividend amount and U.S.
capital gain amount are corresponding U.S. items.
However, paragraph (d)(3)(i)(B) of this section (and
not paragraph (d)(1) of this section) applies to assign
the items of foreign gross income arising from the
distribution.
(B) Foreign dividend amount. Under paragraph
(d)(3)(i)(B)(2) of this section, the foreign dividend
amount ($100x) is, to the extent of the U.S. dividend
amount ($150x), assigned to the same separate cate-
gory from which the distribution of the U.S. dividend
amount is made under Federal income tax law. Thus,
$100x of foreign gross income that is the foreign
dividend amount is assigned to the general category.
Additionally, because all of the Country A taxable
income included in the base on which the $20x of
foreign income tax is imposed is assigned to a single
separate category, the $20x of Country A tax on the
foreign dividend amount is also allocated to the gen-
eral category. No apportionment of the $20x is nec-
essary because the class of gross income to which the
deduction for foreign income tax is allocated con-
sists entirely of a single statutory grouping, general
category income. See also section 245A(d) for rules
that may apply to disallow a credit or deduction for
certain foreign taxes.
(C) Foreign capital gain amount. Under para-
graph (d)(3)(i)(B)(3) of this section, the foreign cap-
ital gain amount ($40x) is, to the extent of the U.S.
capital gain amount ($50x), assigned to the same
separate category to which the U.S. capital gain is
assigned under Federal income tax law. Thus, the
$40x of foreign gross income that is the foreign cap-
ital gain amount is assigned to the passive category.
Additionally, because all of the Country A taxable
income in the base on which the $4x of foreign in-
come tax is imposed is assigned to a single separate
category, the $4x of Country A tax on the foreign
dividend amount is also allocated to the passive cat-
egory. No apportionment of the $4x is necessary be-
cause the class of gross income to which the deduc-
tion is allocated consists entirely of a single statutory
grouping, passive category income.
(6) Example 5: Foreign law distribution—(i)
Facts. USP owns all of the outstanding stock of CFC.
In Year 1, for Country A tax purposes, CFC distrib-
utes $1,000x of its stock that is treated entirely as a
dividend to USP, and Country A imposes a withhold-
ing tax on USP of $150x with respect to the $1,000x
of foreign gross income. For Federal income tax pur-
poses, the distribution is treated as a stock dividend
described in section 305(a) and USP recognizes no
U.S. gross income. At the time of the distribution,
CFC has $800x of section 965(a) PTEP (as defined in
§1.960-3(c)(2)(vi)) in a single annual PTEP account
(as defined in §1.960-3(c)(1)), and $500x of earnings
and profits described in section 959(c)(3). Section
965(g) is the operative section for purposes of this
paragraph (g)(6). See §1.965-5(b)(2). Section 904 is
also a relevant operative section, but is not addressed
in this paragraph (g)(6).
(ii) Analysis. For purposes of allocating and
apportioning the $150x of Country A foreign in-
come tax, the $1,000x of Country A gross income is
first assigned to the relevant statutory and residual
groupings for purposes of applying section 965(g)
as the operative section. Under §1.965-5(b)(2), the
statutory grouping is the portion of the distribution
that is attributable to section 965(a) previously
taxed earnings and profits and the residual grouping
is the portion of the distribution attributable to other

November 30, 2020 1200 Bulletin No. 2020–49
earnings and profits. There is no corresponding U.S.
item because under section 305(a) USP recognizes
no U.S. gross income with respect to the distribu-
tion. Under paragraph (d)(2)(ii)(B) of this section,
the item of foreign gross income (the $1,000x dis-
tribution) is assigned under the rules of paragraph
(d)(3)(i)(B) of this section to the same statutory or
residual groupings to which the foreign gross in-
come would be assigned if a distribution of the same
amount were made for Federal income tax purpos-
es in Year 1 on the date the distribution occurs for
foreign law purposes. If recognized for Federal in-
come tax purposes, a $1,000x distribution in Year 1
would result in a U.S. dividend amount of $1,000x.
Under paragraph (d)(3)(i)(B)(2) of this section, the
foreign dividend amount ($1,000x) is, to the extent
of the U.S. dividend amount ($1,000x), assigned
to the same statutory or residual groupings from
which a distribution of the U.S. dividend amount
would be made under Federal income tax law. Thus,
$800x of foreign gross income related to the for-
eign dividend amount is assigned to the statutory
grouping for the portion of the distribution attrib-
utable to section 965(a) previously taxed earnings
and profits and $200x of foreign gross income is
assigned to the residual grouping. Under paragraph
(f) of this section, $120x ($150x x $800x / $1,000x)
of the Country A foreign income tax is apportioned
to the statutory grouping and $30x ($150x x $200x
/ $1,000x) of the Country A foreign income tax is
apportioned to the residual grouping. See section
965(g)(2) and §1.965-5(b) for application of the
applicable percentage (as defined in §1.965-5(d)) to
the foreign income tax allocated and apportioned to
the statutory grouping.
(7) Example 6: Foreign law inclusion regime,
CFC shareholder—(i) Facts. USP owns all of the
outstanding stock of CFC1, which in turn owns all
of the outstanding stock of CFC2. CFC2 is orga-
nized and conducts business in Country B. Country
A has a foreign law inclusion regime that imposes a
tax on CFC1 for certain earnings of CFC2, a foreign
law CFC. In Year 1, CFC2 earns $400x of interest
income and $200x of royalty income. CFC2 incurs
no foreign income tax. For Country A tax purposes,
the $400x of interest income and $200x of royalty
income are each an item of foreign law inclusion re-
gime income of CFC2 that are included in the gross
income of CFC1. CFC1 incurs $150x of Country
A foreign income tax with respect to the foreign
law inclusion regime income. For Federal income
tax purposes, with respect to CFC2, the $400x of
interest income is passive category income under
section 904(d)(2)(B)(i) and the $200x of royalty
income is general category income under §1.904-
4(b)(2)(iii).
(ii) Analysis. For purposes of allocating and
apportioning CFC1’s $150x of Country A foreign
income tax, the $600x of Country A gross income
is first assigned to separate categories. The $600x
of foreign gross income is not included in the U.S.
gross income of CFC1, and thus, there is no cor-
responding U.S. item. Under paragraph (d)(3)(iii)
of this section, each item of foreign law inclusion
regime income that is included in CFC1’s foreign
gross income is assigned to the same separate cate-
gory as the items of foreign gross income of CFC2
that give rise to the foreign law inclusion regime
income of CFC1. With respect to CFC2, the $400x
of interest income and the $200x of royalty income
would be corresponding U.S. items if CFC2 were
the taxpayer. Accordingly, $400x of CFC1’s for-
eign gross income is assigned to the passive cate-
gory and $200x of CFC1’s foreign gross income is
assigned to the general category. Under paragraph
(f) of this section, $100x ($150x x $400x / $600x)
of the Country A foreign income tax is apportioned
to the passive category and $50x ($150x x $200x /
$600x) of the Country A foreign income tax is ap-
portioned to the general category.
(8) Example 7: Foreign law inclusion regime,
U.S. shareholder—(i) Facts. The facts are the same
as in paragraph (g)(7)(i) of this section (the facts in
Example 6), except that both CFC1 and CFC2 are
organized and conduct business in Country B, all
of the outstanding stock of CFC1 is owned by Indi-
vidual X, a U.S. citizen resident in Country A, and
Country A imposes tax of $150x on foreign gross
income of $600x under its foreign law inclusion
regime on Individual X, rather than on CFC1. For
Federal income tax purposes, in the hands of CFC2,
the $400x of interest income is passive category
subpart F income and the $200x of royalty income
is general category tested income (as defined in
§1.951A-2(b)(1)). CFC2’s $400x of interest income
gives rise to a passive category subpart F inclusion
under section 951(a)(1)(A), and its $200x of tested
income gives rise to a GILTI inclusion amount (as
defined in §1.951A-1(c)(1)) of $200x, with respect
to Individual X.
(ii) Analysis. The analysis is the same as in
paragraph (g)(7)(ii) of this section (the analysis in
Example 6) except that under §1.904-6(f), because
$50x of the Country A foreign income tax is allo-
cated and apportioned under paragraph (d)(3)(iii)
of this section to CFC2’s general category tested
income group to which Individual X’s inclusion
under section 951A is attributable, the $50x of
Country A foreign income tax is allocated and ap-
portioned in the hands of Individual X to the section
951A category.
(9) Example 8: Sale of disregarded entity—(i)
Facts. USP sells FDE, a disregarded entity that is
organized and operates a trade or business in Coun-
try A, for $500x. FDE owns Asset X and Asset Y in
Country A, each having a fair market value of $250x.
For Country A tax purposes, FDE has a basis in Asset
X of $100x and a basis in Asset Y of $200x, USP’s
basis in FDE is $100x, and the sale is treated as a
sale of stock. Country A imposes foreign income tax
of $40x on USP on the Country A gross income of
$400x resulting from the sale of FDE, based on its
rules for taxing capital gains of nonresidents selling
stock of companies operating a trade or business in
Country A. For Federal income tax purposes, USP
has a basis of $150x in each of Assets X and Y, and
so the sale of FDE results in $100x of passive cate-
gory income with respect to the sale of Asset X and
$100x of general category income with respect to the
sale of Asset Y.
(ii) Analysis. For purposes of allocating and
apportioning USP’s $40x of Country A foreign in-
come tax, the $400x of Country A gross income
resulting from the sale of FDE is first assigned to
separate categories. Under paragraph (d)(3)(iv) of
this section, USP’s $400x of Country A gross in-
come is assigned among the statutory groupings
in the same percentages as the foreign gross in-
come in each grouping that would have resulted
if the sale of FDE were treated as an asset sale for
Country A tax purposes. Because for Country A
tax purposes Asset X had a built-in gain of $150x
and Asset Y had a built-in gain of $50x, $300x
($400x x $150x / $200x) of the Country A gross
income is assigned to the passive category and
$100x ($400x x $50x / $200x) is assigned to the
general category. Under paragraph (f) of this sec-
tion, $30x ($40x x $300x / $400x) of the Country
A foreign income tax is apportioned to the passive
category, and $10x ($40x x $100x / $400x) of the
Country A foreign income tax is apportioned to the
general category.
(h) [Reserved]
(i) Applicability date. This section ap-
plies to taxable years beginning after De-
cember 31, 2019.
Par. 15. Section 1.881-3 is amended by:
1. Adding two sentences at the end of
paragraph (a)(1).
2. Revising paragraph (a)(2)(i)(C).
3. In paragraph (a)(2)(ii)(B)(1) intro-
ductory text, removing “one of the fol-
lowing” and adding “one or more of the
following” in its place.
4. In paragraph (a)(2)(ii)(B)(1)(ii), re-
moving the word “or” at the end of the
paragraph.
5. In paragraph (a)(2)(ii)(B)(1)(iii), re-
moving the period at the end and adding “;
or” in its place.
6. Adding paragraph (a)(2)(ii)(B)(1)
(iv) and reserved paragraph (a)(2)(ii)(B)
(1)(v).
7. In paragraph (c)(2)(ii), adding “(as
in effect for taxable years beginning be-
fore January 1, 2018)” at the end of the
last sentence.
8. Adding reserved paragraph (d)(1)
(iii).
9. Adding a sentence at the end of para-
graph (e) introductory text.
10. In paragraph (e), designating Ex-
amples 1 through 26 as paragraphs (e)(1)
through (26), respectively.
11. Redesignating newly designated
paragraphs (e)(4) through (26) as para-
graphs (e)(5) through (27), respectively.
12. Adding new paragraph (e)(4).
13. For each paragraph listed in the
table, remove the language in the ‘‘Re-
move’’ column and add in its place the
language in the ‘‘Add’’ column:

Bulletin No. 2020–49 1201 November 30, 2020
ParagraphRemoveAdd
(a)(2)(i)(A)
Examples 1, 2, 3 and 4 of paragraph (e) of
this section
paragraphs (e)(1) through (5) of this section
(Examples 1 through 5)
(a)(2)(i)(B)
Examples 5 and 6 of paragraph (e) of this
section
paragraphs (e)(6) and (7) of this section (Ex-
amples 6 and 7)
(a)(3)(ii)(E)(2)(ii)Example 7 of paragraph (e) of this sectionparagraph (e)(8) of this section (Example 8)
(a)(4)(ii)(B)
Examples 8 and 9 of paragraph (e) of this
section
paragraphs (e)(9) and (10) of this section (Ex-
amples 9 and 10)
(b)(1)
Examples 12 and 13 of paragraph (e) of
this section
paragraphs (e)(13) and (14) of this section
(Examples 13 and 14)
(b)(2)(i)
Examples 14, 15 and 16 of paragraph (e)
of this section
paragraphs (e)(15) through (17) of this sec-
tion (Examples 15 through 17)
(b)(2)(iii)
Example 17 of paragraph (e) of this sec-
tion
paragraph (e)(18) of this section (Example
18)
(b)(2)(iv)
Example 18 of paragraph (e) of this sec-
tion
paragraph (e)(19) of this section (Example
19)
(b)(3)(i)
Examples 22, 23 and 24 of paragraph (e)
of this section
paragraphs (e)(23) through (25) of this sec-
tion (Examples 23 through 25)
(d)(1)(i)
Example 25 of paragraph (e) of this sec-
tion
paragraph (e)(26) of this section (Example
26)
(d)(1)(ii)(A)
Example 26 of paragraph (e)paragraph (e)(27) of this section (Example
27)
newly designated paragraph (e)(3)
Example 2
paragraph (e)(2) of this section (the facts in
Example 2)
newly designated paragraph (e)(3)§301.7701-3§301.7701-3 of this chapter
newly designated paragraph (e)(8)(ii)(a)(4)(i)(a)(4)(i) of this section
newly designated paragraph (e)(22)(i)
Example 20
paragraph (e)(21) of this section (the facts in
Example 21)
newly designated paragraph (e)(22)(ii)
Example 19paragraph (e)(20) of this section (Example
20)
newly designated paragraph (e)(22)(ii)
paragraph (i) of this Example 21paragraph (e)(22)(i) of this section (this Ex-
ample 22)
newly designated paragraph (e)(24)(i)Example 22paragraph (e)(23) of this section (the facts in
Example 23)
newly designated paragraph (e)(25)(i)
Example 22
paragraph (e)(23) of this section (the facts in
Example 23)
(f)
Paragraph (a)(2)(i)(C) and Example 3 of
paragraph (e) of this section
Paragraphs (a)(2)(i)(C) and (e)(3) (Example
3) of this section
14. In paragraph (f), revising the head-
ing and adding a sentence at the end of the
paragraph.
The additions and revisions read as fol-
lows:
§1.881-3 Conduit financing
arrangements.
(a) * * *
(1) * * * See §1.1471-3(e)(5) for with-
holding rules applicable to conduit financ-
ing arrangements for purposes of sections
1471 and 1472. See also §§1.267A-1 and
1.267A-4 (disallowing a deduction for
certain interest or royalty payments to the
extent the income attributable to the pay-
ment is offset by a hybrid deduction).
(2) * * *
(i) * * *
(C) Treatment of disregarded entities.
For purposes of this section, the term
person includes a business entity that is
disregarded as an entity separate from its
single member owner under §§301.7701-
1 through 301.7701-3 of this chapter and,
therefore, such entity may, for example,
be treated as a party to a financing trans-
action with its owner. See paragraph (e)(3)
of this section (Example 3).

November 30, 2020 1202 Bulletin No. 2020–49
(ii) * * *
(B) * * *
(1) * * *
(iv) The stock or similar interest is
treated as debt under the tax law of the is-
suer’s country of residence or, if the issuer
is not a tax resident of any country, such as
a partnership, the tax law of the country in
which the issuer is created, organized, or
otherwise established.
* * * * *
(e) * * * For purposes of the examples
in this paragraph (e), unless otherwise in-
dicated, it is assumed that no stock is of
the type described in paragraph (a)(2)(ii)
(B)(1)(iv) of this section.
* * * * *
(4) Example 4. Hybrid instrument as financing
arrangement. The facts are the same as in para-
graph (e)(2) of this section (the facts in Example
2), except that FP assigns the DS note to FS in ex-
change for stock issued by FS. The stock issued by
FS is in form convertible debt with a 49-year term
that is treated as debt under the tax law of Country
T. The FS stock is not subject to any of the redemp-
tion, acquisition, or payment rights or requirements
specified in paragraphs (a)(2)(ii)(B)(1)(i) through
(iii) of this section. However, because the FS stock
is treated as debt under the tax law of Country T,
the FS stock is a financing transaction under para-
graph (a)(2)(ii)(B)(1)(iv) of this section. Therefore,
the DS note held by FS and the FS stock held by
FP are financing transactions within the meaning
of paragraphs (a)(2)(ii)(A)(1) and (2) of this sec-
tion, respectively, and together constitute a financ-
ing arrangement within the meaning of paragraph
(a)(2)(i) of this section. See also §1.267A-4 for
rules applicable to disqualified imported mismatch
amounts.
* * * * *
(f) Applicability date. * * * Paragraph
(a)(2)(ii)(B)(1)(iv) of this section applies
to payments made on or after November
12, 2020.
Par. 16. Section 1.904-1 is amended
by revising the section heading and para-
graph (a) as follows:
§1.904-1 Limitation on credit for foreign
income taxes.
(a) In general. For each separate cate-
gory described in § 1.904-5(a)(4)(v), the
total credit for foreign income taxes (as
defined in §1.901-2(a)) paid or accrued
(including those deemed to have been
paid or accrued other than by reason of
section 904(c)) to any foreign country (as
defined in §1.901-2(g)) does not exceed
that proportion of the tax against which
such credit is taken which the taxpayer’s
taxable income from foreign sources (but
not in excess of the taxpayer’s entire tax-
able income) in such separate category
bears to the taxpayer’s entire taxable in-
come for the same taxable year.
* * * * *
Par. 17. Section 1.904-4 is amended by:
1. Revising paragraph (c)(7)(i), the
third and fourth sentences of paragraph (c)
(7)(ii), and paragraph (c)(7)(iii).
2. Adding paragraphs (c)(8)(v) through
(viii).
3. In paragraph (o), removing the lan-
guage “§1.904-6(b)” and adding the lan-
guage “1.904-6(e)” in its place.
4. Revising paragraph (q).
The revisions and additions read as fol-
lows:
§1.904-4 Separate application of section
904 with respect to certain categories of
income.
* * * * *
(c) * * *
(7) * * *
(i) In general. If the effective rate of
tax imposed by a foreign country on in-
come of a foreign corporation that is in-
cluded in a taxpayer’s gross income is
reduced under foreign law on distribution
of such income, the rules of this paragraph
(c) apply at the time that the income is
included in the taxpayer’s gross income,
without regard to the possibility of a sub-
sequent reduction of foreign tax on the
distribution. If the inclusion is considered
to be high-taxed income, then the taxpayer
must initially treat the inclusion as general
category income, section 951A category
income, or income in a specified separate
category as provided in paragraph (c)(1)
of this section. When the foreign corpora-
tion distributes the earnings and profits to
which the inclusion was attributable and
the foreign tax on the inclusion is reduced,
then if a redetermination of U.S. tax lia-
bility is required under §1.905-3(b)(2),
the taxpayer must redetermine whether
the revised inclusion (if any) is considered
to be high-taxed income. See §1.905-3(b)
(2)(ii) (requiring a redetermination of the
amount of the inclusion, the application
of the high-tax exception under section
954(b)(4), and the amount of foreign taxes
deemed paid). If, taking into account the
reduction in foreign tax, the inclusion is
not considered high-taxed income, then
the taxpayer, in redetermining its U.S.
tax liability for the year or years affected,
must treat the inclusion and the associat-
ed taxes (as reduced on the distribution)
as passive category income and taxes. For
purposes of this paragraph (c), the foreign
tax on an inclusion under section 951(a)
(1) or 951A(a) is considered reduced on
distribution of the earnings and profits as-
sociated with the inclusion if the total tax-
es paid and deemed paid on the inclusion
and the distribution (taking into account
any reductions in tax and any withholding
taxes) is less than the total taxes deemed
paid in the year of inclusion. Therefore,
any foreign currency gain associated with
the earnings and profits that are distrib-
uted with respect to the inclusion is not
taken into account in determining whether
there is a reduction of tax requiring a re-
determination of whether the inclusion is
high-taxed income.
(ii) * * * If, however, foreign law does
not attribute a reduction in taxes to a par-
ticular year or years, then the reduction in
taxes shall be attributable, on an annual last
in-first out (LIFO) basis, to foreign taxes
potentially subject to reduction that are
associated with previously taxed income,
then on a LIFO basis to foreign taxes as-
sociated with income that under paragraph
(c)(7)(iii) of this section remains as pas-
sive income but that was excluded from
subpart F income or tested income under
section 954(b)(4) or section 951A(c)(2)
(A)(i)(III), and finally on a LIFO basis to
foreign taxes associated with other earn-
ings and profits. Furthermore, in applying
the ordering rules of section 959(c), dis-
tributions shall be considered made on a
LIFO basis first out of earnings described
in section 959(c)(1) and (2), then on a
LIFO basis out of earnings and profits as-
sociated with income that remains passive
income under paragraph (c)(7)(iii) of this
section but that was excluded from sub-
part F income or tested income under sec-
tion 954(b)(4) or section 951A(c)(2)(A)(i)
(III), and finally on a LIFO basis out of
other earnings and profits. * * *
(iii) Treatment of income excluded un-
der section 954(b)(4) or section 951A(c)
(2)(A)(i)(III). If the effective rate of tax
imposed by a foreign country on income
of a foreign corporation is reduced under
foreign law on distribution of that income,

Bulletin No. 2020–49 1203 November 30, 2020
the rules of section 954(b)(4) (including for
purposes of determining tested income un-
der section 951A(c)(2)(A)(i)(III)) are ap-
plied in the year of inclusion without regard
to the possibility of a subsequent reduction
of foreign tax. See §§1.954-1(d)(3)(iii) and
1.951A-2(c)(6)(iv). If a taxpayer excludes
passive income from a controlled foreign
corporation’s foreign personal holding
company income or tested income under
section 954(b)(4) or section 951A(c)(2)
(A)(i)(III), then, notwithstanding the gen-
eral rule of §1.904-5(d)(2), the income is
considered to be passive category income
until distribution of that income. At that
time, if after the redetermination of U.S.
tax liability required under §1.905-3(b)
(2) the taxpayer still elects to exclude the
passive income under section 954(b)(4) or
section 951A(c)(2)(A)(i)(III), the rules of
this paragraph (c)(7)(iii) apply to determine
whether the income is high-taxed income
upon distribution and, therefore, income in
another separate category. For purposes of
determining whether a reduction in tax is
attributable to taxes on income excluded
under section 954(b)(4) or section 951A(c)
(2)(A)(i)(III), the rules of paragraph (c)(7)
(ii) of this section apply. The rules of para-
graph (c)(7)(ii) of this section also apply
for purposes of ordering distributions to
determine whether such distributions are
out of earnings and profits associated with
such excluded income. For an example il-
lustrating the operation of this paragraph
(c)(7)(iii), see paragraph (c)(8)(vi) of this
section (Example 6).
(8) * * *
(v) Example 5. CFC, a controlled foreign corpora-
tion, is a wholly-owned subsidiary of USP, a domestic
corporation. USP and CFC are calendar year taxpay-
ers. In Year 1, CFC’s only earnings consist of $200x of
pre-tax passive income that is foreign personal hold-
ing company income that is earned in foreign Country
X. Under Country X’s tax system, the corporate tax
on particular earnings is reduced on distribution of
those earnings and no withholding tax is imposed. In
Year 1, CFC pays $100x of foreign tax with respect to
its passive income. USP does not elect to exclude this
income from subpart F under section 954(b)(4) and
includes $200x in gross income ($100x of net foreign
personal holding company income and $100x of the
amount under section 78 (the “section 78 dividend”)).
At the time of the inclusion, the income is considered
to be high-taxed income under paragraphs (c)(1) and
(c)(6)(i) of this section and is general category income
to USP ($100x > $42x (21% x $200x)). CFC does not
distribute any of its earnings in Year 1. In Year 2, CFC
has no additional earnings. On December 31, Year 2,
CFC distributes the $100x of earnings from Year 1. At
that time, CFC receives a $60x refund from Country
X attributable to the reduction of the Country X cor-
porate tax imposed on the Year 1 earnings. The refund
is a foreign tax redetermination under §1.905-3(a) that
under §§1.905-3(b)(2) and 1.954-1(d)(3)(iii) requires
a redetermination of CFC’s Year 1 subpart F income
and the application of section 954(b)(4), as well as a
redetermination of USP’s Year 1 inclusion under sec-
tion 951(a)(1), its deemed paid taxes under section
960(a), and its Year 1 U.S. tax liability. As recomput-
ed taking into account the $60x refund, CFC’s Year
1 passive category net foreign personal holding com-
pany income is increased by $60x to $160x, CFC’s
foreign income taxes attributable to that income are
reduced from $100x to $40x, and the income still
qualifies to be excluded from CFC’s subpart F income
under section 954(b)(4) ($40x > $37.80x (90% x 21%
x $200x)). Assuming USP does not change its Year 1
election, USP’s Year 1 inclusion under section 951(a)
(1) is increased by $60x to $160x, and the associated
deemed paid tax and section 78 dividend are reduced
by $60x to $40x. Under paragraph (c)(7)(i) of this
section, in connection with the adjustments required
under section 905(c), USP must redetermine wheth-
er the adjusted Year 1 inclusion is high-taxed income
of USP. Taking into account the $60x refund, the in-
clusion is not considered high-taxed income of USP
($40x < $42x (21% x $200x)). Therefore, USP must
treat the $200x of income ($160x inclusion plus $40x
section 78 amount) and the $40x of taxes associated
with the inclusion in Year 1 as passive category in-
come and taxes. USP must also follow the appropriate
procedures under §1.905-4.
(vi) Example 6. The facts are the same as in para-
graph (c)(8)(v) of this section (the facts in Example
5), except that in Year 1, USP elects to apply section
954(b)(4) to exclude CFC’s passive income from its
subpart F income, both before and after the recompu-
tation of CFC’s Year 1 subpart F income and USP’s
Year 1 U.S. tax liability that is required by reason
of the Year 2 $60x foreign tax redetermination. Al-
though the income is not considered to be subpart F
income, under paragraph (c)(7)(iii) of this section it
remains passive category income until distribution.
In Year 2, the $100x distribution is a dividend to
USP, because CFC has $160x of accumulated earn-
ings and profits described in section 959(c)(3) (the
$100x of earnings in Year 1 increased by the $60x
refund received in Year 2 that under §1.905-3(b)(2)
is taken into account in Year 1). Under paragraph (c)
(7)(iii) of this section, USP must determine whether
the dividend income is high-taxed income to USP
in Year 2. The treatment of the dividend as passive
category income may be relevant in determining de-
ductions allocable or apportioned to such dividend
income or related stock that are excluded in the com-
putation of USP’s foreign tax credit limitation un-
der section 904(a) in Year 2. See section 904(b)(4).
Under paragraph (c)(1) of this section, the dividend
income is passive category income to USP because
the foreign taxes paid and deemed paid by USP ($0x)
with respect to the dividend income do not exceed
the highest U.S. tax rate on that income.
(vii) Example 7. The facts are the same as in
paragraph (c)(8)(v) of this section (the facts in Exam-
ple 5), except that the distribution in Year 2 is subject
to a withholding tax of $25x. Under paragraph (c)
(7)(i) of this section, USP must redetermine whether
its Year 1 inclusion should be considered high-taxed
income of USP because there is a net $35x reduction
($60x refund of foreign corporate tax – $25x with-
holding tax) of foreign tax. By taking into account
both the reduction in foreign corporate tax and the
additional withholding tax, the inclusion continues
to be considered high-taxed income of USP in Year
1 ($65x > $42x (21% x $200)). USP must follow the
appropriate section 905(c) procedures. USP must
redetermine its U.S. tax liability for Year 1, but the
Year 1 inclusion and the $65x taxes ($40x of deemed
paid tax in Year 1 and $25x withholding tax in Year
2) will continue to be treated as general category in-
come and taxes.
(viii) Example 8. (A) CFC, a controlled foreign
corporation operating in Country G, is a whol-
ly-owned subsidiary of USP, a domestic corporation.
USP and CFC are calendar year taxpayers. Country
G imposes a tax of 50% on CFC’s earnings. Under
Country G’s system, the foreign corporate tax on par-
ticular earnings is reduced on distribution of those
earnings to 30% and no withholding tax is imposed.
Under Country G’s law, distributions are treated as
made out of a pool of undistributed earnings subject
to the 50% tax rate. For Year 1, CFC’s only earnings
consist of passive income that is foreign personal
holding company income that is earned in foreign
Country G. CFC has taxable income of $110x for
Federal income tax purposes and $100x for Country
G purposes. Country G, therefore, imposes a tax of
$50x on the Year 1 earnings of CFC. USP does not
elect to exclude this income from subpart F under
section 954(b)(4) and includes $110x in gross in-
come ($60x of net foreign personal holding company
income under section 951(a) and $50x of the section
78 dividend). The highest rate of tax under section
11 in Year 1 is 34%. Therefore, at the time of the
section 951(a) inclusion, the income is considered
to be high-taxed income under paragraph (c) of this
section ($50x > $37.4x (34% x $110x)) and is gener-
al category income to USP. CFC does not distribute
any of its earnings in Year 1.
(B) In Year 2, CFC earns general category in-
come that is not subpart F income or tested income.
CFC again has $110x in taxable income for Federal
income tax purposes and $100x in taxable income
for Country G purposes, and CFC pays $50x of tax
to foreign Country G. In Year 3, CFC has no taxable
income or earnings. On December 31, Year 3, CFC
distributes $60x of its total $120x of earnings and
receives a refund of foreign tax of $24x. The $24x
refund is a foreign tax redetermination under §1.905-
3(a) that under §1.905-3(b)(2) requires a redetermi-
nation of CFC’s Year 1 subpart F income and USP’s
deemed paid taxes and Year 1 U.S. tax liability.
Country G treats the distribution of earnings as out
of the 50% tax rate pool of $200x of earnings accu-
mulated in Year 1 and Year 2, as calculated for Coun-
try G tax purposes. However, under paragraph (c)(7)
(ii) of this section, the distribution, and, therefore,
the reduction of tax is treated as first attributable to
the $60x of passive category earnings attributable
to income previously taxed in Year 1, and none of
the distribution is treated as made out of the $60x
of earnings accumulated in Year 2 (which is not pre-
viously taxed). Because 40 percent (the reduction
in tax rates from 50 percent to 30 percent is a 40
percent reduction in the tax) of the $50x of foreign
taxes attributable to the $60x of Year 1 passive in-

November 30, 2020 1204 Bulletin No. 2020–49
come as calculated for Federal income tax purposes
is refunded, $20x of the $24x foreign tax refund re-
duces foreign taxes on CFC’s Year 1 passive income
from $50x to $30x. The other $4x of the tax refund
reduces the taxes imposed in Year 2 on CFC’s gener-
al category income from $50x to $46x.
(C) Under paragraph (c)(7) of this section, in
connection with the section 905(c) adjustment USP
must redetermine whether its Year 1 subpart F inclu-
sion is considered high-taxed income. By taking into
account the reduction in foreign tax, the inclusion is
increased by $20x to $80x, the deemed paid taxes
are reduced by $20x to $30x, and the inclusion is
not considered high-taxed income ($30x < 34% x
$110x). Therefore, USP must treat the revised sec-
tion 951(a) inclusion and the taxes associated with
the section 951(a) inclusion as passive category in-
come and taxes in Year 1. USP must follow the ap-
propriate procedures under §1.905-4.
* * * * *
(q) Applicability date. (1) Except as pro-
vided in paragraph (q)(2) and (3) of this sec-
tion, this section applies for taxable years
that both begin after December 31, 2017,
and end on or after December 4, 2018.
(2) Paragraphs (c)(7)(i) and (iii) and (c)
(8)(v) through (viii) apply to taxable years
ending on or after December 16, 2019. For
taxable years that both begin after Decem-
ber 31, 2017, and end on or after Decem-
ber 4, 2018, and also end before December
16, 2019, see §1.904-4(c)(7)(i) and (iii) as
in effect on December 17, 2019.
Par. 18. Section 1.904-6 is amended by:
1. Revising the section heading and
paragraph (a).
2. Redesignating paragraph (b) as para-
graph (e).
3. Adding a new paragraph (b) and
paragraph (c).
4. Revising paragraph (d).
5. In newly redesignated paragraph (e)
(4)(i), removing the language “paragraph
(b)(4)(ii)” and adding the language “para-
graph (e)(4)(ii)” in its place.
6. In newly redesignated paragraph (e)
(4)(ii)(C), removing the language “para-
graph (b)(4)(ii)(B)” and adding the lan-
guage “paragraph (e)(4)(ii)(B)” in its
place.
7. Adding paragraphs (f) and (g).
The revisions and additions read as fol-
lows:
§1.904-6 Allocation and apportionment
of foreign income taxes.
(a) In general. The amount of foreign
income taxes paid or accrued with re-
spect to a separate category (as defined in
§1.904-5(a)(4)(v)) of income (including
U.S. source income assigned to the sepa-
rate category) includes only those foreign
income taxes that are allocated and appor-
tioned to the separate category under the
rules of §1.861-20 (as modified by this
section). In applying the foreign tax credit
limitation under sections 904(a) and (d) to
general category income described in sec-
tion 904(d)(2)(A)(ii) and §1.904-4(d), for-
eign source income in the general category
is a statutory grouping. However, general
category income is the residual grouping
of income for purposes of assigning for-
eign income taxes to separate categories.
In addition, in determining the numerator
of the foreign tax credit limitation un-
der sections 904(a) and (d), where U.S.
source income is the residual grouping,
the amount of foreign income taxes paid
or accrued for which a deduction is al-
lowed, for example, under section 901(k)
(7), with respect to foreign source income
in a separate category includes only those
foreign income taxes that are allocated
and apportioned to foreign source income
in the separate category under the rules of
§1.861-20 (as modified by this section).
For purposes of this section, unless other-
wise stated, terms have the same meaning
as provided in §1.861-20(b). For examples
illustrating the application of this section,
see §1.861-20(g).
(b) Assigning an item of foreign gross
income to a separate category. For pur-
poses of assigning an item of foreign gross
income to a separate category or catego-
ries (or foreign source income in a sepa-
rate category) under §1.861-20, the rules
of this paragraph (b) apply.
(1) Base differences. Any item of for-
eign gross income that is attributable to a
base difference described in §1.861-20(d)
(2)(ii)(B) is assigned to the separate cat-
egory described in section 904(d)(2)(H)
(i), and to foreign source income in that
category.
(2) [Reserved]
(c) Allocating and apportioning deduc-
tions. For purposes of applying §1.861-
20(e) to allocate and apportion deductions
allowed under foreign law to foreign gross
income in the separate categories, before
undertaking the steps outlined in §1.861-
20(e), foreign gross income in the passive
category is first reduced by any related
person interest expense that is allocated to
the income under the principles of section
954(b)(5) and §1.904-5(c)(2)(ii)(C). In al-
locating and apportioning expenses not
specifically allocated under foreign law,
the principles of foreign law are applied
only after taking into account the reduc-
tion of passive income by the application
of section 954(b)(5). In allocating and ap-
portioning expenses when foreign law does
not provide rules for the allocation or ap-
portionment of expenses, losses or other
deductions to particular items of foreign
gross income, then the principles of section
954(b)(5), in addition to the principles of
the section 861 regulations (as defined in
§1.861-8(a)(1)), apply to allocate and ap-
portion expenses, losses or other foreign
law deductions to foreign gross income
after reduction of passive income by the
amount of related person interest expense
allocated to passive income under section
954(b)(5) and §1.904-5(c)(2)(ii)(C).
(d) Apportionment of taxes for purpos-
es of applying the high-tax income tests. If
taxes have been allocated and apportioned
to passive income under the rules of para-
graph (a) this section, the taxes must fur-
ther be apportioned to the groups of income
described in §1.904-4(c)(3) through (5) for
purposes of determining if the group is
high-taxed income that is recharacterized
as income in another separate category
under the rules of §1.904-4(c). See also
§1.954-1(c)(1)(iii)(B) (defining a single
item of passive category foreign personal
holding company income by reference to
the grouping rules under §1.904-4(c)(3)
through (5)). Taxes are related to income
in a particular group under the same rules
as those in paragraph (a) of this section ex-
cept that those rules are applied by appor-
tioning foreign income taxes to the groups
described in §1.904-4(c)(3) through (5) in-
stead of separate categories.
* * * * *
(f) Treatment of certain foreign income
taxes paid or accrued by United States
shareholders. Some or all of the foreign
gross income of a United States sharehold-
er of a controlled foreign corporation that
is attributable to foreign law inclusion re-
gime income with respect to a foreign law
CFC described in §1.861-20(d)(3)(iii) or
foreign law pass-through income from a
reverse hybrid described in §1.861-20(d)
(3)(i)(C) is assigned to the section 951A
category if, were the controlled foreign

Bulletin No. 2020–49 1205 November 30, 2020
corporation the taxpayer that recognizes
the foreign gross income, the foreign gross
income would be assigned to the controlled
foreign corporation’s tested income group
(as defined in §1.960-1(b)(33)) within the
general category to which an inclusion
under section 951A is attributable. The
amount of the United States shareholder’s
foreign gross income that is assigned to the
section 951A category (or a specified sep-
arate category associated with the section
951A category) is based on the inclusion
percentage (as defined in §1.960-2(c)(2))
of the United States shareholder. For ex-
ample, if a United States shareholder has
an inclusion percentage of 60 percent, then
60 percent of the foreign gross income of
a United States shareholder that would be
assigned (under §1.861-20(d)(3)(iii)) to the
tested income group within the general cat-
egory income of a reverse hybrid that is a
controlled foreign corporation to which an
inclusion under section 951A is attributable
is assigned to the section 951A category or
the specified separate category for income
resourced under a tax treaty, and not to the
general category.
(g) Applicability date. This section ap-
plies to taxable years beginning after De-
cember 31, 2019. For taxable years that
both begin after December 31, 2017, and
end on or after December 4, 2018, and also
begin before January 1, 2020, see §1.904-
6 as in effect on December 17, 2019.
Par. 19. Section 1.904(b)-3 is amended
by revising the first sentence in paragraph
(c)(1), adding paragraph (d)(2), and revis-
ing paragraph (f) to read as follows:
§1.904(b)-3 Disregard of certain
dividends and deductions under section
904(b)(4).
* * * * *
(c) * * *
(1) * * * For purposes of applying the
section 861 regulations (as defined in
§1.861-8(a)) to the deductions of a United
States shareholder, the only gross income
included in a section 245A subgroup is
dividend income for which a deduction is
allowed under section 245A. * * *
* * * * *
(d) * * *
(2) Net operating losses. If the taxpay-
er has a net operating loss in the current
taxable year, then solely for purposes of
determining the source and separate cat-
egory of the net operating loss, the over-
all foreign loss rules in section 904(f) and
the overall domestic loss rules in section
904(g) are applied without taking into ac-
count the adjustments required under sec-
tion 904(b) and this section.
* * * * *
(f) Applicability dates. (1) Except as
provided in paragraph (f)(2) of this sec-
tion, this section applies to taxable years
beginning after December 31, 2017.
(2) Paragraph (d)(2) of this section ap-
plies to taxable years ending on or after
December 16, 2019.
Par. 20. Section 1.904(g)-3 is amended
by:
1. Adding a sentence at the end of para-
graph (b)(1) and adding paragraph (j).
2. Revising paragraph (l).
The additions and revision read as fol-
lows:
§1.904(g)-3 Ordering rules for the
allocation of net operating losses, net
capital losses, U.S. source losses, and
separate limitation losses, and for the
recapture of separate limitation losses,
overall foreign losses, and overall
domestic losses.
* * * * *
(b) * * *
(1) * * * See §§1.861-8(e)(8), 1.904(b)-
3(d)(2), and 1.1502-4(c)(1)(iii) for rules to
determine the source and separate catego-
ry components of a net operating loss.
* * * * *
(j) Step Nine: Dispositions that result
in additional income recognition under the
branch loss recapture and dual consolidat-
ed loss recapture rules—(1) In general. If,
after any gain is required to be recognized
under section 904(f)(3) on a transaction that
is otherwise a nonrecognition transaction,
an additional amount of income is recog-
nized under section 91(d), section 367(a)(3)
(C) (as applicable to losses incurred before
January 1, 2018), or §1.1503(d)-6, and that
additional income amount is determined by
taking into account an offset for the amount
of gain recognized under section 904(f)(3)
and so is not initially taken into account in
applying paragraph (b) of this section, then
paragraphs (b) through (h) of this section
are applied to determine the allocation of
any additional net operating loss deduction
and other deductions or losses and the ap-
plicable increases in the taxpayer’s overall
foreign loss, separate limitation loss, and
overall domestic loss accounts, as well
as any additional recapture and reduction
of the taxpayer’s separate limitation loss,
overall foreign loss, and overall domestic
loss accounts.
(2) Rules for additional recapture of
loss accounts. For the purpose of recaptur-
ing and reducing loss accounts under para-
graph (j)(1) of this section, the taxpayer
also takes into account any creation of or
addition to loss accounts that result from
the application of paragraphs (b) through
(i) of this section in the current tax year.
If any of the additional income described
in paragraph (j)(1) of this section is for-
eign source income in a separate category
for which there is a remaining balance in
an overall foreign loss account after ap-
plying paragraph (i) of this section, the
section 904(f)(1) recapture amount under
§1.904(f)-2(c) for that additional income
is determined by first computing a hypo-
thetical recapture amount as it would have
been determined prior to the application
of paragraph (i) of this section but taking
into account the additional foreign source
income described in this paragraph (j)(2)
and then subtracting the actual overall
foreign loss recapture determined prior
to the application of paragraph (i) of this
section (that did not take into account the
additional foreign source income). The re-
mainder is the overall foreign loss recap-
ture amount with respect to the additional
foreign source income described in this
paragraph (j)(2).
* * * * *
(l) Applicability date. This section ap-
plies to taxable years ending on or after
November 2, 2020.
Par. 21. Section 1.905-3 is amended by:
1. Revising the section heading and the
first sentence of paragraph (a).
2. Adding paragraphs (b)(2) and (3).
3. Revising paragraph (d).
The revisions and additions read as fol-
lows:
§1.905-3 Adjustments to U.S. tax liability
and to current earnings and profits as a
result of a foreign tax redetermination.
(a) * * * For purposes of this section
and §1.905-4, the term foreign tax rede-

November 30, 2020 1206 Bulletin No. 2020–49
termination means a change in the liabil-
ity for foreign income tax, as defined in
§1.960-1(b)(5), or certain other changes
described in this paragraph (a) that may af-
fect a taxpayer’s U.S. tax liability, includ-
ing by reason of a change in the amount of
its foreign tax credit, the amount of its dis-
tributions or inclusions under section 951,
951A, or 1293, the application of the high-
tax exception described in section 954(b)
(4) (including for purposes of determining
amounts excluded from gross tested in-
come under section 951A(c)(2)(A)(i)(III)
and §1.951A-2(c)(1)(iii)), or the amount
of tax determined under sections 1291(c)
(2) and 1291(g)(1)(C)(ii). * * *
(b) * * *
(2) Foreign income taxes paid or ac-
crued by foreign corporations—(i) In gen-
eral. A redetermination of U.S. tax liabil-
ity is required to account for the effect of
a redetermination of foreign income taxes
taken into account by a foreign corpora-
tion in the year accrued, or a refund of for-
eign income taxes taken into account by
the foreign corporation in the year paid.
(ii) Required adjustments. If a redeter-
mination of U.S. tax liability is required
for any taxable year under paragraph (b)
(2)(i) of this section, the foreign corpo-
ration’s taxable income, earnings and
profits, and current year taxes (as defined
in §1.960-1(b)(4)) must be adjusted in
the year to which the redetermined tax
relates (or, in the case of a foreign cor-
poration that receives a refund of foreign
income tax and uses the cash basis of ac-
counting, in the year the tax was paid).
The redetermination of U.S. tax liabili-
ty is made by treating the redetermined
amount of foreign tax as the amount of
tax paid or accrued by the foreign cor-
poration in such year. For example, in
the case of a refund of foreign income
taxes taken into account in the year ac-
crued, the foreign corporation’s subpart
F income, tested income, and current
earnings and profits are increased, as ap-
propriate, in the year to which the foreign
tax relates to reflect the functional cur-
rency amount of the foreign income tax
refund. The required redetermination of
U.S. tax liability must account for the ef-
fect of the foreign tax redetermination on
the characterization and amount of distri-
butions or inclusions under section 951,
951A, or 1293 taken into account by each
of the foreign corporation’s United States
shareholders, on the application of the
high-tax exception described in section
954(b)(4) (including for purposes of de-
termining the exclusions from gross test-
ed income under section 951A(c)(2)(A)
(i)(III) and §1.951A-2(c)(1)(iii)), and the
amount of tax determined under sections
1291(c)(2) and 1291(g)(1)(C)(ii), as well
as on the amount of foreign taxes deemed
paid under section 960 in such year, re-
gardless of whether any such sharehold-
er chooses to deduct or credit its foreign
income taxes in any taxable year. In ad-
dition, a redetermination of U.S. tax lia-
bility is required for any subsequent tax-
able year in which the characterization or
amount of a United States shareholder’s
distribution or inclusion from the foreign
corporation is affected by the foreign tax
redetermination, up to and including the
taxable year in which the foreign tax re-
determination occurs, as well as any year
to which unused foreign taxes from such
year were carried under section 904(c).
(iii) Reduction of corporate level tax
on distribution of earnings and profits. If
a United States shareholder of a controlled
foreign corporation receives a distribution
out of previously taxed earnings and prof-
its described in section 959(c)(1) and (2)
and a foreign country has imposed tax on
the income of the controlled foreign cor-
poration, which tax is reduced on distri-
bution of the earnings and profits of the
corporation (resulting in a foreign tax
redetermination), then the United States
shareholder must redetermine its U.S. tax
liability for the year or years affected. See
also §1.904-4(c)(7)(i).
(iv) Foreign tax redeterminations re-
lating to taxable years beginning before
January 1, 2018. In the case of a foreign
tax redetermination of a foreign corpora-
tion that relates to a taxable year of the
foreign corporation beginning before Jan-
uary 1, 2018, a redetermination of U.S.
tax liability is required under the rules of
§1.905-5.
(v) Examples. The following examples
illustrate the application of this paragraph
(b)(2).
(A) Presumed Facts. Except as other-
wise provided in this paragraph (b)(2)(v),
the following facts are assumed for pur-
poses of the examples in paragraphs (b)(2)
(v)(B) through (E) of this section:
(1) All parties are accrual basis tax-
payers that use the calendar year as their
taxable year both for Federal income tax
purposes and for foreign tax purposes and
use the average exchange rate to translate
accrued foreign income taxes;
(2) CFC, CFC1, and CFC2 are con-
trolled foreign corporations organized in
Country X that use the “u” as their func-
tional currency;
(3) No income adjustment is required
to reflect exchange gain or loss (within the
meaning of §1.988-1(e)) with respect to
the disposition of nonfunctional currency
attributable to a refund of foreign income
taxes received by any CFC, because all
foreign income taxes are denominated and
paid in the CFC’s functional currency;
(4) The highest rate of U.S. tax in sec-
tion 11 and the rate applicable to USP in
all years is 21 percent;
(5) No election to exclude high-
taxed income under section 954(b)(4) or
§1.951A-2(c)(7) is made with respect to
CFC, CFC1, or CFC2; and
(6) USP’s foreign tax credit limitation
under section 904(a) exceeds the amount
of foreign income taxes it is deemed to
pay.
(B) Example 1: Refund of tested foreign income
taxes—(1) Facts. CFC is a wholly-owned subsidiary
of USP, a domestic corporation. In Year 1, CFC earns
3,660u of general category gross tested income and
accrues and pays 300u of foreign income taxes with
respect to that income. CFC has no allowable de-
ductions other than the foreign income tax expense.
Accordingly, CFC has tested income of 3,360u in
Year 1. CFC has no qualified business asset invest-
ment (within the meaning of section 951A(d) and
§1.951A-3(b)). In Year 1, no portion of USP’s deduc-
tion under section 250 (“section 250 deduction”) is
reduced by reason of section 250(a)(2)(B)(ii). USP’s
inclusion percentage (as defined in §1.960-2(c)(2)) is
100%. In Year 1, USP earns no other income and has
no other expenses. The average exchange rate used
to translate USP’s inclusion under section 951A and
CFC’s foreign income taxes into dollars for Year 1 is
$1x:1u. See section 989(b)(3) and §§1.951A-1(d)(1)
and 1.986(a)-1(a)(1). Accordingly, for Year 1, USP’s
tested foreign income taxes (as defined in §1.960-
2(c)(3)) with respect to CFC are $300x. In Year 3,
CFC carries back a loss for foreign tax purposes and
receives a refund of foreign tax of 100u that relates
to Year 1.
(2) Analysis—(i) Result in Year 1. In Year 1,
CFC has tested income of 3,360u and tested foreign
income taxes of $300x. Under section 951A(a) and
§1.951A-1(c)(1), USP has a GILTI inclusion amount
of $3,360x (3,360u translated at $1x:1u). Under sec-
tion 960(d) and §1.960-2(c), USP is deemed to have
paid $240x (80% x 100% x $300x) of foreign income
taxes. Under section 78 and §1.78-1(a), USP is treat-
ed as receiving a dividend of $300x (a “section 78

Bulletin No. 2020–49 1207 November 30, 2020
dividend”). USP’s section 250 deduction is $1,830x
(50% x ($3,360x + $300x)). Accordingly, for Year
1, USP has taxable income of $1,830x ($3,360x +
$300x - $1,830x) and pre-credit U.S. tax liability of
$384.30x (21% x $1,830x). Accordingly, USP pays
U.S. tax of $144.30x ($384.30x - $240x).
(ii) Result in Year 3. The refund of 100u to CFC
in Year 3 is a foreign tax redetermination under para-
graph (a) of this section. Under paragraph (b)(2)(ii)
of this section, USP must account for the effect of the
foreign tax redetermination on its GILTI inclusion
amount and foreign taxes deemed paid in Year 1. In
redetermining USP’s U.S. tax liability for Year 1,
USP must increase CFC’s tested income and its earn-
ings and profits in Year 1 by the refunded tax amount
of 100u, must determine the effect of that increase
on its GILTI inclusion amount, and must adjust the
amount of foreign taxes deemed paid and the section
78 dividend to account for CFC’s refund of foreign
tax. Under §1.986(a)-1(c), the refund is translated
into dollars at the exchange rate that was used to
translate such amount when initially accrued. As a
result of the foreign tax redetermination, for Year 1,
CFC has tested income of 3,460u (3,360u + 100u)
and tested foreign income taxes of $200x ($300x -
$100x). Under section 951A(a) and §1.951A-1(c)
(1), USP has a redetermined GILTI inclusion amount
of $3,460x (3,460u translated at $1x:1u). Under sec-
tion 960(d) and §1.960-2(c), USP is deemed to have
paid $160x (80% x 100% x $200x) of foreign in-
come taxes. Under section 78 and §1.78-1(a), USP’s
section 78 dividend is $200x. USP’s redetermined
section 250 deduction is $1,830x (50% x ($3,460x
+ $200x)). Accordingly, USP’s redetermined taxable
income is $1,830x ($3,460x + $200x - $1,830x) and
its pre-credit U.S. tax liability is $384.30x (21% x
$1,830x). Therefore, USP’s redetermined U.S. tax
liability is $224.3x ($384.30x - $160x), an increase
of $80x ($224.30x - $144.30x).
(C) Example 2: Additional payment of foreign
income taxes—(1) Facts. CFC is a wholly-owned
subsidiary of USP, a domestic corporation. In Year
1, CFC earns 1,000u of general category gross for-
eign base company sales income and accrues and
pays 100u of foreign income taxes with respect to
that income. CFC has no allowable deductions oth-
er than the foreign income tax expense. The aver-
age exchange rate used to translate USP’s subpart
F inclusion and CFC’s foreign income taxes into
dollars for Year 1 is $1x:1u. See section 989(b)(3)
and §1.986(a)-1(a)(1). In Year 1, USP earns no other
income and has no other expenses. In Year 5, pur-
suant to a Country X audit CFC accrues and pays
additional foreign income tax of 80u with respect to
its 1,000u of general category foreign base company
sales income earned in Year 1. The spot rate (as de-
fined in §1.988-1(d)) on the date of payment of the
tax in Year 5 is $1x:0.8u. The foreign income taxes
accrued and paid in Year 1 and Year 5 are properly
attributable to CFC’s foreign base company sales in-
come that is included in income by USP under sec-
tion 951(a)(1)(A) (“subpart F inclusion”) in Year 1
with respect to CFC.
(2) Analysis—(i) Result in Year 1. In Year 1,
CFC has subpart F income of 900u (1,000u - 100u).
Accordingly, USP has a $900x (900u translated at
$1x:1u) subpart F inclusion. Under section 960(a)
and §1.960-2(b), USP is deemed to have paid $100x
(100u translated at $1x:1u) of foreign income tax-
es. Under section 78 and §1.78-1(a), USP’s section
78 dividend is $100x. Accordingly, for Year 1, USP
has taxable income of $1,000x ($900x + $100x)
and pre-credit U.S. tax liability of $210x (21% x
$1,000x). Accordingly, USP’s U.S. tax liability is
$110x ($210x - $100x).
(ii) Result in Year 5. CFC’s payment of 80u of ad-
ditional foreign income tax in Year 5 with respect to
Year 1 is a foreign tax redetermination as defined in
paragraph (a) of this section. Under paragraph (b)(2)
(ii) of this section, USP must reduce CFC’s subpart F
income and its earnings and profits in Year 1 by the
additional tax amount of 80u. Further, USP must re-
duce its subpart F inclusion, adjust the amount of for-
eign taxes deemed paid, and adjust the amount of the
section 78 dividend to account for CFC’s additional
payment of foreign tax. Under section 986(a)(1)(B)
(i) and §1.986(a)-1(a)(2)(i), because CFC’s payment
of additional tax occurs more than 24 months after
the close of the taxable year to which it relates, the
additional tax is translated into dollars at the spot rate
on the date of payment ($1x:0.8u). Therefore, CFC
has foreign income taxes of $200x (100u translated
at $1x:1u plus 80u translated at $1x:0.8u) that are
properly attributable to CFC’s foreign base com-
pany sales income that gives rise to USP’s subpart
F inclusion in Year 1. As a result of the foreign tax
redetermination, for Year 1, USP has a subpart F in-
clusion of $820x (1,000u - 180u = 820u translated
at $1x:1u). Under section 960(a) and §1.960-2(b),
USP is deemed to have paid $200x of foreign in-
come taxes. Under section 78 and §1.78-1(a), USP’s
section 78 dividend is $200x. USP’s redetermined
U.S. taxable income is $1,020x ($820x + $200x) and
its pre-credit U.S. tax liability is $214.20x (21% x
$1,020x). Therefore, USP’s redetermined U.S. tax
liability is $14.20x ($214.20x - $200x), a decrease
of $95.80x ($110x - $14.20x). If USP makes a time-
ly refund claim within the period allowed by section
6511, USP will be entitled to a refund of any over-
payment resulting from the redetermination of its
U.S. tax liability.
(D) Example 3: Two-year rule—(1) Facts. CFC
is a wholly-owned subsidiary of USP, a domestic
corporation. In Year 1, CFC earns 1,000u of general
category gross foreign base company sales income
and accrues 210u of foreign income taxes with re-
spect to that income. In Year 1, USP earns no other
income and has no other expenses. The average ex-
change rate used to translate USP’s subpart F inclu-
sion and CFC’s foreign income taxes into dollars for
Year 1 is $1x:1u. See sections 989(b)(3) and 986(a)
(1)(A) and §1.986(a)-1(a)(1). CFC does not pay its
foreign income taxes for Year 1 until September 1,
Year 5, when the spot rate is $0.8x:1u. The foreign
income taxes accrued and paid in Year 1 and Year
5, respectively, are properly attributable to CFC’s
foreign base company sales income that gives rise
to USP’s subpart F inclusion in Year 1 with respect
to CFC.
(2) Analysis—(i) Result in Year 1. In Year 1,
CFC has subpart F income of 790u (1,000u - 210u).
Accordingly, USP has a $790x (790u translated at
$1x:1u) subpart F inclusion. Under section 960(a)
and §1.960-2(b), USP is deemed to have paid $210x
(210u translated at $1x:1u) of foreign income tax-
es. Under section 78 and §1.78-1(a), USP’s section
78 dividend is $210x. Accordingly, for Year 1, USP
has taxable income of $1,000x ($790x + $210x)
and pre-credit U.S. tax liability of $210x (21%
x $1,000x). Accordingly, USP owes no U.S. tax
($210x - $210x = 0).
(ii) Result in Year 3. CFC’s failure to pay the tax
by the end of Year 3 results in a foreign tax rede-
termination under paragraph (a) of this section. Be-
cause the taxes are not paid on or before the date 24
months after the close of the taxable year to which
the tax relates, under paragraph (a) of this section
CFC must account for the redetermination as if the
unpaid 210u of taxes were refunded on the last day
of Year 3. Under paragraph (b)(2)(ii) of this section,
USP must increase CFC’s subpart F income and
its earnings and profits in Year 1 by the unpaid tax
amount of 210u. Further, USP must increase its sub-
part F inclusion, and decrease the amount of foreign
taxes deemed paid and the amount of the section 78
dividend to account for the unpaid taxes. As a result
of the foreign tax redetermination, for Year 1, USP
has a subpart F inclusion of $1,000x (1,000u translat-
ed at $1x:1u). Under section 960(a) and §1.960-2(b),
USP is deemed to have paid no foreign income taxes.
Under section 78 and §1.78-1(a), USP has no section
78 dividend. Accordingly, USP’s redetermined tax-
able income is $1,000x and its pre-credit U.S. tax
liability is unchanged at $210x (21% x $1,000x).
However, USP has no foreign tax credits. Therefore,
USP’s redetermined U.S. tax liability for Year 1 is
$210x, an increase of $210x.
(iii) Result in Year 5. CFC’s payment of the Year
1 tax liability of 210u on September 1, Year 5, results
in a second foreign tax redetermination under para-
graph (a) of this section. Under paragraph (b)(2)(ii)
of this section, USP must decrease CFC’s subpart F
income and its earnings and profits in Year 1 by the
tax paid amount of 210u. Further, USP must reduce
its subpart F inclusion, and adjust the amount of for-
eign taxes deemed paid and the amount of the section
78 dividend to account for CFC’s payment of foreign
tax. Under section 986(a)(1)(B)(i) and §1.986(a)-
1(a)(2)(i), because the tax was paid more than 24
months after the close of the year to which the tax
relates, CFC must translate the 210u of tax at the spot
rate on the date of payment of the foreign taxes in
Year 5. Therefore, CFC has foreign income taxes of
$168x (210u translated at $0.8x:1u) that are properly
attributable to CFC’s foreign base company sales in-
come that gives rise to USP’s subpart F inclusion in
Year 1. As a result of the foreign tax redetermination,
for Year 1, USP has a subpart F inclusion of $790x
(1,000u - 210u = 790u translated at $1x:1u). Under
section 960(a) and §1.960-2(b), USP is deemed to
have paid $168x of foreign income taxes. Under sec-
tion 78 and §1.78-1(a), USP’s section 78 dividend
is $168x. Accordingly, USP’s redetermined taxable
income is $958x ($790x + $168x), its pre-credit U.S.
tax liability is $201.18x (21% x $958x), and its re-
determined U.S. tax liability is $33.18 ($201.18x -
$168x), a decrease of $176.82x ($210x - $33.18x). If
USP makes a timely refund claim within the period
allowed by section 6511, USP will be entitled to a
refund of any overpayment resulting from the rede-
termination of its U.S. tax liability.
(E) Example 4: Contested tax—(1) Facts. CFC
is a wholly-owned subsidiary of USP, a domestic
corporation. In Year 1, CFC earns 360u of general

November 30, 2020 1208 Bulletin No. 2020–49
category gross tested income and accrues and pays
160u of current year taxes with respect to that in-
come. CFC has no allowable deductions other than
the foreign income tax expense. Accordingly, CFC
has tested income of 200u in Year 1. CFC has no
qualified business asset investment (within the
meaning of section 951A(d) and §1.951A-3(b)). In
Year 1, no portion of USP’s section 250 deduction
is reduced by reason of section 250(a)(2)(B)(ii).
USP’s inclusion percentage (as defined in §1.960-
2(c)(2)) is 100%. In Year 1, USP earns no other
income and has no other expenses. The average
exchange rate used to translate USP’s section 951A
inclusion and CFC’s foreign income taxes into
dollars for Year 1 is $1x:1u. See section 989(b)(3)
and §§1.951A-1(d)(1) and 1.986(a)-1(a)(1). Ac-
cordingly, for Year 1, CFC’s tested foreign income
taxes (as defined in §1.960-2(c)(3)) with respect to
USP are $160x. In Year 3, Country X assessed an
additional 30u of tax with respect to CFC’s Year
1 income. CFC did not pay the additional 30u of
tax and contested the assessment. After exhaust-
ing all effective and practical remedies to reduce,
over time, its liability for foreign income tax, CFC
settled the contest with Country X in Year 4 for
20u, which CFC did not pay until January 15, Year
5, when the spot rate was $1.1x:1u. CFC did not
earn any other income or accrue any other foreign
income taxes in Years 2 through 6 and made no
distributions to USP. The additional taxes paid in
Year 5 are also tested foreign income taxes of CFC
with respect to USP.
(2) Analysis—(i) Result in Year 1. In Year 1,
CFC has tested income of 200u and tested foreign
income taxes of $160x. Under section 951A(a)
and §1.951A-1(c)(1), USP has a GILTI inclusion
amount of $200x (200u translated at $1x:1u). Under
section 960(d) and §1.960-2(c), USP is deemed to
have paid $128x (80% x 100% x $160x) of foreign
income taxes. Under section 78 and §1.78-1(a),
USP’s section 78 dividend is $160x. USP’s section
250 deduction is $180x (50% x ($200x + $160x)).
Accordingly, for Year 1, USP has taxable income
of $180x ($200x + $160x - $180x) and a pre-credit
U.S. tax liability of $37.80x (21% x $180x). Un-
der section 904(a), because all of USP’s income is
section 951A category income (see §1.904-4(g)),
USP’s foreign tax credit limitation is $37.80x
($37.80x x $180x / $180x), which is less than the
$128x of foreign income tax that USP is deemed
to have paid. Accordingly, USP owes no U.S. tax
($37.80x - $37.80x = 0).
(ii) Result in Year 5. CFC’s accrual and payment
of the additional 20u of foreign income tax with
respect to Year 1 is a foreign tax redetermination
under paragraph (a) of this section. Under §1.461-
4(g)(6)(iii)(B), the additional taxes accrue when the
tax contest is resolved, that is, in Year 4. However,
because the taxes, which relate to Year 1, were not
paid on or before the date 24 months after close of
CFC’s taxable year to which the tax relates, that is,
Year 1, under section 905(c)(2) and paragraph (a)
of this section CFC cannot take these taxes into ac-
count when they accrue in Year 4. Instead, the taxes
are taken into account when they are paid in Year
5. Under paragraph (b)(2)(ii) of this section, USP
must decrease CFC’s tested income and its earnings
and profits in Year 1 by the additional tax amount
of 20u. Further, USP must adjust its GILTI inclu-
sion amount, the amount of foreign taxes deemed
paid, and the amount of the section 78 dividend
to account for CFC’s additional payment of tax.
Under section 986(a)(1)(B)(i) and §1.986(a)-1(a)
(2)(i), because CFC’s payment of additional tax
occurs more than 24 months after the close of the
taxable year to which it relates, the additional tax
is translated into dollars at the spot rate on the date
of payment ($1.1x:1u). Therefore, CFC has tested
foreign income taxes of $182x (160u translated at
$1x:1u plus 20u translated at $1.1x:1u). As a result
of the foreign tax redetermination, for Year 1, CFC
has tested income of 180u (200u - 20u). Under sec-
tion 951A(a) and §1.951A-1(c)(1), USP has a rede-
termined GILTI inclusion amount of $180x (180u,
translated at $1x:1u). Under section 960(d) and
§1.960-2(c), USP is deemed to have paid $145.60x
(80% x 100% x $182x) of foreign income taxes.
Under section 78 and §1.78-1(a), USP’s section
78 dividend is $182x. USP’s redetermined section
250 deduction is $181x (50% x ($180x + $182x)).
Accordingly, USP’s redetermined taxable income
is $181x ($180x + $182x – $181x), its pre-credit
U.S. tax liability is $38.01x (21% x $181x), and its
redetermined U.S. tax liability is zero ($38.01x -
$38.01x).
(3) Foreign tax redeterminations of
successors or transferees. If at the time of
a foreign tax redetermination the person
with legal liability for the tax (or in the
case of a refund, the legal right to such re-
fund) (the “successor”) is a different per-
son than the person that had legal liability
for the tax in the year to which the rede-
termined tax relates (the “original taxpay-
er”), the required redetermination of U.S.
tax liability is made as if the foreign tax
redetermination occurred in the hands of
the original taxpayer. Federal income tax
principles apply to determine the tax con-
sequences if the successor remits (or re-
ceives a refund of) a tax that in the year to
which the redetermined tax relates was the
legal liability of, and thus under §1.901-
2(f) is considered paid by, the original
taxpayer.
* * * * *
(d) Applicability dates. This section
applies to foreign tax redeterminations
occurring in taxable years ending on or af-
ter December 16, 2019, and to foreign tax
redeterminations of foreign corporations
occurring in taxable years that end with
or within a taxable year of a United States
shareholder ending on or after December
16, 2019 and that relate to taxable years of
foreign corporations beginning after De-
cember 31, 2017.
Par. 22. Section 1.905-4 is added to
read as follows:
§1.905-4 Notification of foreign tax
redetermination.
(a) Application of this section. The
rules of this section apply if, as a result
of a foreign tax redetermination (as de-
fined in §1.905-3(a)), a redetermination of
U.S. tax liability is required under section
905(c) and §1.905-3(b).
(b) Time and manner of notification—
(1) Redetermination of U.S. tax liabili-
ty—(i) In general. Except as provided in
paragraphs (b)(1)(v) and (b)(2) through
(4) of this section, any taxpayer for which
a redetermination of U.S. tax liability is
required must notify the Internal Revenue
Service (IRS) of the foreign tax redetermi-
nation by filing an amended return, Form
1118 (Foreign Tax Credit—Corporations)
or Form 1116 (Foreign Tax Credit (Indi-
vidual, Estate, or Trust)), and the state-
ment described in paragraph (c) of this
section for the taxable year with respect
to which a redetermination of U.S. tax li-
ability is required. Such notification must
be filed within the time prescribed by this
paragraph (b) and contain the information
described in paragraph (c) of this section.
If a foreign tax redetermination requires
an individual to redetermine the individ-
ual’s U.S. tax liability, and if, after taking
into account such foreign tax redetermi-
nation, the amount of creditable foreign
taxes (as defined in section 904(j)(3)(B))
that are paid or accrued by such individu-
al during the taxable year does not exceed
the applicable dollar limitation in section
904(j), the individual is not required to file
Form 1116 with the amended return for
such taxable year if the individual satisfies
the requirements of section 904(j).
(ii) Increase in amount of U.S. tax li-
ability. Except as provided in paragraphs
(b)(1)(iv) and (v) and (b)(2) through (4)
of this section, for each taxable year of the
taxpayer with respect to which a redeter-
mination of U.S. tax liability is required
by reason of a foreign tax redetermina-
tion that increases the amount of U.S.
tax liability, for example, by reason of a
downward adjustment to the amount of
foreign income taxes paid or accrued by
the taxpayer or a foreign corporation with
respect to which the taxpayer computes an
amount of foreign taxes deemed paid, the
taxpayer must file a separate notification
by the due date (with extensions) of the

Bulletin No. 2020–49 1209 November 30, 2020
original return for the taxpayer’s taxable
year in which the foreign tax redetermina-
tion occurs.
(iii) Decrease in amount of U.S. tax li-
ability. Except as provided in paragraphs
(b)(1)(iv) and (v) and (b)(2) through (4)
of this section, for each taxable year of the
taxpayer with respect to which a redeter-
mination of U.S. tax liability is required
by reason of a foreign tax redetermination
that decreases the amount of U.S. tax li-
ability and results in an overpayment,
for example, by reason of an increase in
the amount of foreign income taxes paid
or accrued by the taxpayer or a foreign
corporation with respect to which the
taxpayer computes an amount of foreign
taxes deemed paid, the taxpayer must file
a claim for refund with the IRS within the
period provided in section 6511. See sec-
tion 6511(d)(3)(A) for the special refund
period for refunds attributable to an in-
crease in foreign tax credits.
(iv) Multiple redeterminations of U.S.
tax liability for same taxable year. The
rules of this paragraph (b)(1)(iv) apply
except as provided in paragraphs (b)(1)
(v) and (b)(2) through (4) of this section.
If more than one foreign tax redetermi-
nation requires a redetermination of U.S.
tax liability for the same affected taxable
year of the taxpayer and those foreign tax
redeterminations occur within the same
taxable year or within two consecutive
taxable years of the taxpayer, the taxpayer
may file for the affected taxable year one
amended return, Form 1118 or Form 1116,
and the statement described in paragraph
(c) of this section that reflects all such for-
eign tax redeterminations. If the taxpayer
chooses to file one notification for such re-
determinations, one or more of such rede-
terminations would increase the U.S. tax
liability, and the net effect of all such re-
determinations is to increase the U.S. tax
liability for the affected taxable year, the
taxpayer must file such notification by the
due date (with extensions) of the original
return for the taxpayer’s taxable year in
which the first foreign tax redetermination
that would result in an increased U.S. tax
liability occurred. If the taxpayer chooses
to file one notification for such redetermi-
nations, one or more of such redetermina-
tions would decrease the U.S. tax liability,
and the net effect of all such redetermi-
nations is to decrease the total amount of
U.S. tax liability for the affected taxable
year, the taxpayer must file such notifica-
tion as provided in paragraph (b)(1)(iii)
of this section, within the period provided
by section 6511. If a foreign tax redeter-
mination with respect to the taxable year
for which a redetermination of U.S. tax
liability is required occurs after the date
for providing such notification, more than
one amended return may be required with
respect to that taxable year.
(v) Amended return required only if
there is a change in amount of U.S. tax
due. If a redetermination of U.S. tax li-
ability is required by reason of a foreign
tax redetermination (or multiple foreign
tax redeterminations, in the case of rede-
terminations described in paragraph (b)(1)
(iv) of this section), but does not change
the amount of U.S. tax due for any taxable
year, the taxpayer may, in lieu of applying
the applicable rules of paragraphs (b)(1)
(i) through (iv) of this section, notify the
IRS of such redetermination by attach-
ing a statement to the original return for
the taxpayer’s taxable year in which the
foreign tax redetermination occurs. The
statement must be filed by the due date
(with extensions) of the original return
for the taxpayer’s taxable year in which
the foreign tax redetermination occurs
and contain the information described in
§1.904-2(f). If a redetermination of U.S.
tax liability is required by reason of a for-
eign tax redetermination (either alone, or
if the taxpayer chooses to apply paragraph
(b)(1)(iv) of this section, in combination
with other foreign tax redeterminations, as
provided therein) and the redetermination
of U.S. tax liability results in a change to
the amount of U.S. tax due for a taxable
year, but does not change the amount of
U.S. tax due for other taxable years, for
example, because of a carryback or carry-
over of an unused foreign tax under sec-
tion 904(c), the notification requirements
for such other taxable years are deemed to
be satisfied if the taxpayer complies with
the applicable rules of paragraphs (b)(1)
(i) through (iv) of this section with respect
to each taxable year for which the foreign
tax redetermination changes the amount
of U.S. tax due.
(2) Notification with respect to a
change in the amount of foreign tax re-
ported to an owner by a pass-through en-
tity—(i) In general. If a partnership, trust,
or other pass-through entity that reports to
its beneficial owners (or to any interme-
diary on behalf of its beneficial owners),
including partners, shareholders, benefi-
ciaries, or similar persons, an amount of
creditable foreign tax expenditures, such
pass-through entity must notify both the
IRS and its owners of any foreign tax re-
determination described in §1.905-3(a)
with respect to the foreign tax so report-
ed. For purposes of this paragraph (b)(2),
whether or not a redetermination has oc-
curred within the meaning of §1.905-3(a)
is determined as if the pass-through entity
were a domestic corporation which had
elected to and claimed foreign tax cred-
its in the amount reported for the year to
which such foreign taxes relate. The noti-
fication required under this paragraph (b)
(2) must include the statement described
in paragraph (c) of this section along with
any information necessary for the owners
to redetermine their U.S. tax liability.
(ii) Partnerships subject to subchap-
ter C of chapter 63 of the Code. Except
as provided in paragraph (b)(4) of this
section, if a redetermination of U.S. tax
liability that is required under §1.905-3(b)
by reason of a foreign tax redetermina-
tion described in §1.905-3(a) would re-
quire a partnership adjustment as defined
in §301.6241-1(a)(6) of this chapter, the
partnership must file an administrative
adjustment request under section 6227
and make any adjustments required un-
der section 6227. See §§301.6227-2 and
301.6227-3 of this chapter for procedures
for making adjustments with respect to an
administrative adjustment request. An ad-
ministrative adjustment request required
under this paragraph (b)(2)(ii) must be
filed by the due date (with extensions) of
the original return for the partnership’s
taxable year in which the foreign tax re-
determination occurs, and the restrictions
in section 6227(c) do not apply to such
filing. However, unless the administra-
tive adjustment request may otherwise be
filed after applying the limitations con-
tained in section 6227(c), such a request
is limited to adjustments that are required
to be made under section 905(c). The re-
quirements of paragraph (b)(2)(i) of this
section are deemed to be satisfied with
respect to any item taken into account in
an administrative adjustment request filed
under this paragraph (b)(2)(ii).

November 30, 2020 1210 Bulletin No. 2020–49
(3) Alternative notification require-
ments. An amended return and Form 1118
(Foreign Tax Credit—Corporations) or
Form 1116 (Foreign Tax Credit (Individ-
ual, Estate, or Trust)), is not required to
notify the IRS of the foreign tax redeter-
mination and redetermination of U.S. tax
liability if the taxpayer satisfies alternative
notification requirements that may be pre-
scribed by the IRS through forms, instruc-
tions, publications, or other guidance.
(4) Taxpayers under examination with-
in the jurisdiction of the Large Business
and International Division—(i) In gen-
eral. The alternative notification require-
ments of this paragraph (b)(4) apply if all
of the conditions described in paragraphs
(b)(4)(i)(A) through (E) of this section are
satisfied.
(A) A foreign tax redetermination oc-
curs while the taxpayer is under examina-
tion within the jurisdiction of the Large
Business and International Division.
(B) The foreign tax redetermination
results in an adjustment to the amount of
foreign income taxes paid or accrued by
the taxpayer or a foreign corporation with
respect to which the taxpayer computes an
amount of foreign income taxes deemed
paid.
(C) The foreign tax redetermination
requires a redetermination of U.S. tax li-
ability that increases the amount of U.S.
tax liability, and accordingly, but for this
paragraph (b)(4), the taxpayer would be
required to notify the IRS of such foreign
tax redetermination under paragraph (b)
(1)(ii) of this section (determined without
regard to paragraphs (b)(1)(iv) and (v) of
this section) or paragraph (b)(2)(ii) of this
section. See paragraph (b)(4)(v) of this
section regarding foreign tax redetermina-
tions that decrease the amount of U.S. tax
liability.
(D) The return for the taxable year for
which a redetermination of U.S. tax liabil-
ity is required is under examination.
(E) The due date specified in paragraph
(b)(1)(ii) or (b)(2)(ii) of this section for
providing notice of such foreign tax rede-
termination is not before the later of the
opening conference or the hand-delivery
or postmark date of the opening letter con-
cerning an examination of the return for
the taxable year for which a redetermina-
tion of U.S. tax liability is required by rea-
son of such foreign tax redetermination.
(ii) Notification requirements—(A)
Foreign tax redetermination occurring
before commencement of the examination.
If a foreign tax redetermination described
in paragraphs (b)(4)(i)(B) and (C) of this
section occurs before the later of the open-
ing conference or the hand-delivery or
postmark date of the opening letter and if
the condition provided in paragraph (b)(4)
(i)(E) of this section with respect to such
foreign tax redetermination is met, the
taxpayer, in lieu of applying the rules of
paragraphs (b)(1)(i) and (ii) of this section
(requiring the filing of an amended return,
Form 1116 or 1118, and the statement de-
scribed in paragraph (c) of this section) or
paragraph (b)(2)(ii) of this section (requir-
ing the filing of an administrative adjust-
ment request), must notify the IRS of such
redetermination by providing the state-
ment described in paragraph (b)(4)(iii) of
this section to the examiner no later than
120 days after the later of the date of the
opening conference of the examination,
or the hand-delivery or postmark date of
the opening letter concerning the exam-
ination.
(B) Foreign tax redetermination occur-
ring within 180 days after commencement
of the examination. If a foreign tax rede-
termination described in paragraphs (b)(4)
(i)(B) and (C) of this section occurs on or
after the latest of the opening conference
or the hand-delivery or postmark date of
the opening letter and on or before the
date that is 180 days after the later of the
opening conference or the hand-delivery
or postmark date of the opening letter, the
taxpayer, in lieu of applying the rules of
paragraph (b)(1)(i) and (ii) of this section
or paragraph (b)(2) of this section, must
notify the IRS of such redetermination
by providing the statement described in
paragraph (b)(4)(iii) of this section to the
examiner no later than 120 days after the
date the foreign tax redetermination oc-
curs.
(C) Foreign tax redetermination occur-
ring more than 180 days after commence-
ment of the examination. If a foreign tax
redetermination described in paragraphs
(b)(4)(i)(B) and (C) of this section occurs
after the date that is 180 days after the later
of the opening conference or the hand-de-
livery or postmark date of the opening
letter, the taxpayer must either apply the
rules of paragraphs (b)(1)(i) and (ii) of this
section or paragraph (b)(2) of this section,
or, in lieu of applying paragraphs (b)(1)
(i) and (ii) of this section or paragraph (b)
(2) of this section, provide the statement
described in paragraph (b)(4)(iii) of this
section to the examiner within 120 days
after the date the foreign tax redetermina-
tion occurs. However, the IRS, in its dis-
cretion, may either accept such statement
or require the taxpayer to comply with the
rules of paragraphs (b)(1)(i) and (ii) of this
section or paragraph (b)(2) of this section,
as applicable.
(iii) Statement. The statement required
by paragraphs (b)(4)(ii)(A) and (B) of this
section must provide the original amount
of foreign income taxes paid or accrued,
the revised amount of foreign income
taxes paid or accrued, and documentation
with respect to the revisions, including ex-
change rates and dates of accrual or pay-
ment, and, if applicable, the information
described in paragraph (c)(8) of this sec-
tion. The statement must include the fol-
lowing declaration signed by a person au-
thorized to sign the return of the taxpayer:
“Under penalties of perjury, I declare that
I have examined this written statement,
and to the best of my knowledge and be-
lief, this written statement is true, correct,
and complete.”
(iv) Penalty for failure to file notice of
a foreign tax redetermination. A taxpayer
subject to the rules of this paragraph (b)(4)
must satisfy the rules of paragraph (b)(4)
(ii) of this section in order not to be sub-
ject to the penalty relating to the failure to
file notice of a foreign tax redetermination
under section 6689 and §301.6689-1 of
this chapter.
(v) Notification of foreign tax redeter-
mination that decreases U.S. tax liability
in an affected year under audit. A taxpay-
er may (but is not required to) notify the
IRS as provided in this paragraph (b)(4)
(v) if the taxpayer has a foreign tax rede-
termination that meets the conditions in
paragraphs (b)(4)(i)(A), (B), and (D) of
this section and results in a decrease in the
amount of U.S. tax liability that, but for
this paragraph (b)(4), would require the
taxpayer to notify the IRS of such foreign
tax redetermination under paragraph (b)
(1)(iii) or (b)(2)(ii) of this section (deter-
mined without regard to paragraphs (b)
(1)(iv) and (v) of this section). The noti-
fication should be made in the time and

Bulletin No. 2020–49 1211 November 30, 2020
manner specified in paragraph (b)(4)(ii)
of this section. The IRS, in its discretion,
may either accept such alternate notifi-
cation or require the taxpayer to comply
with the rules of paragraphs (b)(1)(i) and
(iii) or paragraphs (b)(2) of this section, as
applicable.
(5) Examples. The following examples
illustrate the application of paragraph (b)
of this section.
(i) Example 1. (A) X, a domestic corporation, is
an accrual basis taxpayer and uses the calendar year
as its U.S. taxable year. X conducts business through
a branch in Country M, the currency of which is the
m, and also conducts business through a branch in
Country N, the currency of which is the n. X uses the
average exchange rate to translate foreign income
taxes. X is able to claim a credit under section 901
for all foreign income taxes paid or accrued.
(B) In Year 1, X accrued and paid 100m of Coun-
try M income taxes with respect to 400m of foreign
source foreign branch category income. The average
exchange rate for Year 1 was $1:1m. Also in Year 1,
X accrued and paid 50n of Country N income taxes
with respect to 150n of foreign source foreign branch
category income. The average exchange rate for Year
1 was $1:1n. On its Year 1 Federal income tax return,
X claimed a foreign tax credit under section 901 of
$150 ($100 (100m translated at $1:1m) + $50 (50n
translated at $1:1n)) with respect to its foreign source
foreign branch category income. See §1.986(a)-1(a)
(1).
(C) In Year 2, X accrued and paid 100n of Coun-
try N income taxes with respect to 300n of foreign
source foreign branch category income. The average
exchange rate for Year 2 was $1.50:1n. On its Year
2 Federal income tax return, X claimed a foreign tax
credit under section 901 of $150 (100n translated at
$1.5:1n). See §1.986(a)-1(a)(1).
(D) On June 15, Year 5, when the spot rate was
$1.40:1n, X received a refund of 10n from Country
N, and, on March 15, Year 6, when the spot rate was
$1.20:1m, X was assessed by and paid Country M
an additional 20m of tax. Both payments were with
respect to X’s foreign source foreign branch category
income in Year 1. On May 15, Year 6, when the spot
rate was $1.45:1n, X received a refund of 5n from
Country N with respect to its foreign source foreign
branch category income in Year 2.
(E) Both of the refunds and the assessment are
foreign tax redeterminations under §1.905-3(a). Un-
der §1.905-3(b)(1), X must redetermine its U.S. tax
liability for both Year 1 and Year 2. With respect to
Year 1, under paragraph (b)(1)(ii) of this section X
must notify the IRS of the June 15, Year 5, refund
of 10n from Country N that increased X’s U.S. tax
liability by filing an amended return, Form 1118, and
the statement required by paragraph (c) of this sec-
tion for Year 1 by the due date of the original return
(with extensions) for Year 5. The amended return
and Form 1118 would reflect the reduced amount of
foreign income taxes claimed as a credit under sec-
tion 901 and the increase in X’s U.S. tax liability of
$10 (10n refund translated at the average exchange
rate for Year 1, or $1:1n (see §1.986(a)-1(c)). With
respect to the March 15, Year 6, additional assess-
ment of 20m by Country M, under paragraph (b)(1)
(iii) of this section X must notify the IRS within the
time period provided by section 6511, increasing the
foreign income taxes available as a credit and reduc-
ing X’s U.S. tax liability by $24 (20m translated at
the spot rate on the date of payment, or $1.20:1m).
See sections 986(a)(1)(B)(i) and 986(a)(2)(A) and
§1.986(a)-1(a)(2)(i). X may so notify the IRS by
filing a second amended return, Form 1118, and the
statement described in paragraph (c) of this section
for Year 1, within the time period provided by sec-
tion 6511. Alternatively, under paragraph (b)(1)(iv)
of this section, when X redetermines its U.S. tax lia-
bility for Year 1 to take into account the 10n refund
from Country N that occurred in Year 5, X may also
take into account the 20m additional assessment by
Country M that occurred on March 15, Year 6. If
X reflects both foreign tax redeterminations on the
same amended return, Form 1118, and in the state-
ment described in paragraph (c) of this section for
Year 1, the amount of X’s foreign income taxes avail-
able as a credit would be reduced by $10 (10n refund
translated at $1:1n), and increased by $24 (20m ad-
ditional assessment translated at the spot rate on the
date of payment, March 15, Year 6, or $1.20:1m).
The foreign income taxes available as a credit there-
fore would be increased by $14 ($24 (additional
assessment) – $10 (refund)). Because the net effect
of the foreign tax redeterminations is to increase the
amount of foreign taxes paid or accrued and decrease
X’s U.S. tax liability for Year 1, under paragraph (b)
(1)(iv) of this section the Year 1 amended return,
Form 1118, and the statement required in paragraph
(c) of this section reflecting foreign tax redetermi-
nations in both years must be filed within the period
provided by section 6511.
(F) With respect to Year 2, under paragraph (b)
(1)(ii) of this section X must notify the IRS by filing
an amended return, Form 1118, and the statement
required by paragraph (c) of this section for Year 2,
in addition to the amended return, Form 1118, and
statement that are required by reason of the sepa-
rate foreign tax redeterminations that affect Year 1.
The amended return, Form 1118, and the statement
required by paragraph (c) of this section for Year 2
must be filed by the due date (with extensions) of X’s
original return for Year 6. The amended return and
Form 1118 must reflect the reduced amount of for-
eign income taxes claimed as a credit under section
901 and the increase in X’s U.S. tax liability of $7.50
(5n refund translated at the average exchange rate for
Year 2, or $1.50:1n).
(ii) Example 2. X, a taxpayer within the jurisdic-
tion of the Large Business and International Division,
uses the calendar year as its U.S. taxable year. On
November 15, Year 2, X receives a refund of foreign
income taxes that constitutes a foreign tax redetermi-
nation and necessitates a redetermination of U.S. tax
liability for X’s Year 1 taxable year. Under paragraph
(b)(1)(ii) of this section, X is required to notify the
IRS of the foreign tax redetermination that increased
its U.S. tax liability by filing an amended return,
Form 1118, and the statement described in paragraph
(c) of this section for its Year 1 taxable year by Oc-
tober 15, Year 3 (the due date (with extensions) of
the original return for X’s Year 2 taxable year). On
December 15, Year 3, the IRS hand delivers an open-
ing letter concerning the examination of the return
for X’s Year 1 taxable year, and the opening confer-
ence for such examination is scheduled for January
15, Year 4. Because the date for notifying the IRS of
the foreign tax redetermination under paragraph (b)
(1)(ii) of this section (October 15, Year 3) is before
the date of the opening conference concerning the
examination of the return for X’s Year 1 taxable year
(January 15, Year 4), the condition of paragraph (b)
(4)(i)(E) of this section is not met, and so paragraph
(b)(4)(i) of this section does not apply. Accordingly,
X must notify the IRS of the foreign tax redetermina-
tion by filing an amended return, Form 1118, and the
statement described in paragraph (c) of this section
for the Year 1 taxable year by October 15, Year 3.
(6) Transition rule for certain foreign
tax redeterminations. In the case of for-
eign tax redeterminations occurring in
taxable years ending on or after Decem-
ber 16, 2019, and before November 12,
2020, and foreign tax redeterminations of
foreign corporations occurring in taxable
years that end with or within a taxable
year of a United States shareholder ending
on or after December 16, 2019, and before
November 12, 2020, any amended return
or other notification that under paragraph
(b)(1)(ii), (iv), or (v) or (b)(2)(ii) of this
section must be filed by the due date (with
extensions) of, or attached to, the origi-
nal return for the taxpayer’s taxable year
in which the foreign tax redetermination
occurs must instead be filed by the due
date (with extensions) of, or attached to,
the original return for the taxpayer’s first
taxable year ending on or after November
12, 2020. For purposes of paragraph (b)
(4)(i)(E) of this section, the relevant due
date is the due date specified in this para-
graph (b)(6).
(c) Notification contents. The statement
required by paragraphs (b)(1)(i) through
(iv) and (b)(2) of this section must con-
tain information sufficient for the IRS to
redetermine U.S. tax liability if such a
redetermination is required under section
905(c). The information must be in a form
that enables the IRS to verify and com-
pare the original computation of U.S. tax
liability, the revised computation resulting
from the foreign tax redetermination, and
the net changes resulting therefrom. The
statement must include the following:
(1) The taxpayer’s name, address, iden-
tifying number, the taxable year or years
of the taxpayer that are affected by the for-
eign tax redetermination, and, in the case
of foreign taxes deemed paid, the name
and identifying number, if any, of the for-
eign corporation;

November 30, 2020 1212 Bulletin No. 2020–49
(2) The date or dates the foreign in-
come taxes were accrued, if applicable;
the date or dates the foreign income taxes
were paid; the amount of foreign income
taxes paid or accrued on each date (in for-
eign currency) and the exchange rate used
to translate each such amount, as provided
in §1.986(a)-1(a) or (b);
(3) Information sufficient to determine
any change to the characterization of a dis-
tribution, the amount of any inclusion un-
der section 951(a), 951A, or 1293, or the
deferred tax amount under section 1291;
(4) Information sufficient to determine
any interest due from or owing to the tax-
payer, including the amount of any inter-
est paid by the foreign government to the
taxpayer and the dates received;
(5) In the case of any foreign income
tax that is refunded in whole or in part,
the taxpayer must provide the date of each
such refund; the amount of such refund (in
foreign currency); and the exchange rate
that was used to translate such amount
when originally claimed as a credit (as
provided in §1.986(a)-1(c)) and the spot
rate (as defined in §1.988-1(d)) for the
date the refund was received (for purpos-
es of computing foreign currency gain or
loss under section 988);
(6) In the case of any foreign income
taxes that are not paid on or before the
date that is 24 months after the close of
the taxable year to which such taxes re-
late, the amount of such taxes in foreign
currency, and the exchange rate that was
used to translate such amount when origi-
nally claimed as a credit or added to PTEP
group taxes (as defined in §1.960-3(d)(1));
(7) If a redetermination of U.S. tax li-
ability results in an amount of additional
tax due, and the carryback or carryover
of an unused foreign income tax under
section 904(c) only partially eliminates
such amount, the information required in
§1.904-2(f); and
(8) In the case of a pass-through entity,
the name, address, and identifying number
of each beneficial owner to which foreign
taxes were reported for the taxable year or
years to which the foreign tax redetermi-
nation relates, and the amount of foreign
tax initially reported to each beneficial
owner for each such year and the amount
of foreign tax allocable to each beneficial
owner for each such year after the foreign
tax redetermination is taken into account.
(d) Payment or refund of U.S. tax. The
amount of tax, if any, due upon a redeter-
mination of U.S. tax liability is paid by
the taxpayer after notice and demand has
been made by the IRS. Subchapter B of
chapter 63 of the Internal Revenue Code
(relating to deficiency procedures) does
not apply with respect to the assessment
of the amount due upon such redetermi-
nation. In accordance with sections 905(c)
and 6501(c)(5), the amount of additional
tax due is assessed and collected without
regard to the provisions of section 6501(a)
(relating to limitations on assessment and
collection). The amount of tax, if any,
shown by a redetermination of U.S. tax
liability to have been overpaid is credited
or refunded to the taxpayer in accordance
with subchapter B of chapter 66 (sections
6511 through 6515).
(e) Interest and penalties—(1) In gen-
eral. If a redetermination of U.S. tax li-
ability is required by reason of a foreign
tax redetermination, interest is computed
on the underpayment or overpayment in
accordance with sections 6601 and 6611.
No interest is assessed or collected on any
underpayment resulting from a refund of
foreign income taxes for any period be-
fore the receipt of the refund, except to
the extent interest was paid by the foreign
country or possession of the United States
on the refund for the period before the re-
ceipt of the refund. See section 905(c)(5).
In no case, however, will interest assessed
and collected pursuant to the preceding
sentence for any period before receipt of
the refund exceed the amount that other-
wise would have been assessed and col-
lected under section 6601 for that period.
Interest is assessed from the time the tax-
payer (or the foreign corporation, partner-
ship, trust, or other pass-through entity of
which the taxpayer is a shareholder, part-
ner, or beneficiary) receives a refund until
the taxpayer pays the additional tax due
the United States.
(2) Imposition of penalty. Failure to
comply with the provisions of this section
subjects the taxpayer to the penalty provi-
sions of section 6689 and §301.6689-1 of
this chapter.
(f) Applicability date. This section ap-
plies to foreign tax redeterminations (as
defined in §1.905-3(a)) occurring in tax-
able years ending on or after December
16, 2019, and to foreign tax redetermi-
nations of foreign corporations occurring
in taxable years that end with or within a
taxable year of a United States sharehold-
er ending on or after December 16, 2019.
§1.905-4T [REMOVED]
Par. 23. Section 1.905-4T is removed.
Par. 24. Section 1.905-5 is added to
read as follows:
§1.905-5 Foreign tax redeterminations
of foreign corporations that relate to
taxable years of the foreign corporation
beginning before January 1, 2018.
(a) In general—(1) Effect of foreign tax
redetermination of a foreign corporation.
Except as provided in paragraph (e) of this
section, a foreign tax redetermination (as
defined in §1.905-3(a)) of a foreign cor-
poration that relates to a taxable year of
the foreign corporation beginning before
January 1, 2018, and that may affect a tax-
payer’s foreign tax credit in any taxable
year, must be accounted for by adjusting
the foreign corporation’s taxable income
and earnings and profits, post-1986 undis-
tributed earnings as defined in §1.902-1(a)
(9), and post-1986 foreign income taxes as
defined in §1.902-1(a)(8) (or its pre-1987
accumulated profits as defined in §1.902-
1(a)(10)(i) and pre-1987 foreign income
taxes as defined in §1.902-1(a)(10)(iii),
as applicable) in the taxable year of the
foreign corporation to which the foreign
taxes relate.
(2) Required redetermination of U.S.
tax liability. Except as provided in para-
graph (e) of this section, a redetermination
of U.S. tax liability is required to account
for the effect of the foreign tax redeter-
mination on the earnings and profits and
taxable income of the foreign corporation,
the taxable income of a United States
shareholder, and the amount of foreign
taxes deemed paid by the United States
shareholder under section 902 or 960 (as
in effect before December 22, 2017), in
the year to which the redetermined foreign
taxes relate. For example, in the case of a
refund of foreign income taxes, the sub-
part F income, earnings and profits, and
post-1986 undistributed earnings (or pre-
1987 accumulated profits, as applicable)
of the foreign corporation are increased in
the year to which the foreign tax relates

Bulletin No. 2020–49 1213 November 30, 2020
to reflect the functional currency amount
of the foreign income tax refund. The
required redetermination of U.S. tax li-
ability must account for the effect of the
foreign tax redetermination on the char-
acterization and amount of distributions
or inclusions under section 951 or 1293
taken into account by each of the foreign
corporation’s United States shareholders
and on the application of the high-tax ex-
ception described in section 954(b)(4), as
well as on the amount of foreign income
taxes deemed paid in such year. In addi-
tion, a redetermination of U.S. tax liabil-
ity is required for any subsequent taxable
year in which the United States sharehold-
er received or accrued a distribution or in-
clusion from the foreign corporation, up
to and including the taxable year in which
the foreign tax redetermination occurs, as
well as any year to which unused foreign
taxes from such year were carried under
section 904(c).
(b) Notification requirements—(1) In
general. The notification requirements of
§1.905-4, as modified by paragraphs (b)
(2) and (3) of this section, apply if a rede-
termination of U.S. tax liability is required
under paragraph (a) or (e) of this section.
(2) Notification relating to post-1986
undistributed earnings and post-1986 for-
eign income taxes. In the case of foreign
tax redeterminations with respect to taxes
included in post-1986 foreign income tax-
es, in addition to the information required
by §1.905-4(c), the taxpayer must provide
the balances of the pools of post-1986 un-
distributed earnings and post-1986 foreign
income taxes before and after adjusting
the pools, the dates and amounts of any
dividend distributions or other inclusions
made out of earnings and profits for the
affected year or years, and the amount of
earnings and profits from which such div-
idends were paid or such inclusions were
made for the affected year or years.
(3) Notification relating to pre-1987
accumulated profits and pre-1987 foreign
income taxes. In the case of foreign tax
redeterminations with respect to pre-1987
accumulated profits, in addition to the
information required by §1.905-4(c), the
taxpayer must provide the following: the
dates and amounts of any dividend distri-
butions made out of earnings and profits
for the affected year or years; the rate of
exchange on the date of any such distribu-
tion; and the amount of earnings and prof-
its from which such dividends were paid
for the affected year or years.
(c) Currency translation rules for ad-
justments to pre-1987 foreign income tax-
es. Foreign income taxes paid with respect
to pre-1987 accumulated profits that are
deemed paid under section 960 (or un-
der section 902 in the case of an amount
treated as a dividend under section 1248)
are translated into dollars at the spot rate
for the date of the payment of the foreign
income taxes, and refunds of such taxes
are translated into dollars at the spot rate
for the date of the refund. Foreign income
taxes deemed paid by a taxpayer under
section 902 with respect to an actual dis-
tribution of pre-1987 accumulated profits
and refunds of such taxes are translated
into dollars at the spot rate for the date of
the distribution of the earnings to which
the foreign income taxes relate. See sec-
tion 902(c)(6) (as in effect before Decem-
ber 22, 2017) and §1.902-1(a)(10)(iii). For
purposes of this section, the term spot rate
has the meaning provided in §1.988-1(d).
(d) Timing and effect of pooling adjust-
ments. The redetermination of U.S. tax
liability required by paragraphs (a) and
(e) of this section is made in accordance
with section 905(c) as in effect for those
taxable years, without regard (except as
provided in paragraph (e) of this section)
to rules that required adjustments to a for-
eign corporation’s pools of post-1986 un-
distributed earnings and post-1986 foreign
income taxes in the year of the foreign tax
redetermination rather than in the year to
which the redetermined foreign tax re-
lates. No underpayment or overpayment
of U.S. tax liability results from a foreign
tax redetermination unless the required
adjustments change the U.S. tax liability.
Consequently, no interest is paid by or
to a taxpayer as a result of adjustments,
required by reason of a foreign tax rede-
termination, to a foreign corporation’s
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes in the
year to which the redetermined foreign tax
relates (or a subsequent year) that did not
result in a change to U.S. tax liability, for
example, because no foreign taxes were
deemed paid in that year.
(e) Election to account for certain for-
eign tax redeterminations with respect
to pre-2018 taxable years in the foreign
corporation’s last pooling year—(1) In
general. A taxpayer may elect under the
rules in paragraph (e)(2) of this section to
account for foreign tax redeterminations
of a foreign corporation that occur in the
foreign corporation’s taxable years ending
with or within a taxable year of a United
States shareholder of the foreign corpora-
tion ending on or after November 2, 2020,
and that relate to taxable years of the for-
eign corporation beginning before January
1, 2018, by treating such foreign tax re-
determinations as if they occurred in the
foreign corporation’s last taxable year be-
ginning before January 1, 2018 (the “last
pooling year”), and applying the rules in
§§1.905-3T(d) and 1.905-5T for purpos-
es of determining whether the foreign tax
redetermination is accounted for in the
foreign corporation’s last pooling year or
must be accounted for in the year to which
the redetermined foreign tax relates. Ex-
cept with respect to determining under the
preceding sentence whether the foreign
tax redetermination is accounted for in
the foreign corporation’s last pooling year
or in the year to which the redetermined
foreign tax relates, the rules of this sec-
tion apply to foreign tax redeterminations
covered by an election under this para-
graph (e). Therefore, unless an exception
in §1.905-3T(d)(3) applies, a foreign tax
redetermination to which an election un-
der this paragraph (e) applies is accounted
for under paragraph (a)(2) of this section
by adjusting the foreign corporation’s
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes in the
last pooling year, rather than in the year
to which the redetermined foreign tax re-
lates. For purposes of this paragraph (e),
references to §§1.905-3T and 1.905-5T
are to such provisions as contained in 26
CFR part 1, revised as of April 1, 2019.
(2) Rules regarding the election—(i)
Time and manner of election. For a foreign
corporation’s first taxable year that ends
with or within a taxable year of a United
States shareholder of the foreign corpora-
tion ending on or after November 2, 2020
in which the foreign corporation has a for-
eign tax redetermination (the “first rede-
termination year”), the controlling domes-
tic shareholders (as defined in §1.964-1(c)
(5)) of the foreign corporation make the
election described in paragraph (e)(1) of
this section by—

November 30, 2020 1214 Bulletin No. 2020–49
(A) Filing the statement required under
§1.964-1(c)(3)(ii) with a timely filed orig-
inal income tax return for the taxable year
of each controlling domestic shareholder
of the foreign corporation in which or with
which the foreign corporation’s first rede-
termination year ends;
(B) Providing any notices required un-
der §1.964-1(c)(3)(iii);
(C) Filing amended returns as required
under §1.905-4 and this section for each
controlling domestic shareholder’s taxable
year with or within which ends the foreign
corporation’s last pooling year and each
other affected year before the controlling
domestic shareholder’s taxable year with
or within which ends the foreign corpora-
tion’s first redetermination year reflecting
a redetermination of the controlling do-
mestic shareholder’s U.S. tax liability for
each such taxable year, in cases where a
redetermination of the shareholder’s U.S.
tax liability for taxable years ending be-
fore the foreign corporation’s last pooling
year ends is not required under the rules in
§§1.905-3T(d) and 1.905-5T;
(D) Filing amended returns as required
under §1.905-4 and this section with re-
spect to each affected year before the con-
trolling domestic shareholder’s taxable
year with or within which ends the foreign
corporation’s first redetermination year
reflecting a redetermination of the con-
trolling domestic shareholder’s U.S. tax
liability for each such taxable year, in cas-
es where a redetermination of the share-
holder’s U.S. tax liability for taxable years
ending before the foreign corporation’s
last pooling year ends is required under
the rules in §§1.905-3T(d) and 1.905-5T
and this section; and
(E) Providing any additional informa-
tion required by applicable administrative
pronouncements.
(ii) Scope, duration, and effect of elec-
tion. An election under paragraph (e)(1) of
this section with respect to the first redeter-
mination year of a foreign corporation is
binding on all persons who are, or were in
a prior year to which the election applies,
United States shareholders of the foreign
corporation. In addition, such election ap-
plies to all foreign tax redeterminations
in the first redetermination year and all
subsequent taxable years of such foreign
corporation and cannot be revoked. For
foreign tax redeterminations that occur
in taxable years after the first redetermi-
nation year, all United States shareholders
of such foreign corporation must account
for the foreign tax redeterminations under
the rules in paragraph (e)(1) of this section
by filing amended returns and providing
other information as required by §1.905-4
and paragraphs (e)(2)(i)(C) through (E) of
this section.
(iii) Requirements for valid election.
An election under paragraph (e)(1) of
this section is valid only if all of the re-
quirements in paragraph (e)(2)(i) of this
section, including the requirement to pro-
vide notice under paragraph (e)(2)(i)(B)
of this section, are satisfied by each of the
controlling domestic shareholders with re-
spect to the first redetermination year.
(iv) CFC group conformity require-
ment—(A) In general. An election made
under paragraph (e)(1) of this section ap-
plies to all controlled foreign corporations
that are members of the same CFC group,
and the rules in paragraphs (e)(1) and (e)
(2)(i) through (iii) of this section apply by
reference to the CFC group. Therefore,
an election by the controlling domestic
shareholders of any controlled foreign
corporation with respect to that controlled
foreign corporation’s first redetermination
year also applies to foreign tax redetermi-
nations of all members of the CFC group
that includes that controlled foreign cor-
poration, determined as of the close of that
controlled foreign corporation’s first rede-
termination year. The election is binding
on all persons who are, or were in a prior
year to which the election applies, United
States shareholders of any member of the
CFC group, applies with respect to foreign
tax redeterminations of each member that
occur in and after that member’s first tax-
able year with or within which ends such
controlled foreign corporation’s first rede-
termination year, and cannot be revoked.
(B) Determination of the CFC group—
(1) Definition. Subject to the rules in para-
graphs (b)(2)(iv)(B)(2) and (3) of this
section, the term CFC group means an af-
filiated group as defined in section 1504(a)
without regard to section 1504(b)(1)
through (6), except that section 1504(a) is
applied by substituting “more than 50 per-
cent” for “at least 80 percent” each place
it appears, and section 1504(a)(2)(A) is
applied by substituting “or” for “and.” For
purposes of this paragraph (e)(2)(iv)(B)
(1), stock ownership is determined by ap-
plying the constructive ownership rules of
section 318(a), other than section 318(a)
(3)(A) and (B), by applying section 318(a)
(4) only to options (as defined in §1.1504-
4(d)) that are reasonably certain to be ex-
ercised as described in §1.1504-4(g), and
by substituting in section 318(a)(2)(C) “5
percent” for “50 percent.”
(2) Member of a CFC group. The deter-
mination of whether a controlled foreign
corporation is included in a CFC group is
made as of the close of the first redeter-
mination year of any controlled foreign
corporation for which an election is made
under paragraph (e)(1) of this section.
One or more controlled foreign corpora-
tions are members of a CFC group if the
requirements of paragraph (e)(2)(iv)(B)
(2) of this section are satisfied as of the
end of the first redetermination year of at
least one of the controlled foreign corpo-
rations, even if the requirements are not
satisfied as of the end of the first rede-
termination year of all controlled foreign
corporations. If the controlling domestic
shareholders do not have the same taxable
year, the determination of whether a con-
trolled foreign corporation is a member of
a CFC group is made with respect to the
first redetermination year that ends with
or within the taxable year of the majority
of the controlling domestic shareholders
(determined based on voting power) or, if
no such majority taxable year exists, the
calendar year.
(3) Controlled foreign corporations
included in only one CFC group. A con-
trolled foreign corporation cannot be a
member of more than one CFC group. If a
controlled foreign corporation would be a
member of more than one CFC group un-
der paragraph (e)(2)(iv)(B)(2) of this sec-
tion, then ownership of stock of the con-
trolled foreign corporation is determined
by applying paragraph (e)(2)(iv)(B)(2)
of this section without regard to section
1504(a)(2)(B) or, if applicable, by refer-
ence to the ownership existing as of the
end of the first redetermination year of a
controlled foreign corporation that would
cause a CFC group to exist.
(3) Rules for successor entities. All of
the United States persons that own equity
interests in a successor entity to a foreign
corporation (“U.S. owners”) may elect
under the principles of paragraph (e)(2) of

Bulletin No. 2020–49 1215 November 30, 2020
this section to apply the rules in paragraph
(e)(1) to foreign tax redeterminations of
such foreign corporation that occur in tax-
able years of the successor entity that end
with or within taxable years of its U.S.
owners ending on or after November 2,
2020.
(f) Applicability date. This section ap-
plies to foreign tax redeterminations (as
defined in §1.905-3(a)) of foreign corpo-
ration and successor entities that occur in
taxable years that end with or within tax-
able years of a United States shareholder
or other United States persons ending on
or after November 2, 2020, and that relate
to taxable years of such foreign corpora-
tions beginning before January 1, 2018.
§1.905-5T [REMOVED]
Par. 25. Section 1.905-5T is removed.
Par. 26. Section 1.951A-2 is amended
by adding paragraph (c)(6) to read as fol-
lows:
§1.951A-2 Tested income and tested loss.
* * * * *
(c) * * *
(6) Allocation of deductions attrib-
utable to disqualified payments—(i) In
general. A deduction related directly or
indirectly to a disqualified payment is al-
located and apportioned solely to residu-
al CFC gross income, and any deduction
related to a disqualified payment is not
properly allocable to property produced
or acquired for resale under section 263,
263A, or 471.
(ii) Definitions. The following defini-
tions apply for purposes of this paragraph
(c)(6).
(A) Disqualified payment. The term
disqualified payment means a payment
made by a person to a related recipient
CFC during the disqualified period with
respect to the related recipient CFC, to
the extent the payment would constitute
income described in section 951A(c)(2)
(A)(i) and paragraph (c)(1) of this section
without regard to whether section 951A
applies.
(B) Disqualified period. The term dis-
qualified period has the meaning provided
in §1.951A-3(h)(2)(ii)(C)(1), substituting
“related recipient CFC” for “transferor
CFC.”
(C) Related recipient CFC. The term
related recipient CFC means, with respect
to a payment by a person, a recipient of
the payment that is a controlled foreign
corporation that bears a relationship to
the payor described in section 267(b) or
707(b) immediately before or after the
payment.
(iii) Treatment of partnerships. For pur-
poses of determining whether a payment
is made by a person to a related recipient
CFC for purposes of paragraph (c)(6)(ii)
(A) of this section, a payment by or to a
partnership is treated as made proportion-
ately by or to its partners, as applicable.
(iv) Examples. The following examples
illustrate the application of this paragraph
(c)(6).
(A) Example 1: Deduction related directly to
disqualified payment to related recipient CFC—(1)
Facts. USP, a domestic corporation, owns all of the
stock in CFC1 and CFC2, each a controlled foreign
corporation. Both USP and CFC2 use the calendar
year as their taxable year. CFC1 uses a taxable year
ending November 30. On October 15, 2018, before
the start of its first CFC inclusion year, CFC1 re-
ceives and accrues a payment from CFC2 of $100x
of prepaid royalties with respect to a license. The
$100x payment is excluded from subpart F income
pursuant to section 954(c)(6) and would constitute
income described in section 951A(c)(2)(A)(i) and
paragraph (c)(1) of this section without regard to
whether section 951A applies.
(2) Analysis. CFC1 is a related recipient CFC
(within the meaning of paragraph (c)(6)(ii)(C) of
this section) with respect to the royalty prepayment
by CFC2 because it is related to CFC2 within the
meaning of section 267(b). The royalty prepayment
is received by CFC1 during its disqualified period
(within the meaning of paragraph (c)(6)(ii)(B) of this
section) because it is received during the period be-
ginning January 1, 2018, and ending November 30,
2018. Because it would constitute income described
in section 951A(c)(2)(A)(i) and paragraph (c)(1) of
this section without regard to whether section 951A
applies, the payment is a disqualified payment. Ac-
cordingly, CFC2’s deductions related to such pay-
ment accrued during taxable years ending on or after
April 7, 2020, are allocated and apportioned solely
to residual CFC gross income under paragraph (c)(6)
(i) of this section.
(B) Example 2: Deduction related indirectly to
disqualified payment to partnership in which relat-
ed recipient CFC is a partner—(1) Facts. The facts
are the same as in paragraph (c)(6)(iv)(A)(1) of this
section (the facts in Example 1), except that CFC1
and USP own 99% and 1%, respectively of FPS, a
foreign partnership, which has a taxable year ending
November 30. USP receives a prepayment of $110x
from CFC2 for the performance of future services.
USP subcontracts the performance of these future
services to FPS for which FPS receives and accrues
a $100x prepayment from USP. The services will
be performed in the same country under the laws of
which CFC1 and FPS are created or organized, and
the $100x prepayment is not foreign base company
services income under section 954(e) and §1.954-
4(a). The $100x prepayment would constitute in-
come described in section 951A(c)(2)(A)(i) and
paragraph (c)(1) of this section without regard to
whether section 951A applies.
(2) Analysis. CFC1 is a related recipient CFC
(within the meaning of paragraph (c)(6)(ii)(C) of this
section) with respect to the services prepayment by
USP because, under paragraph (c)(6)(iii) of this sec-
tion, it is treated as receiving $99x (99% of $100x) of
the services prepayment from USP, and it is related
to USP within the meaning of section 267(b). The
services prepayment is received by CFC1 during its
disqualified period (within the meaning of paragraph
(c)(6)(ii)(B) of this section) because it is received
during the period beginning January 1, 2018, and
ending November 30, 2018. Because it would con-
stitute income described in section 951A(c)(2)(A)(i)
and paragraph (c)(1) of this section without regard
to whether section 951A applies, the prepayment is
a disqualified payment. In addition, CFC2’s deduc-
tions related to its prepayment to USP are indirectly
related to the disqualified payment by USP. Accord-
ingly, CFC2’s deductions related to such payment
accrued during taxable years ending on or after April
7, 2020 are allocated and apportioned solely to re-
sidual CFC gross income under paragraph (c)(6)(i)
of this section.
* * * * *
Par. 27. Section 1.951A-7 is amend-
ed by adding reserved paragraph (c) and
paragraph (d) to read as follows:
§1.951A-7 Applicability dates.
* * * * *
(d) Deduction for disqualified pay-
ments. Section 1.951A-2(c)(6) applies
to taxable years of foreign corporations
ending on or after April 7, 2020, and to
taxable years of United States sharehold-
ers in which or with which such taxable
years end.
Par. 28. Section 1.954-1 is amended by:
1. In paragraph (c)(1)(i)(C), removing
the language “reduced by related person”
and adding the language “reduced (but not
below zero) by related person” in its place.
2. Adding two sentences to the end of
paragraph (d)(3)(iii).
3. Revising paragraph (h)(1).
The revision and additions read as fol-
lows:
§1.954-1 Foreign base company income.
* * * * *
(d) * * *
(3) * * *
(iii) * * * In addition, foreign income
taxes that have not been paid or accrued

November 30, 2020 1216 Bulletin No. 2020–49
because they are contingent on a future
distribution of earnings are not taken into
account for purposes of this paragraph
(d)(3). If, pursuant to section 905(c) and
§1.905-3(b)(2), a redetermination of U.S.
tax liability is required to account for the
effect of a foreign tax redetermination (as
defined in §1.905-3(a)), this paragraph (d)
is applied in the adjusted year taking into
account the adjusted amount of the rede-
termined foreign tax.
* * * * *
(h) * * *
(1) Paragraph (d)(3) of this section.
Paragraph (d)(3) of this section applies
to taxable years of a controlled foreign
corporation ending on or after December
16, 2019. For taxable years of a controlled
foreign corporation ending on or after
December 4, 2018, but ending before De-
cember 16, 2019, see §1.954-1(d)(3) as
contained in 26 CFR part 1 revised as of
April 1, 2019.
* * * * *
Par. 29. Section 1.954-2 is amended by:
1. Removing the text “and” from para-
graph (h)(2)(i)(H).
2. Redesignating paragraph (h)(2)(i)(I)
as paragraph (h)(2)(i)(J).
3. Adding a new paragraph (h)(2)(i)(I).
4. Adding a sentence to the end of para-
graph (i)(3).
The additions read as follows:
§1.954-2 Foreign personal holding
company income.
* * * * *
(h) * * *
(2) * * *
(i) * * *
(I) Any guaranteed payments for the
use of capital under section 707(c); and
* * * * *
(i) * * *
(3) * * * Paragraph (h)(2)(i)(I) of this
section applies to taxable years of con-
trolled foreign corporations ending on or
after December 16, 2019, and to taxable
years of United States shareholders in
which or with which such taxable years
end.
Par. 30. Section 1.960-1 is amended by:
1. Adding a sentence at the end of para-
graph (c)(2).
2. Revising paragraphs (d)(3)(ii)(A)
and (B).
3. Removing paragraph (d)(3)(ii)(C).
The addition and revisions read as fol-
lows:
§1.960-1 Overview, definitions, and
computational rules for determining
foreign income taxes deemed paid under
section 960(a), (b), and (d).
* * * * *
(c) * * *
(2) * * * An item of income with re-
spect to a current taxable year does not
include an amount included as subpart F
income of a controlled foreign corpora-
tion by reason of the recharacterization of
a recapture account established in a prior
U.S. taxable year (and the corresponding
earnings and profits) of the controlled for-
eign corporation under section 952(c)(2)
and §1.952-1(f).
* * * * *
(d) * * *
(3) * * *
(ii) * * *
(A) In general. A current year tax is al-
located and apportioned among the section
904 categories under the rules of §1.904-
6. An amount of the current year tax that
is allocated and apportioned to a section
904 category is then allocated and appor-
tioned among the income groups within
the section 904 category under §1.861-20
(as modified by §1.904-6(c)) by treating
each income group as a statutory grouping
and treating the residual income group as
the residual grouping. Therefore, foreign
gross income attributable to a base differ-
ence is assigned to the residual income
grouping under §1.861-20(d)(2)(ii)(B).
See, however, paragraph (d)(3)(ii)(B) of
this section for special rules for applying
§1.861-20 in the case of PTEP groups.
For purposes of determining foreign in-
come taxes deemed paid under the rules
in §§1.960-2 and 1.960-3, the U.S. dollar
amount of a current year tax is assigned to
the section 904 categories, income groups,
and PTEP groups (to the extent provided
in paragraph (d)(3)(ii)(B) of this section)
to which the current year tax is allocated
and apportioned.
(B) Foreign taxable income that in-
cludes previously taxed earnings and
profits. For purposes of allocating and
apportioning a current year tax under
this paragraph (d)(3)(ii), a PTEP group
that is increased under §1.960-3(c)(3) as
a result of the receipt of a section 959(b)
distribution in the current taxable year
of the controlled foreign corporation is
treated as an income group within the
section 904 category. In such case, un-
der §1.861-20, the portion of the foreign
gross income (as defined in §1.861-20(b)
(5)) that is characterized under Federal
income tax principles as a distribution
of previously taxed earnings and profits
that results in the increase in the PTEP
group in the current taxable year is as-
signed to that PTEP group. If a PTEP
group is not treated as an income group
under the first sentence of this paragraph
(d)(3)(ii)(B), and the rules of §1.861-20
would otherwise apply to assign foreign
gross income to a PTEP group, that for-
eign gross income is instead assigned
to the subpart F income group or tested
income group to which the income that
gave rise to the previously taxed earn-
ings and profits would be assigned if
the income were recognized by the re-
cipient controlled foreign corporation
under Federal income tax principles in
the current taxable year. For example, a
net basis or withholding tax imposed on
a controlled foreign corporation’s receipt
of a section 959(b) distribution is allo-
cated or apportioned to a PTEP group. In
contrast, a withholding tax imposed on a
disregarded payment from a disregarded
entity to its controlled foreign corpora-
tion owner is never treated as related to a
PTEP group, even if all of the controlled
foreign corporation’s earnings are pre-
viously taxed earnings and profits, be-
cause the payment that gives rise to the
foreign gross income from which the tax
was withheld does not constitute a sec-
tion 959(b) distribution in the current
taxable year. That foreign gross income,
however, may be assigned to a subpart
F income group or tested income group.
* * * * *
Par. 31. Section 1.960-2 is amended by
adding a sentence at the end of paragraph
(b)(3)(iii) to read as follows:
§1.960-2 Foreign income taxes deemed
paid under sections 960(a) and (d).
* * * * *
(b) * * *
(3) * * *

Bulletin No. 2020–49 1217 November 30, 2020
(iii) * * * See §1.960-1(c)(2) for a rule
regarding the treatment of an increase in
the subpart F income of a controlled for-
eign corporation by reason of the rechar-
acterization of a recapture account and the
corresponding accumulated earnings and
profits under section 952(c) and §1.952-
1(f).
* * * * *
§1.960-3 [Amended]
Par. 32. Section 1.960-3 is amended
by removing the language Ҥ1.951A-6(b)
(2)” from the twelfth sentence of para-
graph (e)(2)(i) and adding the language
“§1.951A-5(b)(2)” in its place.
Par. 33. Section 1.960-4 is amended
in table 2 to paragraph (f)(1) by revising
the entry “Limitation for Year 2 before in-
crease under section 960(c)(1) ($10.50x ×
$0/$50x)” to read as follows:
§1.960-4 Additional foreign tax credit
in year of receipt of previously taxed earn-
ings and profits.
* * * * *
(f) * * *
(1) * * *
Table 2 to paragraph (f)(1)
* * * * * * *
Limitation for Year 2 before increase under section 0
960(c)(1) ($10.50x × $0/$50x)
* * * * * * *
* * * * *
Par. 34. Section 1.960-7 is revised to
read as follows:
§1.960-7 Applicability dates.
(a) Except as provided in paragraph
(b) of this section, §§1.960-1 through
1.960-6 apply to each taxable year of a
foreign corporation ending on or after
December 4, 2018, and to each taxable
year of a domestic corporation that is a
United States shareholder of the foreign
corporation in which or with which such
taxable year of such foreign corporation
ends.
(b) Section 1.960-1(c)(2) and (d)(3)
(ii) applies to taxable years of a foreign
corporation beginning after December 31,
2019, and to each taxable year of a do-
mestic corporation that is a United States
shareholder of the foreign corporation in
which or with which such taxable year of
such foreign corporation ends. For taxable
years of a foreign corporation that end on
or after December 4, 2018, and also begin
before January 1, 2020, see §1.960-1(c)(2)
and (d)(3)(ii) as in effect on December 17,
2019.
Par. 35. Section 1.965-5 is amended by:
1. Designating the text of paragraph (b)
as paragraph (b)(1).
2. Adding a heading for newly desig-
nated paragraph (b)(1).
3. Adding paragraph (b)(2).
The revision and additions read as fol-
lows:
§1.965-5 Allowance of a credit or
deduction for foreign income taxes.
* * * * *
(b) * * *
(1) In general. * * *
(2) Attributing taxes to section 959(a)
distributions of section 965 previously
taxed earnings and profits. For purposes
of paragraph (b)(1) of this section, foreign
income taxes are attributable to a distri-
bution of section 965(a) previously taxed
earnings and profits or section 965(b) pre-
viously taxed earnings and profits if such
taxes would be allocated and apportioned
to a distribution of such previously taxed
earnings and profits under the princi-
ples of §1.904-6(a)(1)(iv), regardless of
whether an actual distribution is made or
recognized for Federal income tax pur-
poses. Therefore, for example, a credit or
deduction for the applicable percentage of
foreign income taxes imposed on a Unit-
ed States shareholder that pays foreign tax
on a distribution that is not recognized for
Federal income tax purposes (for exam-
ple, in the case of a consent dividend or
stock dividend upon which a withholding
tax is imposed) is not allowed under para-
graph (b)(1) of this section to the extent
it is attributable to a distribution of sec-
tion 965(a) previously taxed earnings and
profits or section 965(b) previously taxed
earnings and profits under the principles
of §1.904-6(a)(1)(iv). For taxable years
of foreign corporations beginning after
December 31, 2019, in lieu of applying
the principles of §1.904-6 under this para-
graph (b)(2), the rules in §1.861-20 apply
by treating the portion of a distribution
attributable to section 965(a) previously
taxed earnings and profits and the por-
tion of a distribution attributable to sec-
tion 965(b) previously taxed earnings and
profits each as a statutory grouping, and
the portion of the distribution that is attrib-
utable to other earnings and profits as the
residual grouping. See §1.861-20(g)(7)
(Example 6).
* * * * *
Par. 36. Section 1.965-9 is amended by
adding a sentence to the end of paragraph
(c) to read as follows:
§1.965-9 Applicability dates.
* * * * *
(c) * * * Section 1.965-5(b)(2) applies
to taxable years of foreign corporations
that end on or after December 16, 2019,
and with respect to a United States per-
son, to the taxable years in which or with
which such taxable years of the foreign
corporations end.
Par. 37. Section 1.1502-4 is revised to
read as follows:
§1.1502-4 Consolidated foreign tax
credit.
(a) In general. The foreign tax credit
under section 901 is allowed to the group
only if the agent for the group (as defined
in §1.1502-77(a)) chooses to use the credit

November 30, 2020 1218 Bulletin No. 2020–49
in the computation of the consolidated tax
liability of the group for the consolidated
return year. If that choice is made, sec-
tion 275(a)(4) provides that no deduction
against taxable income may be taken on
the consolidated return for foreign taxes
paid or accrued by any member. Howev-
er, if section 275(a)(4) does not apply, a
deduction against consolidated taxable in-
come may be allowed for certain taxes for
which a credit is not allowed, even though
the choice is made to claim a credit for
other taxes. See, for example, sections
901(j)(3), 901(k)(7), 901(l)(4), 901(m)(6),
and 908(b).
(b) Computation of foreign tax credit.
The foreign tax credit for the consolidated
return year is determined on a consolidat-
ed basis under the principles of sections
901 through 909 and 960. All foreign in-
come taxes paid or accrued by members
of the group for the year (including those
deemed paid under section 960 and para-
graph (d) of this section) must be aggre-
gated.
(c) Computation of limitation on cred-
it. For purposes of computing the group’s
limiting fraction under section 904, the
following rules apply:
(1) Computation of taxable income
from foreign sources—(i) Separate cat-
egories. The group must compute a sep-
arate foreign tax credit limitation for
income in each separate category (as de-
fined in §1.904-5(a)(4)(v)) for purposes of
this section. The numerator of the limiting
fraction in any separate category is the
consolidated taxable income of the group
determined in accordance with §1.1502-
11, taking into account adjustments re-
quired under section 904(b), if any, from
sources without the United States in that
category, determined in accordance with
the rules of §§1.904-4 and 1.904-5 and
the section 861 regulations (as defined in
§1.861-8(a)(1)).
(ii) Adjustments under sections 904(f)
and (g). The rules for allocation and recap-
ture of separate limitation losses and over-
all foreign losses under section 904(f) and
§1.1502-9 apply to determine the foreign
source and U.S. source taxable income in
each separate category of the consolidated
group. Similarly, the rules for allocation
and recapture of overall domestic losses
under section 904(g) and §1.1502-9 apply
to determine the foreign source and U.S.
source taxable income in each separate
category of the consolidated group. See
§1.904(g)-3 for allocation rules under sec-
tions 904(f) and 904(g). The rules of sec-
tions 904(f) and 904(g) do not operate to
recharacterize foreign income tax attribut-
able to any separate category.
(iii) Computation of consolidated net
operating loss. The source and separate
category of the group’s consolidated net
operating loss (“CNOL”), as that term is
defined in §1.1502-21(e), for the taxable
year, if any, is determined based on the
amounts of any separate limitation losses
and U.S. source loss that are not allocated
to reduce U.S. source income or income in
other separate categories under the rules
of sections 904(f) and 904(g) in com-
puting the group’s consolidated foreign
tax credit limitations for the taxable year
under paragraphs (c)(1)(i) and (ii) of this
section.
(iv) Characterization of CNOL carried
to a separate return year—(A) In gener-
al. The total amount of CNOL attributable
to a member that is carried to a separate
return year is determined under the rules
of §1.1502-21(b)(2). The source and sep-
arate category of the portion of the CNOL
that is attributable to a member is deter-
mined under this paragraph (c)(1)(iv).
(B) Tentative apportionment. For the
portion of the CNOL that is attributable
to the member described in paragraph (c)
(1)(iv) of this section, the consolidated
group determines a tentative allocation
and apportionment to each statutory and
residual grouping (as described in §1.861-
8(a)(4) with respect to section 904 as the
operative section) under the principles of
§1.1502-9(c)(2)(i), (ii), (iv), and (v) by
treating the portion of the group’s CNOL
in each statutory and residual grouping as
if it were a CSLL account, as that term
is described in §1.1502-9(b)(4). This de-
termination is made as of the end of the
taxable year of the consolidated group in
which the CNOL arose or, if earlier and
applicable, when the member leaves the
consolidated group.
(C) Adjustments. (1) If the total tenta-
tive apportionment for all statutory and
residual groupings exceeds the portion of
the CNOL attributable to the member de-
scribed in paragraph (c)(1)(iv)(A) of this
section (the “excess amount”), then the
tentative apportionment in each group-
ing is reduced by an amount equal to the
excess amount multiplied by a fraction,
the numerator of which is the tentative
apportionment in that grouping, and the
denominator of which is the total tentative
apportionments in all groupings.
(2) If the total tentative apportionment
for all statutory and residual groupings is
less than the total CNOL attributable to
the member described in paragraph (c)
(1)(iv)(A) (the “deficiency”), then the
tentative apportionment in each grouping
is increased by an amount equal to the
deficiency multiplied by a fraction, the
numerator of which is the CNOL in that
grouping that was not tentatively appor-
tioned, and the denominator of which is
the total CNOL in all groupings that was
not tentatively apportioned.
(v) Consolidated net capital losses.
The principles of the rules in paragraphs
(c)(1)(i) through (iv) of this section apply
for purposes of determining the source
and separate category of consolidated net
capital losses described in §1.1502-22(e).
(2) Computation of consolidated tax-
able income. The denominator of the
limiting fraction in any separate catego-
ry is the consolidated taxable income of
the group determined in accordance with
§1.1502-11, taking into account adjust-
ments required under section 904(b), if
any.
(3) Computation of tax against which
credit is taken. The tax against which the
limiting fraction under section 904(a) is
applied will be the consolidated tax liabili-
ty of the group determined under §1.1502-
2, but without regard to §1.1502-2(a)(2)
through (4) and (8) and (9), and without
regard to any credit against such liability.
See sections 26(b) and 901(a).
(d) Carryover and carryback of unused
foreign tax—(1) Allowance of unused
foreign tax as consolidated carryover or
carryback. The consolidated group’s car-
ryovers and carrybacks of unused foreign
tax (as defined in §1.904-2(c)(1)) to the
taxable year is determined on a consoli-
dated basis under the principles of section
904(c) and §1.904-2 and is deemed to be
paid or accrued to a foreign country or
possession for that year. The consolidated
group’s unused foreign tax carryovers and
carrybacks to the taxable year consist of
any unused foreign tax of the consolidat-
ed group, plus any unused foreign tax of

Bulletin No. 2020–49 1219 November 30, 2020
members for separate return years, which
may be carried over or back to the taxable
year under the principles of section 904(c)
and §1.904-2. The consolidated group’s
unused foreign tax carryovers and carry-
backs do not include any unused foreign
taxes apportioned to a corporation for a
separate return year pursuant to §1.1502–
79(d). A consolidated group’s unused for-
eign tax in each separate category is the
excess of the foreign taxes paid, accrued
or deemed paid under section 960 by the
consolidated group over the limitation in
the applicable separate category for the
consolidated return year. See paragraph
(c) of this section.
(2) Absorption rules. For purposes of
determining the amount, if any, of an un-
used foreign tax which can be carried to
a taxable year (whether a consolidated or
separate return year), the amount of the
unused foreign tax that is absorbed in a
prior consolidated return year under sec-
tion 904(c) shall be determined by—
(i) Applying all unused foreign taxes
which can be carried to a prior year in the
order of the taxable years in which those
unused foreign taxes arose, beginning
with the taxable year that ends earliest;
and
(ii) Applying all unused foreign taxes
which can be carried to such prior year
from taxable years ending on the same
date on a pro rata basis.
(e) Example. The following example
illustrates the application of this section:
(1) Facts. (i) Domestic corporation P is incor-
porated on January 1, Year 1. On that same day, P
incorporates domestic corporations S and T as whol-
ly owned subsidiaries. P, S, and T file consolidated
returns for Years 1 and 2 on the basis of a calendar
year. T engages in business solely through a qualified
business unit in Country A. S engages in business
solely through qualified business units in Countries
A and B. P does business solely in the United States.
During Year 1, T sold an item of inventory to P at a
gain of $2,000. Under §1.1502-13 the intercompany
gain has not been taken into account as of the close
of Year 1. The taxable income of each member for
Year 1 from foreign and U.S. sources, and the foreign
taxes paid on such foreign income, are as follows:
Table 1 to paragraph (e)(1)(i)
CorporationU.S. Source
taxable
income
Foreign branch category
foreign source
taxable
income
Foreign branch category
foreign
tax paid
Total
taxable
income
P$40,000$40,000
T$20,000$12,00020,000
S20,0009,00020,000
Group$40,000$40,000$21,000$80,000
(ii) The separate taxable income of each member
was computed by taking into account the rules under
§1.1502-12. Accordingly, T’s intercompany gain of
$2,000 is not included in T’s taxable income for Year
1. The group’s consolidated taxable income (com-
puted in accordance with §1.1502-11) is $80,000.
The consolidated tax liability against which the cred-
it may be taken (computed in accordance with para-
graph (c)(3) of this section) is $16,800.
(2) Analysis. Under section 904(d) and para-
graph (c)(1)(i) of this section, the aggregate amount
of foreign income taxes paid to all foreign countries
with respect to the foreign branch category income
of $21,000 ($12,000 + $9,000) that may be claimed
as a credit in Year 1 is limited to $8,400 ($16,800
x $40,000/$80,000). Assuming P, as the agent for
the group, chooses to use the foreign taxes paid as
a credit, the group may claim a $8,400 foreign tax
credit.
(f) Applicability date. This section
applies to taxable years for which the
original consolidated Federal income tax
return is due (without extensions) after
January 11, 2021.
Par. 38. Section 1.1502-21 is amended
by adding a sentence to the end of para-
graph (b)(2)(iv)(B)(1) to read as follows:
§1.1502-21 Net operating losses.
* * * * *
(b) * * *
(2) * * *
(iv) * * *
(B) * * *
(1) * * * The source and section 904(d)
separate category of the CNOL attrib-
utable to a member is determined under
§1.1502-4(c)(1)(iii).
* * * * *
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 39. The authority citation for part
301 is amended by adding an entry for
§301.6689-1 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 301.6689-1 also issued under
26 U.S.C. 6689(a), 26 U.S.C. 6227(d),
and 26 U.S.C. 6241(11).
* * * * *
Par. 40. Section 301.6227-1 is amend-
ed by adding paragraph (g) to read as fol-
lows:
§301.6227-1 Administrative adjustment
request by partnership.
* * * * *
(g) Notice requirement and partnership
adjustments required as a result of a for-
eign tax redetermination. For special rules
applicable when an adjustment to a part-
nership related item (as defined in section
6241(2)) is required as part of a redetermi-
nation of U.S. tax liability under section
905(c) and §1.905-3(b) of this chapter as a
result of a foreign tax redetermination (as
defined in §1.905-3(a) of this chapter), see
§1.905-4(b)(2)(ii) of this chapter.
* * * * *
Par. 41. Section 301.6689-1 is added to
read as follows:
§301.6689-1 Failure to file notice of
redetermination of foreign income taxes.
(a) Application of civil penalty. If a for-
eign tax redetermination occurs, and the
taxpayer failed to notify the Internal Rev-
enue Service (IRS) on or before the date
and in the manner prescribed in §1.905-4
of this chapter, or as required under sec-
tion 404A(g)(2), for giving notice of a
foreign tax redetermination, then, unless
paragraph (d) of this section applies, there
is added to the deficiency (or the imputed
underpayment as determined under sec-

November 30, 2020 1220 Bulletin No. 2020–49
tion 6225) attributable to such redetermi-
nation an amount determined under para-
graph (b) of this section. Subchapter B of
chapter 63 of the Internal Revenue Code
(relating to deficiency proceedings) does
not apply with respect to the assessment
of the amount of the penalty.
(b) Amount of the penalty. The amount
of the penalty shall be equal to—
(1) Five percent of the deficiency (or
imputed underpayment) if the failure is
for not more than one month; plus
(2) An additional five percent of the
deficiency (or imputed underpayment) for
each month (or fraction thereof) during
which the failure continues, but not to ex-
ceed in the aggregate twenty-five percent
of the deficiency (or imputed underpay-
ment).
(c) Foreign tax redetermination de-
fined. For purposes of this section, a for-
eign tax redetermination is any redeter-
mination for which a notice is required
under sections 905(c) or 404A(g)(2). See
§§1.905-3 through 1.905-5 of this chapter
for rules relating to the notice requirement
under section 905(c).
(d) Reasonable cause. The penalty set
forth in this section shall not apply if it is
established to the satisfaction of the IRS
that the failure to file the notification with-
in the prescribed time was due to reason-
able cause and not due to willful neglect.
An affirmative showing of reasonable
cause must be made in the form of a writ-
ten statement that sets forth all the facts
alleged as reasonable cause for the failure
to file the notification on time and that
contains a declaration by the taxpayer that
the statement is made under the penalties
of perjury. This statement must be filed
with the Internal Revenue Service Center
in which the notification was required to
be filed. The taxpayer must file this state-
ment with the notice required under sec-
tion 905(c) or 404A(g)(2). If the taxpay-
er exercised ordinary business care and
prudence and was nevertheless unable to
file the notification within the prescribed
time, then the delay will be considered to
be due to reasonable cause and not willful
neglect.
(e) Applicability date. This section ap-
plies to foreign tax redeterminations oc-
curring in taxable years ending on or after
December 16, 2019, and to foreign tax
redeterminations of foreign corporations
occurring in taxable years that end with
or within a taxable year of a United States
shareholder ending on or after December
16, 2019.
§301.6689-1T [REMOVED]
Par. 42. Section 301.6689-1T is re-
moved.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: September 18, 2020.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on No-
vember 2, 2020, 11:15 a.m., and published in the is-
sue of the Federal Register for November 12, 2020,
85 F.R. 71998)
26 CFR 54.9815-2715A1, 54.9815-2715A2, and
54.9815-2715A3: Transparency in coverage
T.D. 9929
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
45 CFR Parts 147 and 158
CMS-9915-F
Transparency in Coverage
AGENCY: Internal Revenue Service, De-
partment of the Treasury; Employee Ben-
efits Security Administration, Department
of Labor; Centers for Medicare & Med-
icaid Services, Department of Health and
Human Services.
ACTION: Final rule.
SUMMARY: The final rules set forth
requirements for group health plans and
health insurance issuers in the individual
and group markets to disclose cost-shar-
ing information upon request to a partic-
ipant, beneficiary, or enrollee (or his or
her authorized representative), including
an estimate of the individual’s cost-shar-
ing liability for covered items or services
furnished by a particular provider. Under
the final rules, plans and issuers are re-
quired to make this information available
on an internet website and, if requested,
in paper form, thereby allowing a partic-
ipant, beneficiary, or enrollee (or his or
her authorized representative) to obtain
an estimate and understanding of the in-
dividual’s out-of-pocket expenses and
effectively shop for items and services.
The final rules also require plans and is-
suers to disclose in-network provider ne-
gotiated rates, historical out-of-network
allowed amounts, and drug pricing infor-
mation through three machine-readable
files posted on an internet website, there-
by allowing the public to have access
to health coverage information that can
be used to understand health care pric-
ing and potentially dampen the rise in
health care spending. The Department of
Health and Human Services (HHS) also
finalizes amendments to its medical loss
ratio (MLR) program rules to allow is-
suers offering group or individual health
insurance coverage to receive credit in
their MLR calculations for savings they
share with enrollees that result from the
enrollees shopping for, and receiving
care from, lower-cost, higher-value pro-
viders.
DATES: Effective date: The final rules are
effective on January 11, 2021.
Applicability date: See the SUPPLMEN-
TARY INFORMATION section for infor-
mation on the applicability dates.
FOR FURTHER INFORMATION
CONTACT: Deborah Bryant, Centers
for Medicare & Medicaid Services, (301)
492-4293. Christopher Dellana, Internal
Revenue Service, (202) 317-5500. Mat-
thew Litton or Frank Kolb, Employee
Benefits Security Administration, (202)

Bulletin No. 2020–49 1221 November 30, 2020
693-8335. Customer Service Informa-
tion: Individuals interested in obtaining
information from the Department of La-
bor (DOL) concerning employment-based
health coverage laws may call the Em-
ployee Benefits Security Administration
(EBSA) Toll-Free Hotline at 1–866–444–
EBSA (3272) or visit DOL’s website
(http://www.dol.gov/ebsa). In addition,
information from HHS on private health
insurance for consumers can be found on
the Centers for Medicare & Medicaid Ser-
vices (CMS) website (www.cms.gov/cci-
io) and information on health reform can
be found at http://www.healthcare.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The final rules require group health
plans and health insurance issuers in the
individual and group markets to disclose
cost-sharing information upon request,
to a participant, beneficiary, or enrollee,
which, unless otherwise indicated, for the
purpose of the final rules includes an au-
thorized representative, and require plans
and issuers to disclose in-network provid-
er rates, historical out-of-network allowed
amounts and the associated billed charges,
and negotiated rates for prescription drugs
in 26 CFR part 54, 29 CFR part 2590,
and 45 CFR part 147. HHS also finalizes
amendments to its MLR program rules in
45 CFR part 158.
A.Statutory Background and Enactment
of PPACA
The Patient Protection and Affordable
Care Act (Pub. L. 111-148) was enacted
on March 23, 2010, and the Health Care
and Education Reconciliation Act of 2010
(Pub. L. 111-152) was enacted on March
30, 2010 (collectively, PPACA). As rele-
vant here, PPACA reorganized, amended,
and added to the provisions of part A of
title XXVII of the Public Health Service
(PHS) Act relating to health coverage
requirements for group health plans and
health insurance issuers in the group and
individual markets. The term group health
plan includes both insured and self-in-
sured group health plans.
PPACA also added section 715 to the
Employee Retirement Income Security
Act of 1974 (ERISA) and section 9815 to
the Internal Revenue Code (Code) to in-
corporate the provisions of part A of title
XXVII of the PHS Act, PHS Act sections
2701 through 2728, into ERISA and the
Code, making them applicable to group
health plans, and health insurance issuers
providing coverage in connection with
group health plans.
1.Transparency in Coverage
Section 2715A of the PHS Act provides
that group health plans and health insur-
ance issuers offering group or individual
health insurance coverage must comply
with section 1311(e)(3) of PPACA, which
addresses transparency in health coverage
and imposes certain reporting and disclo-
sure requirements for health plans that are
seeking certification as qualified health
plans (QHPs) that may be offered on an
Exchange. A plan or coverage that is not
offered through an Exchange (as defined
by section 1311(b)(1) of PPACA) is re-
quired to submit the information required
to the Secretary of HHS and the relevant
state’s insurance commissioner, and to
make that information available to the
public.
Paragraph (A) of section 1311(e)(3) of
PPACA requires a plan seeking certifica-
tion as a QHP to make the following infor-
mation available to the public and submit
it to state insurance regulators, the Secre-
tary of HHS, and the Exchange:
• claims payment policies and practic-
es,
• periodic financial disclosures,
• data on enrollment,
• data on disenrollment,
• data on the number of claims that are
denied,
• data on rating practices,
• information on cost-sharing and pay-
ments with respect to any out-of-net-
work coverage, and
• information on enrollee and partici-
pant rights under Title I of PPACA.
Paragraph (A) also requires a plan seek-
ing certification as a QHP to submit any
“[o]ther information as determined appro-
priate by the Secretary.”
Paragraph (C) of section 1311(e)(3) of
PPACA requires plans, as a requirement of
certification as a QHP, to permit individu-
als to learn the amount of cost sharing (in-
cluding deductibles, copayments, and co-
insurance) under the individual’s coverage
that the individual would be responsible
for paying with respect to the furnishing
of a specific item or service by an in-net-
work provider in a timely manner upon
the request of the individual. Paragraph
(C) specifies that, at a minimum, such in-
formation must be made available to the
individual through an internet website and
through other means for individuals with-
out access to the internet.
Together these statutory provisions
require the overriding majority of private
health plans
1
to disseminate a substantial
amount of information to provide trans-
parency in coverage. The portions of the
final rules that require plans and issu-
ers to disclose cost-sharing information
upon request, to a participant, beneficia-
ry, or enrollee implement paragraph (C)
of section 1311(e)(3) of PPACA. The
portions of the final rules that require
plans and issuers to disclose in-network
provider rates, historical out-of-network
allowed amounts and the associated
billed charges, and negotiated rates for
prescription drugs implement paragraph
(A) of section 1311(e)(3) of PPACA. The
requirements to disclose out-of-network
allowed amounts specifically implements
the requirement in section 1311(e)(3)(A)
(vii) to provide information on “payments
with respect to any out-of-network cover-
age.” In addition to payment information
on out-of-network charges, the Secretary
of HHS determined that payment infor-
mation on in-network rates and prescrip-
tion drugs is also appropriate information
to require plans and issuers to disclose to
provide transparency in coverage under
section 1311(e)(3)(A)(ix).
1
As of 2018, private, non-grandfathered health plans that must comply with these statutory provisions covered more than 92 percent of the almost 177 million people covered by private
health coverage. The remaining 7.7 percent were covered by grandfathered health plans or were enrolled in short-term limited duration coverage or health care sharing ministries. See Kaiser
Family Foundation, Health Insurance Coverage of the Total Population in 2018, https://www.kff.org/other/state-indicator/total-population/?dataView=1&currentTimeframe=0&sortMod-
el=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D, last accessed October 5, 2020.

November 30, 2020 1222 Bulletin No. 2020–49
PPACA’s transparency in coverage
requirements were enacted in coordina-
tion with a set of requirements that trans-
formed the regulation of private market
health plans and issuers. These require-
ments for the first time apply a compre-
hensive framework for regulating private
health coverage through federal law.
2
Prior
to PPACA, federal law relied on states to
be the primary regulators of health insur-
ance, but applied only a limited set of fed-
eral requirements to govern private health
coverage. Where federal law regulated
private health coverage, there was a sub-
stantial variation in how these regulations
applied, depending on whether private
health coverage was self-insured group
coverage, large group insurance coverage,
small group insurance coverage, or indi-
vidual insurance coverage. To establish a
comprehensive framework for regulating
private health coverage, PPACA first set
out a series of requirements on “Improv-
ing Coverage” that generally apply to
group health plans and health insurance
issuers offering group or individual health
insurance coverage.
3
These requirements
ranged from the prohibition on lifetime
or annual dollar limits in section 2711 of
the PHS Act to the requirement to cover
out-of-network emergency services in sec-
tion 2719A of the PHS Act and include the
transparency in coverage requirements in
section 2715A of the PHS Act.
4
By includ-
ing transparency in coverage in this set of
requirements that apply to most private
coverage, Congress established trans-
parency as a key component to PPACA’s
comprehensive framework for regulating
private health coverage.
5
On March 27, 2012, HHS issued the
Exchange Establishment final rule that im-
plemented sections 1311(e)(3)(A) through
(C) of PPACA at 45 CFR 155.1040(a)
through (c) and 156.220.
6
The Exchange
Establishment final rule created standards
for QHP issuers to submit specific infor-
mation related to transparency in cover-
age. QHPs are required to post and make
data related to transparency in coverage
available to the public in plain language
and submit this same data to HHS, the
Exchange, and the relevant state insur-
ance commissioner. In the preamble to the
Exchange Establishment final rule, HHS
noted that “health plan standards set forth
under the final rules are, for the most part,
strictly related to QHPs certified to be of-
fered through the Exchange and not the
entire individual and small group market.
Such policies for the entire individual and
small and large group markets have been,
and will continue to be, addressed in sep-
arate rulemaking issued by HHS, and the
Departments of Labor and the Treasury.”
2. Medical Loss Ratio
Section 2718(a) of the PHS Act, as
added by PPACA, generally requires
health insurance issuers offering group
or individual health insurance coverage
(including a grandfathered health insur-
ance plan) to submit an annual report to
the Secretary of HHS that details the per-
centage of premium revenue (after certain
adjustments) expended on reimbursement
for clinical services provided to enrollees
under health coverage and on activities
that improve health care quality. The pro-
portion of premium revenue spent on clin-
ical services and quality improvement ac-
tivities is called the MLR. Section 2718(b)
of the PHS Act requires an issuer to pro-
vide annual rebates to enrollees if its MLR
falls below specified standards (generally
80 percent for the individual and small
group markets, and 85 percent for the
large group market). HHS published an
interim final rule to implement the MLR
program in the December 1, 2010 Federal
Register (75 FR 74863). A final rule was
published in the December 7, 2011 Feder-
al Register (76 FR 76573). The MLR pro-
gram requirements were amended in final
rules published in the December 7, 2011
Federal Register (76 FR 76595), the May
16, 2012 Federal Register (77 FR 28790),
the March 11, 2014 Federal Register (79
FR 13743), the May 27, 2014 Federal
Register (79 FR 30339), the February 27,
2015 Federal Register (80 FR 10749),
the March 8, 2016 Federal Register (81
FR 12203), the December 22, 2016 Fed-
eral Register (81 FR 94183), the April 17,
2018 Federal Register (83 FR 16930),
the April 25, 2019 Federal Register (84
FR 17454), and the February 6, 2020 Fed-
eral Register (85 FR 7088).
B. Benefits of Transparency in Health
Coverage and Past Efforts to Promote
Transparency
PPACA’s transparency in coverage re-
quirements can help ensure the accurate
and timely disclosure of information ap-
propriate to support an efficient and com-
petitive health care market. A well-func-
tioning, competitive market depends on
information being available to buyers and
sellers.
7
As President Trump’s “Executive
Order on Improving Price and Quality
Transparency in American Healthcare to
Put Patients First” explains: “To make ful-
ly informed decisions about their health
care, patients must know the price and
quality of a good or service in advance.”
Yet, as the Executive Order then notes,
“patients often lack both access to use-
ful price and quality information and the
incentives to find low-cost, high-quali-
2
See Jost, T.S. “Loopholes in the Affordable Care Act: Regulatory gaps and border crossing techniques and how to address them.” St. Louis University Journal of Health Law and Policy,
Washington & Lee Legal Studies Paper No. 2011-16. August 15, 2011 (explaining that “[t]he Affordable Care Act was meant to regulate health care plans comprehensively” and providing
further details on the scope of PPACA). Available at: https://scholarlycommons.law.wlu.edu/wlufac/265/.
3
Patient Protection and Affordable Care Act, Pub. L. No. 111–148, 124 Stat. 119 (2010), section 1001.
4
In addition to these requirements, PPACA’s “Improving Coverage” requirements include, among other things: the prohibition on rescissions in section 2712 of the PHS Act; the requirement
to cover preventive health services without cost sharing requirements in section 2713 of the PHS Act; the extension of coverage to dependents up to age 26 in section 2714 of the PHS Act; the
requirement to provide a summary of benefits and coverage in section 2715 of the PHS Act; quality reporting requirements in section 2717 of the PHS Act; and appeals process requirements
in section in 2719 of the PHS Act.
5
Transparency was included as an important and transformative element in other leading comprehensive health reform proposals. See Porter, M. and Teisberg, E. Redefining Health Care.
Harvard Business School Press. Boston, MA. 2006. (“Perhaps the most fundamental role of government in enabling value-based competition is to ensure that universal, high-quality infor-
mation on provider outcomes and prices for every medical condition is collected and disseminated. This single step will have far-reaching and pervasive effects throughout the system ....”).
6
77 FR 18310 (Mar. 27, 2012).
7
Porter, M. and Teisberg, E. Redefining Health Care. Harvard Business School Press. Boston, MA. 2006, pg. 54. (“Information is fundamental to competition in any well-functioning market.
It enables buyers to shop for the best value and allows sellers to compare themselves to rivals. Without relevant information, doctors cannot compare their results to best practice and to other
providers. And without appropriate information, patient choice has little meaning.”).

Bulletin No. 2020–49 1223 November 30, 2020
ty care.” The lack of this information is
widely understood to be one of the root
problems causing dysfunction within
America’s health care system.
The Departments of Labor, HHS, and
the Treasury (Departments) are of the
view that transparency in health cover-
age requirements will strengthen Amer-
ica’s health care system by giving health
care consumers, researchers, regulators,
lawmakers, health innovators, and other
health care stakeholders the information
they need to make, or assist others in
making informed decisions about health
care purchases. Health care consumers
include various persons and entities that
finance health care needs through the
purchase of insurance. Health care con-
sumers also include uninsured persons
without health coverage who must pay
out-of-pocket for health care items and
services and uninsured persons who may
be shopping for health coverage. Em-
ployers that sponsor health plans for their
employees and government programs
that provide health care services and ben-
efits to consumers are also health care
consumers.
By requiring the dissemination of price
and benefit information directly to con-
sumers and to the public, the transparency
in coverage requirements will provide the
following consumer benefits:
• enables consumers to evaluate health
care options and to make cost-con-
scious decisions;
• strengthens the support consumers
receive from stakeholders that help
protect and engage consumers;
• reduces potential surprises in rela-
tion to individual consumers’ out-of-
pocket costs for health care services;
• creates a competitive dynamic that
may narrow price dispersion for the
same items and services in the same
health care markets; and
• puts downward pressure on prices
which, in turn, potentially lowers
overall health care costs.
The goal of the final rules is to deliver
these benefits to all consumers and health
care stakeholders through greater trans-
parency in coverage.
Comments received in response to the
proposed rules on transparency in cover-
age (discussed in more detail later in this
preamble) have strengthened the Depart-
ments’ view that this price transparency
effort will equip the public with informa-
tion to actively and effectively participate
in the health care system as consumers.
8

The majority of commenters acknowl-
edged the importance of the availability of
health care pricing information and appro-
priate tools to assist consumers in health
care decision-making and managing
health care costs. For these reasons and
those explained in more detail below in
this preamble, the Departments continue
to be of the view that price transparency
efforts are crucial to providing consumers
(individual and institutional) with mean-
ingful and actionable pricing information
in an effort to contain the growth of health
care costs.
1. Transparency provides necessary
information for consumers to make more
informed health care spending decisions
As explained in the report, “Reforming
America’s Healthcare System Through
Choice and Competition,” consumers have
an important role to play in controlling
costs, but consumers must have mean-
ingful information in order to create the
market forces necessary to achieve lower
health care costs.
9
When consumers seek
care, they do not typically know whether
they could have received the same service
from another provider at lower prices.
Third-party payers negotiate prices on the
consumer’s behalf and reimburse costs di-
rectly to health care providers, concealing
the actual price from the consumer at the
point of care. After receiving care, con-
sumers typically receive an Explanation
of Benefits (EOB), which details the price
charged by the provider, contracted or ne-
gotiated rate, and consumer cost sharing.
Often, only after services are rendered is
the cost of care disclosed to the consumer.
Historically, there has been little to no
incentive for some consumers to consider
price and seek lower-cost care.
10
Rapid-
ly rising health care spending in the past
20 years, however, has led to consum-
ers shouldering a greater portion of their
health care costs through increases in out-
of-pocket expenses.
11
Since 1970, per capita out-of-pocket
expenditures have nearly doubled due
to a number of factors.
12
These factors
include increased enrollment in high
deductible health plans (HDHPs) and
accompanying health savings accounts
(HSAs), and increased plan and issuer
reliance on payments towards deduct-
ibles comprising the proportion of total
cost-sharing payments.
13
As explained
in the preamble to the proposed rules,
these shifts in plan design and enrollment
are correlated with consumers bearing a
greater share of their overall health care
costs in the private health insurance mar-
ket than in previous years.
14
From 2002
to the enactment of PPACA in 2010, na-
tionally, the percentage of private sector
employees enrolled in a health plan with
a deductible increased from 47.6 percent
to 77.5 percent and continued to increase
to 86.6 percent in 2019.
15
Average family
deductibles for private sector employ-
ees grew from $958 in 2002 to $1,975
in 2010, and then to $3,655 in 2019—an
85 percent increase since the enactment
of PPACA.
16
These changes represent a
substantial increase in the amount that
8
84 FR 65464 (Nov. 27, 2019).
9
Azar, A. M., Mnuchin, S.T., and Acosta, A. “Reforming America’s Healthcare System Through Choice and Competition.” United States, Department of Health and Human Services. Decem-
ber 3, 2018. Available at: https://www.hhs.gov/ sites/ default/ files/ Reforming-Americas-Healthcare-System-Through-Choice-and-Competition.pdf.
10
Id.
11
Claxton, G., Levitt, L., Long M. “Payments for cost sharing increasing rapidly over time.” Peterson-Kaiser Health System Tracker. April 2016. Available at: https://www.healthsystemtrack-
er.org/brief/payments-for-cost-sharing-increasing-rapidly-over-time/.
12
“Out-of-pocket spending.” Peterson-KFF Health System Tracker. May 2020. Available at: https://www.healthsystemtracker.org/indicator/access-affordability/out-of-pocket-spending/.
13
HDHP as defined in section 223(c)(2) of the Code; see also Claxton, G., Levitt, L., Long, M. “Payments for cost sharing increasing rapidly over time.” Peterson-KFF Health System Tracker.
April 2016. Available at: https://www.healthsystemtracker.org/brief/payments-for-cost-sharing-increasing-rapidly-over-time/.
14
84 FR 65464, 65465 (Nov. 27, 2019).
15
See “Medical Expenditure Panel Survey. Insurance Component National-Level Summary Tables.” United States Department for Health and Human Services Agency for Healthcare Re-
search and Quality. Available at: https://www.meps.ahrq.gov/mepsweb/data_stats/quick_tables_search.jsp?component=2&subcomponent=1
16
Id.

November 30, 2020 1224 Bulletin No. 2020–49
consumers must pay for health care be-
fore insurance begins to cover items or
services.
17
Deductibles made up 52 per-
cent of cost-sharing spending in 2016,
up from 30 percent in 2006, while co-
pays dropped from 43 percent to 17 per-
cent of cost-sharing payments over the
same period.
18
The gradual shift away
from copayments, which are predictable
to the consumer through their set dollar
amounts for each covered item or ser-
vice, to deductibles and coinsurance,
has increased the need for consumers to
know the negotiated price in order to plan
ahead and budget for out-of-pocket costs.
Over time, price disclosure can improve
consumers’ ability to better manage costs
of utilized health care for a variety of
health care plans. Increased enrollment
in HDHPs and the shift to coinsurance
across plan and benefit designs means
that consumers have a vested interest in
learning the costs of care prior to paying
for items or services, as they are respon-
sible for paying out-of-pocket expendi-
tures, which are directly dependent on
the negotiated or contractual price.
These trends in designing health plans
have led to consumers bearing an in-
creased share of their health care costs.
The fact that more consumers are bearing
greater financial responsibility for the cost
of their health care provides an opportuni-
ty to establish a more consumer-directed
and consumer-driven health care market.
Eighty-eight percent of consumers sup-
port requirements for providers and is-
suers to disclose prices prior to care.
19
If
consumers have better pricing informa-
tion and can shop for health care items
and services more efficiently, they can in-
crease competition and demand for lower
prices.
20
However, consumers generally
have little information regarding nego-
tiated rates or out-of-network costs until
after services are rendered. There is also
wide variability in health care prices for
the same service.
21
As a result, it can be
difficult for consumers to estimate poten-
tial out-of-pocket costs.
2. Transparency strengthens stakeholders’
ability to support consumers
Making price transparency information
publicly available strengthens the work of
other health care stakeholders that help
provide care or promote access to care to
consumers, or otherwise aim to protect
consumers and their interests in the health
care system. These entities include re-
searchers, regulators, lawmakers, patient
and consumer advocates, and businesses
that provide consumer support tools and
services. A key aspect of transparency in
coverage is to make health care pricing
information more accessible and useful
to consumers by making the information
available to persons and entities with the
requisite experience and expertise to as-
sist individual consumers and other health
care purchasers to make informed health
care decisions.
With information on pricing, these
other health care stakeholders can better
fulfill each of the unique roles they play
to improve America’s health care system
for consumers. For instance, with pric-
ing information researchers could better
assess the cost-effectiveness of various
treatments; state regulators could better
review issuers’ proposed rate increases;
patient advocates could better help guide
patients through care plans; employers
could adopt incentives for consumers to
choose more cost-effective care; and en-
trepreneurs could develop tools that help
doctors better engage with patients.
3. Transparency reduces the potential for
surprise billing
Making the price of care available to
consumers before they receive care can
reduce the potential for consumers to be
surprised by the price of a health care item
or service when they receive the bill af-
ter receiving care. However, accessible
pricing information holds special value
for insured consumers.
22
Surprise billing
has become a substantial concern for in-
sured consumers, in particular, consumers
who receive a bill from an out-of-network
provider when they thought an in-net-
work provider was treating them. While
price transparency alone is not a complete
solution to this problem, the disclosure of
pricing directly to consumers could help
mitigate some unexpected health care
costs. As just noted, making pricing in-
formation public can also strengthen other
health care stakeholders’ ability to protect
consumers. In the case of surprise billing,
public information on pricing for in-net-
work and out-of-network services could
allow stakeholders to develop better tools
to help patients avoid surprises and im-
prove oversight of health insurance issu-
ers, plans, and providers.
4. Transparency increases competition
and contains costs.
Without transparency in pricing, mar-
ket forces cannot drive competition. This
lack of competition in many health care
markets is demonstrated by significant,
unexplained variations in prices for pro-
cedures, even within a single region.
23

For example, studies of price variation
within California and nationally suggest
that there is substantial opportunity for
increased transparency to save money by
17
McCarthy-Alfano, M., et al. “Measuring the burden of health care costs for working families.” Health Affairs. April 2, 2019. Available at: https://www.healthaffairs.org/do/10.1377/
hblog20190327.999531/full/.
18
Claxton, G. et al. “Increases in cost-sharing payments continue to outpace wage growth.” Peterson-KFF Health System Tracker. June 15, 2018. Available at: https://www.healthsystemtrack-
er.org/brief/increases-in-cost-sharing-payments-have-far-outpaced-wage-growth/.
19
“Harvard CAPS Harris Poll.” Harvard University. May 2019. Available at: https://harvardharrispoll.com/wp-content/uploads/2019/06/HHP_May19_vF.pdf?utm_source=hs_email&utm_
medium=email&_hsenc=p2ANqtz—NgSdTYggGUP4tWyR2IEQ7i8TCg1s3DcHuQyhErIgkX3KFUi3SFgl9OZKm4-JUOOi9tmMQ.
20
Azar, A.M., Mnuchin, S.T., and Acosta, A. “Reforming America’s Healthcare System Through Choice and Competition.” United States, Department of Health and Human Services. Decem-
ber 3, 2018. Available at: https://www.hhs.gov/ sites/ default/ files/ Reforming-Americas-Healthcare-System-Through-Choice-and-Competition.pdf.
21
Cooper, Z., et al. “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured.” The Quarterly Journal of Economics, Vol. 134. Issue 1. February 2019. September
4, 2018. Available at: https://academic.oup.com/qje/article/134/1/51/5090426?searchresult=1.
22
See Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health & Human Services. Secretary of Health and Human Services’ Report on: Addressing Surprise
Medical Billing, at p. 3. July 2020. (recognizing that HHS regulatory action to encourage price transparency by insurers “can serve as the backbone for a more comprehensive surprise billing
solution”). Available at https://aspe.hhs.gov/system/files/pdf/263871/Surprise-Medical-Billing.pdf.
23
Id.

Bulletin No. 2020–49 1225 November 30, 2020
shifting patients from high to lower-cost
providers.
24
The Departments are of the
view that consumers will take advantage
of increased transparency to shop for
their health care if price transparency is
put into place nationwide.
25
Many empir-
ical studies have investigated the impact
of price transparency on non-health care
markets, with most research showing that
“price transparency leads to lower and
more uniform prices, a view consistent
with predictions of standard economic
theory.”
26
Studies suggest that consumers
want and will use actionable pricing in-
formation to shop for more cost-effective
care.
27
For example, when automobile
prices were presented transparently on
the internet, inclusive of the dealer in-
voice price, the consumers who did not
like the traditional bargaining process
were able to reduce spending overall by
1.5 percent.
28
Another study demonstrat-
ed the public display of life insurance
prices for comparison led to a 5 percent
decrease in the consumer price.
29
Price
transparency also reduced price disper-
sion across other markets, such as the
airline industry, which saw a reduction in
price dispersion from 18 percent in 1997
narrowing to 0.3-2.2 percent in 2002 for
fares available at multiple travel web-
sites.
30
These lessons from other markets
suggest that more thoroughly implement-
ing price transparency across the health
care industry could increase competition
to provide lower costs and limit price
variation.
31
Despite the general absence of price
transparency in the health care sector, there
is research showing how price transparen-
cy leads to lower and more uniform pric-
ing in health care markets. For instance,
as noted in the preamble to the proposed
rule, research shows patients saved $7.9
million and issuers saved $36 million on
imaging services in New Hampshire after
the state launched a website publishing
health prices for most consumers with pri-
vate health insurance.
32
One study found
use of a telephone- and email-based tool
to search for health care prices reduced the
price paid by 10 to 17 percent and reduced
the prices paid for care on average by 1.6
percent.
33
Another study of a program that
provided health plan participants, benefi-
ciaries, or enrollees with price and quality
information to help select high-value im-
aging services found an increase in the use
of lower-cost facilities.
34
This consumer
behavior prompted higher-cost facilities
to lower their prices, which resulted in a
30 percent reduction in the price variation
between low- and high-cost facilities.
35

These studies, as well the numerous stud-
ies highlighted in subsequent sections of
this rule, offer substantial evidence that
price transparency in health care markets
will result in consumer benefits similar to
those that result from transparency in oth-
er markets.
5. The final rules will fill gaps left by
state and private transparency efforts.
Currently, the information that con-
sumers need to make informed decisions
based on the prices of health care services
is not readily available or is presented
in a manner that makes it challenging to
understand. As noted in the preamble to
the proposed rules, the 2011 Government
Accountability Office (GAO) report,
“Health Care Price Transparency: Mean-
ingful Price Information is Difficult for
Consumers to Obtain Prior to Receiving
Care,” found that the lack of transparen-
cy in health care prices, coupled with the
wide pricing disparities for particular pro-
cedures within the same market, can make
it difficult for consumers to understand
health care prices and to shop effectively
based on cost.
36
The report also explored
various price transparency initiatives, in-
cluding tools that consumers could use
to generate price estimates before re-
ceiving a health care service. The report
notes that pricing information displayed
by tools varies across initiatives, in large
part due to limits reported by the initia-
tives in their access or authority to collect
certain necessary price data. In particular,
the report notes the lack of public disclo-
24
Boynton, A., Robinson, J. “Appropriate Use of Reference Pricing Can Increase Value.” Health Affairs Blog. July 7, 2015. Available at: https://www.healthaffairs.org/do/10.1377/
hblog20150707.049155/full/; see also Sinaiko, A., Rosenthal, M. “Examining a Health Care Price Transparency Tool: Who Uses it, and How They Shop for Care.” 35 Health Affairs 662.
April 2016. Available at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2015.0746.
25
See Gordon, D., et al. “Health Care Consumer Shopping Behaviors and Sentiment: Qualitative Study.” Journal of Participatory Medicine. Volume 12. No. 2. 2020. Available at: https://
jopm.jmir.org/2020/2/e13924/ (study demonstrating that consumers already engage in “behaviors related to seeking, comparing, or knowing the prices of care” regardless of the presence of
price transparency tools).
26
Austin, D. A., and Gravelle, J. G. “Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other Markets for the Health Sector.” United States Congress
Congressional Research Service. April 29, 2008. Available at: https://crsreports.congress.gov/product/pdf/RL/RL34101; see also Grennan, M., Swanson, A. “Transparency and Negotiated
Prices: The Value of Information in Hospital-Supplier Bargaining.” 128 Journal of Political Economy. April 2020 (Citing research in consumer goods showing that information can help
decision making when buyers have imperfect information on costs.). Available at: https://www.nber.org/papers/w22039; see also 84 FR 65464, 65466 (Nov. 27, 2019).
27
Semigran, H.L., et al. “Patients’ Views on Price Shopping and Price Transparency.” The American Journal of Managed Care. June 26, 2017. Available at: https://www.ajmc.com/view/
patients-views-on-price-shopping-and-price-transparency.
28
Zettlemeyer, F., Morton, F.S., and Silva-Risso, J. “How the Internet Lowers Prices: Evidence from Matched Survey and Automobile Transaction Data.” Journal of Marketing Research. May
2006. Available at: https://doi.org/10.1509%2Fjmkr.43.2.168.
29
Brown, J., and Goolsbee, A. “Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry.” Journal of Political Economy, vol. 110, June 2002, pp.
481-507.
30
Clemons, E.K., Hann, I., and Hitt, L. “Price Dispersion and Differentiation in Online Travel: An Empirical Investigation,” Management Science, vol. 48, no. 4, 2001, pp. 521-39; see also
“Occupational Labor Statistics.” United States Bureau of Labor Statistics. Available at: https://www.bls.gov/oes/current/oes_stru.htm.
31
84 FR 65464, 65466 (Nov. 27, 2019).
32
Id.
33
Lieber, E. “Does It Pay to Know Prices in Health Care?” American Economic Journal: Economic Policy. February 2017. Available at https://pubs.aeaweb.org/doi/pdfplus/10.1257/
pol.20150124.
34
Wu, S. J. et al. “Price transparency for MRIs increased use of less costly providers and triggered provider competition.” Health Affairs. August 2014. Available at: https://www.healthaffairs.
org/doi/full/10.1377/hlthaff.2014.0168.
35
Id.
36
84 FR 65464, 65466-65467 (Nov. 27, 2019); see also GAO-11-791 at p. 28 (Sep. 2011).

November 30, 2020 1226 Bulletin No. 2020–49
sure of rates negotiated between providers
and third-party payers. The GAO report,
therefore, recommended that HHS deter-
mine the feasibility of, and the next steps
for, making estimates of out-of-pocket
costs for health care services available to
consumers.
States have been at the forefront of
transparency initiatives and have adopted
a variety of approaches to improve price
transparency.
37
More than half of the states
have passed legislation establishing price
transparency websites or mandating that
health plans, hospitals, or physicians make
pricing information available to patients.
38

For example, as of September 2020, thirty
one states have enacted laws that provide
participants, beneficiaries, and enrollees
with at least partial protection against the
practice of “balance billing.”
39
At least
eighteen states have All-Payer Claims
Databases. However, state transparency
requirements are generally not applicable
to self-insured group health plans, which
cover approximately 58.7 percent of pri-
vate-sector workers.
40
As a result, the data
collected under state law does not include
data from self-insured plans, and a signif-
icant portion of consumers may not have
access to information on their plans.
In response to state action and con-
sumer demands for more information on
health care pricing, and to align with in-
creased price transparency in other mar-
kets, health insurance issuers and self-in-
sured plans have moved to increase price
transparency. For example, some plans
are using price transparency tools to in-
centivize employees to make cost-con-
scious decisions when purchasing health
care services. Most large issuers have
comparative cost information, which in-
cludes rates that plans and issuers have
negotiated with in-network providers and
suppliers.
However, many existing tools are either
insufficient in the amount of detail they
provide or the level of accuracy available.
In order to expand price transparency to
all consumers, federal action is therefore
necessary to establish standards and uni-
versal access to this information. In prepa-
ration for writing the proposed rules, the
Departments met with over 50 stakehold-
ers including plans, issuers, and third-par-
ty tool developers. Several stakeholders
provided demonstrations of their tools to
the Departments. The Departments note
that over 90 percent of plans offer some
version of a price comparison tool.
41
How-
ever, many of the plans and issuers that the
Departments met with, who did not have a
tool serve large portions of participants,
beneficiaries, and enrollees. It is there-
fore the Departments’ understanding that
there are still millions of insured Ameri-
cans that do not have access to any type
of health care pricing tool. Also based on
these demonstrations, the Departments are
of the view that many price transparency
tools on the market only offer wide-range
estimates or average estimates of pricing
that use historical claims data and do not
always take into account the accumulated
amount a participant, beneficiary, or en-
rollee has paid toward their deductible or
out-of-pocket limit (sometimes referred to
as an “accumulator”). The Departments
are of the view that wide-range estimates
are of limited value to consumers, given
that they may not accurately reflect an in-
dividual’s plan design and benefits, and
that ranges should be replaced by actual
estimated out-of-pocket costs, in order to
allow the consumer to meaningfully pre-
dict costs. In addition, the inclusion of
negotiated rates in these tools could help
show the changes to a participant’s, ben-
eficiary’s, or enrollee’s costs if they have
a future need for the same service, con-
ditioned on the level of fulfillment of any
cost-sharing responsibilities. This could
help the consumer better understand the
full value of the health care they are con-
sidering and how the cost may be differ-
ent in the future when the participant’s,
beneficiary’s, or enrollee’s accumulator
resets in a new plan year. Information on
quality and results are also important for
assessing the value of care.
42
Through this
increased availability of information and
consumer comprehension, transparent
pricing can apply pressure on providers
to demonstrate and improve quality and
health care results. Providers may likely
then be in the position of having to justify
their costs relative to alternative options.
The Departments are of the view that
existing price transparency tools often
function in a way that makes them diffi-
cult for users to navigate. These tools of-
ten display information that makes it diffi-
cult to compare one plan against another,
understand the scope of services covered
and their costs, and interpret the termi-
nology plans and issuers use. Consumers
may be discouraged by these difficult user
interfaces and may be less likely to make
fully informed decisions with their health-
care choices. Research demonstrates that
poor or confusing user interfaces will lead
users to abandon engagement with the
hosting website.
43
The Departments are of
the view that it is important to establish a
minimum set of standards regarding what
is acceptable so that consumers can fully
utilize all relevant information. Tools that
provide consistent information to every
consumer across all markets, and that base
cost estimates on accurate and recent in-
formation, will be a significant improve-
ment over all or most existing options.
Accuracy and consistency are intended to
give consumers confidence that the infor-
mation presented by these tools will not
37
De Brantes, F., et al. “Price Transparency & Physician Quality Report Card 2017.” Catalyst for Payment Reform. Available at: https://www.catalyze.org/product/2017-price-transparen-
cy-physician-quality-report-card/.
38
Frakt, A., and Mehrotra, A. “What Type of Price Transparency Do We Need in Health Care?” Annals of Internal Medicine. April 16, 2019. Available at: https://www.acpjournals.org/
doi/10.7326/M19.
39
Kona, M. “State Balance-Billing Protections.” The Commonwealth Fund. September 16, 2020. Available at: https://www.commonwealthfund.org/publications/maps-and-interactives/2020/
sep/state-balance-billing-protections
40
“Report to Congress: Self-Insured Health Benefit Plans 2019: Based on Filings through Statistical Year 2016.” March, 2019. Available at: https://www.dol.gov/sites/dolgov/files/EBSA/re-
searchers/statistics/retirement-bulletins/annual-report-on-self-insured-group-health-plans-2019.pdf; see also Fronstin, P. “Self-Insured Health Plans: Recent Trends by Firm Size 1996-2018.”
Employee Benefit Research Institute. No. 488. August 1, 2019. Available at: https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_488_selfinsur-1aug19.pdf?sfvrsn=bd7e3c2f_6.
41
“Study: Health Plans Implement Price Transparency Tools for Consumers.” ACA International. April 2016. Available online at: https://www.expressrecovery.com/file/86c228ef-245f-45cb-
abd7-a30edbdec1f3.
42
See additional discussion of quality information in section II.C.1 of the preamble.
43
Georgiou, M. “User Experience Is the Most Important Metric You Aren’t Measuring.” Entrepreneur. March 1, 2018. Available at: https://www.entrepreneur.com/article/309161.

Bulletin No. 2020–49 1227 November 30, 2020
change significantly from the prices they
are ultimately charged. Reliability should
assure consumers that information in
these tools accurately reflects plans’ and
issuers’ best estimates of consumer out-
of-pocket costs. The availability of these
tools across most private markets will
ensure broad access for all participants,
beneficiaries, or enrollees to the intended
outcomes and potential benefits of the fi-
nal rules. The Departments anticipate that
participants, beneficiaries, and enrollees
will become accustomed to having access
to this standardized information, no mat-
ter what private market plan or coverage
they choose, which will make them more
comfortable with using this information in
health care purchasing decisions. The De-
partments further anticipate and encour-
age plans and issuers to include additional
functionality and innovation in existing
price transparency tools, but a baseline
is necessary to give participants, benefi-
ciaries, and enrollees the confidence that,
regardless of the tool they use, they can
expect the same standard information and
functionality.
C. Stakeholder Feedback and Prior
Actions in Support of Transparency
In the HHS 2020 Notice of Benefit and
Payment Parameters (2020 Payment No-
tice) proposed rule,
44
HHS sought input
on ways to provide consumers with great-
er transparency regarding their own health
care data, QHP offerings on the Federal-
ly-facilitated Exchanges (FFEs), and the
cost of health care services.
45
Additionally,
HHS sought comment on ways to further
implement section 1311(e)(3) of PPACA,
as implemented by 45 CFR 156.220(d),
under which, upon the request of an en-
rollee, a QHP issuer must make available
in a timely manner the amount of enrollee
cost sharing under the enrollee’s cover-
age for a specific service furnished by an
in-network provider. HHS was particular-
ly interested in what types of data would
be most useful to improving consumers’
abilities to make informed health care
decisions, including decisions related to
their coverage specifications and ways to
improve consumer access to information
about health care costs.
Commenters on the 2020 Payment No-
tice overwhelmingly supported the idea
of increased price transparency. Many
commenters provided suggestions for
defining the scope of price transparen-
cy requirements, such as providing costs
for both in-network and out-of-network
health care, and providing health care cost
estimates that include an accounting for
consumer-specific benefit information,
like progress toward meeting deductibles
and annual limitations on cost sharing, as
well as remaining visits under visit limits.
Commenters expressed support for imple-
menting price transparency requirements
across all private markets and for price
transparency efforts to be a part of a larg-
er payment reform effort and a provider
empowerment and patient engagement
strategy. Some commenters advised HHS
to carefully consider how such policies
should be implemented, warning against
federal duplication of state efforts and re-
quirements that would result in plans and
issuers passing along increased adminis-
trative costs to consumers and cautioning
that the proprietary and competitive na-
ture of payment data should be protected.
In the summer and fall of 2018, HHS
hosted listening sessions related to the
goal of empowering consumers by ensur-
ing the availability of useable pricing in-
formation. The listening sessions includ-
ed a wide representation of stakeholders
including providers, issuers, research-
ers, and consumer and patient advocacy
groups. Attendees noted that currently
available pricing tools are underutilized,
in part because consumers are often un-
aware that they exist,
46
and even when
used, the tools sometimes convey incon-
sistent and inaccurate information.
Attendees also commented that tool de-
velopment could be expensive, especially
for smaller health plans, which tend to in-
vest less in technology because of the lim-
ited return on investment. Attendees fur-
ther commented that most tools developed
to date do not allow for comparison shop-
ping. Attendees stated that existing tools
usually use historical claims data, which
results in broad, sometimes regional, esti-
mates, rather than accurate and individual-
ized prices. In a national study, there was
alignment among patients, employers, and
providers in wanting to know and discuss
the cost of care at the point of service.
47

However, attendees noted pricing tools
are rarely available when and where con-
sumers are likely to make health care de-
cisions, for example, during interactions
with providers. Thus, patients are not able
to consider relevant cost issues when dis-
cussing referral options or the tradeoffs of
various treatment options with referring
providers. With access to patient-specific
cost estimates for services furnished by
particular providers, referring providers
and their patients could take pricing in-
formation into account when considering
clinically appropriate treatment options.
Separately, CMS has met with members
from several state Departments of Insur-
ance to discuss the limits to state authority
to require price transparency in a mean-
ingful way and the benefits and drawbacks
of All Payer Claims Databases (APCDs).
During these discussions, it became clear
that APCDs’ reliance on historical claims
data that is not necessarily linked to a
specific plan or issuer limits the utility
of such databases for consumers. These
conversations helped clarify the types of
price transparency information necessary
to empower consumers.
CMS has pursued initiatives in addition
to the final rules to improve access to the
information necessary to empower con-
sumers to make more informed decisions
about their health care costs, including
a multi-step effort to implement section
2718(e) of the PHS Act. Section 2718(e)
of the PHS Act requires each hospital op-
erating within the United States, for each
year, to establish (and update) and make
public (in accordance with guidelines de-
veloped by the Secretary of HHS) a list of
the hospital’s standard charges for items
44
84 FR 227 (Jan. 24, 2019).
45
The term “Exchanges” means American Health Benefit Exchanges established under section 1311 of PPACA. See section 2791(d)(21) of the PHS Act.
46
Miller, S. “Healthcare Shopping Tools Often Go Unused.” Society for Human Resource Management. May 19, 2016. Available at: https://www.shrm.org/resourcesandtools/hr-topics/
benefits/pages/health-care-shopping.aspx.
47
“Let’s Talk About Money.” University of Utah Health Home. Available at: https://uofuhealth.utah.edu/value/lets-talk-about-money.php.

November 30, 2020 1228 Bulletin No. 2020–49
and services provided by the hospital, in-
cluding for diagnosis-related groups es-
tablished under section 1886(d)(4) of the
Social Security Act (SSA). In the Fiscal
Year (FY) 2015 Hospital Inpatient Pro-
spective Payment System and Long-Term
Care Hospital Prospective Payment Sys-
tem (IPPS/LTCH PPS) proposed and final
rules, CMS reminded hospitals of their
obligation to comply with the provisions
of section 2718(e) of the PHS Act and pro-
vided guidelines for its implementation.
48

At that time, CMS required hospitals to
either make public a list of their standard
charges or their policies for allowing the
public to view a list of those charges in
response to an inquiry. In addition, CMS
stated that it expected hospitals to update
the information at least annually, or more
often as appropriate, to reflect current
charges. CMS also encouraged hospitals
to undertake efforts to engage in con-
sumer-friendly communication of their
charges to enable consumers to compare
charges for similar services across hos-
pitals and to help them understand what
their potential financial liability might be
for items and services they obtain at the
hospital.
In the FY 2019 IPPS/LTCH PPS pro-
posed and final rules, CMS again remind-
ed hospitals of their obligation to comply
with section 2718(e) of the PHS Act and
announced an update to its guidelines.
49

The updated guidelines, which have been
effective since January 1, 2019, require
hospitals to make available a list of their
current standard charges (whether in the
form of a “chargemaster” or another form
of the hospital’s choice) via the internet in
a machine-readable format and to update
this information at least annually, or more
often as appropriate.
In response to stakeholder feedback
and in accordance with Executive Order
13877, issued on June 24, 2019,
50
CMS
took another important step toward im-
proving health care value and increasing
competition in the Calendar Year 2020
Hospital Outpatient Policy Payment Sys-
tem (OPPS) Policy Changes and Payment
Rates and Ambulatory Surgical Center
Payment System Policy Changes and Pay-
ment Rates: Price Transparency Require-
ments for Hospitals to Make Standard
Charges Public final rule (Hospital Price
Transparency final rule) by codifying reg-
ulatory requirements that implement sec-
tion 2718(e) of the PHS Act, as well as a
regulatory scheme under section 2718(b)
(3) of the PHS Act that enables CMS to
enforce those requirements.
51
The price
transparency disclosure requirements
that CMS finalized in the Hospital Price
Transparency final rule will be effective
on January 1, 2021, and they require hos-
pitals to make publicly available, as ap-
plicable, their gross charges (as found in
the hospital’s chargemaster), payer-spe-
cific negotiated charges, discounted cash
prices, and de-identified minimum and
maximum negotiated charges for all items
and services they provide through a single
online machine-readable file that is up-
dated at least once annually. Additionally,
the Hospital Price Transparency final rule
requires hospitals to display online in a
consumer-friendly format, as applicable,
the payer-specific negotiated charges, dis-
counted cash prices (or, to the extent one
does not exist for a shoppable service, the
undiscounted gross charge) and de-identi-
fied minimum and maximum negotiated
charges for as many of the 70 shoppable
services selected by CMS that the hospi-
tal provides and as many additional hos-
pital-selected shoppable services as are
necessary for a combined total of at least
300 shoppable services (or if the hospital
provides fewer than 300 shoppable ser-
vices, then for as many as the hospital
provides). The rule defines a shoppable
service as a service that can be scheduled
by a health care consumer in advance and
further explains that a shoppable service is
typically one that is routinely provided in
non-urgent situations that does not require
immediate action or attention to the pa-
tient, thus allowing patients to price shop
and schedule such a service at a time that
is convenient for them.
52
In addition to making pricing infor-
mation available for items and services
provided by hospitals, the Administra-
tion has also been engaged in increasing
transparency of prescription drug pricing
and lowering the costs of prescription
drugs. Four Executive Orders direct CMS
and other HHS agencies to develop and
issue tools, models, and several regula-
tions to increase competition and lower
patients’ drug costs.
53
The actions direct-
ed in these Executive Orders supplement
those CMS has already taken to increase
drug-pricing transparency and lower drug
costs. Through the Drug Spending Dash-
board, CMS publishes data on Medicare
and Medicaid spending for prescription
drugs in an interactive web-based tool
so researchers and consumers can easily
sort the data to identify trends. Over the
past four years, CMS has expanded this
dashboard to include reporting on pay-
ments for prescription drugs in their first
year on the market and information on
the drugs’ manufacturers.
54
Through the
Part D Senior Savings model, beginning
January 1, 2021, CMS is testing a change
to the Manufacturer Coverage Gap Dis-
count Program (the “discount program”)
to allow Part D sponsors to offer a Part D
benefit design that includes predictable
copays in the deductible, initial coverage,
and coverage gap phases for a broad range
of insulins included in the Model by of-
fering supplemental benefits that apply
after manufacturers provide a discounted
price.
55
48
79 FR 27978, 28169 (May 15, 2014) and 79 FR 49854, 50146 (Aug. 22, 2014), respectively.
49
83 FR 20164, 20548 (May 7, 2018) and 83 FR 41144, 41686 (Aug. 17, 2018), respectively.
50
84 FR 30849 (Jun. 27, 2019). The Executive Order was issued on June 24, 2019 and was published in the Federal Register on June 27, 2019.
51
84 FR 65524 (Nov. 27, 2019).
52
84 FR 65524, 65564 (Nov. 27, 2019).
53
“Trump Administration Announces Historic Action to Lower Drug Prices for Americans.” United States Department of Health and Human Services. July 24, 2020. Available at: https://
www.hhs.gov/about/news/2020/07/24/trump-administration-announces-historic-action-lower-drug-prices-americans.html.
54
“CMS Releases Enhanced Drug Dashboards Updated with Data for 2018.” Centers for Medicare & Medicaid Services.” December 19, 2019. Available at: https://www.cms.gov/news-
room/press-releases/cms-releases-enhanced-drug-dashboards-updated-data-2018; see also “CMS Updates Drug Dashboards with Prescription Drug Pricing and Spending Data.” Centers for
Medicare & Medicaid Services. March 14, 2019. Available at: https://www.cms.gov/newsroom/press-releases/cms-updates-drug-dashboards-prescription-drug-pricing-and-spending-data.
55
“Part D Senior Savings Model.” Centers for Medicare & Medicaid Services. Available online at: https://innovation.cms.gov/innovation-models/part-d-savings-model.

Bulletin No. 2020–49 1229 November 30, 2020
CMS issued regulations addressing
prescription drug transparency,
5
includ-
ing a regulation implementing the stat-
utory prohibition on pharmacist gag
clauses,
57
helping to ensure patients have
information on lower cost alternatives or
that they can save money by paying cash.
As part of the Calendar Year (CY) 2018
Medicare Physician Fee Schedule, CMS
adopted a policy that all FDA-approved
Part B biosimilars would be assigned
their own HCPCS codes. Under this re-
vised coding policy, CMS pays for sep-
arately payable Part B biosimilars based
on its own Average Sales Price (ASP)
plus 6 percent of the ASP of its reference
product. This policy change was made to
promote a stable and robust biosimilars
market that drives competition and low-
ers prices.
In the CY 2019 Medicare Advantage
and Part D final rule, CMS adopted a
policy to allow for certain low-cost ge-
neric drugs to be substituted onto plan
formularies at any point during the year,
so beneficiaries immediately benefit and
have lower cost sharing.
58
The Modern-
izing Part D and Medicare Advantage To
Lower Drug Prices and Reduce Out-of-
Pocket Expenses rule
59
finalized in May
2019 requires Part D plans to implement,
no later than January 1, 2021, a real-time
benefit tool that can be integrated into
at least one prescriber’s electronic pre-
scribing or EHR system to provide pa-
tient-specific formulary and benefit in-
formation, including cost sharing.
60
The
rule also requires that beginning January
2021, the Explanation of Benefits docu-
ment that Part D enrollees receive each
month must include information on drug
price increases and lower-cost therapeu-
tic alternatives. In June 2020, CMS pro-
posed
61
further policy changes that would
begin removing barriers to value-based
purchasing arrangements between drug
manufacturers and payers.
62
Value-based
payments for prescription drugs has the
potential to increase patient access to
new medicines by holding prescription
drug manufacturers accountable for out-
comes their drug achieves, as well as cre-
ating alternatives to traditional cost con-
trols that may impede patient access.
63

As part of its effort to incentivize states
to pursue innovative responses to rising
drug prices, CMS approved nine states’
(and the District of Columbia’s) plan
amendment proposals to negotiate supple-
mental rebate agreements involving val-
ue-based purchasing arrangements with
drug manufacturers.
64
These supplemen-
tal rebate agreements allow states to link
payment for prescription drugs to the val-
ue delivered to patients. Increasing states’
flexibility empowers them to develop pol-
icies that are effective and responsive to
local conditions and price “hot spots” that
lower costs, increase the predictability of
expenses, and improve access for patients.
As it currently stands, and despite on-
going Federal efforts to improve price
transparency, there continues to be a lack
of standardized pricing information to
assist consumers in the private market
when shopping for health care items and
services. While there are several efforts
across states, 33 still do not have compre-
hensive statewide price transparency ini-
tiatives,
65
and as noted earlier, sometimes
cannot legally require private market
plans and issuers to provide real-time, out-
of-pocket cost estimates to participants,
beneficiaries, and enrollees.
The Departments have concluded that
the Hospital Price Transparency final rule
and the other efforts described earlier in
this section cannot result in enrollees
receiving complete price estimates for
health care items and services because,
as the GAO concluded, complete price
estimates require pricing information
from both providers and health insur-
ance issuers.
66
In other words, this rule
complements existing State, Federal, and
private sector price transparency efforts
by ensuring that pricing information is
available from both hospitals and payers
in both the public and private markets
and by expanding transparency to pricing
information for health care items and ser-
vices provided outside of a hospital set-
ting. As a result of these rules, regardless
of where a consumer seeks information,
be it their plan or issuer, or their hospital,
they will have guaranteed access to up to
date and accurate pricing information. In
addition, because section 2718(e) of the
PHS Act applies only to items and ser-
vices provided by hospitals the Hospital
Price Transparency final rule does not
address price transparency with respect
to items and services provided by other
health care providers. Accordingly, the
Departments have concluded that addi-
tional price transparency efforts are nec-
essary and required under the statute to
empower a more price-conscious and re-
sponsible health care consumer, promote
competition in the health care industry,
56
See 84 FR 23832 (May 23, 2019) (HHS final rule finalizing policies that aimed to “increase transparency of drug pricing and drug price increases, giv[e] beneficiaries and prescribers tools
to help improve adherence, lower prescription drug costs, and minimize beneficiary out-of-pocket costs”); see, for example, 42 CFR 423.128 (requiring additional information in Part D
explanations of benefits to increase transparency); 42 CFR 423.160 (requiring adoption of e-prescribing standards to increase transparency).
57
42 CFR 423.120(9a)(8)(iii); see also Verma, S. “Memorandum to All Part D Plan Sponsors: Unacceptable Pharmacy Gag Clauses.” Centers for Medicare & Medicaid Services. May 17,
2018. Available at: https://downloads.cms.gov/files/2018-05-17.pdf.
58
“CMS lowers the cost of prescription drugs for Medicare beneficiaries.” Centers for Medicare & Medicaid Services. April 2, 2018. Available at: https://www.cms.gov/newsroom/press-re-
leases/cms-lowers-cost-prescription-drugs-medicare-beneficiaries.
59
84 FR 23832 (May 23, 2019).
60
“CMS Takes Action to Lower Prescription Drug Prices and Increase Transparency.” Centers for Medicare & Medicaid Services. May 16, 2019. Available at: https://www.cms.gov/news-
room/press-releases/cms-takes-action-lower-prescription-drug-prices-and-increase-transparency.
61
“Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid
Drug Rebate and Third Party Liability (TPL) Requirements (CMS 2482-P) Fact Sheet. Centers for Medicare & Medicaid Services. June 17, 2020. Available at: https://www.cms.gov/news-
room/fact-sheets/establishing-minimum-standards-medicaid-state-drug-utilization-review-dur-and-supporting-value-based.
62
85 FR 37286 (Jun. 19, 2020).
63
Verma, S. “CMS’s Proposed Rule On Value-Based Purchasing For Prescription Drugs: New Tools For Negotiating Price For The Next Generation Of Therapies.” Health Affairs. June 17,
2020. Available at: https://www.healthaffairs.org/do/10.1377/hblog20200617.728496/full/.
64
“Medicaid State Plan Amendments.” Centers for Medicare & Medicaid Services. Available online at: https://www.medicaid.gov/medicaid/medicaid-state-plan-amendments/index.html.
65
LaPointe, J. “Few States Have Robust Healthcare Transparency Laws.” RevCycle Intelligence. May 11, 2020. Available at: https://revcycleintelligence.com/news/few-states-have-robust-
healthcare-price-transparency-laws.
66
GAO-11-791 (Sep. 2011).

November 30, 2020 1230 Bulletin No. 2020–49
and lower the overall rate of growth in
health care spending.
67

The Departments are of the view that
the disclosures required under the final
rules are necessary and appropriate to
more fully implement section 2715A of
the PHS Act and section 1311(e)(3)(C)
of PPACA to ensure that consumers have
ready access to the information they need
to estimate their potential out-of-pocket
costs for health care items and services be-
fore that service is rendered or that item is
delivered. The final rules are also intended
to empower consumers by incentivizing
market innovators to help consumers un-
derstand how their plan or coverage pays
for health care and to shop for health care
items and services based on price, which
is a fundamental factor in any purchasing
decision.
D. Executive Order
On June 24, 2019, President Trump is-
sued Executive Order 13877, “Executive
Order on Improving Price and Quality
Transparency in American Healthcare to
Put Patients First.” Section 3(b) of Exec-
utive Order 13877 directed the Secretaries
of the Departments to issue an advance
NPRM (ANPRM), consistent with appli-
cable law, soliciting comment on a propos-
al to require health care providers, health
insurance issuers, and self-insured group
health plans to provide or facilitate access
to information about expected out-of-pock-
et costs for items or services to patients
before they receive care. The Departments
considered the issue, including by consult-
ing with stakeholders, and determined that
an NPRM, rather than an ANPRM, would
allow for more specific and useful feedback
from commenters, who would be able to
respond to specific proposals.
E. Proposed Rules
In response to Executive Order 13877
and to also implement legislative man-
dates under sections 1311(e)(3) of PPACA
and section 2715A of the PHS Act, the
Departments published an NPRM entitled
“Transparency in Coverage” on Novem-
ber 27, 2019 (to be codified at 26 CFR
part 54, 29 CFR part 2590, and 45 CFR
part 147) (the proposed rules) with com-
ments requested by January 14, 2020.
68
In
response to requests from stakeholders,
the Departments extended the comment
period 15 days, to January 29, 2020.
69
The
proposed rules set forth proposed require-
ments for group health plans and health
insurance issuers in the individual and
group markets to disclose cost-sharing
information upon request to a participant,
beneficiary, or enrollee, including an esti-
mate of an individual’s cost-sharing liabil-
ity for covered items or services furnished
by a particular provider. The Departments
proposed that plans and issuers be required
to make such information available on an
internet website and, if requested, through
non-internet means, thereby allowing a
participant, beneficiary, or enrollee to ob-
tain an estimate and understanding of the
individual’s out-of-pocket expenses and
effectively shop for items and services.
The proposed rules also included propos-
als to require plans and issuers to disclose
in-network provider negotiated rates,
and historical out-of-network allowed
amounts through two machine-readable
files posted on an internet website, there-
by allowing the public to have access to
health coverage information that can be
used to understand health care pricing and
potentially dampen the rise in health care
spending.
The proposed rules also included re-
quests for information (RFIs) on topics
closely related to the rulemaking. Due
to the design and capability differences
among the information technology (IT)
systems of plans and issuers, as well as
difficulties consumers experience in de-
ciphering information relevant to health
care and health insurance, the Depart-
ments sought comment on additional price
transparency requirements that could sup-
plement the proposed requirements for
disclosing cost-sharing information to
participants, beneficiaries, or enrollees
and the proposed requirements for public
disclosure of negotiated rates and histori-
cal allowed amount data for covered items
and services from out-of-network provid-
ers. Specifically, the Departments sought
comment on whether plans and issuers
should be required to disclose informa-
tion necessary to calculate a participant’s,
beneficiary’s, or enrollee’s cost-sharing
liability through a publicly-available,
standards-based application programming
interface (API).
Such a requirement would build off a
final rule, “Medicare and Medicaid Pro-
grams; Patient Protection and Affordable
Care Act; Interoperability and Patient
Access for Medicare Advantage Orga-
nization and Medicaid Managed Care
Plans, State Medicaid Agencies, Chil-
dren’s Health Insurance Program (CHIP)
Agencies and Chip Managed Care Enti-
ties, Issuers of Qualified Health Plans in
the Federally-Facilitated Exchanges and
Health Care Providers” (CMS Interoper-
ability & Patient Access final rule), that
CMS published on May 1, 2020.
70
That
rule requires Medicare Advantage organi-
zations, Medicaid and CHIP Fee-for-Ser-
vice programs, Medicaid managed care
plans, CHIP managed care entities, and
QHP issuers in the FFEs to provide enroll-
ees with access to select data, including
claims data, through a standards-based
API that conforms to the technical stan-
dards adopted in the Office of the Nation-
al Coordinator for Health Information
Technology (ONC) 21
st
Century Cures
Act final rule at 45 CFR 170.215. The
CMS Interoperability & Patient Access
final rule requires certain entities, such
as FFE QHP issuers, to provide certain
data through a standards-based API. The
Departments appreciate the comments
received in response to the API RFI and
will use the comments to inform the need
67
This view is consistent with the legislative history of PPACA. As initially introduced in the Senate on November 19, 2009, PPACA included only the requirement on hospitals to disclose
standard charges included in section 2718. On December 1, 2009, in comments supporting the hospital transparency requirement, Sen. Max Baucus noted, “I think the same should also apply
to physicians so people have a better idea what they will pay or their insurance company will pay for these procedures.” https://www.congress.gov/111/crec/2009/12/08/CREC-2009-12-08.
pdf. Sections 2715A and 1311(e)(3)(C) were then amended to PPACA on December 19 in the final managers amendment before passage in the Senate. Available at: https://www.congress.
gov/111/crec/2009/12/19/CREC-2009-12-19.pdf.
68
84 FR 65464 (Nov. 27, 2019).
69
85 FR 276 (Jan. 3, 2020).
70
85 FR 25510 (May 1, 2020).

Bulletin No. 2020–49 1231 November 30, 2020
for future rulemaking regarding whether
plans and issuers should be required to
disclose information necessary to cal-
culate cost-sharing liability through a
publicly-available, standards-based API.
HHS will also monitor the implementa-
tion of the CMS Interoperability & Pa-
tient Access final rule to inform any such
future rulemaking.
The proposed rule also included RFIs
on how provider quality measurements
and reporting in the private health insur-
ance market may be used to complement
cost-sharing information for plans and is-
suers in the private health insurance mar-
ket. The Departments sought comment on
how existing quality data on health care
provider items and services could be lev-
eraged to complement the proposals in the
proposed rules. The primary goal of the
proposed and final rules is making infor-
mation available to address the absence of
price transparency in the health care mar-
ket; the final rules do not address health
care quality at this time.
HHS also proposed to amend its MLR
program rules using the authority under
section 2718(c) of the PHS Act, under
which the standardized methodologies for
calculating measures of the activities re-
ported under section 2718(a) of the PHS
Act shall be designed to take into account
the special circumstances of smaller plans,
different types of plans, and newer plans.
Specifically, HHS proposed to recognize
the special circumstances of a different
and newer type of plan for purposes of
MLR reporting and calculations for plans
that share savings with consumers who
choose lower-cost, higher-value provid-
ers. HHS proposed to amend 45 CFR
158.221 to add a new paragraph (b)(9)
to allow any such “shared savings” pay-
ments made by an issuer to an enrollee as
a result of the enrollee choosing to obtain
health care from a lower-cost, higher-val-
ue provider, to be factored into an issuer’s
MLR numerator, beginning with the 2020
MLR reporting year (for reports filed by
July 31, 2021).
The Departments requested comments
on all aspects of the proposed rules, as
well as a number of specific issues. The
Departments received over 25,000 com-
ments in response to the proposed rules
from a range of stakeholders, including
plans and issuers, health care providers,
prescription drug companies, employers,
state regulators, health IT companies,
health care policy organizations and think
tanks, and individuals. No requests for a
public hearing were received. The Depart-
ments received a number of comments and
suggestions that were outside the scope of
the proposed rules that are not addressed
in the final rules (for example, regarding
hospital prices, other methods for re-
ducing health care and prescription drug
costs, consumer education and provider
directories). After careful consideration of
the comments, the Departments are final-
izing the proposed rules with certain mod-
ifications made in response to comments.
These modifications are discussed later in
this preamble.
F. Legal Authority
Several commenters questioned the
Departments’ legal authority regarding
various aspects of the proposed rules. The
Departments are of the view that the legal
authorities identified earlier in this pream-
ble are sufficient to support the final rules.
1. Statutory authority under section
1311(e)(3) of PPACA
Several commenters contended that
section 1311(e)(3)(A)(ix) of PPACA does
not give the Departments statutory au-
thority to require that plans and issuers
make the rates they have negotiated with
providers and out-of-network allowed
amounts publicly available. The com-
menters noted that section 1311(e)(3)(A)
of PPACA enumerates eight specific cate-
gories of information subject to the trans-
parency in coverage mandate followed
by a ninth “catchall” category consisting
of “other information as determined ap-
propriate by the Secretary.”
71
These com-
menters maintained that the Secretary of
HHS’s authority under section 1311(e)(3)
(A)(ix) of PPACA is insufficient to sup-
port a requirement to publicize negotiated
rates because they are not sufficiently sim-
ilar to the other categories of information
identified under section 1311(e)(3)(A) of
PPACA.
The Departments disagree with these
comments and are of the view that the in-
formation required to be disclosed under
this rule fits squarely within the scope of
information that plans and issuers may be
required to disclose under section 1311(e)
(3)(A)(ix) of PPACA and section 2715A
of the PHS Act. Section 1311(e)(3)(A)(i)
to (viii) of PPACA outlines specific infor-
mation and data that must be submitted to
the Exchange, the Secretary of HHS, the
relevant State insurance commissioner,
and the public on an accurate and timely
basis. In addition, section 1311(e)(3)(A)
(ix) of PPACA requires health plans to
submit “other information as determined
appropriate by the Secretary.” Under es-
tablished principles of statutory construc-
tion, when a general term follows a list of
specific terms in a statute, the general term
is construed to encompass subjects of a
similar character to the specific terms. The
principle of ejusdem generis guides courts
in evaluating a catch-all at the end of a list.
Therefore, when a statute allows an imple-
menting agency to exercise its discretion
by adding additional items to a list, the im-
plementing agency is empowered to add
additional items as long as those items are
of similar character to the items enumerat-
ed in the statute.
7
In this case, the statutory
list includes information and data useful
to evaluate the coverage offered by plans
and issuers with an emphasis on business
practices, financial stability, and consum-
er experience. The list also includes infor-
mation useful to regulators and the public
in general to evaluate plans’ and issuers’
business practices and activity in the mar-
ket. Given that the list includes some dis-
closures that are more immediately useful
to individual consumers and others that
are more immediately useful to regulators,
the catchall provision is reasonably and
best read as Congress’ recognition that the
Secretary of HHS (and, therefore, the De-
partments, by virtue of their joint author-
ity under section 2715A of the PHS Act)
would need broad flexibility to require the
disclosure of information as appropriate
to deliver the transparency necessary for
consumers to understand their coverage
71
See section 1311(e)(3)(A)(i) through (viii) of PPACA.
72
See Norfolk & Western R. Co. v. Train Dispatchers, 499 U.S. 117, 128-29 (1991).

November 30, 2020 1232 Bulletin No. 2020–49
options and for regulators to hold plans
and issuers accountable.
It is important to note that Congress
considered one amendment that would
have only required public disclosure at
least annually of in-network allowed
charges and expected allowed charges for
out of network without allowing the Sec-
retary discretion to add to the content of
the required disclosure.
73
Instead of adopt-
ing this prescriptive approach, Congress
required public disclosure of a broader
set of information that similarly included
payments for out-of-network services, as
well as providing the Secretary discretion
to require disclosure of other information.
While Congress did not specifically in-
clude in-network allowed charges in the
provision enacted, the discretion they pro-
vided suggests they understood that the
Secretary might later find that requiring
the disclosure of additional information,
including information considered by Con-
gress, might be useful and appropriate.
That Congress considered and rejected a
more prescriptive approach strongly sug-
gests Congress intended that the Secretary
have the ability to mandate more particu-
larized disclosures in the future, including
the disclosure of in-network negotiated
rates.
74
A plan’s or issuer’s negotiated rates
provide important information to help
consumers both evaluate their options be-
fore buying coverage and, after choosing
coverage, evaluate how to use their cover-
age when they need care. Those shopping
for coverage will benefit from knowing
how effectively a plan or issuer negotiates
rates; for example, by comparing the rates
one plan or issuer pays a provider for a
particular item or service that this consum-
er knows they, or their family, will need in
the future, which can then allow them to
shop and compare which plans and issuers
offer the most value. Once coverage is ob-
tained, knowing negotiated rates upfront
will ensure consumers covered under a
variety of plan designs and coverage op-
tions to, in each case, have access to the
information they need to obtain health
care services in an efficient, cost-effective
manner, when considering available op-
tions for a shoppable service. As discussed
earlier in this preamble, making negoti-
ated rates public also strengthens other
health care stakeholders’ ability to support
consumers. Because negotiated rates pro-
vide important information to help peo-
ple—including consumers, regulators and
the general public—evaluate the coverage
offered by a plan or issuer, it clearly falls
within the scope of information already
required under section 1311(e)(3)(A) of
PPACA. As discussed in more detail lat-
er in this section, out-of-network allowed
amounts likewise provide vital informa-
tion to help evaluate coverage.
Out-of-network allowed charges also
provide consumers with important infor-
mation. Consumers may opt for out-of-
network services for numerous reasons,
such as the unavailability of an in-net-
work provider who can meet certain med-
ical needs, an existing relationship with an
out-of-network provider, the recommen-
dation of another provider, or personal
convenience. Disclosure of estimates of
out-of-network allowed amounts is essen-
tial to the ability of consumers consider-
ing out-of-network services to form an es-
timate of their potential liability. Limiting
transparency in pricing requirements to
only providers under contract with a carri-
er would prevent transparency for all such
services, contrary to the plain language of
the statute.
75
Indeed, the language of the
statute (for example, the requirement of
section 1311(e)(3)(B) of PPACA that the
intended audience, including individuals
with limited English proficiency, can read-
ily understand and use because that lan-
guage is concise, well-organized, and fol-
lows other best practices of plain language
writing) indicates an intention to assist
consumers by enhancing their ability to
make cost-conscious decisions; this is an
essential component of establishing and
maintaining robust market competition
with costs that are reasonable and plausi-
bly tethered to standard market discipline.
As the preamble to the proposed rules ob-
served, there is substantial evidence that
increased price transparency provides
consumers and the public at large with the
information that is necessary to improve
market efficiency.
76
For these reasons,
the Departments are of the view that re-
quiring disclosure of estimates of out-of-
network allowed amounts, which reflect
out-of-network benefits under a plan, is
well within both the text and spirit of the
statute and its aims to assist consumers in
selecting providers, evaluating market op-
tions, increasing competition, and reduc-
ing market disparities. The Departments
have identified these requirements as ben-
eficial to the ongoing efforts of employ-
ers and regulators to aid consumers, and
as consistent with the goals of the statute;
thus, the Departments reject the assertion
of commenters that these purposes are be-
yond the scope of the statute.
Several commenters asserted that the
specific justifications the Departments cite
as support for mandating the disclosure of
negotiated rates are unrelated to the pur-
poses authorized by statute. They asserted
that those purposes – assisting consumers
in selecting health care providers, assist-
ing consumers in evaluating options in
the market, increasing competition and
reducing disparities in the market, assist-
ing employers, and assisting state regu-
lators – have no relationship to the stat-
utory purpose of providing transparency
in coverage for consumers. Moreover,
commenters stated that the statute does
not authorize the use of price transparency
mechanisms to affect issuer and provider
rate negotiations or health care costs gen-
erally, to assist employers in negotiations,
or to aid state regulators in their duties.
The Departments, however, find ample
support in PPACA evidencing the rela-
tionship between the purposes intended
to be served by this final rule, the over-
all purposes of PPACA, and the PPACA’s
price transparency measures, including
section 1311(e)(3).
73
Congressional Record 155: 183 (December 8, 2009) p. S12716. Available at: https://www.congress.gov/111/crec/2009/12/08/CREC-2009-12-08-senate.pdf.
74
See, for example, Lehman v. Nakshian, 453 U.S. 156, 167-8 (1981) (citing a rejected amendment to a federal statute as evidence of Congressional intent).
75
Section 1311(e)(3)(A)(vii) of PPACA.
76
84 FR 65464, 65489, 65495 (Nov. 27, 2019); see also Austin, D.A., and Gravelle, J. G. “Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other
Markets for the Healthcare Sector.” United States Congress Congressional Research Service. July 24, 2007. Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf; see also Brown, Z. Y.
“Equilibrium Effects of Health Care Price Information.” 100 Rev. econ. & Stat. 1 (2018). Available at: http://www-personal.umich.edu/~zachb/zbrown_eqm_effects_price_transparency.pdf;
see also Enthoven, A. Market Forces and Efficient Health Care Systems. Health Affairs, Vol. 23, No. 2. Available at https://www.healthaffairs.org/doi/full/10.1377/hlthaff.23.2.25.

Bulletin No. 2020–49 1233 November 30, 2020
The purposes underlying the final
rule’s requirement to disclose negotiated
rates are directly tied to providing trans-
parency in coverage to consumers. The
negotiated rate information that the final
rules require to be disclosed pursuant to
the Departments’ authority under section
1311(e)(3)(A)(ix) of PPACA, and section
2715A of the PHS Act, is directly relevant
to providing consumers with transparent
pricing information sufficient to allow
them to assess, in advance of receiving
services, their liability under a health plan
or health coverage in the numerous in-
stances in the course of any plan year in
which the negotiated rate will determine
all or a portion of a consumer’s liability.
This is important information that helps
consumers under a wide variety of plan
designs and cost-sharing arrangements in
both choosing and using coverage. The
Departments are requiring the disclosure
of cost information to further the goal of
price transparency and are doing so un-
der the authority of section 1311(e)(3) of
PPACA.
Two commenters suggested that the
proposal to require the release of negotiat-
ed rates in machine-readable format is not
authorized under the statute. The statute
mandates that transparency in coverage
information “shall be provided in plain
language... that the intended audience,
including individuals with limited En-
glish proficiency, can readily understand
and use because it is concise, well-orga-
nized, and follows best practices of plain
writing.”
77
These commenters contended
that machine-readable information is not
plain language that is accessible or under-
standable to the typical consumer, and is
therefore not within the scope of informa-
tion authorized for public disclosure under
section 1311(e)(3)(B) of PPACA.
The Departments disagree with this
assertion. Consistent with the statute, the
final rules require the machine-readable
files to include a plain language descrip-
tion for each billing code. The proposed
requirement that two data files be provid-
ed in “machine-readable format” – one
containing negotiated rates and the oth-
er containing out-of-network allowed
amounts – is a purely operational consid-
eration intended to ensure that the file data
can be imported or read by a computer
system directly, without altering the data,
and without reliance on proprietary soft-
ware.
78
Under section 1311(e)(3)(B) of
PPACA, the “plain language” requirement
concerns information to be made available
to the public, the “intended audience,” per
the statute. The Departments require the
publication of data in machine-readable
files so that the required information may
be presented to all members of the intend-
ed audience in a concise, well-organized
manner that follows best practices of plain
writing relevant to the intended audience.
The Departments explain elsewhere in
the preamble that the intended audience
for the information required to be pub-
lished under the final rules includes all
consumers and purchasers of health care
items and services, including individual
consumers, employers, and government
health care programs. The intended audi-
ence also includes health care stakehold-
ers such as researchers, legislators, and
regulators, as well as application develop-
ers who could make the information us-
able and easily understood by laypersons.
Accordingly, application developers will
be able to access the data in a format that
is easily used and understood using skills
common to application developers. This
same expertise allows such innovators to
incorporate large data sets into easy-to-
use internet-based tools and mobile ap-
plications that will present information to
laypersons in easy-to-understand, plain
language that is sufficiently concise and
well-organized. The Departments are of
the view that providing the files in ma-
chine-readable format is an effective and
necessary mechanism to ensure that price
transparency information be made avail-
able to all members of the intended audi-
ence in a consistent, understandable, plain
language format, as the statute requires.
One commenter suggested that the
disclosures to the public required under
section 1311(e)(3)(A) of PPACA consist
of aggregated data only and do not con-
template or allow public disclosure of
specific rate and price information. The
Departments disagree. While it is true that
several of the data elements listed under
section 1311(e)(3)(A) of PPACA are gen-
eral in nature, such as financial disclosures
and enrollment data, this fact does not
compel the conclusion that all elements
listed must be construed as requiring ag-
gregated information. As noted above,
the list encompasses information and data
useful to the evaluation of plans and issu-
ers by all varieties of health care consum-
er, including individuals, employers, and
government programs. Certain elements
provide information specific to the bene-
fits and protections a plan or issuer’s cov-
erage provides to an individual, including
claims payment policies and information
on enrollee rights under the law. In par-
ticular, the data element listed at section
1311(e)(3)(A)(vii) of PPACA encompass-
es “information on cost sharing and pay-
ments with respect to any out-of-network
coverage,” which, by its plain terms, does
not contemplate general or cumulative in-
formation.
The final rules specify the nature of the
information that must be made available
pursuant to sections 1311(e)(3)(A)(vii)
and (ix) of PPACA, and the manner in
which it is to be made available to fully
implement the goals and purposes of the
statute. Section 1311(e)(3)(C) of PPACA
concerns disclosures to participants, ben-
eficiaries, and enrollees receiving services
from participating providers only, whereas
section 1311(e)(3)(A) of PPACA concerns
disclosures to the public generally and in-
corporates out-of-network payment infor-
mation as well. Taken together, and as im-
plemented under the final rules, the statute
and regulatory schemes cover all persons
seeking health pricing information in a
given market, and advance the purposes
of enhancing competition, reducing price
disparities, and ultimately lowering costs
through transparency in coverage.
Ultimately, by adding section 2715A
of the PHS Act and section 1311(e)(3) of
PPACA through the manager’s amend-
ment prior to passing PPACA in the Sen-
ate, Congress made transparency a key
component of the PPACA’s comprehen-
sive framework for regulating private
health coverage through federal law. No-
tably, in contrast to the amendment reject-
ed by Congress discussed earlier in this
77
Section 1311(e)(3)(B) of PPACA.
78
84 FR 65464, 65481 (Nov 27. 2019).

November 30, 2020 1234 Bulletin No. 2020–49
preamble, the transparency in coverage
provisions signed into law provide a far
more comprehensive and expansive ap-
proach toward providing transparency.
The law covers nearly all private health
plans, requires disclosure by plans through
an internet website, requires disclosures
to more entities, requires a broader set of
information disclosures, and provides ad-
ditional discretion to expand information
disclosures. By taking this approach, Con-
gress recognized both the importance and
the complexity of requiring transparency.
The discretion provided under the statute
ensures that the Departments can accom-
modate changes in technology and health
care markets, as well as build on the infor-
mation disclosures specifically itemized in
the statute.
A commenter also contended that the
proposal to require issuers to make esti-
mates of out-of-network allowed amounts
available through the internet-based
self-service tool is not authorized by the
statute. This commenter asserted that sec-
tion 1311(e)(3)(C) of PPACA only autho-
rizes a requirement that payers make avail-
able information concerning cost-sharing
obligations with respect to items or ser-
vices furnished by a participating provid-
er, not by out-of-network providers.
The Departments disagree and are of
the view that the statute fully supports
a requirement that plans and issuers
make available information concerning
cost-sharing obligations with respect to
items or services furnished by out-of-net-
work providers. The information to be
made available under section 1311(e)(3)
specifically includes “[i]nformation on
cost sharing and payments with respect to
any out-of-network coverage,” as well as
“[o]ther information as determined appro-
priate by the Secretary.”
79
While section
1311(e)(3)(C) of PPACA focuses primar-
ily on providing information to enrollees,
section 1311(e)(3)(A) of PPACA authoriz-
es the Departments to make certain out-
of-network information available to the
public, which includes participants, ben-
eficiaries, and enrollees. Thus the Depart-
ments reasonably determined that section
1311(e)(3)(A) and (C), together, authorize
the requirement that plans and issuers pro-
vide cost estimates for covered items and
services provided by out-of-network pro-
viders.
2. Constitutional Concerns
Several commenters asserted that re-
quiring issuers to make rates they have
negotiated with providers available to the
public constitutes compelled commercial
speech in violation of the First Amend-
ment to the Constitution, and an unlawful
taking of trade secrets without just com-
pensation in violation of the Fifth Amend-
ment. Commenters cited various reasons
for their belief that the requirement in the
proposed rules to disclose negotiated rates
to the public could not survive constitu-
tional scrutiny.
Several commenters contended that the
proposed requirement constituted com-
pelled commercial speech, and that the
rationale the Departments articulated to
justify the proposed requirement failed to
meet the legal standard necessary to jus-
tify such action. One commenter asserted
that a standard of constitutional scrutiny
higher than that relevant to compelled
commercial speech applies to the require-
ment to publish negotiated rates because,
the commenter contended, the disclosure
of negotiated rates does not propose a fu-
ture commercial transaction. Some com-
menters challenged the proposed rules on
the basis that negotiated rates have little
or no relevance or value to consumers at-
tempting to ascertain their potential liabil-
ity for a particular service at a given point
in time in the future because negotiated
rates do not reflect the terms of different
plan designs or the status of the individual
consumer at a given point in time in rela-
tion to cost-sharing obligations, in partic-
ular any annual deductible.
Two commenters asserted that the re-
quirement to publicly disclose negotiat-
ed rates would go well beyond the stated
goal of providing notice to participants,
beneficiaries, and enrollees of cost-shar-
ing liability for covered services because
it calls for negotiated rates to be available
to the public generally, not just to enrolled
consumers inquiring about their coverage.
They also claimed that disclosure of ne-
gotiated rates would be extremely burden-
some because fulfilling the mandate would
require the disclosure of millions, or even
billions, of data points. One comment-
er asserted that because the requirement
to publish negotiated rates would not be
useful to consumers in all situations, the
requirements in the proposed rules were
not narrowly tailored enough to survive
constitutional scrutiny.
Some commenters also contended
that the Departments’ other stated inter-
ests in mandating the publication of ne-
gotiated rates, including lowering prices,
increasing competition, and informing
decision-making in the market generally,
are not authorized under relevant statute;
therefore, the breadth of these require-
ments is overly burdensome and inclusive
of information not necessary to advance
the goals of the statute. These commenters
concluded that, to the extent the mandated
publication of negotiated rates is calculat-
ed to advance those purposes, they are not
sufficiently tailored to statutory goals to
survive constitutional scrutiny.
a. First Amendment Compelled Speech.
The Departments disagree that the pro-
posed rules and the final rules run afoul of
the First Amendment and would not sur-
vive constitutional scrutiny. As the United
States Supreme Court recognized in Zaud-
erer v. Office of Disciplinary Counsel, 471
U.S. 626 (1985) and recently confirmed
in National Institute of Family and Life
Advocates v. Becerra, 138 S. Ct. 2361,
2372, 2376 (2018) (“NIFLA”), required
disclosures of factual, uncontroversial in-
formation in commercial speech are sub-
ject to more deferential First Amendment
scrutiny. Under the approach articulated
in Zauderer, courts have upheld required
disclosures of factual information in the
realm of commercial speech where the
disclosure requirement reasonably relates
to a government interest and is not unjus-
tified or unduly burdensome such that it
would chill protected speech. See, e.g.,
Am. Meat Inst. v. U.S. Dept. of Agric., 760
F.3d 18, 27 (D.C. Cir. 2014); Mass. Ass’n
of Private Career Sch. v. Healey, 159 F.
Supp. 3d 173, 201 (D. Mass. 2016).
The Departments articulated substan-
tial governmental interests in proposing
these requirements: assisting consumers
79
Section 1311(e)(3)(A) of PPACA; see also Section 1311(e)(3)(A)(vii) and (ix) of PPACA.

Bulletin No. 2020–49 1235 November 30, 2020
of health care services in understanding
the costs for which they will be liable for
covered services prior to the delivery of
the services; assisting other consumers of
health care, such as employers and govern-
ment health benefits programs, in evaluat-
ing and negotiating coverage options and
obtaining the most value for health care
dollars; and supporting a market-driven
health care economy that is sustainable.
The preamble to the proposed rules also
explained how the information required to
be disclosed under the proposed rules is
of substantial value to consumers, includ-
ing health plan participants, beneficiaries,
and enrollees who have and have not sat-
isfied their annual deductible or reached
their maximum out-of-pocket limit, and
that remains true under the final rules. For
such consumers who have not met their
deductibles, knowledge of negotiated
rates is necessary for estimating their out-
of-pocket costs because these consumers
generally will be responsible for paying
the full negotiated rate for health care
items and services until they reach their
deductible (or the maximum annual limit
on cost sharing).
As the Departments noted earlier in
the preamble, between the enactment of
PPACA and 2019, average family de-
ductibles for private sector employees
increased by 85 percent, up to $3,655 in
2019.
80
Consumers in the private health
insurance market are increasingly respon-
sible for a greater share of their health care
costs through higher deductibles and shifts
from copayments to coinsurance.
81
The fi-
nal rules will give health care consumers
and stakeholders information vital to their
roles in creating and supporting a sustain-
able market-driven health care economy.
The final rules also will provide crit-
ical information to consumers who have
satisfied their deductibles or reached their
out-of-pocket limit. These consumers may
wish to base their health care spending de-
cisions on underlying prices to avoid ex-
cess spending by their issuer or employ-
er that could lead to premium increases,
increased out-of-pocket obligations, or
lower employer contributions toward em-
ployer-sponsored coverage. Knowing the
rates negotiated by other issuers in their
geographic market will assist consumers
during open enrollment, as they search for
a plan that may lower their out-of-pocket
costs in the coming year.
The government also has a substan-
tial interest in assisting other health care
spenders, such as employers and govern-
ment benefits programs, to make coverage
choices that drive value for the public.
Given the size and scope of the country’s
health care market and the fact that choic-
es made by employers and benefits pro-
grams operate at scale to direct health care
spending, the government can increase
the value of health care expenditures by
ensuring those entities have access to ac-
curate information. Providing employers
and government benefit programs with
actionable data may also help drive down
total health care spending, as issuers com-
pete to offer higher-value programs.
The government’s interest in promot-
ing a sustainable health care economy
driven by market forces is substantial, as
reflected in section 1311(e) of PPACA.
As of 2018, U.S. health care spending
had reached $3.6 trillion, or $11,172 per
person and accounted for 17.7 percent of
the nation’s Gross Domestic Product.
82

Given the scope of the market and the ear-
lier-discussed data suggesting that price
transparency and market forces can drive
down health care costs, the government’s
interest in increasing price transparency is
substantial.
Each of the three interests identified
above is furthered by the final rules. For
individuals, the data provided will per-
mit them to compare prices for health
care items and services and allocate their
funds accordingly. For benefit plans and
employers, the information provided will
guide decision-making about which cov-
erage options to offer, and which provid-
ers or third parties, like pharmacy benefit
managers (PBMs), to contract with. For
the health care economy as a whole, the
Departments are of the view (based on
available data) that transparency and mar-
ket forces will drive savings and reduce
expenditures. Accordingly, the Depart-
ments continue to hold the view that the
final rules serve substantial government
interests.
Furthermore, the requirement to pro-
vide these disclosures does not unduly
burden plan or issuer speech because
nothing in the final rules would “drown
out [a plans’ or issuers’] own message”
or “effectively rule out” any mode of
communication. See NIFLA, 138 S. Ct.
at 2378. Plans and issuers remain free to
communicate with consumers using meth-
ods and media they have always used or
may choose to use in the future.
The Departments further disagree
that the final rules would be subject to a
standard of constitutional scrutiny high-
er than that applied to compelled com-
mercial speech. For First Amendment
purposes, commercial speech is speech
“related solely to the economic interests
of the speaker and its audience.” Cent.
Hudson Gas & Electric Corp. v. Pub.
Serv. Comm’n of N.Y., 447 U.S. 557, 561
(1980). Price information concerning the
cost of health services is related solely to
the economic interests of providers and
the consumers who seek their services.
The speech in question here, therefore, is
commercial speech.
Furthermore, the disclosure of nego-
tiated rates is one concerning “purely
factual and uncontroversial information
about the terms [i.e., the price] under
which services are available.” See Zaud-
erer, 471 U.S. at 651; see also Am. Meat
Inst. v. U.S. Dept. of Agric., 760 F.3d 18,
27 (D.C. Cir. 2014). Therefore, the impo-
sition on commercial speech by the final
rules need only be “reasonably related” to
the government’s stated interest. For the
reasons discussed above, the Departments
are of the view that making available ne-
gotiated rates to consumers is reasonably
related to the government’s stated inter-
80
See “Medical Expenditure Panel Survey. Insurance Component National-Level Summary Tables.” United States Department for Health and Human Services Agency for Healthcare Re-
search and Quality. Available at: https://www.meps.ahrq.gov/mepsweb/data_stats/quick_tables_search.jsp?component=2&subcomponent=1.\
81
The preamble to the proposed rules contains a detailed discussion regarding increases in deductibles. See 84 FR 65464, 65465 (Nov. 27, 2019) (citing Ray, M., Copeland, R., Cox, C.
‘‘Tracking the rise in premium contributions and cost-sharing for families with large employer coverage,’’ Peterson-Kaiser Health System Tracker. August 14, 2019. Available at: https://www.
healthsystemtracker.org/brief/tracking-the-rise-in-premium-contributionsand-cost-sharing-for-families-with-large-employercoverage/.).
82
“Historical National Health Expenditure Data.” Centers for Medicare and Medicare Services. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statis-
tics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.

November 30, 2020 1236 Bulletin No. 2020–49
ests in providing greater cost information
to consumers and benefit plans, as well as
increasing price transparency in the health
care market more broadly. While the De-
partments disagree that the stricter con-
stitutional scrutiny under Central Hud-
son would apply to the final rules for the
reasons discussed above, the Departments
also are of the view that the government
interests described above are “substan-
tial,” and the regulations, for the reasons
described above, directly advance that
governmental interest and are not more
extensive than necessary to serve that in-
terest. None of the alternatives considered
by the Departments would provide the
full panoply of information necessary to
achieve the identified interests. Specifi-
cally, the only way to provide information
concerning a consumer’s personal liability
for health care services when the negotiat-
ed rate is all or any portion of that liability
is by disclosing those rates.
The Departments disagree that the
rules are excessively burdensome and are
invalid because they purportedly exceed
the statute’s goal of providing notice of
cost-sharing liability. The Departments are
of the view that, in addition to providing
participants, beneficiaries, and enrollees
with notice of cost-sharing liability, the fi-
nal rules are intended to advance a number
of concurrent goals, as described earlier in
this preamble. These goals are consistent
with the full text of section 1311(e)(3) of
PPACA and section 2715A of the PHS
Act. They include the overarching goal
of facilitating a market-driven heath care
system by giving consumers of health care
services data that will enable consumers
to make fully informed, cost-conscious
decisions when choosing health care.
These transparency requirements will
support the creation of a competitive dy-
namic in health care markets that leads to
narrower price differentials for the same
services, fosters innovation, and poten-
tially lowers overall health care costs over
time.
83
These goals are consistent with the
statutory mandate to promote transpar-
ency in coverage by making available to
the public accurate and timely health care
information, including cost-sharing infor-
mation, and other information as deemed
appropriate by the Departments.
The Departments also disagree with
any notion that, because published ne-
gotiated rates would not be useful to all
consumers in all situations, the final rules
are not sufficiently tailored to survive con-
stitutional scrutiny. Consumers seeking
in-network items or services must have
access to negotiated rate information to
calculate out-of-pocket costs under the
majority of health care payment models.
These negotiated rates determine the price
they will be obliged to pay, up to the appli-
cable out-of-pocket limit. Thus, disclosing
the negotiated rate is important to the con-
sumer’s ability to reasonably estimate his
or her personal financial liability in ad-
vance of receiving services. In particular,
and as explained earlier in this preamble,
annual deductibles for plans and issuers
now routinely obligate consumers to pay
several thousand dollars before the plan or
issuer pays any benefits. The requirement
to disclose negotiated rates to consumers
is, therefore, crucial to providing mean-
ingful transparency in health care markets.
b. Fifth Amendment Taking
The Departments also disagree that the
requirement to disclose negotiated rates
in the final rules constitutes an unlawful
taking without just compensation under
the Fifth Amendment. As an initial matter,
the subject of any “taking” is a cognizable
property interest. Commenters asserted
that their negotiated rates constitute prop-
erty because they are trade secrets. The
Departments disagree. In order for a piece
of information to qualify as a trade secret,
it must be the subject of efforts to main-
tain its secrecy that are reasonable under
the circumstances. Under most circum-
stances, if a piece of information is dis-
closed to third parties who have no obliga-
tion to keep it a secret, it does not qualify
for trade secrets protection. Negotiated
rates for health care items and services are
routinely disclosed in EOBs provided to
participants, beneficiaries, and enrollees.
Participants, beneficiaries, and enrollees
have no obligation to keep the informa-
tion contained in their EOBs secret; some
patients provide them to journalists or up-
load them to crowd-sourcing websites.
84

The Departments are of the view that this
routine disclosure of negotiated rate infor-
mation is sufficient to defeat any asserted
trade-secret protection, and, therefore, the
issuers have no proprietary interest in the
negotiated rates that could be the subject
of a constitutional “taking.”
Moreover, plans’ and issuers’ expec-
tations of confidentiality in information
provided as a condition of participation in
a highly regulated industry (for example,
health insurance) are substantially dimin-
ished by the highly regulated nature of the
industry. See, e.g., Ruckelshaus v. Monsan-
to Co., 467 U.S. 986, 1007 (1984) (noting
that expectations are necessarily adjusted
in areas that “ha[ve] long been the source
of public concern and the subject of gov-
ernment regulation”); Me. Educ. Ass’n
Benefits Trust v. Cioppa, 695 F.3d 145 (1st
Cir. 2012) (discussing a Maine law requir-
ing health issuers to disclose loss informa-
tion); Franklin Mem’l Hosp. v. Harvey,
575 F.3d 121, 128 (1st Cir. 2009) (hold-
ing that a claimant’s investment-backed
expectations were “tempered by the fact
that it operate[d] in the highly regulated
hospital industry”).
85
Plans and issuers are
already subject to extensive regulation un-
der federal and state law. As noted by the
1st Circuit in Pharmacy Care v. Rowe:
If [regulated parties] truly assumed
that they would be free from disclo-
sure requirements ... this would be
more wishful thinking than reason-
able expectation. Whether or not the
law strikes the right economic balance
between competing producer and con-
83
84 FR 65465 (Nov. 27, 2019).
84
Kliff, S. “Why I’m Obsessed With Patients’ Medical Bills, New York Times. August 7, 2020. Available at https://www.nytimes.com/2020/08/07/insider/coronavirus-medical-bills.html;
see also Cerullo, M. “As medical costs soar, more Americans turn to crowdfunding.” CBS News. February 21, 2020. Available at: https://www.cbsnews.com/news/health-care-costs-crowd-
funding-medical-bills/.
85
PBMs serve as intermediaries between pharmacies and health benefit plans, including plans covered by ERISA. PBMs contract with pharmacies to establish pharmacy networks and contract
with health benefit plans to provide access to those pharmacy networks. When a participant in a health benefit plan fills a drug prescription at a network pharmacy, the PBM pays the pharmacy
at the rate negotiated in the contract between the PBM and the pharmacy (less any copayment by the participant), and the health benefit plan then reimburses the PBM at the rate negotiated
in the contract between the PBM and the health benefit plan.

Bulletin No. 2020–49 1237 November 30, 2020
sumer interests, it is no more a taking
than the requirement that public corpo-
rations disclose private corporate infor-
mation about financial prospects to the
public through regular SEC filings.
Pharm. Care Mgmt. Ass’n v. Rowe, 429
F.3d 294, 316 (1st Cir. 2005) (joint con-
curring opinion representing the opinion
of the court). The Court further stated:
“Given the absence of a full-scale taking
and the presence of a traditional regu-
latory interest, it is enough to defeat the
takings claim that no reasonable invest-
ment-backed expectation is present at all.”
Id. at 315; see also Good v. United States,
189 F.3d 1355, 1363 (Fed. Cir. 1999) (“We
have previously held that the government
is entitled to summary judgment on a reg-
ulatory takings claim where the plaintiffs
lacked reasonable, investment-backed ex-
pectations....”).
Even if there were some property in-
terest in negotiated rates, the Departments
are of the view that this regulation is not a
taking. The Supreme Court “has identified
several factors that should be taken into
account when determining whether a gov-
ernmental action has gone beyond ‘regu-
lation’ and effects a ‘taking.’” Monsanto,
467 U.S. at 1005. Among those factors
are “the character of the governmental ac-
tion, its economic impact, and its interfer-
ence with reasonable investment-backed
expectations.” Id. (citing PruneYard
Shopping Ctr. v. Robins, 447 U.S. 74, 83
(1980)); see also Kaiser Aetna v. United
States, 444 U.S. 164, 175 (1979); Penn
Cent. Transp. Co. v. City of N.Y., 438 U.S.
104, 124 (1978).
In requiring disclosure under the final
rules, the government does not do so with
the intention that the information is pri-
marily and explicitly for the government’s
own use, or that any such potential impact
is the purpose for requiring the disclosure.
Instead, the final rules are intended to, and
will, enable consumers to access informa-
tion needed to make informed decisions on
health care services. Under Penn Central,
“[a] ‘taking’ may more readily be found
when the interference with property can
be characterized as a physical invasion by
government than when interference arises
from some public program adjusting the
benefits and burdens of economic life to
promote the common good.” Penn Cen-
tral, 438 U.S. at 124 (citation omitted).
The final rules clearly fall on the other end
of the spectrum, arising from statutory
provisions, section 1311(e)(3) of PPACA
and section 2175A of the PHS Act, that
“adjust[t] the benefits and burdens of eco-
nomic life to promote the common good.”
Connolly v. Pension Benefit Guar. Corp.,
475 U.S. 211, 212 (1986).
3. Protections for proprietary, confidential
business information, and trade secrets.
Several commenters objected to the
proposed rules on grounds that the re-
quirement that issuers make public nego-
tiated rates with providers would require
the disclosure of allegedly confidential,
proprietary business information, and
trade secrets that are expressly protected
from disclosure by a variety of federal
and state laws, and the statute does not in
any way purport to abrogate those protec-
tions. Several commenters pointed to the
Defend Trade Secrets Act, (DTSA) which
protects the property rights of trade secret
holders,
86
and the Freedom of Informa-
tion Act (FOIA),
87
which protects confi-
dential, proprietary business information,
and trade secrets from public disclosure,
as examples of Congress’ intent that such
information be protected.
The Departments disagree. As dis-
cussed above, the Departments are of the
view that the routine disclosure of nego-
tiated rate information to third parties via
EOBs means that the rate information is
not a trade secret, and the DTSA, there-
fore, does not apply. Even if it did, there
can be no meaningful sense in which the
disclosure of this information pursuant to
the final rules would constitute a misap-
propriation by improper means prohibited
by the DTSA. The disclosures in question
would be made pursuant to a regulatory
mandate authorized by law, to effectuate
policy priorities enacted by Congress:
namely, transparency in health care.
These disclosures cannot reasonably be
construed as “theft, bribery, or misrepre-
sentation.”
88

The disclosures required under the final
rules would also not constitute a breach or
inducement of a breach of a duty to main-
tain secrecy, as the final rules apply pro-
spectively in a regulatory environment in
which all parties to provider agreements,
and all affected plans and issuers, are be-
ing placed on notice and should be aware
in advance of the requirements of the fi-
nal rules. All parties to these contracts are
therefore positioned to modify contractual
arrangements, or similar policies, practic-
es, or expectations relating to privacy or
trade secrets to conform to the final rules.
Otherwise, the final rules will supersede
these arrangements to the extent necessary
to implement these rules.
FOIA is also not relevant to the dis-
closure that would be required by the fi-
nal rules.
89
FOIA is a public information
law that applies to federal agencies, and
generally enables the public to obtain re-
cords in possession of an agency.
90
Under
the final rules, by contrast, negotiated rate
information and out-of-network allowed
amount information would be made avail-
able for the express purpose of making the
information broadly available to the pub-
lic, consistent with the authority Congress
vested in the Departments. FOIA does not
apply to disclosures by private entities
such as the plans and issuers that would
be subject to the disclosure requirements
in the final rules. The exemptions found in
the FOIA statute apply to disclosures by
the government; that a piece of informa-
tion might be subject to a FOIA exemption
does not mean it is entitled to a heightened
protection from disclosure when held by a
private party.
Neither does FOIA apply to informa-
tion maintained by private entities and not
by an agency or government contractor,
as that information would not constitute
an agency record. To be an agency record
subject to FOIA, an agency must have cre-
86
18 U.S.C. 1836(b).
87
5 U.S.C. 552.
88
18 U.S.C. 1839(5)-(6).
89
5 U.S.C. 552.
90
5 U.S.C. 552(b)(4).

November 30, 2020 1238 Bulletin No. 2020–49
ated or obtained the materials and must be
in control of the materials. U.S. Dep’t of
Justice v. Tax Analysts, 492 U.S. 136, 145
(1989). Regardless of whether the nego-
tiated rates and allowed amounts would
constitute trade secrets or commercial in-
formation under FOIA, a requirement that
private entities make certain information
public does not implicate FOIA.
One commenter contended that the
proposed disclosure of negotiated rates
does not concern trade secrets, and is
therefore not prohibited for that reason.
The commenter asserted that the proposed
disclosures concern end prices, which
are comparable to the “sticker price” of a
medical service or device. The commenter
stated that those prices are not themselves
trade secrets, which the commenter con-
tended consist of negotiating tactics which
the proposed rules would not require is-
suers to make available to the public. As
indicated above in relation to the DTSA,
the Departments agree that the final rules
do not implicate trade secrets.
In support of the proposition that Con-
gress could not have intended to under-
mine existing protections for confiden-
tial or proprietary business information
and trade secrets when it enacted section
1311(e)(3) of PPACA, one commenter
noted that elsewhere in PPACA, where
Congress mandated pricing-related dis-
closures, it included language or arrange-
ments that protected individual negotiated
rates and pricing information from disclo-
sure. A provision relating to the disclosure
of drug cost information mandates release
of only aggregated information and in-
cludes a specific designation of the infor-
mation as confidential and protected from
publication except in specific formats
and for limited purposes that protect the
identity of the parties to particular pricing
arrangements.
91
Another provision man-
dates that hospitals make public a list of
standard charges for items and services,
not negotiated rates, on an annual basis
only.
92
Both of these provisions, the com-
menter suggested, indicate Congressional
intent to protect proprietary business in-
formation that is contrary to the require-
ments of the proposed rule.
The Departments are aware that Con-
gress included provisions preventing or
limiting disclosures of health care infor-
mation in other sections of PPACA but
note that Congress did not include such
provisions in section 1311(e)(3)(A) of
PPACA, indicating no intention that such
restrictions apply in this context.
93

Several commenters also pointed to
the Sherman Antitrust Act, and specific
applications of antitrust principles relat-
ing to the disclosure of trade secrets, in-
cluding negotiated rates between issuers
and providers in the health care context.
They contend that Congress could not
have intended to indirectly undermine
these long-standing standards and poli-
cies when it enacted section 1311(e)(3) of
PPACA. Several commenters also cited
interpretive communications and similar
guidance from the Federal Trade Com-
mission (FTC) and the Antitrust Division
of the Department of Justice for the prop-
osition that public disclosure of negotiat-
ed prices can have anticompetitive effects
and harm consumers, contrary to long
standing principles of antitrust law. One
commenter recommended that any plan
to make public privately negotiated rates
should include requirements to aggregate
information to ensure that arrangements of
specific market participants remain confi-
dential, and that a time lag also should be
applied to any released data to ensure cur-
rent information is not compromised.
The Departments disagree with the
notion that the final rules will lead to an-
ticompetitive behavior by plans, issuers,
and providers. The Sherman Antitrust Act
prohibits any contract, combination, or
conspiracy in restraint of trade or com-
merce.
94
Specifically, the law prohibits any
“person” from entering into any such con-
tract, trust, or similar arrangement.
95
“The
primary purpose of the antitrust laws is to
protect interbrand competition.” State Oil
Co. v. Khan, 522 U.S. 3, 15 (1997) (cit-
ing Bus. Elec. Corp. v. Sharp Elec. Corp.,
485 U.S. 717, 726 (1988)). The Depart-
ments are not of the view that publica-
tion of plans’ and issuers’ negotiated rates
with providers is likely to spur plans and
issuers (“persons”) to violate the law by
colluding to fix their prices in a manner
that restrains trade. Rather, while the pub-
lication of price information sometimes
facilitates tacit collusion, based on public
comments and the many empirical studies
that have investigated the impact of price
transparency on other, non-health care
markets, the Departments are of the view
that transparency of negotiated rates will
likely motivate plans, issuers, and provid-
ers to reassess the competitiveness of their
prices in order to continue to successfully
compete with lower premiums, deduct-
ibles, and other cost-sharing responsibil-
ities, and lower priced health care items
and services. As stated in the preamble
of the Hospital Price Transparency Final
Rule, many empirical studies have inves-
tigated the impact of price transparency
on markets, with most research, consistent
with predictions of standard economic
theory, showing that price transparency
leads to lower and more uniform prices.
96

Traditional economic analysis suggests
that if consumers were to have better pric-
ing information for health care services,
providers would face pressure to lower
prices and provide better quality care.
Falling prices may, in turn, expand con-
sumers’ access to health care.
97
By disclosing negotiated rates, the De-
partments are of the view that the public
(including patients, employers, clinicians,
and other third parties) will have the infor-
mation necessary to make more informed
decisions about their care. The Depart-
ments expect that the impact of more
expansive transparency in pricing infor-
91
42 U.S.C. 1320b-23(c).
92
42 U.S.C. 300gg(18)(e).
93
See, for example, Keene Corp. v. United States, 508 U.S. 200, 208 (1993) (“[W]here Congress includes particular language in one section of a statute but omits it in another . . . it is generally
presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”).
94
15 U.S.C. 1.
95
Id. “Person” or “persons” are defined at 15 U.S.C. 12(a) (“[P]erson” or “persons” wherever used in this Act shall be deemed to include corporations and associations existing under or
authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country”).
96
84 FR 65464, 65524 (Nov. 27, 2019).
97
Austin, A. D., and Gravelle, J. G. “Congressional Research Service Report for Congress: Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other
Markets for the Healthcare Sector”. April 29, 2008. Available at: https://crsreports.congress.gov/product/pdf/RL/RL34101.

Bulletin No. 2020–49 1239 November 30, 2020
mation will increase market competition
and may ultimately drive down the cost
of health care services, making care more
affordable for all consumers.
Although the Departments appreciate
that regulated entities could seek to en-
gage in unlawful behavior in restraint of
trade, antitrust law does not proscribe or
limit action by the federal government
to address chronic issues in the nation’s
health care markets. Such actions include
new, innovative measures that, based on
evidence and research, are likely to im-
prove competition and lower costs to con-
sumers. The Departments also are of the
view that the statute and the final rules do
not constitute an abrogation of antitrust
law. Nothing under the final rules creates,
compels, or endorses agreements or con-
spiracies between or among persons to
form illegal arrangements or trusts in re-
straint of trade or commerce. To the con-
trary, antitrust law enforcement remains
an important tool to protect these markets
from anticompetitive behavior.
The Departments are of the view that
the disclosure of negotiated rates would
serve a greater public interest and that
“concealing negotiated price information
serves little purpose other than protect-
ing dominant providers’ ability to charge
above-market prices....”
98
For example,
in Maine, one state official indicated that
“to date, there is no evidence that the re-
lease of [Maine Health Data Organiza-
tion] claims data has resulted in an anti-
competitive market. Similarly, disclosure
of claims data in New Hampshire has re-
sulted increased competition and reduced
prices for health care.
99

For the reasons set forth in this pream-
ble, the Departments are of the view that
the final rules will enhance competition,
improve markets, and benefit all consum-
ers of health care, including individuals,
employers, and government health care
programs. Under the final rules, disclo-
sure of the negotiated rate is critical to the
ability of consumers, including those who
have not met their annual deductible obli-
gation, to be able to reasonably estimate
in advance their personal liability for cov-
ered services from participating providers.
It is also critical in estimating coinsurance
liabilities that are calculated as a percent-
age of provider charges. In addition, the
Departments are of the view that accessi-
ble pricing information improves market
efficiency.
100

3. Administrative Procedure Act (APA)
and Arbitrary and Capricious Agency
Action
Some commenters asserted that the
proposed rules were arbitrary and capri-
cious and thus violate the APA. Two com-
menters contended that the Departments’
rationale is entirely speculative. They also
contended that the Departments have not
quantified in a reliable way the costs or
anticipated benefits of the proposed rules,
examined relevant data, or articulated a
satisfactory explanation for the proposed
rules. One commenter held the opposite
position and asserted that the proposed
rules were fully consonant with APA re-
quirements. The commenter believed the
Departments are implementing PPACA
appropriately, and that the interpretation
of the authorities underlying the proposed
rules was reasonable and rationally ex-
plained by the Departments.
The Departments are also of the view
that the final rules are consistent with the
APA. Section 1311(e)(3) of PPACA and
section 2715A of the PHS Act are de-
signed to assist consumers by enhancing
their ability to make cost-conscious deci-
sions, which is essential to establish and
maintain the level of market competition
necessary to ensure that health care costs
are rational, reasonable, and governed by
standard market discipline. As the pream-
ble to the proposed rules observed, there
is substantial evidence that increased price
transparency improves market efficien-
cy.
101
For these reasons, it is within the
scope of the statute to assist consumers
with selecting providers, evaluating mar-
ket options, increasing competition, and
reducing market disparities. The careful-
ly targeted information is essential to the
goals of price transparency, and there is
no other means of making cost-sharing li-
ability information available to consumers
whose personal liability is determined in
whole or in part by reference to negotiat-
ed rates or allowed amounts. The Depart-
ments further hold the view that the De-
partments have made reasonable efforts to
quantify all aspects of the final rules, and
their potential effects, for which data is
available. The Departments also note that
efforts have been made to qualitatively ad-
dress those areas where the Departments
are unable to adequately derive quantita-
tive assessments. Responses to additional
comments are discussed later in the Reg-
ulatory Impact Analysis (RIA) and Regu-
latory Alternatives Considered sections of
this preamble.
This preamble (as well as the pream-
ble to the proposed rules) cites substantial
research indicating that increased price
transparency increases competition and
lowers costs, leads to more uniform pric-
ing within markets, and increases overall
market efficiency.
102
This preamble also
cites an abundance of evidence indicat-
ing that industry and other stakeholders
believe that increased price transparen-
cy will enhance competition and benefit
consumers. As stated earlier in this pre-
amble in relation to comments regarding
the First Amendment, the information the
final rules require to be disclosed is clear-
ly identified and has a direct nexus to the
98
Catalyst for Payment Reform. “Report Card on State Price Transparency Laws.” July 2015. Available at: https://www.catalyze.org/ wp-content/ uploads/ woocommerce_ uploads/ 2017/ 04/
2015-Report-Card-on-State-Price-Transparency-Laws.pdf.
99
Brown Z. Y. “Equilibrium Effects of Health Care Price Information.” 101 Rev. of econ. & Stat. 699 (2019). Available at: http://www-personal.umich.edu/ ~zachb/ zbrown_ eqm_ effects_
price_ transparency.pdf.
100
Austin, D. A., and Gravelle, J. G. “CRS Report for Congress: Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other Markets for the Healthcare
Sector.” July 24, 2007. Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf.
101
84 FR 65464, 65489; 65495 (Nov. 27, 2019); see also Austin, A. D., and Gravelle, J. G. “Congressional Research Service Report to Congress: Does Price Transparency Improve Market
Efficiency? Implications of Empirical Evidence in Other Markets for the Healthcare Sector.” July 24, 2007. Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf; see also Brown, Z. Y.
“Equilibrium Effects of Health Care Price Information.” 100 Rev. econ. & Stat. 1. Available at: http://www-personal.umich.edu/~zachb/zbrown_eqm_effects_price_transparency.pdf; see
also Enthoven, A. “Market Forces and Efficient Health Care Systems.” Health Affairs, Vol. 23, No. 2. Available at https://www.healthaffairs.org/doi/full/10.1377/hlthaff.23.2.25.
102
84 FR 65464, 65466-67 (Nov. 27, 2019).

November 30, 2020 1240 Bulletin No. 2020–49
government’s legitimate and substantial
interest in ensuring that consumers have
sufficient information to calculate out of
pocket costs for health care items and ser-
vices and ultimately assess whether the
payment terms of plans and coverages are
fair, reasonable, or advantageous to the
consumer. Furthermore, in the Impact Es-
timates of the Transparency in Coverage
Provisions and Accounting Table section
later in this preamble, the Departments
identify ranges of relevant factors and
categories of information that the De-
partments have attempted to quantify, as
well as those factors and categories that
the Departments cannot quantify at this
time. Nevertheless, the Departments are
of the view that those determinations are
reasonable and sufficiently thorough, and
that the Departments’ expectations regard-
ing the impacts of the final rules are not
speculative.
4. Other legal concerns
Several commenters asserted that re-
quiring issuers to make negotiated prices
public could violate various state laws,
principles of common law, and tort laws
concerned with the protection of trade
secrets and proprietary business infor-
mation. Several commenters specifically
stated that the proposal would violate the
Uniform Trade Secrets Act (UTSA)
103
as
adopted by several states.
The Departments understand these
concerns and appreciate that States have
passed laws and regulations that may ad-
dress the same or similar information the
final rules require to be publicly disclosed,
or disclosed to participants, beneficiaries,
or enrollees. The final rules will preempt
these laws, to the extent they conflict with
federal law and would prevent application
of federal requirements, as required under
section 1321(d) of PPACA and section
2724(a) of the PHS Act. The Departments
discuss this issue in more detail later in
this preamble in the context of addressing
federalism considerations.
Moreover, the Departments are also of
the view that negotiated rates do not con-
stitute trade secrets as defined under the
UTSA and under principles of tort law.
A trade secret under the UTSA is “in-
formation, including a formula, pattern,
compilation, program, device, method,
technique, or process” that “derives inde-
pendent economic value... from not being
generally known [or] readily ascertainable
by proper means by... other persons who
can obtain economic value from its dis-
closure [and] is the subject of efforts to...
maintain its secrecy.”
104
Critically, and as
discussed earlier, negotiated rates are rou-
tinely disclosed to beneficiaries in EOBs.
To the extent the final rules require dis-
closure of trade secrets, the activity that
supports a cause of action under tort law
includes obtaining the information by im-
proper means or a breach of confidence.
105

No such scenario is implicated where the
disclosure is made pursuant to a regulato-
ry mandate authorized by statute. In this
context, the disclosure is a legal obliga-
tion, and so the disclosure is by definition
proper and made in the absence of any
duty of confidence.
Finally, even if negotiated rates could
constitute trade secrets under a state’s law,
state law cannot invalidate the authori-
ty Congress granted to the Departments
under section 1311(e)(3) of PPACA to
require disclosure of negotiated rates and
other information that the Departments
determine appropriate to create a level
of transparency in coverage sufficient to
address chronic issues in American health
care markets, including rising health care
prices.
Several commenters asserted that mak-
ing negotiated rates public would violate
contractual arrangements between virtual-
ly all issuers and providers, in particular
contractual provisions that prohibit disclo-
sure of negotiated rates. One commenter
noted that this would, at a minimum, re-
quire a considerable effort to amend many
existing contracts.
The Departments understand that
changes in applicable laws and regula-
tions may necessitate changes to certain
business and contractual relationships
over time. The Departments are of the
view, however, that the final rules are nec-
essary to advance the interests of consum-
ers and to fulfill the goals of the relevant
statutes. The Departments also anticipate
that in most cases, affected contracts in-
clude clauses that specifically anticipate
the possibility of future changes to ap-
plicable law or regulations. Additionally,
even if a contract between a provider and
a payer includes a provision prohibiting
the public disclosure of its terms, it is the
Departments’ understanding that such
contracts typically include exceptions if
a particular disclosure is required by fed-
eral law. Finally, as the Supreme Court
has found, “[c]ontracts, however express,
cannot fetter the constitutional authority
of Congress. Contracts may create rights
of property, but when contracts deal with
a subject matter which lies within the
control of Congress, they have a congen-
ital infirmity. Parties cannot remove their
transactions from the reach of dominant
constitutional power by making contracts
about them.” Norman v. Balt. & Ohio R.R.
Co., 294 U.S. 240, 307–08 (1935) (“If the
regulatory statute is otherwise within the
powers of Congress... its application may
not be defeated by private contractual pro-
visions.”); see also Connolly, 475 U.S. at
224.
Several commenters contended that the
proposed rules would be inconsistent with
certain executive orders. One commenter
contended that Executive Order 13877,
which the Departments cited as the im-
petus for the proposed rules, directs the
agencies to “require... health insurance
issuers... to provide or facilitate access to
information about expected out-of-pock-
103
The Uniform Trade Secrets Act is a model statute that a majority of states have adopted in some form. The UTSA is promulgated by the Uniform Law Commission. See generally, Uniform
Trade Secrets Act with 1985 Amendments, Nat’l Conference of Commissioners on Uniform State Laws, August 1985. UTSA has been adopted in some form by 48 states. New York and
North Carolina are the exceptions. See “Trade Secrets Act.” Uniform Laws Commission. Available at: https://www.uniformlaws.org/committees/community-home?CommunityKey=3a253
8fb-e030-4e2d-a9e2-90373dc05792.
104
See Uniform Trade Secrets Act with 1985 Amendments, Nat’l Conference of Commissioners on Uniform State Laws, August, 1985; Restatement (First) of Torts § 757 (1939).
105
Restatement (First) of Torts § 757 (1939) (“GENERAL PRINCIPLE. One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered
the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third
person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the
other, or (d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.”).

Bulletin No. 2020–49 1241 November 30, 2020
et costs for items or services to patients
before they receive care.” The comment-
er asserted that this directive does not
rationally encompass a requirement that
issuers make public all negotiated rates
and allowed amounts. The commenter
also asserted that the proposed rules are
incompatible with section 3(b) of Execu-
tive Order 13877, which provides that any
rulemaking be “consistent with applicable
law,” in that the proposed rules run con-
trary to antitrust law as well as prohibi-
tions against disclosing trade secrets.
The Departments disagree with these
comments. First, Executive Order 13877
clearly states that it is “not intended to,
and does not, create any right or benefit,
substantive or procedural, enforceable
at law or in equity by any party against
the United States, its departments, agen-
cies, or entities, its officers, employees,
or agents, or any other person.” Executive
Order 13877, Sec. 8(c). Thus, an execu-
tive order cannot form the basis of a chal-
lenge to a rulemaking. Second, for all the
reasons detailed earlier in this preamble,
the Departments are of the view that the
final rules are necessary and appropriate
measures that are sufficiently narrowly
tailored to meet the stated goals of the
Executive Order. Making public the ne-
gotiated rates and out-of-network allowed
amounts is essential for consumers to ob-
tain useful information about out-of-pock-
et costs they are likely to incur before re-
ceiving services. Due to the prevalence of
high deductibles throughout markets na-
tionwide, this information will be crucial
for a significant cohort of persons enrolled
in health plans to be able to anticipate
costs in advance of each plan year. For the
public, access to information concerning
allowed amounts is essential to obtain re-
liable advance estimates of personal lia-
bility to facilitate cost-conscious choices
that enhance competition and lower over-
all costs. Finally, as described later in this
preamble, the Departments considered
many alternatives to the proposed and fi-
nal rules. The Departments are of the view
that the final rules are a straightforward
implementation of the mandate of section
1311(e)(3) of PPACA, and that the choic-
es taken in particular instances are well
calculated to effectively and fully imple-
ment the goals of the authorizing statutes.
Moreover, the regulations provide tools
and information to consumers that are crit-
ical to their ability to access meaningful
price information, including the personal
liability associated with a substantial por-
tion of health care services. This directly
facilitates the meaningful engagement of
consumers with their own health care and
protects patients from the likelihood of
unanticipated health care costs. As such,
the regulations fulfill the mandate of Ex-
ecutive Order 13877.
For the foregoing reasons, the final
rules adopt the majority of the provisions
in the proposed rules, with certain modi-
fications, as described in detail in the fol-
lowing sections of this preamble.
II. Overview of the Final Rules
Regarding Transparency – the
Departments of the Treasury, Labor,
and Health and Human Services
The Departments are finalizing price
transparency requirements set forth in the
final rules in 26 CFR 54.9815-2715A1, 26
CFR 54.9815-2715A2, 26 CFR 54.9815-
2715A3, 29 CFR 2590.715-2715A1,
29 CFR 2590.715-2715A2, 29 CFR
2590.715-2715A3, and 45 CFR 147.210,
147.211, and 147.212. The final rules
separate the proposed regulations all con-
tained in 26 CFR 54.9815-2715A, 29 CFR
2590.715-2715A, and 45 CFR 147.210,
into three separate regulations for each
of the Departments. The regulations set
forth the scope and relevant definitions
in 26 CFR 54.9815-2715A1, 29 CFR
2590.715-2715A1, and 45 CFR 147.210
(which correspond with paragraph (a) of
the proposed regulations). The regula-
tions at 26 CFR 54.9815-2715A2, 29 CFR
2590.715-2715A2, and, 45 CFR 147.211
(which correspond with paragraph (b) of
the proposed regulations) include: (1) a
requirement that group health plans and
health insurance issuers in the individu-
al and group markets disclose to partic-
ipants, beneficiaries, or enrollees upon
request, through a self-service tool made
available by the plan or issuer on an in-
ternet website, cost-sharing information
for a covered item or service from a par-
ticular provider or providers, and (2) a
requirement that plans and issuers make
such information available in paper form,
upon request. As explained in more de-
tail later in this preamble, the final rules
adopt a three-year, phased-in approach
with respect to the scope of the require-
ment to disclose cost-sharing information.
Plans and issuers must make cost-sharing
information available for 500 items and
services identified by the Departments for
plan years (in the individual market, for
policy years) beginning on or after Janu-
ary 1, 2023, and must make cost-sharing
information available for all items and
services for plan years (in the individual
market, for policy years) beginning on or
after January 1, 2024.
The regulations at 26 CFR 54.9815-
2715A3, 29 CFR 2590.715-2715A3, and
45 CFR part 147.212 (at paragraph (c)
of the proposed regulations) require that
plans and issuers disclose pricing infor-
mation to the public through three ma-
chine-readable files. One file requires
disclosure of payment rates negotiated
between plans or issuers and providers for
all covered items and services. The sec-
ond file will disclose the unique amounts
a plan or issuer allowed, as well as asso-
ciated billed charges, for covered items
or services furnished by out-of-network
providers during a specified time period.
To reduce the complexity and burden of
including prescription drug information
in the negotiated rate machine-readable
file, the final rules require a third file that
will include pricing information for pre-
scription drugs. The final rules modify the
applicability date for these provisions to
plan years (in the individual market, pol-
icy years) beginning on or after January
1, 2022.
The provisions proposed at paragraph
(d) of the proposed regulations are final-
ized in 26 CFR 54.9815-2715A2 and 26
CFR 54.9815-2715A3, 29 CFR 2590.715-
2715A2, and 29 CFR 2590.715-2715A3,
and 147.211 and 147.212 with non-sub-
stantive editorial changes for increased
readability, and with effective dates re-
flecting the phased approach to implemen-
tation mentioned earlier and discussed in
more detail later in this preamble.
In addition to splitting the final rules
into three separate regulations for each
Department, the Departments have added
severability clauses to the final rules to
emphasize the Departments’ intent that, to
the extent a reviewing court holds that any
provision of the final rules is unlawful, the
remaining rules should take effect and be

November 30, 2020 1242 Bulletin No. 2020–49
given the maximum effect permitted by
law. The final rules provide that any pro-
vision held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from the
relevant section and shall not affect the re-
mainder thereof or the application of the
provision to persons not similarly situated
or to dissimilar circumstances.
To streamline the final rules, the De-
partments have removed definitions of
terms that are defined in the applicable
statute or elsewhere in such statutes’ im-
plementing regulations and have revised
certain definitions to provide more clarity.
Finally, based on comments received, the
Departments have reassessed the asso-
ciated burden estimates in the Economic
Impact Analysis and Paperwork Burden
section of this preamble.
A. Definitions
The final regulations at 26 CFR
54.9815-2715A1(a), 29 CFR 2590.715-
2715A1(a), and 45 CFR 147.210(a) (para-
graph (a) of the proposed regulations)
set forth definitions that are applicable
to the regulations at 26 CFR 54.9815-
2715A2, 29 CFR 2590.715-2715A2, and
45 CFR 147.211 (paragraph (b) of the pro-
posed regulations) and 26 CFR 54.9815-
2715A3, 29 CFR 2590.715-2715A3, 45
CFR 147.212 (paragraph (c) of the pro-
posed regulations). The Departments have
revised the proposed definitions of some
terms and included new defined terms
in order to clarify the final requirements
of 26 CFR 54.9815-2715A2, 29 CFR
2590.715-2715A2, and 45 CFR 147.211,
and 26 CFR 54.9815-2715A3, 29 CFR
2590.715-2715A3, and 45 CFR 147.212.
Comments on the definitions in the pro-
posed rule focused on concerns regarding
consistency of definitions across related
government programs, the general need
for increased clarity in relation to some
proposed definitions, and the need for
resolution of perceived ambiguities in the
proposed definitions. In response to these
comments, the Departments are not final-
izing certain proposed definitions that are
already defined in existing, pertinent reg-
ulations. The Departments are finalizing
revised versions of other proposed defini-
tions to clarify their meaning, as well as
the policies and requirements adopted in
the final rules.
Commenters recommended aligning
definitions in the proposed regulations
with those in other existing regulations to
avoid conflicts. In light of these recom-
mendations, the Departments are not final-
izing the proposed definition of “partici-
pant” under 26 CFR 54.9815-2715A1, 29
CFR 2590.715-2715A1, or part 147.210
because the term is already defined in
the Departments’ regulations at 26 CFR
54.9801-2, 29 CFR 2590.701-2, and 45
CFR 144.103. Likewise, the Departments
are not finalizing the proposed definition
of “beneficiary” under proposed 45 CFR
145.210 and 29 CFR 2590.715-2715A1,
because the term is already defined under
HHS regulation at 45 CFR 144.103 and in
statute at ERISA section 3(8). The Depart-
ments, however, are finalizing the defini-
tion of “beneficiary” proposed under 26
CFR 54.9815-2715A(a) (now at 26 CFR
54.9815-2715A1), because the term is not
otherwise defined in Treasury Regulations
or the Code. Finally, the Departments are
not finalizing the proposed definition for
“qualified health plan” at 45 CFR 145.210
since the term is not used in the regulation
text.
Some commenters requested clari-
fication of the terms “participants” and
“beneficiaries” because the proposed
rules’ definitions of these terms included
individuals who may become eligible for
a plan or coverage, and as the proposed
rules envisioned personalized feedback to
“participants” and “enrollees” it would be
impossible to provide such information to
an individual not currently enrolled in a
plan or coverage. The Departments agree.
However, instead of modifying existing,
applicable definitions for “participants”
and “beneficiaries,” the final rules, at 26
CFR 54.9815-2715A2, 29 CFR 2590.715-
2715A2, and 45 CFR 147.211, and this
preamble below clarify to whom these
disclosures are required.
One commenter recommended the
Departments define the term “in-network
provider” in the final rules to clearly ex-
clude device suppliers and manufacturers
that, the commenter suggested, have not
traditionally been considered in-network
providers and whose price information
is of limited value to consumers. The
Departments do not agree that device
suppliers and manufacturers should be
excluded. Based on the numerous public
comments from individuals who support
broad price transparency for all covered
items and services, the Departments are
of the view that pricing information for
all covered items and services should be
available, including pricing for durable
medical equipment (DME) or other med-
ical devices that are supplied to a partici-
pant, beneficiary, or enrollee by a provid-
er under a contract with a plan or issuer.
To clarify, the final rules define in-net-
work provider to mean any provider of
items and services with which the plan or
issuer, or a third-party for a plan or issuer,
has a contract setting forth the terms un-
der which a covered item or service may
be provided to a participant, beneficiary,
or enrollee. The Departments broadened
this definition to clarify that even where
a provider and a plan or issuer have a
limited rate agreement of some kind, or a
rate agreement covering DME, those pro-
viders should be considered in-network
providers for purposes of the final rules.
Additionally, if a plan or issuer enters
into a contract or has such payment ar-
rangements, then the pricing information
for the specific covered items or services
subject to that contract or payment ar-
rangement are required to be disclosed as
part of the internet self-service tool and
machine-readable files.
The proposed regulations included a
definition for “negotiated rate” to mean
the amount a group health plan or health
insurance issuer, or a third party on be-
half of a plan or issuer, has contractual-
ly agreed to pay an in-network provider
for covered items and services, pursuant
to the terms of an agreement between
the provider and the plan or issuer, or a
third-party on behalf of a plan or issuer.
Consistent with the proposed and final
definitions of “items and services,” plans
and issuers are required to disclose “ne-
gotiated rates” for encounters, procedures,
medical tests, supplies, prescription drugs,
durable medical equipment, and fees (in-
cluding facility fees) to participants, ben-
eficiaries, and enrollees through the inter-
net-based self-service tool (and in paper
form) as well as to the public through a
machine-readable file. One comment-
er requested the Departments clarify the
meaning of “negotiated rate” for prescrip-

Bulletin No. 2020–49 1243 November 30, 2020
tion drugs, noting that they assumed the
Departments expected plans and issuers
to provide the drug price negotiated by a
PBM on behalf of the plan. Another com-
menter asserted that the “negotiated rate”
of prescription drugs for disclosure should
be the price patients will see at the point-
of-sale, meaning the undiscounted price of
the drug, plus dispensing fees. Converse-
ly, another commenter stated that dispens-
ing fees are not paid by enrollees or used
in determining cost-sharing liability. Oth-
er commenters suggested that the Depart-
ments grant plans and issuers flexibility in
determining the appropriate rate for dis-
closure, as plans and issuers use a variety
of different benchmarks, such as the Av-
erage Wholesale Price (AWP), or Whole-
sale Acquisition Cost (WAC) which may
be considered as the “negotiated rate” for
the purpose of determining cost-sharing
liability under the plan or coverage.
In the final rules, the Departments have
revised the definition of “negotiated rate”
to mean the amount a plan or issuer has
contractually agreed to pay for a covered
item or service, whether directly or indi-
rectly through a third party administrator
(TPA) or PBM, to an in-network provider,
including an in-network pharmacy or oth-
er prescription drug dispenser, for covered
items or services. The final rules adopt the
proposed definition with two key modifi-
cations. First, the term “third party” from
the proposed definition is expanded in the
final rules to explicitly refer to “third-par-
ty administrator or pharmacy benefit
manager.” Second, the final definition of
“negotiated rate” specifically notes that
the term in-network provider includes an
in-network pharmacy or other prescription
drug dispenser. The purpose of these mod-
ifications is to confirm the commenter’s
inference that in the case of prescription
drugs, the plan or issuer should include
the price negotiated for that plan or issuer
by a PBM. Furthermore, the “negotiated
rate” in the final rules is intended to be
broad enough to account for different plan
designs and benchmarks for determining
negotiated rates.
The final rules also add definitions for
the following terms that were not includ-
ed in the proposed regulations: “billed
charge,” “copayment assistance,” “de-
rived amount,” “historic net price,” “na-
tional drug code,” and “underlying fee
schedule.” The addition of these defini-
tions is discussed later in this preamble.
One commenter noted that the De-
partments have proposed definitions for
“accumulated amounts,” “cost-sharing
liability,” and “cost-sharing information”
that are unique to the proposed rules and,
in some cases, differ from definitions of
similar terms used in other related regu-
lations. In particular, this commenter rec-
ommended that all definitions should ex-
plicitly recognize that cost sharing can be
paid by or on behalf of an enrollee, partic-
ipant, or beneficiary, since that is how cost
sharing is defined by HHS regulation. The
commenter also requested that the De-
partments clarify the proposed definition
of “accumulated amounts” and suggested
revising the definition to state clearly that
accumulated amounts are the “amount of
financial responsibility a participant, ben-
eficiary, or enrollee has incurred, whether
satisfied by or on behalf of the participant,
beneficiary, or enrollee....”
The Departments recognize that cost
sharing may be paid by a third-party on
behalf of an enrollee, participant, or ben-
eficiary. However, the Departments are
of the view that some plans and issuers
do not count cost-sharing liability pay-
ments made by a third-party towards a
participant’s, beneficiary’s, or enrollee’s
accumulated amounts, and modifying the
definitions as suggested by the commenter
could cause confusion in the context of the
final rules.
The Departments have added disclo-
sure requirements that are discussed in
detail elsewhere in this preamble to ad-
dress this concern. The definitions being
finalized also include non-substantive
editorial changes from the proposed reg-
ulations for readability to the following
terms; “accumulated amounts,” “billing
code,” “bundled payment arrangement,”
“cost-sharing liability,” “cost-sharing in-
formation,” “covered items or services,”
“item or services,” and “out-of-network
allowed amount.”
The definitions identified as new or
substantively modified in this section,
as well as those that are being finalized
as proposed, are discussed further in re-
lation to the requirements of 26 CFR
54.9815-2715A2, 29 CFR 2590.715-
2715A2, and 45 CFR 147.211 and 26
CFR 54.9815-2715A3, 29 CFR 2590.715-
2715A3, and 45 CFR part 147.212
throughout this preamble.
B. Requirements for Disclosing Cost-
Sharing Information to Participants,
Beneficiaries, and Enrollees
The final rules are intended to enable
participants, beneficiaries, and enrollees
to obtain an estimate of their potential
cost-sharing liability for covered items
and services they might receive from a
particular health care provider, consistent
with the requirements of section 2715A
of the PHS Act and section 1311(e)(3)(C)
of PPACA. Accordingly, the Departments
proposed in paragraph (b) of the proposed
regulations to require group health plans
and health insurance issuers to disclose
certain information relevant to a determi-
nation of a consumer’s out-of-pocket costs
for a particular health care item or service
in accordance with specific method and
format requirements, upon the request of a
participant, beneficiary, or enrollee.
A majority of commenters supported
the Departments’ proposal and urged the
Departments to finalize this section of the
proposed rules. Many commenters were
supportive of being able to know their
costs before receiving care in order to
make informed shopping decisions. Some
commenters agreed that consumers should
have access to cost information in advance
of receiving care, but suggested modifica-
tions to the proposed requirements. The fi-
nal rules adopt the requirement that plans
and issuers disclose certain cost-sharing
information for a particular health care
item or service, generally as set forth in
the proposed rules, but with certain modi-
fications and clarifications explained later
in this section of this preamble.
1. Information Required to be Disclosed
to Participants, Beneficiaries, or Enrollees
Based on significant research and re-
view of public comments, the Depart-
ments concluded that requiring group
health plans and health insurance issuers
to disclose to participants, beneficiaries, or
enrollees cost-sharing information in the
manner most familiar to them is the best
means to empower individuals to under-
stand their potential cost-sharing liability
for covered items and services furnished

November 30, 2020 1244 Bulletin No. 2020–49
by particular providers. The Departments,
therefore, modeled the proposed price
transparency requirements on existing no-
tice requirements.
Specifically, section 2719 of the PHS
Act (incorporated into the Code by section
9815 of the Code and into ERISA by sec-
tion 715 of ERISA) requires non-grand-
fathered plans and issuers offering
non-grandfathered coverage in the indi-
vidual or group markets to provide a notice
of adverse benefit determination (typically
satisfied by the EOB) to participants, ben-
eficiaries, or enrollees after health care
items or services are furnished and claims
for benefits are adjudicated. EOBs typical-
ly include the amount billed by a provider
for items and services, negotiated rates or
underlying fee schedules with in-network
providers or allowed amounts for out-of-
network providers, the amount the plan
paid to the provider, and the individual’s
obligation for deductibles, copayments,
coinsurance, and any other balance under
the provider’s bill. Consumers are accus-
tomed to seeing cost-sharing information
as it is presented in an EOB. The proposed
rules were intended to similarly require
plans and issuers to provide the specific
price and benefit information on which an
individual’s cost-sharing liability is based.
Based on comments, the Departments
are of the view that participants, benefi-
ciaries, and enrollees would also benefit
from understanding the price of items and
services, even in circumstances when their
cost-sharing liability is not based upon a
negotiated rate or underlying fee schedule
rate. Given this primary goal of overall
price transparency, the Departments are
requiring disclosure of the negotiated rate,
even if it is not the amount used as the ba-
sis for cost-sharing liability.
The proposed rules set forth seven con-
tent elements that a plan or issuer must
disclose, upon request, to a participant,
beneficiary, or enrollee for a covered item
or service: estimated cost-sharing liabili-
ty, accumulated amounts, negotiated rates,
out-of-network allowed amounts, a list
of items and services subject to bundled
payment arrangements, a notice of pre-
requisites, if applicable, and a disclosure
notice. These seven content elements gen-
erally reflect the same information that is
included in an EOB after health care ser-
vices are provided. The Departments de-
termined that each of the seven content el-
ements, as well as two additional content
elements, are necessary and appropriate to
implement the mandates of section 2715A
of the PHS Act and section 1311(e)(3)(C)
of PPACA by permitting individuals to
learn the amount of their cost-sharing lia-
bility and understand the price for specific
items or services under a plan or coverage
from a particular provider. The final rules
adopt the requirement that plans and is-
suers must satisfy these elements through
disclosure of actual data relevant to an
individual’s cost-sharing liability that is
accurate at the time the request is made.
The Departments acknowledge that plans
and issuers may not have processed all of
an individual’s outstanding claims when
the individual requests the information;
therefore, plans and issuers would not be
required to account for outstanding claims
that have not yet been fully processed.
As set forth in 26 CFR 54.9815-2715A2,
29 CFR 2590.715-2715A2, and 45 CFR
147.211 this cost-sharing information
must be disclosed upon request in two
ways: (1) through a self-service tool that
meets certain standards and is available on
an internet website, and (2) in paper form,
if requested by the participant, beneficia-
ry, or enrollee.
Furthermore, under the final rules, the
cost-sharing information must be dis-
closed to the participant, beneficiary, or
enrollee in plain language. The final rules
define “plain language” to mean written
and presented in a manner calculated to
be understood by the average participant,
beneficiary, or enrollee. Determining
whether this standard has been satisfied
requires an exercise of considered judg-
ment and discretion, taking into account
such factors as the level of comprehen-
sion and education of typical participants,
beneficiaries, or enrollees in the plan or
coverage and the complexity of the terms
of the plan or coverage. Accounting for
these factors would likely require limiting
or eliminating the use of technical jargon
and long, complex sentences, so that the
information provided will not have the ef-
fect of misleading, misinforming, or fail-
ing to inform participants, beneficiaries,
or enrollees.
Several commenters agreed that the
information found in an EOB is a good
basis for informing individuals of their
cost-sharing liability and will effectively
further coverage transparency efforts. One
commenter stated that information found
in an advance EOB is neither a trade se-
cret, nor proprietary, as it is routinely dis-
closed following care. Other commenters
expressed concern about this concept of
an advance EOB, stating that most plans
and issuers do not have access to all the
information necessary to provide bene-
ficiaries with an upfront adjudication of
the beneficiary’s claim, and that the vast
majority of data provided via online tools
now rely on estimated costs drawn from
publicly available sources rather than per-
sonal information and circumstances.
Many commenters expressed con-
cerns that the elements and methods of
disclosure proposed by the Departments
are overly prescriptive, hindering health
plan innovation and requiring potentially
significant reworking of existing trans-
parency tools, as well as requiring mas-
sive IT and resource investments by all
commercial plans and issuers to devel-
op, build or modify, test, and implement
tools that meet the new standards. Sever-
al commenters recommended providing
plans and issuers with flexibility to build
upon current systems. Another comment-
er urged the Departments to evaluate the
individualized tools currently available,
and that if requirements for cost-estima-
tor tools are adopted, they should give
carriers and TPAs maximum flexibility
in designing their tools. One commenter
felt a better approach would be to educate
consumers about the online tools that are
currently available and assist employers
to encourage their use. Several comment-
ers opposed the requirement to provide
the tool and suggested the Departments
remove this requirement from the final
rules altogether. These commenters stat-
ed that price estimator tools should not be
required, citing studies showing low tool
utilization by consumers and plan partic-
ipants, beneficiaries, or enrollees. These
commenters stated that the administration
should instead focus on educating con-
sumers about the online tools that are cur-
rently available and assisting employers
and plans in encouraging their use.
The Departments are of the view that
modeling the pricing disclosures on the
elements provided within an EOB is both
reasonable and appropriate. The Depart-

Bulletin No. 2020–49 1245 November 30, 2020
ments acknowledge the potential burden
of updating existing tools to comply with
the final rules, but the Departments think
that the potential burden is outweighed
by the importance of all enrollees, bene-
ficiaries, and participants having access to
self-service tools that provide a baseline
of accurate pricing elements. The Depart-
ments also acknowledge that, historically,
there has been low utilization of existing
tools; however, the Departments are of the
view that by creating minimum uniform
standards, consumers will have access to
more reliable, personalized estimates and
will be more likely to use the tools.
As described earlier in this preamble,
through independent examination and en-
gagement with stakeholders, the Depart-
ments are of the view that existing tools
vary widely in usability and reliability
due to the lack of minimum standards.
106

The Departments received thousands of
supportive comments from individuals
eager for access to transparent pricing
information, indicating that the current
tools available are inadequate in practice.
Furthermore, as discussed in great detail
throughout this preamble, as consumers
increasingly become financially responsi-
ble for a greater proportion of the cost of
their care (through deductible and coinsur-
ance requirements, for example) they have
a vested interest in comparing prices of
potential providers and such items as pre-
scription drugs. As such, it is likely in the
best interest of plans, issuers, and provid-
ers to promote and educate their consum-
ers on the benefits of these shopping tools,
and the Departments encourage them to
do so. The Departments do not agree with
the commenter who stated that educating
consumers regarding existing tools and
encouraging their use would be a better
approach than requiring the self-service
tool as proposed. While the Departments
agree that educating consumers on exist-
ing self-service tools is important, it does
not replace the benefits of making reliable
self-service tools available to most partic-
ipants, beneficiaries, and enrollees in pri-
vate market plans and coverages. The De-
partments are of the view that minimum
consistent requirements for all plans and
issuers may lead to an increase in health
literacy and drive consumerism as partici-
pants, beneficiaries, and enrollees become
more familiar with how plans and issuers
calculate cost-sharing liability. Further-
more, the final rules adopt a phased imple-
mentation approach to these requirements
as a mechanism to help mitigate the asso-
ciated implementation burdens.
Some commenters requested that the
Departments confirm that the intent of the
proposed rules is that only participants
and beneficiaries enrolled in the plan
would have access to the tool, noting that
the proposed regulations used the ERISA
definitions of “participant” and “bene-
ficiary,” which include individuals who
may become eligible for the plan. Many
commenters encouraged the Departments
to also require that plans and issuers make
cost-sharing information easily accessi-
ble to authorized representatives—which
may include health care providers—so
that they can better respond to patient in-
quiries. These commenters suggested that
patients reasonably turn to providers for
this information when contemplating or
scheduling health care services, but pro-
viders often face barriers in accessing the
necessary details from issuers to provide
a timely, accurate estimate. Commenters
suggested that plans and issuers should be
required to give providers access to their
patients’ specific benefit information via
a secure website, subject to patient con-
sent. One commenter recommended that
the tool be made applicable for the public
while they are in the shopping and plan
selection phase, not just after someone is
enrolled in a plan. This commenter sug-
gested that true cost transparency would
not be possible if this information was not
made available in advance.
The final rules clarify that disclosures
of cost-sharing information are only re-
quired to individuals who are enrolled in
the plan or coverage; no disclosures are
required to be made to a “participant” or
“beneficiary” solely because they might
become eligible for the plan in the future.
This is reflected by a revision to the pro-
posed language being finalized at 26 CFR
54.9815-2715A2(b), 29 CFR 2590.715-
2715A2(b), and 45 CFR 147.211(b)
to refer to plans and issuers providing
cost-sharing information to a participant,
beneficiary, or enrollee who is enrolled in
a plan or coverage. The Departments un-
derstand the value in provider access to
cost-sharing information required under
the final rules. However, this rulemaking
focuses on implementing the statutory ob-
ligation for plans to make this information
available to participants, beneficiaries,
and enrollees. A participant, beneficiary,
or enrollee may choose to share informa-
tion regarding their personal cost-sharing
liability with a provider for the purposes
of making health care decisions. The fi-
nal rules also require that this informa-
tion must be provided to a participant’s,
beneficiary’s, or enrollee’s authorized
representative. Under other applicable
regulations, participants, beneficiaries, or
enrollees may appoint a health care pro-
vider as their authorized representative.
107
Regarding whether other types of in-
formation should be required to be dis-
closed in the self-service tool, several
commenters expressed concern that infor-
mation regarding cost without accompa-
nying provider quality information could
have a detrimental effect on overall health
care cost and delivery of value-based
care. One commenter stated that shifting
care to a lower-cost provider could have
unintended consequences of higher costs
associated with unnecessary or improper
care. Commenters recommended that a
quality metric be included and that qual-
ity information be allowed to be included
alongside price.
As discussed in the background section
of this preamble and later in this preamble,
the Departments acknowledge that quality
information could be a valuable addition
to a self-service tool. However, the De-
partments did not propose to require dis-
closure of quality information. Rather, the
Departments sought comments regarding
quality information in the proposed rules
and plan to take those comments into
consideration for future action. The De-
106
“Are healthcare’s cost estimate tools making matters worse for patients?” Becker’s Hospital CFO Report, November 2015. Available at: https://www.beckershospitalreview.com/finance/
are-healthcare-s-cost-estimate-tools-making-matters-worse-for-patients.html. Citing Gordon, E. “Patients Want to Price-Shop For Care, But Online Tools Unreliable.” NPR. November 30,
2015, Available at https://www.npr.org/sections/health-shots/2015/11/30/453087857/patients-want-to-price-shop-for-care-but-online-tools-unreliable. (“Some estimators reflect a combined
range of possible costs, while others are based off historical pricing or claims data from various sources. Many online estimate tools are restricted in the types of procedures they include...”).
107
29 CFR 2560.503-1(b)(4); see also 26 CFR 54.9815-2719(b)(2)(i), 29 CFR 2590.715-2719(b)(2)(ii), and 45 CFR 147.136(b)(2)(ii).

November 30, 2020 1246 Bulletin No. 2020–49
partments encourage plans and issuers to
further innovate around the baseline stan-
dards outlined above and include quality
information and other metrics not required
by the final rules that would assist in con-
sumer decision-making.
Several commenters suggested that
plans and issuers should be required to
disclose information not directly related
to cost sharing. One commenter urged the
Departments to include an additional re-
quirement in the final rules for plans and
issuers to provide consumers with infor-
mation they need to fully understand their
cost-sharing obligations for emergency
services at the time they obtain their cov-
erage, and recommended plans and issuers
also update this information on an annual
basis or when major changes occur that
would impact their access to, and overall
cost of, emergency care, such as changes
to their provider. Another commenter rec-
ommended that when consumers enter a
search for a primary service or treatment,
that they also be provided with an “alert”
that additional services, such as anesthe-
sia, pathology, or laboratory tests, likely
will be involved and will entail addition-
al costs, which should also be disclosed.
Another commenter requested that the
Departments add the “type of plan” (for
example, ERISA-covered group health
plan, a QHP, a Medicare Advantage plan,
a Medicaid MCO plan, an individual
health plan, or a plan that is grandfathered
from PPACA requirements) and in what
state the plan is providing coverage as dis-
closure content elements that health plans
would be required to post on the proposed
internet-based self-service tool, so that the
information is readily available.
The Departments recognize the benefit
of providing information for emergen-
cy services at the time consumers obtain
their coverage. The Departments are of
the view, however, that existing rules gov-
erning summaries of benefits and cover-
age are designed to provide such informa-
tion to consumers at the time they obtain
coverage. As such, the Departments are
not inclined to duplicate existing require-
ments in the final rules. The Departments
also acknowledge that alerting consum-
ers to additional services associated with
a service or treatment for which they
searched could be beneficial. For this
reason, the final rules provide plans and
issuers flexibility to give disclaimers that
can address the likelihood that services in
addition to the one for which a consumer
searched will be necessary. The final rules
also require that plans and issuers out-
line individual services when a consum-
er requests an estimate for a service that,
per the agreement between a payer and a
provider, will be provided and billed as a
bundle. Plans and issuers are also free to
provide such information in any way they
so choose, including through an alert. The
Departments are also of the view that par-
ticipants, beneficiaries, and enrollees are
generally aware of the type of plan they
are enrolled in or can reasonably access
this information by contacting their plan
or issuer and therefore decline to require
this information as part of the final rules.
Scope of Items and Services
Many commenters stated that the re-
quirement to disclose the price of all cov-
ered items and services was overly broad
and overly burdensome, and instead sug-
gested the Departments limit disclosure
to a core set of “shoppable services” that
are commonly searched for in existing
cost-estimator tools. Many commenters
referenced the recently finalized definition
of a shoppable service that was included in
the Hospital Price Transparency final rule
as “a service that can be scheduled by a
health care consumer in advance.”
108
Two
commenters recommended no more than
300 shoppable items and services, while
another suggested a limit of 200. As a way
to reduce the cost burden, one commenter
suggested that the requirements under the
rules be limited to services that are priced
above a certain threshold and provided
$5,000 as an example. One commenter
said the Departments should permit health
plans and issuers to tailor their tools to
best meet their enrollees’ and providers’
demonstrated needs and priorities, includ-
ing selection of the items and services
for which estimates are most useful and
meaningful for participants, beneficiaries,
and enrollees. Another commenter recom-
mended that the cost-sharing requirement
be limited to items and services where the
estimated out-of-pocket price is frequent-
ly the same as the final price. Another
recommended the tool not require data on
those items/services with volatile prices or
low volume.
One commenter, representing many
plans and issuers, provided a list of 421
items and services that they recommended
including under this disclosure require-
ment. The recommended list of 421 items
and services are a result of an analysis the
commenter performed which compared
member feedback, claims frequency, op-
erational feasibility, and state mandates
and regulations, as well as variability of
cost and search frequency. All 421 items
and services were included by, at the mini-
mum, a subset of issuers, indicating confi-
dence that the covered items and services
were shoppable. This commenter also not-
ed that their survey of existing tools found
a median of 526 services available to con-
sumers enrolled in commercial coverage.
A few commenters recommended that
the Departments limit the list of items
and services to only major medical ser-
vices. One commenter recommended the
Departments not include cost sharing for
DME. Several commenters suggested that
a Technical Expert Panel (TEP) was need-
ed to review data and input from stake-
holders, advise on research the Depart-
ments should undertake, and determine
which items and services and functional
requirements would be suitable to include
in the future.
Many individual commenters ex-
pressed their desire for dental, vision, and
other excepted benefits to be included
under the requirements of the final rules
or in the near future. Further, a majority
of individual commenters encouraged the
Departments to require the inclusion of all
items and services, stating that consumers
have a right to know this information for
all items and services in advance. Sev-
eral commenters recommended that the
rules be implemented in a more gradual
phased-in timeline, by requiring the tool
to cover a narrower data set of the most
common shoppable services first and then
broadened to eventually include all items
108
84 FR 65524 (Nov. 27, 2019) (codified at 45 CFR 180.20).

Bulletin No. 2020–49 1247 November 30, 2020
and services. Another commenter stated
that to the extent that the services include
non-medical estimates like pharmacy and
dental costs, those costs could likely only
be included by allowing third parties that
fulfill those benefits to provide separate
transparency tools that integrate with a
plan’s tool.
The Departments agree with comment-
ers who stated that consumers should be
given price estimates in advance, and
the Departments understand that what is
considered useful and meaningful pricing
information is likely to be unique to an
individual’s circumstances. For these rea-
sons, and the rationale for this rulemaking
described throughout this preamble, the
Departments decline to accept sugges-
tions related to limiting the number or
types of items and services included under
this requirement. However, the Depart-
ments acknowledge the potential burden
of incorporating all items and services
into a self-service tool immediately and
are therefore finalizing a phased-in imple-
mentation timeline. Under the final rules,
plans and issuers are required to provide
estimates for the 500 items and services
identified in Table 1 for plan years (in the
individual market, for policy years) be-
ginning on or after January 1, 2023. How-
ever, plans and issuers will be required to
disclose pricing information with respect
to all items and services for plan years (in
the individual market, for policy years)
beginning on or after January 1, 2024.
Given that pricing estimates for all items
and services will ultimately be required,
the Departments do not find it necessary to
convene a TEP to determine which items
and services and functional requirements
would be suitable to include in the future.
Further, in finalizing the provision that
plans and issuers disclose cost-sharing lia-
bility information for all covered items and
services, the Departments are clarifying
that cost-sharing information must also be
provided for covered prescription drugs
and DME. As discussed later in this pre-
amble, a plan or issuer will be considered
compliant with this requirement if it offers
its participants, beneficiaries, or enrollees
access to the pricing information that is
required under 26 CFR 54.9815-2715A2,
29 CFR 2590.715-2715A2, and 45 CFR
147.211, through a third-party tool, such
as a PBM tool. As discussed elsewhere
in this preamble, the Departments clar-
ify that excepted benefits, such as limit-
ed-scope dental benefits offered under a
separate policy, certificate, or contract of
insurance that are not an integral part of a
group health plan or health insurance cov-
erage, are not subject to the requirements
established under the final rules.
In developing the list of 500 items and
services that are required to be included in
the self-service tool during the first year
of implementation, the Departments con-
sidered the recommendations made by the
commenters to include shoppable items
and services that are commonly used in
existing tools. As mentioned above, in a
survey of existing price transparency tools
currently in use, one commenter found
that the median number of items and
services in existing tools is 526. Table 1
lists 500 items and services that will be
required to be included in the first phase
of implementation of the internet-based
self-service tool. The Departments will
publish a copy of this list on a publicly
available website. The majority of these
items and services (416) are based on the
recommendation of several stakeholders.
The Departments have determined not to
include five of the recommended codes
because they have since been retired. The
Departments augmented the list with 84
additional services. These 84 services re-
flect some of the most frequently found
services in External Data Gathering En-
vironment (EDGE)
109
data, which are rep-
resentative of services commonly provid-
ed in the individual and small group (or
merged) markets. The Departments also
examined the aggregate claims costs asso-
ciated with these services nationally and
concluded that these services could have
significant cost variability, ranging from
the 25
th
percentile to the 75
th
percentile of
costs, depending on service.
Table 1: 500 Items and Services List
CodeDescriptionPlain Language Description
J0702BETAMETHASONE ACET&SOD PHOSP
Injection to treat reaction to a drug
J1745INFLIXIMAB NOT BIOSIMIL 10MG A biologic medication
G0102
Prostate cancer screening; digital rectal
examination

G0103
Prostate cancer screening; prostate specific
antigen test (psa)

G2061
Qualified non physician healthcare
professional online assessment; 5-10 minutes
Qualified non physician healthcare professional online
assessment, for an established patient, for up to seven
days, cumulative time during the 7 days; 5-10 minutes
G2062
Qualified non physician healthcare
professional online assessment service; 11-20
minutes
Qualified non physician healthcare professional online
assessment service, for an established patient, for up to
seven days, cumulative time during the 7 days; 11-20
minutes
109
CMS began collecting enrollee-level data from issuers’ EDGE servers beginning with the 2016 benefit year. See the HHS Notice of Benefit and Payment Parameters for 2018; Final Rule,
81 FR 94058, 94101-94103 (Dec. 22, 2016). The enrollee-level EDGE data collected by CMS includes an enrollment file, a medical claims file, a pharmacy claims file, and a supplemental
diagnosis file for risk adjustment-covered plans in the states where HHS operates the risk adjustment program. CMS does not collect enrollee-identifiable elements to safeguard enrollee
privacy and issuers’ proprietary information. See, for example, 45 CFR 153.720.

November 30, 2020 1248 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
G2063
Qualified non physician qualified healthcare
professional assessment service; 21+ minutes
Qualified non physician qualified healthcare professional
assessment service, for an established patient, for up to
seven days, cumulative time during the 7 days; 21 or
more minutes
G0206
Diagnostic mammography, including
computer-aided detection (cad) when
performed; unilateral

G0204
Diagnostic mammography, including
computer-aided detection (cad) when
performed; bilateral

G0121Colon ca scrn; not hi risk ind
Colorectal cancer screening; colonoscopy on individual
not meeting criteria for high risk
G0105Colorectal ca scrn; hi risk ind
Colorectal cancer screening; colonoscopy on individual
at high risk
S0285Cnslt before screen colonosc
Colonoscopy consultation performed prior to a screening
colonoscopy procedure
G0289Arthro, loose body + chondro
Arthroscopy, knee, surgical, for removal of loose body,
foreign body, debridement/shaving of articular cartilage
(chondroplasty) at the time of other surgical knee
arthroscopy in a different compartment of the same knee
G0120Colon ca scrn; barium enema
Colorectal cancer screening; alternative to g0105,
screening colonoscopy, barium enema
460SPINAL FUSION (POSTERIOR)Spinal fusion except cervical
470KNEE REPLACEMENT
Major joint replacement or reattachment of lower
extremity
473SPINAL FUSION (ANTERIOR)Cervical spinal fusion
743HYSTERECTOMYUterine and adnexa procedures for non-malignancy
1960Anesthesia for vaginal delivery
1961Anesthesia for cesarean delivery
1967
Anesthesia for labor during planned vaginal
delivery

1968
Anesthesia for cesarean delivery following
labor

10005FNA W IMAGE
Fine needle aspiration biopsy, including ultrasound
guidance; first lesion
10021FNA W/O IMAGEFine Needle Aspiration Biopsy without imaging
10040ACNE SURGERY
Incision and Drainage Procedures on the Skin,
Subcutaneous and Accessory Structures
10060DRAINAGE OF SKIN ABSCESS
Incision and drainage of abscess; simple or single and
complex or multiple
10140DRAINAGE OF HEMATOMA/FLUID
Incision and drainage of hematoma, seroma or fluid
collection
10160PUNCTURE DRAINAGE OF LESIONPuncture aspiration of abscess, hematoma, bulla, or cyst
11000DEBRIDE INFECTED SKIN Removal of infected skin
11056TRIM SKIN LESIONS 2 TO 4 Paring or cutting of benign hyperkeratotic lesion
11102BIOPSY SKIN LESION
Tangential biopsy of skin (for example, shave, scoop,
saucerize, curette); single lesion
11103BIOPSY SKIN ADD-ON
Tangential biopsy of skin (for example, shave, scoop,
saucerize, curette); each separate/additional lesion

Bulletin No. 2020–49 1249 November 30, 2020
CodeDescriptionPlain Language Description
11200REMOVAL OF SKIN TAGS <W/15
Removal of skin tags, multiple fibrocutaneous tags, any
area
11401EXC TR-EXT B9+MARG 0.6-1 CM
Under Excision-Benign Lesions Procedures on the Skin
0.6-1 CM
11422EXC H-F-NK-SP B9+MARG 1.1-2
Under Excision-Benign Lesions Procedures on the Skin
1.1-2 CM
11602EXC TR-EXT MAL+MARG 1.1-2 CM Excision-Malignant Lesions
11721DEBRIDE NAIL 6 OR MORE Removal of 6 or more nails
11730REMOVAL OF NAIL PLATE
Separation and removal of the entire nail plate or a
portion of nail plate
11900INJECT SKIN LESIONS </W 7 Injections to remove up to 7 lesions on the skin
12001RPR S/N/AX/GEN/TRNK 2.5CM/<
Simple repair of superficial wounds of scalp, neck,
axillae, external genitalia, trunk and/or extremities
12011RPR F/E/E/N/L/M 2.5 CM/<
Simple repair of superficial wounds of face, ears, eyelids,
nose, lips and/or mucous membranes
17000DESTRUCT PREMALG LESION Destruction of pre-cancerous lesion
17003DESTRUCT PREMALG LES 2-14 Destruction of 2-14 pre-cancerous lesions
17110DESTRUCT B9 LESION 1-14 Destruction of 1-14 common or plantar warts
17111DESTRUCT LESION 15 OR MORE Destruction of >15 common or plantar warts
17250CHEM CAUT OF GRANLTJ TISSUEChemical destruction of pre-cancerous lesions of the skin
17311MOHS 1 STAGE H/N/HF/G
Micrographic technique, including removal of all gross
tumor, surgical excision of tissue specimens, mapping,
color coding of specimens, microscopic examination of
specimens
19120REMOVAL OF BREAST LESION
20550INJ TENDON SHEATH/LIGAMENT Injection of medication into a tendon or ligament
20551INJ TENDON ORIGIN/INSERTION Injection of medication into the tendon/ligament origin
20553INJECT TRIGGER POINTS 3/> Injection of medication into an area that triggers pain
20600DRAIN/INJ JOINT/BURSA W/O US
Draining or injecting medication into a small joint/bursa
without ultrasound
20605DRAIN/INJ JOINT/BURSA W/O US
Draining or injecting medication into a large joint/bursa
without ultrasound
20610DRAIN/INJ JOINT/BURSA W/O US
Draining or injecting medication into a major joint/bursa
without ultrasound
20612ASPIRATE/INJ GANGLION CYST
Removal of fluid or injection of medication into a
ganglion cyst
27440Revision of knee jointRepair of knee joint
27441Revision of knee jointRepair of knee joint
27442Revision of knee jointRepair of knee joint
27443Revision of knee jointRepair of knee joint
27445Revision of knee jointRepair of knee joint with hinged prosthesis
27446Revision of knee jointRepair of knee joint
28296CORRECTION HALLUX VALGUS
Under Repair, Revision, and/or Reconstruction
Procedures on the Foot and Toes
29826Subacromial DecompressionShaving of shoulder bone using an endoscope
29848WRIST ENDOSCOPY/SURGERY Carpal tunnel release

November 30, 2020 1250 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
29880KNEE ARTHROSCOPY/SURGERY
Surgery to remove of all or part of a torn meniscus in
both medial and lateral compartments
29881KNEE ARTHROSCOPY/SURGERY
Surgery to remove of all or part of a torn meniscus in one
compartment
29888KNEE ARTHROSCOPY/SURGERY ACL reconstruction
30520REPAIR OF NASAL SEPTUM Repair procedures of the nose
31231NASAL ENDOSCOPY DXNasal endoscopy, diagnostic, unilateral or bilateral
31237NASAL/SINUS ENDOSCOPY SURG
Surgical nasal/ sinus endoscopy with biopsy,
polypectomy or debridement
31575DIAGNOSTIC LARYNGOSCOPYFlexible, fiberoptic diagnostic laryngoscopy
36415ROUTINE VENIPUNCTURE Collection of venous blood by venipuncture
36471NJX SCLRSNT MLT INCMPTNT VN Injections to remove spider veins on the limbs or trunk
36475ENDOVENOUS RF 1ST VEIN Ablation of incompetent vein
36478ENDOVENOUS LASER 1ST VEIN Laser removal of incompetent vein
42820REMOVE TONSILS AND ADENOIDS
Removal of tonsils and adenoid glands patient younger
than age 12
42826REMOVAL OF TONSILSPrimary or secondary removal of tonsils
42830REMOVAL OF ADENOIDS Primary removal of the adenoids
43235EGD DIAGNOSTIC BRUSH WASH
Diagnostic examination of esophagus, stomach, and/or
upper small bowel using an endoscope
43239EGD BIOPSY SINGLE/MULTIPLE
Biopsy of the esophagus, stomach, and/or upper small
bowel using an endoscope
43846
Gastric restrictive procedure, with gastric
bypass for morbid obesity; with small
intestine reconstruction to limit absorption
Surgical procedure used for weight loss resulting in a
partial removal of stomach
44388Colonoscopy thru stoma spx
Diagnostic examination of large bowel using an
endoscope which is inserted through abdominal opening
44389Colonoscopy with biopsy
Biopsies of large bowel using an endoscope which is
inserted through abdominal opening
44394Colonoscopy w/snare
Removal of large bowel polyps or growths using an
endoscope
45378DIAGNOSTIC COLONOSCOPY
Diagnostic examination of large bowel using an
endoscope
45379Colonoscopy w/fb removal
Removal of foreign bodies in large bowel using an
endoscope
45380COLONOSCOPY AND BIOPSYBiopsy of large bowel using an endoscope
45381Colonoscopy submucous njxInjections of large bowel using an endoscope
45382Colonoscopy w/control bleedControl of bleeding in large bowel using an endoscope
45384Colonoscopy w/lesion removal
Removal of polyps or growths in large bowel using an
endoscope
45385COLONOSCOPY W/LESION REMOVAL
Removal of polyps or growths of large bowel using an
endoscope
45386Colonoscopy w/balloon dilatBalloon dilation of large bowel using an endoscope
45388Colonoscopy w/ablationDestruction of large bowel growths using an endoscope
45390Colonoscopy w/resectionRemoval of large bowel tissue using an endoscope
45391Colonoscopy w/endoscope us
Ultrasound examination of lower large bowel using an
endoscope

Bulletin No. 2020–49 1251 November 30, 2020
CodeDescriptionPlain Language Description
45392Colonoscopy w/endoscopic fnb
Ultrasound guided needle aspiration or biopsy of lower
large bowel using an endoscope
45398Colonoscopy w/band ligationTying of large bowel using an endoscope
47562LAPAROSCOPIC CHOLECYSTECTOMYRemoval of gallbladder using an endoscope
47563LAPARO CHOLECYSTECTOMY/GRAPH
Gallbladder removal with use of an x-ray exam of the
bile ducts
49505PRP I/HERN INIT REDUC >5 YRRepair of groin hernia patient age 5 years or older
49585RPR UMBIL HERN REDUC > 5 YR Repair of umbilical hernia in patients over 5 years old
49650LAP ING HERNIA REPAIR INIT Inguinal hernia repair done by laparoscope
50590FRAGMENTING OF KIDNEY STONE
Surgical procedures on the kidney to break up and
remove kidney stones
51741ELECTRO-UROFLOWMETRY FIRST A diagnostic test used to measure the flow of urine
51798US URINE CAPACITY MEASURE Ultrasound of bladder to measure urine capacity
52000CYSTOSCOPYProcedure on the bladder
52310CYSTOSCOPY AND TREATMENT Removing an indwelling ureteral stent by cystoscopy
52332CYSTOSCOPY AND TREATMENT
Ureteral stents inserted internally between the bladder
and the kidney and will remain within the patient for a
defined period of time
55250
EXCISION PROCEDURES ON THE VAS
DEFERENS
Removal of sperm duct(s)
55700Prostate biopsyBiopsy of prostate gland
55866Surgical Procedures on the Prostate
Surgical removal of prostate and surrounding lymph
nodes using an endoscope
57022
Incision and drainage of vaginal blood
accumulation following delivery

57288REPAIR BLADDER DEFECT Replacement of sling to support the bladder
57454BX/CURETT OF CERVIX W/SCOPE Biopsy of cervix or uterus
58100
EXCISION PROCEDURES ON THE
CORPUS UTERI
Biopsy of the lining of the uterus
58558HYSTEROSCOPY BIOPSYSurgical hysteroscopy with biopsy
58563HYSTEROSCOPY ABLATION
Surgical procedure used to treat premenopausal abnormal
uterine
bleeding
58565HYSTEROSCOPY STERILIZATION Laparoscopic/Hysteroscopic Procedures on the uterus
58571TLH W/T/O 250 G OR LESS Laparoscopic hysterectomy
58661LAPAROSCOPY REMOVE ADNEXA
Removal of either benign or malignant tissue from the
uterus, ovaries, fallopian tubes, or any of the surrounding
tissues using a laparoscope
58662LAPAROSCOPY EXCISE LESIONS
Removal of lesions of the ovary, pelvic viscera, or
peritoneal surface
58671LAPAROSCOPY TUBAL BLOCK
Laparoscopic tubal sterilization is surgery to block the
fallopian tubes to prevent pregnancy
59000AMNIOCENTESIS DIAGNOSTIC
Removal of amniotic fluid from the uterus for diagnostic
purposes
59025FETAL NON-STRESS TEST A common prenatal test used to check on a baby's health.
59400OBSTETRICAL CAREObstetrical pre- and postpartum care and vaginal delivery
59409Vaginal delivery

November 30, 2020 1252 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
59410Vaginal delivery with post-delivery care
59414Vaginal delivery of placenta
59425Pre-delivery care 4-6 visits
59426Pre-delivery care 7 or more visits
59510CESAREAN DELIVERYCesarean delivery with pre- and post-delivery care
59514Cesarean delivery
59515Cesarean delivery with post-delivery care
59610VBAC DELIVERYVaginal delivery after prior cesarean delivery
59612Vaginal delivery after prior cesarean delivery
59614
Vaginal delivery after prior cesarean delivery
with post-delivery care

62322
SPINAL INJECTION FOR PAIN
MANAGEMENT
Injection of substance into spinal canal of lower back or
sacrum using imaging guidance
62323
Injection of substance into spinal canal of
lower back or sacrum using imaging guidance

63030LOW BACK DISK SURGERYSurgical procedure to decompress a herniated vertebra
64483Transforaminal Epidural Injection
Injections of anesthetic and/or steroid drug into lower or
sacral spine nerve root using imaging guidance
64493INJ PARAVERT F JNT L/S 1 LEV
Injection into lower back of nerve block using imaging
guidance
64721CARPAL TUNNEL SURGERY Release of the transverse carpal ligament
66821YAG capusulotomy surgery Removal of recurring cataract in lens capsule using laser
66984CATARACT SURG W/IOL 1 STAGE Removal of cataract with insertion of lens
67028INJECTION EYE DRUGInjection of a pharmaceutical agent into the eye
69210REMOVE IMPACTED EAR WAXRemoval of ear wax from one or both ears
69436CREATE EARDRUM OPENING Insertion of tubes into one or both ears
70450CT HEAD/BRAIN W/O DYECT scan head or brain without dye
70486CT MAXILLOFACIAL W/O DYECT Scan of the face and jaw without dye
70491CT SOFT TISSUE NECK W/DYECT scan of neck with dye
70551MRI BRAIN STEM W/O DYE MRI of brain stem without dye
70553MRI BRAIN STEM W/O & W/DYE MRI scan of brain before and after contrast
71045CHEST X-RAY Single view
71046CHEST X-RAY 2 views, front and back
71047CHEST X-RAY 3 views
71048CHEST X-RAY 4 or more views
71101X-RAY EXAM UNILAT RIBS/CHESTRadiologic examination of one side of the chest/ribs
71250CT THORAX W/O DYECT scan of the thorax without dye
71260CT THORAX W/DYECT scan of the thorax with dye
71275CT ANGIOGRAPHY CHEST
Diagnostic Radiology (Diagnostic Imaging) Procedures
of the Chest
72040X-RAY EXAM NECK SPINE 2-3 VWRadiologic examination of the neck/spine, 2-3 views
72050X-RAY EXAM NECK SPINE 4/5VWSRadiologic examination of the neck/spine, 4-5 views
72070X-RAY EXAM THORAC SPINE 2VWSRadiologic examination of the middle spine, 2 views
72072X-RAY EXAM THORAC SPINE 3VWSRadiologic examination of the middle spine, 3 views
72100X-RAY EXAM L-S SPINE 2/3 VWS X-ray of the lower spine 2-3 views

Bulletin No. 2020–49 1253 November 30, 2020
CodeDescriptionPlain Language Description
72110X-RAY EXAM L-2 SPINE 4/>VWS X-ray of lower and sacral spine, minimum of 4 views
72131CT LUMBAR SPINE W/O DYE CT scan of lower spine without dye
72141MRI NECK SPINE W/O DYE MRI of the neck or spine without dye
72146MRI CHEST SPINE W/O DYEMRI of chest and spine without dye
72148MRI LUMBAR SPINE W/O DYEMRI scan of lower spinal canal
72156MRI NECK SPINE W/O & W/DYEMRI of neck/spine with and without dye
72157MRI CHEST SPINE W/O & W/DYE MRI of chest and spine with and without dye
72158MRI LUMBAR SPINE W/O & W/DYEMRI of lower back with and without dye
72170X-RAY EXAM OF PELVIS Radiologic examination of the pelvis
72192CT PELVIS W/O DYECT of pelvis without dye
72193CT PELVIS W/DYECT scan, pelvis, with contrast
72195MRI PELVIS W/O DYEMRI of pelvis without dye
72197MRI PELVIS W/O & W/DYE MRI of pelvis before and after dye
73000X-RAY EXAM OF COLLAR BONE Radiologic examination of the collar bone
73030X-RAY EXAM OF SHOULDERRadiologic examination of the shoulder
73070X-RAY EXAM OF ELBOW Radiologic examination, elbow; 2 views
73080X-RAY EXAM OF ELBOWRadiologic examination, elbow; 3 or more views
73090X-RAY EXAM OF FOREARMRadiologic examination of the forearm
73100X-RAY EXAM OF WRIST3 or more views
73110X-RAY EXAM OF WRISTUp to 3 views
73120X-RAY EXAM OF HANDX-ray of the hand with 2 views
73130X-RAY EXAM OF HANDX-ray of the hand with 3 or more views
73140X-RAY EXAM OF FINGER(S)Radiologic examination of the finger(s)
73221MRI JOINT UPR EXTREM W/O DYEMRI of upper extremity without dye
73560X-RAY EXAM OF KNEE 1 OR 2Radiologic examination of the knee with 1 or 2 views
73562X-RAY EXAM OF KNEE 3Radiologic examination of the knee with 3 views
73564X-RAY EXAM KNEE 4 OR MORERadiologic examination of the knee with 4 or more views
73565X-RAY EXAM OF KNEESRadiologic examination of both knees
73590X-RAY EXAM OF LOWER LEGRadiologic examination of the lower leg
73600X-RAY EXAM OF ANKLERadiologic examination of the ankle with 2 views
73610X-RAY EXAM OF ANKLERadiologic examination of the ankle with 3 views
73620X-RAY EXAM OF FOOT Radiologic examination, foot; 2 views
73630X-RAY EXAM OF FOOT Radiologic examination of the foot with 3 or more views
73650X-RAY EXAM OF HEELRadiologic examination of the heel
73660X-RAY EXAM OF TOE(S)Radiologic examination of the toe(s)
73700CT LOWER EXTREMITY W/O DYECT scan of leg without dye
73718MRI LOWER EXTREMITY W/O DYE MRI of leg without dye
73721MRI JNT OF LWR EXTRE W/O DYEMRI of lower extremity joint (knee/ankle) without dye
73722MRI JOINT OF LWR EXTR W/DYEMRI of lower extremity joint (knee/ankle) with dye
73723MRI JOINT LWR EXTR W/O&W/DYE
MRI of lower extremity joint (knee/ankle) with and
without dye
74022X-RAY EXAM SERIES ABDOMENSerial radiologic examination of the abdomen
74150CT ABDOMEN W/O DYECT of abdomen without dye
74160CT ABDOMEN W/DYECT of abdomen with dye

November 30, 2020 1254 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
74170CT ABDOMEN W/O & W/DYECT of abdomen with and without dye
74176CT ABD & PELVIS W/O CONTRASTCT of abdomen and pelvis without dye
74177CT ABD & PELV W/CONTRASTCT scan of abdomen and pelvis with contrast
74178CT ABD & PELV 1/> REGNS
Computed tomography, abdomen and pelvis; without
contrast material in one or both body regions, followed
by contrast material(s) and further sections in one or both
body regions
74181MRI ABDOMEN W/O DYEMRI of abdomen without dye
74183MRI ABDOMEN W/O & W/DYE MRI of abdomen without and with dye
76000CHEST X-RAY
Flouroscopy, or x-ray "movie" that takes less than an
hour
76001CHEST X-RAY
Flouroscopy, or x-ray "movie" that takes more than an
hour
76512OPHTH US B W/NON-QUANT AUltrasound of the eye
76514ECHO EXAM OF EYE THICKNESS
A diagnostic procedure that allows a provider to see the
organs and other structures in the abdomen
76536US EXAM OF HEAD AND NECK Ultrasound of head and neck
76642ULTRASOUND BREAST LIMITEDLimited ultrasound of the breast
76700US EXAM ABDOM COMPLETEUltrasound of abdomen with all areas scanned
76705ECHO EXAM OF ABDOMEN
A diagnostic procedure that allows a provider to see the
organs and other structures in the abdomen
76770US EXAM ABDO BACK WALL COMP
Ultrasound of back wall of the abdomen with all areas
viewed
76775US EXAM ABDO BACK WALL LIM
Ultrasound of back wall of the abdomen with limited
areas viewed
76801OB US < 14 WKS SINGLE FETUS
Abdominal ultrasound of pregnant uterus (less than 14
weeks) single or first fetus
76805OB US >/= 14 WKS SNGL FETUS
Abdominal ultrasound of pregnant uterus (greater or
equal to 14 weeks 0 days) single or first fetus
76811OB US DETAILED SNGL FETUS Ultrasound of single fetus
76813OB US NUCHAL MEAS 1 GEST
Evaluation through measurement of fetal nuchal
translucency
76815OB US LIMITED FETUS(S)Ultrasound of fetus with limited views
76817TRANSVAGINAL US OBSTETRIC Transvaginal ultrasound of uterus
76818FETAL BIOPHYS PROFILE W/NST Fetal biophysical profile with non-stress test
76819FETAL BIOPHYS PROFIL W/O NSTFetal biophysical profile without non-stress test
76830TRANSVAGINAL US NON-OBUltrasound of the pelvis through vagina
76831ECHO EXAM UTERUS
A diagnostic procedure that allows a provider to see the
uterus
76856US EXAM PELVIC COMPLETEComplete ultrasound of the pelvis
76857US EXAM PELVIC LIMITEDLimited ultrasound of the pelvis
76870US EXAM SCROTUMUltrasound of the scrotum
76872US TRANSRECTALTransrectal ultrasound
76882US LMTD JT/NONVASC XTR STRUX
Diagnostic ultrasound of an extremity excluding the
bone, joints or vessels
77047MRI BOTH BREASTS
Magnetic resonance imaging, breasts, without contrast
material; bilateral

Bulletin No. 2020–49 1255 November 30, 2020
CodeDescriptionPlain Language Description
77065DX MAMMO INCL CAD UNIMammography of one breast
77066DX MAMMO INCL CAD BIMammography of both breasts
77067SCR MAMMO BI INCL CADMammography of both breasts-2 or more views
77080
BONE DENSITY STUDY OF SPINE OR
PELVIS
Scan to measure bone mineral density (BMD) at the spine
and hip
77385Ntsty modul rad tx dlvr smplRadiation therapy delivery
77386Ntsty modul rad tx dlvr cplxRadiation therapy delivery
77387Guidance for radia tx dlvr
Guidance for localization of target delivery of radiation
treatment delivery
77412Radiation treatment deliveryRadiation treatment delivery
78014THYROID IMAGING W/BLOOD FLOW
Scan using a radioactive medication
(radiopharmaceutical) to take pictures or images of the
thyroid gland.
78306BONE IMAGING WHOLE BODY
A procedure most commonly ordered to detect areas of
abnormal bone growth due to fractures, tumors, infection,
or other bone issues
78452HT MUSCLE IMAGE SPECT MULTImage of the heart to assess perfusion
78815PET IMAGE W/CT SKULL-THIGH
Tumor imaging, positron emission tomography (PET)
with concurrently acquired computed tomography (CT)
for attenuation correction and anatomical localization
80048METABOLIC PANEL TOTAL CABasic metabolic panel
80050GENERAL HEALTH PANEL General health panel
80051
Blood test panel for electrolytes (sodium
potassium, chloride, carbon dioxide)

80053COMPREHEN METABOLIC PANELBlood test, comprehensive group of blood chemicals
80055OBSTETRIC PANELObstetric blood test panel
80061LIPID PANELBlood test, lipids (cholesterol and triglycerides)
80069RENAL FUNCTION PANELKidney function panel test
80074ACUTE HEPATITIS PANELAcute hepatitis panel
80076HEPATIC FUNCTION PANELLiver function blood test panel
80081
Blood test panel for obstetrics (cbc,
differential wbc count, hepatitis b, hiv,
rubella, syphilis, antibody screening, rbc,
blood typing)

80197ASSAY OF TACROLIMUS
Test is used to measure the amount of the drug in the
blood to determine whether the concentration has reached
a therapeutic level and is below the toxic level
80307Drug test prsmv chem anlyzrTesting for presence of drug
81000URINALYSIS NONAUTO W/SCOPE
Manual urinalysis test with examination using
microscope
81001
URINALYSIS; MANUAL OR AUTO WITH
OR WITHOUT MICROSCOPY
Manual urinalysis test with examination with or without
using microscope
81002URINALYSIS NONAUTO W/O SCOPE
Manual urinalysis test with examination without using
microscope
81003
URINALYSIS; MANUAL OR AUTO WITH
OR WITHOUT MICROSCOPY
Automated urinalysis test
81025URINE PREGNANCY TESTUrine pregnancy test
82043UR ALBUMIN QUANTITATIVEUrine test to measure albumin

November 30, 2020 1256 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
82044UR ALBUMIN SEMIQUANTITATIVEUrine test to measure albumin-semiquantitative
82248BILIRUBIN DIRECTMeasurement of direct bilirubin
82306VITAMIN D 25 HYDROXYBlood test to monitor vitamin D levels
82553CREATINE MB FRACTIONBlood test to detect heart enzymes
82570ASSAY OF URINE CREATININETest to measure creatinine in the urine
82607VITAMIN B-12Blood test to measure B-12
82627DEHYDROEPIANDROSTERONEBlood test to measure an enzyme in the blood
82670ASSAY OF ESTRADIOL Blood test to measure a type of estrogen in the blood
82728ASSAY OF FERRITINTest to determine level of iron in the blood
82784ASSAY IGA/IGD/IGG/IGM EACHTest to determine levels of immunoglobulins in the blood
82803BLOOD GASES ANY COMBINATIONTest to measure arterial blood gases
82947ASSAY GLUCOSE BLOOD QUANT
Quantitative measure of glucose build up in the blood
over time
82950GLUCOSE TESTTest of glucose level in the blood
82951GLUCOSE TOLERANCE TESTTest to predict likelihood of gestational diabetes
83001ASSAY OF GONADOTROPIN (FSH)Test of hormone in the blood
83002ASSAY OF GONADOTROPIN (LH)Test of hormone in the blood
83013H PYLORI (C-13) BREATHTest of breath for a stomach bacterium
83036GLYCOSYLATED HEMOGLOBIN TEST
Blood test to measure average blood glucose levels for
past 2-3 months
83516IMMUNOASSAY NONANTIBODY
Chemical test of the blood to measure presence or
concentration of a substance in the blood
83540ASSAY OF IRON
Blood test to measure the amount of iron that is in transit
in the body
83550IRON BINDING TEST
Blood test that measures the amount of iron carried in
the blood
83655ASSAY OF LEAD
Blood test to determine the concentration of lead in the
blood
83718ASSAY OF LIPOPROTEIN
Blood test to measure the level of lipoproteins in the
blood
83880ASSAY OF NATRIURETIC PEPTIDE Blood test used to diagnose heart failure
84134ASSAY OF PREALBUMINBlood test to measure level of prealbumin
84153ASSAY OF PSA TOTALPSA (prostate specific antigen)
84154PSA (prostate specific antigen) measurement
84436ASSAY OF TOTAL THYROXINEBlood test to measure a type of thyroid hormone
84439ASSAY OF FREE THYROXINEBlood test to evaluate thyroid function
84443ASSAY THYROID STIM HORMONEBlood test, thyroid stimulating hormone (TSH)
84460ALANINE AMINO (ALT) (SGPT) Blood test to evaluate liver function
84480ASSAY TRIIODOTHYRONINE (T3)Blood test to evaluate thyroid function
84484ASSAY OF TROPONIN QUANT
Blood test to measure a certain protein in the blood to
determine heart muscle damage
84703CHORIONIC GONADOTROPIN ASSAYBlood test to assess for pregnancy
85007BL SMEAR W/DIFF WBC COUNTBlood test to assess for infection
85018HEMOGLOBINBlood test to measure levels of hemoglobin
85025COMPLETE CBC W/AUTO DIFF WBC
Complete blood cell count, with differential white blood
cells, automated

Bulletin No. 2020–49 1257 November 30, 2020
CodeDescriptionPlain Language Description
85027COMPLETE CBC AUTOMATEDComplete blood count, automated
85610PROTHROMBIN TIMEBlood test, clotting time
85730THROMBOPLASTIN TIME PARTIALCoagulation assessment blood test
86039ANTINUCLEAR ANTIBODIES (ANA) Blood test to determine autoimmune disorders
86147CARDIOLIPIN ANTIBODY EA IG
Blood test to determine cause of inappropriate blood clot
formation
86200CCP ANTIBODYBlood test to diagnose rheumatoid arthritis
86300IMMUNOASSAY TUMOR CA 15-3 Blood test to monitor breast cancer
86304IMMUNOASSAY TUMOR CA 125Blood test to monitor for cancer
86336INHIBIN ABlood test to monitor for cancer in the ovaries or testis
86592SYPHILIS TEST NON-TREP QUAL Blood test to screen for syphilis
86644CMV ANTIBODYBlood test to monitor for cytomegalovirus
86665EPSTEIN-BARR CAPSID VCA Blood test to diagnose mononucleosis
86677HELICOBACTER PYLORI ANTIBODY
Blood test to if peptic ulcers are caused by a certain
bacterium
86703HIV-1/HIV-2 1 RESULT ANTBDY Blood test to diagnose HIV
86704HEP B CORE ANTIBODY TOTAL Blood test indicating infection with Hepatitis B
86708HEPATITIS A ANTIBODYBlood test indicating infection with Hepatitis A
86762RUBELLA ANTIBODY Blood test to determine if antibodies exist for rubella
86765RUBEOLA ANTIBODY Blood test to determine if antibodies exist for measles
86780TREPONEMA PALLIDUM
Blood test to determine existence of certain bacterium
that causes syphilis
86803HEPATITIS C AB TESTBlood test to determine infection with Hepatitis C
86850RBC ANTIBODY SCREEN
Blood test to screen for antibodies that could harm red
blood cells
87040BLOOD CULTURE FOR BACTERIA Blood test to screen for bacteria in the blood
87046STOOL CULTR AEROBIC BACT EA
Blood test to identify bacteria that may be contributing
to symptoms in the gastrointestinal tract
87070CULTURE OTHR SPECIMN AEROBICTest of body fluid other than blood to assess for bacteria
87077CULTURE AEROBIC IDENTIFYTest of a wound for type of bacterial infection
87081CULTURE SCREEN ONLYMedical test to find an infection
87086URINE CULTURE/COLONY COUNTCulture of the urine to determine number of bacteria
87088URINE BACTERIA CULTURECulture of the urine to determine bacterial infection
87101SKIN FUNGI CULTURE
A procedure used to determine if fungi are present in an
area of the body
87186MICROBE SUSCEPTIBLE MIC
A test used to determine which medications work on
bacteria for fungi
87205SMEAR GRAM STAIN
A lab test used to detect bacteria or fungi in a sample
taken from the site of a suspected infection
87210SMEAR WET MOUNT SALINE/INKA lab test to screen for evidence of vaginal infection
87324CLOSTRIDIUM AG IA
A test of the stool to diagnose Clostridium difficile (C.
diff) infection
87389HIV-1 AG W/HIV-1 & HIV-2 ABTest for HIV
87491CHYLMD TRACH DNA AMP PROBE Test that detects Chlamydia
87510GARDNER VAG DNA DIR PROBEBlood test for vaginitis
87591N.GONORRHOEAE DNA AMP PROBBlood test for an STD

November 30, 2020 1258 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
87624Hpv high-risk typesDetection test for human papillomavirus (hpv)
87653STREP B DNA AMP PROBEBlood test for strep infection
87661TRICHOMONAS VAGINALIS AMPLIFBlood test for an STD
87801DETECT AGNT MULT DNA AMPLI
Blood test to determine genetic material of certain
infectious agents
87804INFLUENZA ASSAY W/OPTICFlu test
87807RSV ASSAY W/OPTIC Test for RSV
87880STREP A ASSAY W/OPTIC Test for strep A
88112CYTOPATH CELL ENHANCE TECHUrine test
88141CYTOPATH C/V INTERPRETCervical cancer screening test with interpretation
88142CYTOPATH C/V THIN LAYER PAP smear
88150CYTOPATH C/V MANUALCervical cancer screening test done manually
88175CYTOPATH C/V AUTO FLUID REDO PAP smear
88305TISSUE EXAM BY PATHOLOGIST Test of tissues for diagnosis of abnormalities
88312SPECIAL STAINS GROUP 1Blood test to assist with diagnosis
88313SPECIAL STAINS GROUP 2 Blood test to assist with diagnosis
88342IMMUNOHISTO ANTB 1ST STAINPathology test
90460IM ADMIN 1ST/ONLY COMPONENTImmunization administration in children <18
90471IMMUNIZATION ADMIN
Immunization administration by a medical assistant or
nurse
90474IMMUNE ADMIN ORAL/NASAL ADDLImmunization administered orally or nasally
90632HEPA VACCINE ADULT IMHepatitis A vaccination for adults
90633HEPA VACC PED/ADOL 2 DOSE IMHepatitis A vaccination for adolescents and children
906494VHPV VACCINE 3 DOSE IM3-dose HPV vaccination
90656IIV3 VACC NO PRSV 0.5 ML IM
Flu shot-high dose for 2019-2020 flu season given by
injection
90658IIV3 VACCINE SPLT 0.5 ML IMPreservative free flu vaccine
90672LAIV4 VACCINE INTRANASALNasal flu vaccine
90681RV1 VACC 2 DOSE LIVE ORALRotavirus vaccination
90686IIV4 VACC NO PRSV 0.5 ML IM
Flu shot-high dose for 2019-2020 flu season given by
injection for people >65
90707MMR VACCINE SCMeasles, mumps, and rubella vaccine
90710MMRV VACCINE SCMeasles, mumps, rubella, and varicella vaccine
90715TDAP VACCINE 7 YRS/> IM
Diphtheria, tetanus acellular, and pertussis vaccine for
adults
90716VAR VACCINE LIVE SUBQVaricella vaccine
90732PPSV23 VACC 2 YRS+ SUBQ/IMpneumococcal vaccine
90734MENACWYD/MENACWYCRM VACC IMmeningococcal conjugate vaccine
90736HZV VACCINE LIVE SUBQShingles vaccine
90746HEPB VACCINE 3 DOSE ADULT IMHepatitis B vaccine
90791PSYCH DIAGNOSTIC EVALUATION
A diagnostic tool employed by a psychiatrist to diagnose
problems with memory, thought processes, and behaviors
90792PSYCH DIAG EVAL W/MED SRVCS
A diagnostic tool employed by a psychiatrist to determine
if medications are needed
90832PSYTX W PT 30 MINUTESPsychotherapy, 30 min

Bulletin No. 2020–49 1259 November 30, 2020
CodeDescriptionPlain Language Description
90833PSYTX W PT W E/M 30 MIN
Psychotherapy, 30 minutes with patient when
performed with an evaluation and management service
90834PSYTX W PT 45 MINUTESPsychotherapy, 45 min
90836PSYTX W PT W E/M 45 MIN
Psychotherapy, 45 minutes with patient when
performed with an evaluation and management service
90837PSYTX W PT 60 MINUTESPsychotherapy, 60 min
90838Psychotherapy, 60 minutes
90839Psychotherapy for crisis, first 60 minutes
90840Psychotherapy for crisis
90846Family psychotherapy, 50 minutes Family psychotherapy, not including patient, 50 min
90847FAMILY PSYTX W/PT 50 MINFamily psychotherapy, including patient, 50 min
90853GROUP PSYCHOTHERAPYGroup psychotherapy
92002EYE EXAM NEW PATIENTIntermediate exam
92004EYE EXAM NEW PATIENTComplete exam
92012EYE EXAM ESTABLISH PATIENTEye exam on an established patient
92014EYE EXAM&TX ESTAB PT 1/>VSTEye exam and treatment for established patient
92083VISUAL FIELD EXAMINATION(S)
An eye examination that can detect dysfunction in central
and peripheral vision
92133CMPTR OPHTH IMG OPTIC NERVEOptic nerve imaging
92507SPEECH/HEARING THERAPYTherapy for speech or hearing
92523SPEECH SOUND LANG COMPREHEN
Evaluation of speech sound production with evaluation of
language comprehension
92552PURE TONE AUDIOMETRY AIRType of hearing test
93000ELECTROCARDIOGRAM COMPLETE
Routine EKG using at least 12 leads including
interpretation and report
93015CARDIOVASCULAR STRESS TEST Test to determine heart abnormalities
93303ECHO TRANSTHORACICTest to screen the heart for abnormalities
93306Tte w/doppler complete
Ultrasound examination of heart including color-depicted
blood flow rate, direction, and valve function
93307TTE W/O DOPPLER COMPLETEEcho without doppler study
93320DOPPLER ECHO EXAM HEARTEcho with doppler
93350STRESS TTE ONLY Stress test with echocardiogram
93452Cardiac CatheterizationInsertion of catheter into left heart for diagnosis
93798CARDIAC REHAB/MONITORUse of EKG to monitor cardiac rehabilitation
93880EXTRACRANIAL BILAT STUDYStudy of vessels on both sides of the head and neck
93922UPR/L XTREMITY ART 2 LEVELS
Limited bilateral noninvasive physiologic studies of
upper or lower extremity arteries
93970EXTREMITY STUDYComplete bilateral study of the extremities
93971EXTREMITY STUDYOne sided or limited bilateral study
94010BREATHING CAPACITY TEST
Test to determine how well oxygen moves from the lungs
to the blood stream
94060EVALUATION OF WHEEZING Test to determine if wheezing is present
94375RESPIRATORY FLOW VOLUME LOOP Graphical representation of inspiration and expiration
94726PULM FUNCT TST PLETHYSMOGRAP
Measures how much air is in the lungs after taking a deep
breath
94727PULM FUNCTION TEST BY GASMeasure of lung function and gas exchange

November 30, 2020 1260 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
94729CO/MEMBANE DIFFUSE CAPACITY
Test to measure how well gases diffuse across lung
surfaces
95004PERCUT ALLERGY SKIN TESTSAllergy test
95115IMMUNOTHERAPY ONE INJECTIONAllergy shot-1 shot
95117IMMUNOTHERAPY INJECTIONSMultiple allergy shots
95810POLYSOM 6/> YRS 4/> PARAMSleep monitoring of patient (6 years or older) in sleep lab
95811POLYSOM 6/>YRS CPAP 4/> PARM
Sleep monitoring of patient (6 years or older) in sleep lab
using CPAP
95860MUSCLE TEST ONE LIMB
Test to measure electrical activity of muscles or nerves in
1 limb
95861MUSCLE TEST 2 LIMBS
Test to measure electrical activity of muscles or nerves in
2 limb
95886MUSC TEST DONE W/N TEST COMP Test to assess for nerve damage
96110DEVELOPMENTAL SCREEN W/SCORE Childhood test to screen for developmental disabilities
96365THER/PROPH/DIAG IV INF INIT
Intravenous infusion, for therapy, prophylaxis, or
diagnosis-initial infusion
96366THER/PROPH/DIAG IV INF ADDON
Intravenous infusion, for therapy, prophylaxis, or
diagnosis-additional infusions
96374THER/PROPH/DIAG INJ IV PUSH
Intravenous infusion, for therapy, prophylaxis, or
diagnosis-IV push
96375TX/PRO/DX INJ NEW DRUG ADDON
Intravenous infusion, for treatment, prophylaxis, or
diagnosis-new drug add on
96376TX/PRO/DX INJ SAME DRUG ADON
Intravenous infusion, for treatment, prophylaxis, or
diagnosis-same drug add on
96415CHEMO IV INFUSION ADDL HRChemotherapy infusion-each additional hour
96417CHEMO IV INFUS EACH ADDL SEQ
Chemotherapy infusion-additional IV pushes of the same
medication
97010HOT OR COLD PACKS THERAPYUse of external hot or cold packs
97012MECHANICAL TRACTION THERAPYForm of decompression therapy of the spine
97014ELECTRIC STIMULATION THERAPYOne time use unattended
97016VASOPNEUMATIC DEVICE THERAPY
Machines designed to pump cold water into an inflatable
wrap or brace, compressing the enveloped area of the
body
97026INFRARED THERAPYLight-based method to treat pain and inflammation
97032ELECTRICAL STIMULATIONRepeated application to one or more parts of the body
97033ELECTRIC CURRENT THERAPY
Psychiatric treatment in which seizures are electrically
induced in patients to provide relief from mental
disorders
97035ULTRASOUND THERAPY
Use of sound waves to treat medical problems, especially
musculoskeletal problems like inflammation from injuries
97110THERAPEUTIC EXERCISES
Therapeutic exercise to develop strength, endurance,
range of motion, and flexibility, each 15 minutes
97112NEUROMUSCULAR REEDUCATION
A technique used by physical therapists to restore normal
body movement patterns
97113AQUATIC THERAPY/EXERCISESUse of water for therapy/exercises
97116GAIT TRAINING THERAPYA type of physical therapy
97124MASSAGE THERAPYUse of massage
97140MANUAL THERAPY 1/> REGIONSManipulation of 1 or more regions of the body

Bulletin No. 2020–49 1261 November 30, 2020
CodeDescriptionPlain Language Description
97530THERAPEUTIC ACTIVITIES
Incorporates the use of multiple parameters, such as
balance, strength, and range of motion, for a functional
activity
97535SELF CARE MNGMENT TRAININGOccupational therapy
97597RMVL DEVITAL TIS 20 CM/<
Debridement (for example, high pressure waterjet with/
without suction, sharp selective debridement with
scissors, scalpel, and forceps)
97811ACUPUNCT W/O STIMUL ADDL 15MAcupuncture without stimulation
97813ACUPUNCT W/STIMUL 15 MINAcupuncture with stimulation
98940CHIROPRACT MANJ 1-2 REGIONSChiropractic manipulation in 1-2 regions
98941CHIROPRACT MANJ 3-4 REGIONSChiropractic manipulation in 3-4 regions
98943CHIROPRACT MANJ XTRSPINL 1/>Chiropractic manipulation not of the spine
98966Hc pro phone call 5-10 min
Telephone assessment and management service, 5-10
minutes of medical discussion
98967Hc pro phone call 11-20 min
Telephone assessment and management service, 11-20
minutes of medical discussion
98968Hc pro phone call 21-30 min
Telephone assessment and management service, 21-30
minutes of medical discussion
98970
Qualified non physician health care
professional online digital assessment and
management est. patient 5-10 minutes
Qualified non physician health care professional online
digital assessment and management, for an established
patient, for up to 7 days, cumulative time during the 7
days; 5-10 minutes
98971
Qualified non physician health care
professional online digital assessment and
management est. patient 11-20 minutes
Qualified non physician health care professional online
digital assessment and management, for an established
patient, for up to 7 days, cumulative time during the 7
days; 11-20 minutes
98972
Qualified non physician health care
professional online digital assessment and
management for est. patients 21+ minutes
Qualified non physician health care professional online
digital assessment and management, for an established
patient, for up to 7 days, cumulative time during the 7
days; 21 or more minutes
99051MED SERV EVE/WKEND/HOLIDAY Medical service during off-hours
99173VISUAL ACUITY SCREENEye test
99201OFFICE/OUTPATIENT VISIT NEW
New patient office or other outpatient visit, typically 10
minutes
99202OFFICE/OUTPATIENT VISIT NEW
New patient office or other outpatient visit, typically 20
minutes
99203OFFICE/OUTPATIENT VISIT NEW
New patient office or other outpatient visit, typically 30
min
99204OFFICE/OUTPATIENT VISIT NEW
New patient office of other outpatient visit, typically 45
min
99205OFFICE/OUTPATIENT VISIT NEW
New patient office of other outpatient visit, typically 60
min
99211OFFICE/OUTPATIENT VISIT EST
Outpatient visit of established patient not requiring a
physician
99212OFFICE/OUTPATIENT VISIT EST
Outpatient visit of established patient requiring a
physician
99213OFFICE/OUTPATIENT VISIT EST
Established patient office or other outpatient visit,
typically 15 minutes

November 30, 2020 1262 Bulletin No. 2020–49
CodeDescriptionPlain Language Description
99214OFFICE/OUTPATIENT VISIT EST
Established patient office or other outpatient visit,
typically 25 minutes
99215OFFICE/OUTPATIENT VISIT EST
Established patient office or other outpatient, visit
typically 40 minutes
99243OFFICE CONSULTATIONPatient office consultation, typically 40 min
99244OFFICE CONSULTATIONPatient office consultation, typically 60 min
99283Emergency dept visitEmergency department visit, moderately severe problem
99284Emergency dept visitEmergency department visit, problem of high severity
99285Emergency dept visit
Emergency department visit, problem with significant
threat to life or function
99381INIT PM E/M NEW PAT INFANTInitial visit for an infant
99382INIT PM E/M NEW PAT 1-4 YRSInitial visit for new patients 1-4 years old
99383PREV VISIT NEW AGE 5-11New preventative visit in new patients 5-11 years old
99384PREV VISIT NEW AGE 12-17New preventative visit in new patients 12-17 years old
99385PREV VISIT NEW AGE 18-39
Initial new patient preventive medicine evaluation (18–39
years)
99386PREV VISIT NEW AGE 40-64
Initial new patient preventive medicine evaluation (40–64
years)
99387INIT PM E/M NEW PAT 65+ YRSInitial visit for new patients 65 and older years old
99391PER PM REEVAL EST PAT INFANT
Periodic primary re-evaluation for an established infant
patient
99392PREV VISIT EST AGE 1-4Initial visit for new patients 1-4 years old
99393PREV VISIT EST AGE 5-11New preventative visit in new patients 5-11 years old
99394PREV VISIT EST AGE 12-17New preventative visit in new patients 12-17 years old
99395PREV VISIT EST AGE 18-39
Established patient periodic preventive medicine
examination age 18-39 years
99396PREV VISIT EST AGE 40-64
Established patient periodic preventive medicine
examination age 40-64 years
99397PER PM REEVAL EST PAT 65+ YR
Periodic primary re-evaluation for an established patient
65 and older
99421
ONLINE DIGITAL EVALUATION AND
MANAGEMENT SERVICE; 5-10 MINUTES
Online digital evaluation and management service, for
an established patient, for up to 7 days, cumulative time
during the 7 days; 5-10 minutes
99422
Online digital evaluation and management
service; 11-20 minutes
Online digital evaluation and management service, for
an established patient, for up to 7 days, cumulative time
during the 7 days; 11-20 minutes
99441Phone e/m phys/qhp 5-10 min
Physician telephone patient service, 5-10 minutes of
medical discussion
99442Phone e/m phys/qhp 11-20 min
Physician telephone patient service, 11-20 minutes of
medical discussion
99443Phone e/m phys/qhp 21-30 min
Physician telephone patient service, 21-30 minutes of
medical discussion

Bulletin No. 2020–49 1263 November 30, 2020
As outlined above, below are the five
codes that appear on the commenter list of
recommended items and services that are
not being required for the initial list of 500
items and services.
Commenter
Codes Not Used
Reason for
Removal
10022Code Retired
11100Code Retired
11101Code Retired
77059Code Retired
A288Code Retired
The Departments understand that plans
and issuers may use different billing codes
(for example, MS-DRGs vs. APR DRGs).
Therefore, in the first year of the imple-
mentation of the self-service tool, when
plans and issuers are required to provide
cost estimates for the 500 items and ser-
vices identified by the Departments, plans
and issuers are permitted to make appro-
priate code substitutions as necessary to
allow them to disclose cost-sharing in-
formation for the 500 items and services
through the self-service tool. If necessary,
the Departments will issue future guidance
regarding standards for code substitutions.
a. First Content Element: Estimated cost-
sharing liability
The first content element that plans and
issuers are required to disclose under the
final rules is an estimate of the cost-shar-
ing liability for the furnishing of a cov-
ered item or service by a particular pro-
vider or providers. The calculation of the
cost-sharing liability estimate is required
to be computed based on the other relevant
cost-sharing information that plans and is-
suers are required to disclose, as described
later in this section of this preamble.
The proposed rules defined “cost-shar-
ing liability” as the amount a participant,
beneficiary, or enrollee is responsible
for paying for a covered item or service
under the terms of the plan or coverage.
The disclosure must include all applicable
forms of cost sharing, including deduct-
ibles, coinsurance requirements, and co-
payments. The term cost-sharing liability
does not include premiums, any applica-
ble balance billing amounts charged by
out-of-network providers, or the cost of
non-covered items or services. For QHPs
offered through Exchanges, an estimate of
cost-sharing liability for a requested cov-
ered item or service provided must reflect
any cost-sharing reductions the individual
would receive under the coverage.
Many commenters supported the dis-
closure of cost-sharing liability for a
particular item or service. One stated
that providing cost-sharing amounts to
consumers in advance of receiving a ser-
vice would likely make it easier for pro-
viders to collect consumers’ cost-sharing
amounts. However, some commenters
were concerned that information provid-
ed in advance of care would not provide
an accurate estimate of actual participant,
beneficiary, or enrollee liability, which
would lead to consumer confusion and
frustration. A few commenters requested
that the tool include additional informa-
tion, such as all providers expected to be
involved in providing an item or service,
and the price of items and services histor-
ically provided along with that particular
item or service by the provider. Some
commenters urged the Departments to en-
sure appropriate educational information
is provided to patients to help them better
understand and navigate the information
being displayed. Others recommended a
federally funded and coordinated outreach
and education campaign to encourage the
use of price transparency tools and help
patients understand the complexities of
health care prices. One commenter urged
the Departments to clarify that, to the ex-
tent that the actual services provided are
consistent with those provided under the
estimate, plans would not be permitted to
hold an enrollee responsible for more than
what was provided under the estimate.
The Departments underscore that the
estimates required by the final rules are
not required to reflect the actual or fi-
nal cost of a particular item or service.
Unforeseen factors during the course of
treatment (which may involve additional
services or providers) can result in high-
er actual cost-sharing liability following
receipt of care than the estimate provid-
ed in advance. Nonetheless, the Depart-
ments are finalizing the requirement that
cost-sharing liability estimates be built
upon accurate information, including the
relevant cost-sharing information de-
scribed in 26 CFR 54.9815-2715A2(b)
(1)(ii)-(iv), 29 CFR 2590.715-2715A2(b)
(1)(ii)-(iv), and 45 CFR 147.211(b)(1)
(ii)-(iv). However, this requirement does
not mean that the estimates must reflect
the amount ultimately charged to a par-
ticipant, beneficiary, or enrollee. Instead,
the estimate should reflect the amount a
participant, beneficiary, or enrollee would
be expected to pay for the covered item
or service for which cost-sharing informa-
tion is sought. Thus, the final rules do not
require the cost-sharing liability estimate
to include costs for unanticipated items or
services the individual could incur due to
the severity of his or her illness or injury,
provider treatment decisions, or other un-
foreseen events. Attendant notice require-
ments in 26 CFR 54.9815-2715A2(b)(1)
(vii), 29 CFR 2590.715-2715A2(b)(1)
(vii), and 45 CFR 147.211(b)(1)(vii) also
require inclusion of a statement that actual
charges for the participant’s, beneficiary’s,
or enrollee’s covered items and services
may be different from those described in a
cost-sharing liability estimate, depending
on the actual items and services received
at the point of care.
Additionally, while the Departments
acknowledge the value of not allowing
group health plans and health insurance
issuers to impose higher cost sharing than
estimated, to the extent that the actual ser-
vices provided were consistent with those
provided under the estimate, the Depart-
ments are of the view that it would not be
prudent to hold plans and issuers liable to
the exact estimate that is provided through
the tool, as cost-sharing obligations may
ultimately vary from the estimates provid-
ed in advance. Additionally, the Depart-
ments are concerned that such a require-
ment could incentivize plans and issuers
to provide high estimates, rather than the
most accurate estimates.
Commenters recommended the final
rules provide plans and issuers with the
flexibility to apply a reasonable method-
ology for estimating reliable out-of-pock-
et costs for a specific network provider,
and recommended that this methodology
could include, but should not be limited
to, using current year negotiated rates, his-
torical negotiated rates, historical claims,
or a combination of these data points.
One commenter urged the Departments
to remove the proposed requirement that

November 30, 2020 1264 Bulletin No. 2020–49
cost-sharing liability information be cal-
culated based on negotiated rates, stating
that this is not the methodology used by
most existing cost-estimate tools.
The Departments understand that plans
and issuers with existing cost-estimate
tools may use advanced analytics in cal-
culating cost-sharing liability estimates.
However, the Departments are of the
view that the most accurate estimates of
cost-sharing liability should be provided
using the actual rates and fees upon which
liability is determined. It is the Depart-
ments’ understanding that, while provider
reimbursement may be based on negotiat-
ed rates, plans and issuers do not always
calculate a consumer’s liability using the
negotiated rate as defined in paragraph (a)
of the proposed rules, such as in capitation
arrangements where the provider is reim-
bursed retrospectively. Rather, some plans
and issuers may determine a participant’s,
beneficiary’s, or enrollee’s cost-sharing
liability on a contractually agreed upon
underlying fee schedule between the pro-
vider and the plan or issuer.
Therefore, the final rules require that
cost-sharing liability for a particular
item or service be calculated based on
in-network rates, out-of-network allowed
amounts, and individual-specific accu-
mulators, such as deductibles and out-of-
pocket limits. However, the Departments
clarify that plans and issuers may incor-
porate additional metrics and analytics
beyond this minimum standard: for exam-
ple, by using complex historical analytics
to predict total costs of items and services
available through a bundled payment ar-
rangement. The Departments will assess
how additional useful information can be
provided to consumers in this area going
forward.
Under the proposed rules, plans and
issuers would be required to provide
participants, beneficiaries, and enrollees
with cost-sharing information for either
a discrete item or service or for items or
services for a treatment or procedure for
which the plan uses a bundled payment
arrangement, according to how the plan or
issuer structures payment for the item or
service. Several commenters pointed out
that providing cost-sharing liability esti-
mates for bundled payment arrangements
might introduce confusion as consumers
may not realize that billing and payment
rates are different when items and services
are rendered individually versus as part of
a bundled item or service. Commenters
stated that ultimately, patients would very
likely receive inaccurate or misleading
estimates in a significant proportion of
self-service estimate requests. Similarly,
several commenters sought clarification
regarding how plans and issuers that in-
corporate innovative and cost-saving
methods like reference-based pricing,
value-based insurance design, and direct
primary care as part of their services and
plan designs would comply with the re-
quirements of the proposed rules.
The Departments recognize the vari-
ability in pricing structures and plan de-
signs for many plans and issuers. The
Departments understand that develop-
ers have demonstrated that formulas for
unique pricing models are already being
incorporated into existing estimator tools.
The Departments further understand that
while providing cost estimates in advance
for a plan or issuer that incorporates ref-
erence-based reimbursement may be
complex, it is still feasible to estimate
such costs. For example, plans or issuers
could develop a method for analyzing past
claims of specific providers to look for
patterns in their payment rates from which
to derive an accurate predictive estimate
in advance. In response to the Hospital
Price Transparency final rule, one hospi-
tal claims to have developed a tool that
provides cost estimates with 95 percent to
99 percent accuracy.
110
While some fac-
tors associated with the course of care are
incorporated after services are rendered,
others, like gender or location, are known
in advance. Therefore, the Departments
expect plans and issuers to provide a rea-
sonable estimate using information the
plan or issuer knows about the participant,
beneficiary, or enrollee or the average par-
ticipant, beneficiary, or enrollee.
The Departments again acknowledge
that how a provider is reimbursed does
not necessarily indicate how a participant,
beneficiary, or enrollee will be billed.
Specifically, as commenters explained,
the bundled payment arrangement as de-
fined in the proposed rules may not reflect
the cost-sharing liability for which the
consumer is liable. For instance, if a pro-
vider is reimbursed in a bundled payment
arrangement for a surgical procedure that
includes the surgery and pre- and post-sur-
gery office visits, but the enrollee is billed
a copayment for each office visit and coin-
surance for the surgical procedure, the en-
rollee should be able to obtain the separate
copayment liabilities for each of the office
visits and the surgical procedures, not one
bundled charge. However, under this ex-
ample, if the individual is only responsible
for one copayment that includes all office
visits and the surgical procedures, the plan
or issuer could provide the cost-sharing li-
ability estimate for that bundled payment
arrangement.
Therefore, the final rules clarify that
plans and issuers should provide one
overall cost-sharing liability estimate for
a bundled payment arrangement if that is
the only cost sharing for which the par-
ticipant, beneficiary, or enrollee would
be liable. However, if a plan or issuer
reimburses a provider under a bundled
payment arrangement for all covered
items and services provided for a specific
treatment or procedure, but cost sharing is
imposed separately for each unique item
and service included in the bundled pay-
ment, plans and issuers should disclose
the cost-sharing liability for those distinct
items and services to the participant, ben-
eficiary, or enrollee. The Departments also
recognize that providing one estimate that
includes all items and services that are
typically provided within an episode of
care may be consumer-friendly in some
situations, even where the items and ser-
vices are not subject to a bundled payment
arrangement. Therefore, the final rules
clarify that while plans and issuers are
not required to provide bundled estimates
where the provider is not reimbursed
through a bundled payment arrangement,
nothing prohibits plans or issuers from
providing bundled estimates in situations
where such estimates could be relevant to
participants, beneficiaries, or enrollees, as
long as the plan or issuer also discloses
information about the relevant items or
110
Meyer, H. “Hospitals roll out online price estimators as CMS presses for transparency.” Modern Healthcare. June 23, 2018. Available at https://www.modernhealthcare.com/arti-
cle/20180623/NEWS/180629994/hospitals-roll-out-online-price-estimators-as-cms-presses-for-transparency.

Bulletin No. 2020–49 1265 November 30, 2020
services individually, as required by the
final rules.
Plans and issuers should take a similar
approach for plan designs that incorpo-
rate alternative payment structures such
as direct primary care or other bundled or
capitated payment arrangements. The De-
partments understand that there are many
unique plan designs and may issue addi-
tional guidance to address specific ques-
tions from plans, issuers, and enforcement
entities regarding the requirements of the
final rules.
The Departments appreciate comments
requesting education and outreach to help
ensure that participants, beneficiaries, and
enrollees know that these consumer tools
exist and can understand the information
displayed. The Departments recognize
that more than 94 percent of plans and
issuers recently surveyed already have
some variation of an internet self-service
tool,
111
yet another study noted that only
12 percent of participants, beneficiaries, or
enrollees currently use the tools available
to them,
112
which might suggest that there
is an opportunity for improved awareness
and understanding of these tools. Howev-
er, the Departments are also of the view
that plans and issuers have their own in-
centives to provide quality customer ser-
vice and know what types of outreach and
messaging would be most helpful to their
participants, beneficiaries, and enrollees.
Therefore, the Departments have decided
not to institute specific outreach and ed-
ucation requirements, but rather strongly
encourage plans and issuers to develop
educational and outreach materials to
promote awareness that self-service tools
exist, where to find them on the plan’s or
issuer’s website, how to use the tool, what,
if any, further innovations above the base-
line standards that differentiates their tool
from competitors, and what additional in-
formation may be available. In addition,
the Departments are of the view that em-
ployers may want to conduct outreach and
education to encourage their employees to
shop for lower-priced services that may
slow increases in employer-sponsored
coverage premiums.
One commenter stated that the final
rules should provide the flexibility for
health plans to display cost-sharing in-
formation either as dollars or using some
proxy variable that either conveys costs
relative to other providers or the cost-ef-
fectiveness of the providers for a given
items or service relative to their peers. An-
other commenter recommended that cost
estimates include both an average price
and a reasonable range of the possible
prices that the treatment could cost. Other
commenters recommended the Depart-
ments allow cost estimates to be provided
as a range.
The Departments are of the view that
cost-sharing averages and ranges would
not provide personalized and specific
cost-sharing information and therefore
the final rules adopt, as proposed, the
provision that estimated cost-sharing li-
ability be reflected as a dollar amount.
However, the Departments understand
that providing an estimated range could
help consumers understand how their
costs may vary depending on the com-
plexity of a procedure. In addition to
providing a cost-sharing estimate that is
specific to the participant, beneficiary,
or enrollee, plans and issuers may also
choose to provide low and high ranges of
what the consumer may expect to pay to
reflect other needed services, complica-
tions, and other factors.
Several commenters expressed con-
cerns about the ability of plans and issuers
to provide these cost-sharing estimates,
noting that few, if any, currently provide
this level of disclosure to participants,
beneficiaries, or enrollees before the in-
currence of a claim. Commenters stated
that most major issuers have treatment
cost estimators available, but these tools
are rudimentary and are not necessarily
available for all plan designs. Comment-
ers also stated that few regional issuers
currently make any cost-estimation data
available and the vast majority of data
provided via online tools currently relies
on estimated costs drawn from publicly
available sources rather than personal in-
formation and circumstances.
Another commenter stated that most
self-insured group health plans do not
have easy access to all the data necessary
to provide beneficiaries with what they
described as upfront adjudication of the
beneficiary’s claim, like an EOB. One
commenter expressed concern, stating
that plans could be subject to significant
penalties for failure to comply and high-
lighted that self-insured plans typically do
not establish their own networks, but rath-
er contract with an issuer, TPA or other en-
tity for the use of their network. Another
commenter stated that issuers, preferred
provider networks, and TPAs continue to
maintain network pricing information as
confidential and proprietary, even with re-
spect to their own plan clients. Some com-
menters stated that while the preamble
to the proposed rules suggests that plans
could renegotiate their contracts in order
to gain access to this proprietary informa-
tion, this ignores the realities of the mar-
ket. These commenters opined that, in the
absence of clearer guidance applicable to
issuers and TPAs, plans and issuers will be
burdened with trying to force disclosure
of this information.
The Departments are of the view that
the ability to access cost-sharing liability
information in advance of seeking care
should not be limited by the participant’s,
beneficiary’s, or enrollee’s plan or issuer
type. The Departments are aware of sev-
eral issuers that provide advance cost es-
timates that are based on an individual’s
specific information, such as out-of-pock-
et amount accumulators. The intent of
the final rules is to make this information
available to a larger number of partici-
pants, beneficiaries, and enrollees, em-
powering them to shop for care that best
meets their needs.
Additionally, while the Departments
recognize that some self-insured group
health plans (or TPAs acting on their be-
half) may not currently have access to the
information that would be required to cal-
culate a participant’s or beneficiary’s cost
liability, the Departments do not foresee
any barriers that would prohibit the plan or
TPA from obtaining this information. As
111
Sharma A., Manning, R., and Mozenter, Z. “Estimating the Burden of the Proposed Transparency in Coverage Rule.” Bates White Economic Consulting. January 27, 2020. Available at:
https://www.bateswhite.com/newsroom-insight-Transparency-in-Coverage-Rule.html.
112
See Mehrotra, A., Chernew, M., and Sinaiko, A. “Promises and Reality of Price Transparency.” April 5, 2018. 14 N. Eng. J. Med. 378. Available at: https://www.nejm.org/doi/full/10.1056/
NEJMhpr1715229.

November 30, 2020 1266 Bulletin No. 2020–49
discussed in the preamble to the proposed
rules, plans may have to amend existing
contracts with issuers, TPAs, or providers.
Consistent with the discussion of legal au-
thority elsewhere in this preamble, even if
a contract between a self-insured plan and
a TPA contains a provision prohibiting the
public disclosure of its terms, it is the De-
partments’ understanding that such con-
tracts typically include exceptions where a
particular disclosure is required by federal
law, and federal law would control over
contractual terms in any case.
In response to whether other types of
information are necessary to provide an
estimate of cost-sharing liability prior to
an individual’s receipt of items or services
from a provider(s), one commenter sug-
gested—in order to enhance the usability
and accuracy of these data—that CMS
and payers utilize the open-source episode
grouper maintained by the not-for-profit
Patient-Centered Episode System (PAC-
ES) Center, to create a single industry
standard for defining clinical episodes
of care using current medical record and
payment systems and based on consensus
across multiple stakeholders including
providers, payers, purchasers, and con-
sumers.
While the Departments generally sup-
port standardization across the complex
health care ecosystem, there is no current
required standardization of items and ser-
vices provided for certain common epi-
sodes of care. Because of the lack of this
particular standard, requiring plans and is-
suers to use PACES or similar services to
determine costs will not accurately reflect
what different plans and issuers actually
reimburse for different episodes of care.
The Departments acknowledge that
section 2713 of the PHS Act requires
non-grandfathered group health plans
and issuers offering non-grandfathered
coverage in the individual or group mar-
kets to provide coverage without the im-
position of any cost-sharing requirements
for select preventive items and services.
However, if the same items or services
are furnished for non-preventive pur-
poses, the participant, beneficiary, or en-
rollee may be subject to the cost-sharing
terms of his or her plan. The Departments
are of the view that if an item or service
will be furnished at no cost to the par-
ticipant, beneficiary, or enrollee, the par-
ticipant, beneficiary, or enrollee should
know this information. One commenter
expressed a desire that price transparency
not serve as a disincentive for individu-
als seeking preventive and maintenance
therapy services. The Departments are
of the view that clearly indicating when
items and services have a $0 cost-sharing
liability may have the opposite effect—
it may actually encourage consumers to
seek preventive care. The Departments
understand that determining whether an
item or service is preventive or not for
an individual may be complex, and, in-
deed, may be impossible prior to service.
Therefore, to the extent an item or service
is a recommended preventive service un-
der section 2713 of the PHS Act, and the
plan or issuer cannot determine whether
the request is for preventive or non-pre-
ventive purposes, the plan or issuer must
display the non-preventive cost-sharing
liability in the internet-based self-ser-
vice tool, along with a statement that
the item or service may not be subject to
cost sharing if it is billed as a preventive
service. For example, if an individual
requests cost-sharing information for an
in-network colonoscopy, the plan should
display the applicable cost-sharing infor-
mation for a diagnostic colonoscopy and
a statement that the service may not be
subject to cost sharing if it is billed as a
preventive service from an in-network
provider. As an alternative, a plan or is-
suer may allow an individual to request
cost-sharing information for the specific
preventive or non-preventive item or ser-
vice by including the appropriate terms
such as “preventive,” “non-preventive,”
or “diagnostic” as a means to request the
most accurate cost-sharing information.
b. Second Content Element: Accumulated
amounts
The second content element is a partici-
pant’s, beneficiary’s, or enrollee’s accumu-
lated amounts. The proposed rules defined
“accumulated amounts” as the amount of
financial responsibility that a participant,
beneficiary, or enrollee has incurred at the
time the request for cost-sharing informa-
tion is made, with respect to a deductible
and/or an out-of-pocket limit. If an indi-
vidual is enrolled in other than self-only
coverage, these accumulated amounts
would include the financial responsibility
a participant, beneficiary, or enrollee has
incurred toward meeting his or her indi-
vidual deductible and/or out-of-pocket
limit, as well as the amount of financial
responsibility that the individuals enrolled
under the plan or coverage have incurred
toward meeting the other than self-only
coverage deductible and/or out-of-pocket
limit, as applicable. The Departments in-
terpret section 2707(b) of the PHS Act as
requiring non-grandfathered group health
plans to comply with the maximum out-
of-pocket limit promulgated under section
1302(c)(1) of PPACA, including the HHS
clarification that the self-only maximum
out-of-pocket limit applies to each indi-
vidual, regardless of whether the individ-
ual is enrolled in self-only coverage or in
other than self-only coverage. According-
ly, the self-only maximum out-of-pocket
limit applies to an individual who is en-
rolled in family coverage or other cover-
age that is not self-only coverage under
a group health plan.
113
For this purpose,
the Departments proposed that accumu-
lated amounts would include any expense
that counts toward the deductible or out-
of-pocket limit (such as copayments and
coinsurance), but would exclude expenses
that would not count toward a deductible
or out-of-pocket limit (such as premium
payments, out-of-pocket expenses for out-
of-network services, or amounts for items
or services not covered under a plan or
coverage).
Furthermore, to the extent a plan or
issuer imposes a cumulative treatment
limitation on a particular covered item or
service (such as a limit on the number of
items, days, units, visits, or hours covered
in a defined time period) independent of
individual medical necessity determina-
tions, the accumulated amounts would
also include the amount that has accrued
113
80 FR 10750, 10824-10825 (Feb. 27, 2015); see also FAQs About Affordable Care Act Implementation (Part XXVII), Q1. Available at https://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/ACA-FAQs-Part-XXVII-MOOP-2706-FINAL.pdf and https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-
xxvii.pdf.

Bulletin No. 2020–49 1267 November 30, 2020
toward the limit on the item or service
(such as the number of items, days, units,
visits, or hours the participant, beneficiary,
or enrollee has used).
As discussed in the proposed rules,
the Departments understand that indepen-
dent of cumulative treatment limitations,
cost-sharing liability may vary by individ-
ual based on a determination of medical
necessity and that it may not be reasonable
for a plan or issuer to account for this vari-
ance as part of the accumulated amounts.
Therefore, under the final rules, plans and
issuers are required to provide cost-shar-
ing information with respect to an accu-
mulated amount for a cumulative treat-
ment limitation that reflects the status of
the individual’s progress toward meeting
the limitation, and this information does
not include any individual determination
of medical necessity that may affect cov-
erage for the item or service. For example,
if the terms of an individual’s plan or cov-
erage limit coverage of physical therapy
to 10 visits per plan or policy year, subject
to a medical necessity determination, and
at the time the request for cost-sharing in-
formation is made the individual has had
claims paid for three physical therapy
visits, the plan or coverage would make
cost-sharing information disclosures
based on the fact that the individual could
be covered for seven more physical ther-
apy visits in that plan or policy year, re-
gardless of whether or not a determination
of medical necessity for future visits has
been made at that time.
Several commenters supported the in-
clusion of the accumulated amounts as
one of the content elements. One com-
menter agreed with the proposed require-
ment that the accumulated amounts in-
clude the financial responsibility incurred
toward both an individual deductible and/
or out-of-pocket limit and toward the oth-
er than self-only coverage deductible and/
or out-of-pocket limit. One commenter
recommended that plans be required to
disclose to prospective enrollees whether
an enrollee’s accumulated amounts are
reduced through a plan’s accumulator ad-
justment program because, the comment-
er noted, having this information prior to
enrollment in a plan is crucial because of
the impact such programs have on partici-
pant, beneficiary, and enrollee access, ad-
herence, and outcomes.
The Departments agree that an essen-
tial part of providing accurate cost-sharing
estimates is disclosing individuals’ prog-
ress toward their accumulated amounts.
However, the intent of the self-service
tool is to provide current participants, ben-
eficiaries, and enrollees with information
about their plan or issuer, and, therefore,
the Departments are not finalizing any
provisions related to disclosures to po-
tential enrollees. The final rules adopt this
provision as proposed.
One commenter recommended the De-
partments confirm amounts made avail-
able in account-based arrangements that
can or must be used toward cost-sharing
expenses under a separate plan need not
be reflected in the accumulated amounts
or cost-sharing estimate under the tool.
The commenter stated that there is an
array of these types of arrangements of
varying types and structures and to incor-
porate them into the cost-sharing estimate
could be administratively challenging and
would impose a significant burden.
The Departments clarify that the esti-
mates do not include amounts made avail-
able through separate account-based ar-
rangements. In addition, the Departments
encourage, but are not requiring, plans
and issuers to issue a disclaimer regarding
such arrangements, as necessary.
Certain commenters stated that the
proposed requirement to display accu-
mulated amounts toward a cumulative
treatment limitation on a particular item
or service would be difficult to implement
and requested elimination or delay of this
requirement. Commenters expressed that
in some cases, this information may be
tracked by third-party vendors and not
integrated into claims systems; for exam-
ple, plans and issuers often contract with
third parties that provide medical benefits
management for certain services (physical
therapy, for example). Commenters stated
that building the connectivity necessary
to exchange information on accumulated
amounts in real time would take signifi-
cant time. Other commenters recommend-
ed this requirement be optional.
The Departments acknowledge that
disclosure of accumulated amounts may
present challenges for plans and issu-
ers. However, an accurate estimate of
cost-sharing liability cannot be achieved
without taking into account a participant’s,
beneficiary’s, or enrollee’s accumulated
amounts, including cumulative treatment
limitations. Nonetheless, to give plans and
issuers additional time to prepare, the dis-
closure requirements related to cost-shar-
ing liability estimates in the final rules are
not applicable until plan years (or in the
individual market, policy years) beginning
on or after January 1, 2023, providing two
years for implementation, which should
give plans and issuers sufficient time to
ensure that they are able to comply.
One commenter urged the Depart-
ments to include a requirement for plans
to provide the cost for the beneficiary to
purchase a non-covered prescription drug
and to indicate whether and, if so, to what
extent, that cost will be applied against
the deductible. The commenter stated that
knowing to what extent a non-covered
drug expense will count towards meeting
a deductible and the annual limitation on
cost sharing, if at all, especially with re-
gard to specialty drugs, is critical because
there are significant coverage gaps.
While the Departments appreciate the
suggestions related to non-covered pre-
scription drugs, this rulemaking is fo-
cused on covered items and services. The
Departments are not inclined to increase
the burden imposed by the final rules by
adding requirements to disclose infor-
mation regarding non-covered services,
given that plans and issuers may not have
access to the costs of drugs they do not
cover and include in their formulary. The
Departments will take this suggestion into
consideration for future rulemaking.
c. Third Content Element: In-network
Rates
Negotiated Rates
In the proposed rules, the Departments
proposed to require group health plans and
health insurance issuers to disclose the ne-
gotiated rate, reflected as a dollar amount,
for an in-network provider or providers
for a requested covered item or service,
to the extent necessary to determine the
participant’s, beneficiary’s, or enrollee’s
cost-sharing liability. Many commenters
did not support the disclosure of negotiat-
ed rates, stating that publishing negotiat-
ed rates would not meet the Departments’
purported goal of helping consumers un-

November 30, 2020 1268 Bulletin No. 2020–49
derstand costs and would possibly make
purchasing more confusing and difficult
for consumers. Additionally, some com-
menters expressed concerns that publica-
tion of negotiated rates would force plans
and issuers to violate non-disclosure con-
tracts with providers. Conversely, many
other commenters did support the disclo-
sure of negotiated rates and offered sup-
port for their disclosure to participants,
beneficiaries, and enrollees. These com-
menters stated that consumers should be
engaged and educated about health care
spending, and as discussed in more detail
below, several commenters supported the
disclosure of negotiated rates even when it
is not relevant to a consumer’s cost-shar-
ing liability.
The Departments maintain that the
disclosure of the negotiated rates is a key
element of overall price transparency. Par-
ticipants, beneficiaries, and enrollees are
often responsible for a percentage of the
negotiated rate through coinsurance or
the entire negotiated rate if they have not
yet met their deductible. Consistent with
discussions elsewhere in this preamble,
the Departments are of the view that such
contracts typically include exceptions
where a particular disclosure is required
by federal law.
In the preamble to the proposed rules,
the Departments acknowledged that some
provider contracts express negotiated
rates as a formula (for example, 150 per-
cent of the Medicare rate), but disclosure
of formulas is not likely to be helpful or
understandable for many participants,
beneficiaries, and enrollees viewing this
information. For this reason, the final
rules require plans and issuers to disclose
the negotiated rates and underlying fee
schedules that result from using such a
formula, as a dollar amount.
A few commenters recommended dis-
closing negotiated rate ranges or bench-
marks to help consumers compare prices
among providers. One commenter stated
it would be useful if plans disclosed their
range of in-network rates (or their aver-
age or median rate) for each service. This
commenter stated that, for certain services
such as complex surgeries, for which fees
may be bundled and may vary widely de-
pending on the severity of a participant’s,
beneficiary’s or enrollee’s condition, pro-
viding the range of in-network fees may be
particularly appropriate. This type of dis-
closure could alert participants, beneficia-
ries, and enrollees to consider, and prompt
them to consult providers about, the full
range of potential expenses for their care.
Another commenter recommended that,
regardless of the participant’s, beneficia-
ry’s, or enrollee’s out-of-pocket liability,
the participant, beneficiary, or enrollee
should always be provided the full in-net-
work amount, as well as a comparison of
that amount to a benchmark such as the
Fair Price or median in-network price.
This commenter stated that the in-network
price for a service can vary by as much
as 200 to 1,000 percent, depending on the
provider selected. In order to achieve the
goals of transparency, consumers need to
know the full price of a service prior to
care so they are able to effectively com-
pare providers’ prices.
In the Departments’ view, disclosure
of formulas or ranges are not likely to
be helpful or understandable for many
participants, beneficiaries, and enrollees
viewing this information. The purpose of
the internet-based self-service tool is to
provide personalized costs based on the
participant’s, beneficiary’s, or enrollee’s
specific plan or coverage, and ranges and
formulas do not achieve this goal. For this
reason, the final rules retain the proposed
requirement to disclose the rate that results
from using such a formula, which is re-
quired to be expressed as a dollar amount.
Underlying Fee Schedule Rate
Given the unique nature of certain plan
designs, in the proposed rules, the De-
partments requested comment on whether
there were certain reimbursement or pay-
ment models that should be exempt from
all or certain aspects of the proposed rules.
A few commenters urged the Departments
to clarify how capitation arrangements
and value-based reimbursement designs,
including bundled payment arrangements
and reference-based pricing, would be
regulated under the proposed rules. Com-
menters stated that provider payment
amounts are not knowable under these
types of arrangements until after care is
provided and that they cannot be attribut-
ed to a particular item or service provided
to a particular participant, beneficiary, or
enrollee. Other commenters stated that
participants, beneficiaries, and enrollees
should have access to cost-sharing liabil-
ity data for items and services that might
be rendered in the course of their care, but
that the Departments’ proposed approach
downplayed the complexity of payer-pro-
vider contracts in a way that could inad-
vertently lead to participants, beneficia-
ries, and enrollees receiving misleading
estimates of their cost-sharing liability.
The commenter stated that only the con-
sumer’s cost sharing and the fee-for-ser-
vice component of reimbursement should
be required to be disclosed under these
requirements. Another commenter stated
that the vast majority of bundled payment
arrangements use a retrospective settle-
ment, in which the payer and provider
determine a final settlement after all care
in the relevant episode has been delivered,
suggesting that a negotiated rate under
these arrangements could not be provided
in advance.
The Departments are of the view that,
for transparency in coverage to be truly ef-
fective, consumers should have access to
all pricing information related to their care
so they can make meaningful decisions
about their health care spending. Further,
the Departments do not agree that the dis-
closure of negotiated rates will be mis-
leading to participants, beneficiaries, or
enrollees. Negotiated rates are already an
element of an EOB that participants, ben-
eficiaries, and enrollees are accustomed
to receiving after receiving health care
items or services. As stated elsewhere in
this preamble, providing this information
in advance equips a more cost-conscious
participant, beneficiary, and enrollee with
the necessary information to make a more
informed decision about their health care.
Furthermore, the Departments are of the
view that it is in the best interest of plans
and issuers to indicate, when disclosing
these rates, what each rate is and how it is
applicable to the participant’s, beneficia-
ry’s, or enrollee’s plan or coverage.
To more fully understand the complex-
ity of payer-provider contracts and, in an
effort to clarify how the proposed rules
would apply to capitated, bundled, and
other alternative reimbursement designs,
the Departments considered these public
comments and conducted additional re-
search to understand different contract-
ing models and the inputs that would be

Bulletin No. 2020–49 1269 November 30, 2020
necessary for determining a participant’s,
beneficiary’s, or enrollee’s cost-sharing li-
ability under these models.
Under some capitation arrangements,
payers reimburse a provider a set amount
per participant, beneficiary, or enrollee for
a pre-defined amount of time, regardless
of whether the participant, beneficiary,
or enrollee uses the provider’s services.
Capitation payments are generally guid-
ed by actuarial principles and may be
determined by different factors, such as a
participant’s, beneficiary’s, or enrollee’s
age and gender. For instance, under some
capitated models, plans and issuers pay a
provider or a collective panel of providers
a per-member-per-month (PMPM) capita-
tion amount, which is the negotiated rate.
It is the Departments’ understanding that
under certain capitated and bundled pay-
ment arrangements, providers’ payments
may be reconciled retrospectively to ac-
count for utilization, value adjustments,
or other weighting factors that can affect
the final payment to a provider. The De-
partments understand that capitation ar-
rangements also may include at least one
underlying fee schedule rate upon which
a participant’s, beneficiary’s, or enrollee’s
cost-sharing liability is determined.
As the Departments acknowledged
earlier in this preamble, negotiated rates,
as defined in the final rules, do not al-
ways affect a participant’s, beneficiary’s,
or enrollee’s cost-sharing liability. To ac-
count for alternative reimbursement ar-
rangements such as capitated and bundled
payment arrangements, the Departments
are renaming the third content element
as “in-network rates,” comprised of the
following elements, as applicable to the
plan’s or issuer’s payment model: nego-
tiated rate and underlying fee schedule
rate, reflected as dollar amounts. Plans
and issuers must disclose the underlying
fee schedule rate used to determine partic-
ipant, beneficiary, or enrollee cost-sharing
liability only where that rate is different
from the negotiated rate. As discussed ear-
lier in this preamble, the final rules require
that the cost-sharing liability estimate for
a requested covered item or service be
calculated using the current underlying
fee schedule rate if the plan or issuer uses
such a fee schedule. The Departments are
of the view that disclosing underlying fee
schedule rates will provide the most rele-
vant data on which cost sharing is based, if
cost sharing is not based on the negotiated
rate, as originally proposed.
Disclosing the Negotiated Rate and
Underlying Fee Schedule Rate
In the proposed rules, the Departments
acknowledged that if the negotiated rate
does not impact an individual’s cost-shar-
ing liability under a plan or coverage for
a covered item or service (for example, if
the copayment for the item or service is a
flat dollar amount or zero dollars and the
individual has met a deductible, or a de-
ductible does not apply to that particular
item or service), disclosure of the negoti-
ated rate may be unnecessary to calculate
cost-sharing liability for that item or ser-
vice. Therefore, the Departments proposed
that disclosure of a negotiated rate would
not be required if it is not relevant for cal-
culating an individual’s cost-sharing lia-
bility for a particular item or service. The
Departments sought comment on whether
there are any reasons disclosure of negoti-
ated rates should nonetheless be required
under these circumstances.
Many commenters agreed that nego-
tiated rates should only be disclosed to
the extent they are used for determining
cost-sharing liability. Commenters further
expressed that only information meaning-
ful to consumers’ cost-sharing liability
should be required to be disclosed. One
commenter stated that this interpretation
should be extended to payments tied to
value, such as “shared savings,” bonuses,
and other performance-based reimburse-
ments.
Conversely, as stated earlier, many
commenters supported the disclosure
of negotiated rates in all circumstances.
One commenter stated that disclosing the
amount of the negotiated rate is extremely
valuable regardless of whether the disclo-
sure of this information impacts a partic-
ipant’s cost-sharing liability, because it
will illuminate the costs of these particular
items and services—reflecting the benefit
consumers receive from their enrollment
in the plan or coverage, as well as help-
ing them to be conscious of the costs in-
curred by the plan overall. This comment-
er pointed out that if the plan or issuer has
different negotiated in-network rates with
different providers furnishing the same
item or service, participants, beneficiaries,
and enrollees will have the opportunity to
compare the different rates among the dif-
ferent providers.
Another commenter suggested a num-
ber of benefits that could come from the
disclosure of negotiated rates through the
cost-sharing tool, even in cases in which
that information is not relevant to the spe-
cific cost-sharing inquiry. The commenter
pointed out that even if the participant’s,
beneficiary’s, or enrollee’s cost is not af-
fected, the plan’s or issuer’s cost could be
significantly affected and that allowing
participants, beneficiaries, and enroll-
ees awareness and visibility of negoti-
ated rates could provide consumers with
a greater understanding of health care
costs and enable participants, beneficia-
ries, and enrollees to seek out lower cost
providers. The commenter further stated
that although participants, beneficiaries,
and enrollees will use the tool to look up
estimated cost-sharing for specific items
and services, often they will also expect to
seek services from the same provider re-
peatedly (for example, for ongoing treat-
ment and follow-up care).
The Departments agree with those
commenters who favored requiring dis-
closure of negotiated rates even when the
negotiated rate is not relevant to determin-
ing cost sharing, because it may promote
awareness and understanding of health
care prices and promotes transparency
in coverage. Accordingly, the phrase “to
the extent relevant to the participant’s or
beneficiary’s cost-sharing liability” that
appeared in paragraph (b)(1) of the pro-
posed regulations has been removed from
the final rules. The final rules modify the
third content element to require that the
negotiated rate always be disclosed with
cost-sharing liability estimates, even if it
is not used to determine cost sharing, and
that the underlying fee schedule rate also
be disclosed, to the extent that it is differ-
ent from the negotiated rate, as applicable
to the plan’s payment model.
With regard to plans and issuers us-
ing an alternative reimbursement model,
such as a capitated or bundled payment
arrangement that does not have negotiated
rates or an underlying fee schedule, one
commenter stated that issuers do not al-
ways have access to the negotiated rates
or internal payment methodologies uti-

November 30, 2020 1270 Bulletin No. 2020–49
lized by capitated medical groups or other
providers and would not be able to reli-
ably provide cost transparency based on a
negotiated rate at the service level. In con-
trast, another commenter stated there is no
justification for excluding plans that reim-
burse their providers based on capitation
from the internet-based self-service tool
requirements as this would result in an in-
complete data set, and these plans already
assign values to services to administer
benefits with deductibles and coinsurance,
as well as for risk adjustment and internal
reporting purposes. Another commenter
stated that the Departments should include
Accountable Care Organizations (ACOs)
and other capitated arrangements within
the ambit of the final rules and should re-
quire transparency and full disclosure of
financial incentive arrangements that un-
derlie capitated arrangements under a spe-
cific plan or contract, not just a consum-
er’s anticipated liability. This commenter
stated that any exemptions may actually
be incentives for plans and issuers to
move toward opaque pricing models.
The Departments acknowledge that
it is possible that some plans and issuers
using alternative reimbursement models
may not have negotiated rates or under-
lying fee schedule rates to disclose in the
internet-based self-service tool. However,
the numbers of plans and issuers without
negotiated rates or underlying fee sched-
ule rates is limited and the Departments
are of the view that an exemption for such
arrangements is not necessary. Addition-
ally, the Departments are of the view that
providing an exemption for such arrange-
ments will result in incomplete data sets.
As stated in the final rules, the in-network
rate must be disclosed, as applicable to the
plan’s or issuer’s payment model. If the
plan or issuer does not have negotiated
rates or underlying fee schedule rates, the
third content element does not apply.
Prescription Drugs
The final rules adopt the requirement
that group health plans and health in-
surance issuers disclose to participants,
beneficiaries, or enrollees an estimate
of cost-sharing liability for each item or
service, including prescription drugs.
As discussed in the preamble to the pro-
posed rules, this would allow participants,
beneficiaries, and enrollees to request
cost-sharing information for a specif-
ic billing code (as described later in this
preamble) associated with a prescription
drug or by descriptive terms (such as the
name of the prescription drug), which
would permit participants, beneficiaries,
and enrollees to learn the estimated cost
of a prescription drug obtained directly
through a provider, such as a pharmacy or
mail order service. In addition to allowing
participants, beneficiaries, and enrollees
to obtain cost-sharing information by us-
ing a billing code or descriptive term, the
proposed rules would also have permitted
participants, beneficiaries, and enrollees
to learn the cost of a set of items or ser-
vices that include a prescription drug or
drugs that is subject to a bundled payment
arrangement for a treatment or procedure.
In the proposed rules, the Departments ac-
knowledged that outside of a bundled pay-
ment arrangement, plans and issuers often
base cost-sharing liability for prescription
drugs on the undiscounted list price, such
as the AWP or WAC, which frequently dif-
fers from the price the plan or issuer has
negotiated for the prescription drug.
114
In
these instances, providing the participant,
beneficiary, or enrollee with a rate that
has been negotiated between the issuer or
plan and its PBM could be misleading, as
this rate would reflect rebates and other
discounts, and could be lower than what
the individual would pay—particularly if
the participant, beneficiary, or enrollee has
not met his or her deductible.
The Departments sought comment as
to whether a rate other than the negotiat-
ed rate, such as the undiscounted price,
should be required to be disclosed for pre-
scription drugs, and whether and how to
account for any and all rebates, discounts,
and dispensing fees to ensure participants,
beneficiaries, and enrollees have access
to meaningful cost-sharing liability esti-
mates for prescription drugs.
Several commenters supported disclo-
sure of rebates, discounts, and other price
concessions for drugs. One commenter
referred to drug price concessions as one
of the “most confounding black boxes of
health care” and stated that data suggests
these concessions are actually increasing
out-of-pocket costs for participants, ben-
eficiaries, and enrollees. This commenter
urged the Departments to require plans
and issuers to disclose the list price, the
negotiated rate, a single dollar value re-
flecting the total amount of price conces-
sions, and the price used to calculate the
participant’s, beneficiary’s, and enrollee’s
coinsurance along with, if different from
the negotiated rate, an explanation as to
why the price is different from the negoti-
ated rate. Another commenter opined that
participants, beneficiaries, and enrollees
have the right to know a drug’s undis-
counted price, discounted or negotiated
price, and the total sum of all price con-
cessions for that drug, including fees, re-
bates, and discounts. This commenter stat-
ed that providing a beneficiary with these
three data points strikes the appropriate
balance between improving transparency
without misleading or overwhelming the
participant, beneficiary, or enrollee.
Many commenters suggested that plans
and issuers be required to disclose when
the participant’s, beneficiary’s, or enroll-
ee’s cost-sharing requirement exceeds the
price paid by the plan or issuer. One com-
menter stated that in cases where plans
pass through some or all rebates and other
price concessions to participants, benefi-
ciaries, and enrollees, the prices disclosed
to participants, beneficiaries, and enroll-
ees should be the price net of those rebates
and concessions. The commenter empha-
sized the importance of plans and issuers
also disclosing to participants, beneficia-
ries, and enrollees when manufacturer re-
bates and discounts are not passed through
to them at the point-of-sale or factored
into cost-sharing. One commenter noted
that negotiated prices for prescriptions or
cash price alternatives may sometimes ap-
pear less expensive, but that such alterna-
tive rates (for example, cash price options)
may increase overall costs if such rates
offset the ability to reach a plan’s deduct-
ible or out-of-pocket maximum thresh-
olds. Therefore, this commenter requested
that the Departments provide clarity as to
whether plans and issuers would be re-
114
“Follow the Dollar.” PhRMA. November 30, 2017. Available at: https://www.phrma.org/report/follow-the-dollar-report.

Bulletin No. 2020–49 1271 November 30, 2020
sponsible for notifying participants, ben-
eficiaries, and enrollees of such consider-
ations and/or making such calculations.
Similarly, two commenters urged the
Departments to require disclosure of the
negotiated rate for drugs in all situations,
even where the beneficiary owes a fixed-
amount copayment, and cited reports of
cases when, for inexpensive generics, the
beneficiary’s fixed-amount copay actually
exceeded the negotiated rate.
Three commenters recommended that
the Departments provide plans the flexi-
bility to display the most meaningful price
to an enrollee for drugs. One commenter
stated that if the participant, beneficiary,
or enrollee’s cost sharing is based upon a
specified benchmark, the plan should be
allowed to specify the benchmark used in
the tool’s documentation. This commenter
suggested that requiring plans to conform
to a single standard is not possible, and
in effect may be unhelpful to consum-
ers, given the multitude of contracts (and
different contract terms) that each plan’s
PBM may have with pharmacies. Anoth-
er commenter stated providing this flexi-
bility will allow for issuer innovation in
developing cost-estimator functionality
that provides real-time, accurate, and use-
ful prescription drug estimates to partici-
pants, beneficiaries, or enrollees.
One commenter recommended the
Departments consider using “net price”
rather than the “negotiated rate” for esti-
mating cost-sharing liability for prescrip-
tion drugs. The commenter explained that
direct and indirect remuneration (DIR)
fees under Medicare Part D and similar
PBM practices in the private market were
originally designed to capture rebates
and other mechanisms not included at the
point-of-sale. However, the commenter
stated that DIR fees and other retroactive
fees utilized by PBMs are now being used
beyond their original purpose to retroac-
tively adjust pharmacies’ payment months
after the sale, sometimes below the price
paid by the pharmacy.
Some commenters stated that the De-
partments should not require display of ne-
gotiated drug prices, rebates, or other dis-
counts or fees. Two commenters expressed
that, rather than increasing transparency
or providing actionable or meaningful
information to participants, beneficiaries,
or enrollees, estimated rebate information
would simply confound and frustrate par-
ticipants, beneficiaries, or enrollees, given
its lack of direct relevance to the amount
the participant, beneficiary, or enrollee is
required to pay for the drug at a pharmacy.
Another commenter stated that disclosing
highly confidential dispensing fees would
benefit only those parties being paid dis-
pensing fees, by giving them a window
into the dispensing fees paid to their com-
petitors, and advised that the Departments
should avoid requiring any disclosure of
drug prices, rebates, discounts, or fees that
would undermine plans’ and issuers’ abili-
ty to negotiate lower drug costs.
The Departments also solicited com-
ment as to whether there are scenarios in
which including drug pricing information
in cost estimates would be problematic.
One commenter recommended that the fi-
nal rules require disclosure of an estimate
of the cost-sharing liability associated
with a drug only when there is an out-of-
pocket cost to the participant, beneficia-
ry, or enrollee that is directly attributable
to the drug. Another recommended that
when the price of a drug is not the basis
of the enrollee’s cost-sharing liability,
plans should be given the option to pub-
lish the benchmark price or omit a price
altogether, displaying only the enrollee’s
cost-sharing liability.
The Departments also sought comment
on whether the relationships between
plans or issuers and PBMs allow plans
and issuers to disclose rate information for
drugs, or if contracts between plans and is-
suers and PBMs would need to be amend-
ed to allow plans and issuers to provide
a sufficient level of transparency. If those
contracts would need to be amended, the
Departments sought comment on the time
that would be needed to make those chang-
es. While some commenters stated that
the rates negotiated between PBMs and
pharmacies are considered confidential,
other commenters stated that existing con-
tracts would not prevent PBMs or issuers
from disclosing the required information.
One commenter stated that it is common
that contracts be modified in response to
changes in a statute or regulation, and that
federal public policy imperatives over-
ride existing contractual provisions. This
commenter stated the public interest in
complete disclosure to reduce costs for
consumers unquestionably outweighs any
confidentiality provisions in current con-
tracts that might otherwise protect disclo-
sure of relevant information to the federal
government.
The Departments agree that partici-
pants, beneficiaries, and enrollees, as well
as health care payers such as employers,
should have access to meaningful pricing
information related to drug pricing in or-
der to meaningfully evaluate plan and is-
suer offerings and gain transparency into
potential out-of-pocket costs.
The Departments also acknowledge
that contract terms may need to be amend-
ed based on the final rules. The Depart-
ments agree that disclosure of rebates, dis-
counts, and other price concessions would
further the goals of price transparency,
but also acknowledge other comment-
ers’ concerns that disclosing all these el-
ements might cause consumer confusion.
The Departments also acknowledge that
there could be value in using “net price”
rather than “negotiated rate” and in dis-
closing when a participant’s, beneficia-
ry’s, or enrollee’s cost-sharing liability
exceeds the price paid by the plan or is-
suer. As described by commenters, there
are numerous pricing inputs throughout
the drug supply chain that affect the final
price for the consumer—making complete
transparency on drug pricing more com-
plex than that of other items and services.
The Departments aim to strike a balance
between illuminating some of the factors
that drive drug costs and not overwhelm-
ing consumers with information that is not
directly relevant to their cost-sharing lia-
bility. To that end, the final rules require
plans and issuers to disclose in element (i),
an individual’s out-of-pocket cost liabili-
ty for prescription drugs, and in element
(iii), the negotiated rate of the drug. As
discussed elsewhere in this preamble, the
Departments recognize that the negotiat-
ed rate might be different for branded and
generic drugs. For instance, the negotiated
rate might be the WAC for branded drugs
and the Maximum Allowed Cost (MAC)
for generic drugs. The Departments also
acknowledge that this price might be es-
tablished differently for different plans
and issuers. The Departments anticipate
this disclosure generally will not necessi-
tate the disclosure of information on dis-
counts, rebates, or price concessions for a
drug.

November 30, 2020 1272 Bulletin No. 2020–49
The Departments recognize there may
be circumstances in which a drug carries
no cost-sharing liability for a participant,
beneficiary, or enrollee. If there is no
cost sharing associated with a prescrip-
tion drug, under the final rules, the tool
should reflect a cost-sharing value of $0
for clarity, but the negotiated rate must be
displayed.
The proposed rules sought comment
on the possibility of requiring access to
the APIs used by pharmacies in accessing
drug prices. One commenter stated that
drug prices frequently differ from period to
period over the course of the year, as well
as across pharmacy locations even with-
in the same national pharmacy chain. The
commenter recommended that the Depart-
ments consider requiring PBMs to provide
payers, group plans, and third parties with
access to the same price APIs accessed by
pharmacies, stating that, with access to an
open API, the plan or third party could re-
quest the estimated price for the same pre-
scription at multiple retail pharmacies and
receive real-time retail pricing based upon
the participant’s, beneficiary’s, or enroll-
ee’s plan. The Departments recognize the
value in requiring cost-sharing informa-
tion be made available through an API and
will use the comments received to inform
future rulemaking.
Commenters requested that the Depart-
ments confirm that issuers may provide a
link to prescription drug cost tools offered
through PBMs or vendors to satisfy the re-
quirement to provide pricing information
for prescription drugs. One commenter
also urged the Departments to prohibit
the internet-based, self-service tool from
being used by prescribers’ e-prescribing
and electronic medical record systems or
by plans to steer patients to pharmacies
other than a patient’s pharmacy of choice,
such as those owned wholly or partially by
health plans or PBMs.
The Departments agree that plans and
issuers who provide participants’, benefi-
ciaries’, or enrollees’ cost-sharing liabili-
ty estimates and negotiated rates through
a standalone tool provided by a PBM or
third-party vendor satisfy the require-
ments under the final rules. The Depart-
ments also clarify that if the PBM or other
third-party vendor fails to provide full or
timely information, then the plan or is-
suer, not the PBM or third-party vendor,
violates these transparency disclosure re-
quirements. Regarding a prohibition on
steering patients to certain pharmacies by
plans or prescribers, the Departments are
not finalizing any prohibitions at this time
and will monitor the implementation of
these disclosure requirements.
d. Fourth Content Element: Out-of-
network allowed amount
The fourth content element is the out-
of-network allowed amount for the re-
quested covered item or service. In the
proposed rules, the Departments pro-
posed to define “out-of-network allowed
amount” to mean the maximum amount
a group health plan or health insurance
issuer would pay for a covered item or
service furnished by an out-of-network
provider. Under the proposed rules, plans
and issuers would be required to disclose
an estimate of cost-sharing liability for
a participant, beneficiary, or enrollee.
Therefore, the Departments proposed that,
when disclosing an estimate of cost-shar-
ing liability for a covered item or service
from an out-of-network provider, a plan or
issuer would disclose the out-of-network
allowed amount and any cost-sharing li-
ability the participant, beneficiary, or en-
rollee would be responsible for paying.
For example, if a plan has established an
out-of-network allowed amount of $100
for an item or service from a particular
out-of-network provider and the partici-
pant, beneficiary, or enrollee is responsi-
ble for paying 30 percent of the out-of-
network allowed amount ($30), the plan
would disclose both the allowed amount
($100) and the individual’s cost-sharing
liability ($30), indicating that the indi-
vidual is responsible for 30 percent of the
out-of-network allowed amount. Under
the proposed rules, this element would
only be relevant when a participant, ben-
eficiary, or enrollee requests cost-sharing
information for a covered item or service
furnished by an out-of-network provider.
In the proposed rules, the Departments
explained that the definition of cost-shar-
ing liability does not include amounts
charged by out-of-network providers
that exceed the out-of-network allowed
amount, which participants, beneficiaries,
or enrollees must pay (sometimes referred
to as balance bills). Therefore, it may be
difficult for participants, beneficiaries, or
enrollees to determine their likely out-
of-pocket costs for covered items and
services furnished by an out-of-network
provider. The Departments also explained
that the statutory language of section
1311(e)(3)(A)(vii) of PPACA and section
2715A of the PHS Act indicates that Con-
gress intended that participants, beneficia-
ries, enrollees, and other members of the
public have access to accurate and timely
information regarding cost sharing and
payments with respect to any out-of-net-
work coverage. In the Departments’ view,
requiring plans and issuers to disclose
out-of-network allowed amounts and a
participant’s, beneficiary’s, or enrollee’s
cost-sharing obligation for covered items
and services is necessary and appropriate
to fulfill this statutory mandate, and would
give individuals information necessary to
estimate their out-of-pocket costs, assum-
ing they request additional information
from an out-of-network provider about
how much the provider would charge for a
particular item or service.
One commenter encouraged the De-
partments to eliminate the proposed
“maximum amount” standard and to in-
stead incorporate usual, customary, and
reasonable (UCR) amounts as the re-
quired plan disclosure for out-of-network
cost estimates under any final rulemaking.
The commenter stated that the “maximum
amount” a plan may be willing to pay a
given provider for a service is not nec-
essarily predetermined. This commenter
stated that while some out-of-network
providers and plans may participate in
super-regional or national “discount” ar-
rangements through third parties, in many
cases payments to out-of-network provid-
ers are individually negotiated. Further,
while a plan might generally start with
payment that is consistent with UCR cal-
culations (with every intention of paying
no more than this amount), other circum-
stances may result in negotiated increases
to that reimbursement. As such, prospec-
tively reporting an accurate “maximum
amount” is impossible in some cases.
Additionally, this commenter stated that
because many out-of-network reimburse-
ments, and in particular high-cost claims,
are individually negotiated, initial disclo-
sure of a plan’s true maximum reimburse-
ment, insofar as this can be calculated or

Bulletin No. 2020–49 1273 November 30, 2020
even estimated in advance, would mate-
rially reduce a plan’s bargaining power
by notifying non-contracted providers in
advance of the amount they are likely to
secure from a plan if they assert all avail-
able leverage in a negotiation. To the ex-
tent participant, beneficiary, or enrollee
cost-sharing liability is ultimately derived
from out-of-network payment amounts,
this requirement is likely to increase out-
of-pocket costs for consumers when seek-
ing care from out-of-network providers.
Conversely, one commenter stated that
while larger, for-profit, national health
plans can afford to utilize the UCR, small-
er, regional health plans are at a market
disadvantage if they are compelled to
base allowed amounts on the UCR, rather
than negotiating on a case-by-case basis
in a constrained market. As a result, some
health plans will struggle to determine and
provide information about maximum out-
of-network allowed amounts—a range of
possible “allowed amounts” may be the
most information some health plans have
available.
The Departments agree with comment-
ers that the UCR may be a more accurate
estimate of the amount a plan or issuer will
pay an out-of-network provider for cov-
ered items or services, if the plan relies on
UCR to determine out-of-network rates.
However, the Departments acknowledge
that basing allowed amounts on the UCR
may disadvantage smaller plans. The De-
partments also acknowledge that a plan
or issuer may be able to provide a partici-
pant, enrollee, or beneficiary with a more
accurate estimate of an out-of-network al-
lowed amount by using calculations based
on historical claims data, because the plan
or issuer does not have a pre-determined
negotiated rate with out-of-network pro-
viders. The Departments acknowledge the
concern that plans may lose bargaining
power by disclosing out-of-network al-
lowed amount to consumers; however, the
Departments are of the view that the out-
of-network allowed amount is a critical
element of price transparency and its dis-
closure is essential to enabling consumers
to estimate their out-of-network costs in
advance. To this end, the Departments are
modifying this provision to require plans
and issuers to disclose the out-of-network
allowed amount or any other calculation
that provides a more accurate estimate of
the amount a plan will pay for the request-
ed covered item or service, such as a UCR.
Allowing plans and issuers to provide an
amount other than the out-of-network al-
lowed amount could better serve consum-
ers with a more accurate estimate of what
a plan or issuer may reimburse an out-of-
network provider. The Departments clar-
ify that if a plan or issuer chooses to use
another metric that provides a reasonably
accurate estimate of what a plan or issu-
er will pay for a covered item or service
from an out-of-network provider, the plan
or issuer must still provide a participant,
beneficiary, or enrollee with information
regarding any cost sharing the participant,
beneficiary, or enrollee would be respon-
sible for paying.
Some commenters recommended the
Departments not require plans and issuers
to provide allowed amount and cost-shar-
ing information for covered services fur-
nished by an out-of-network provider.
One commenter stated it is not possible
for issuers to include allowed amounts
for out-of-network providers because,
without a provider contract, issuers do not
have the necessary information, including
provider names, National Provider Iden-
tifier (NPI), address, specialty, or other
demographic information to include these
providers in a price transparency tool. One
commenter stated that providing real-time
disclosures of allowed amounts could be
challenging to the extent that plans and
issuers determine the allowed amount for
certain out-of-network items and services
based on a percentage of billed charges,
as billed charges are unknown by the plan
or issuer prior to a claim for health care
services.
The Departments acknowledge the
challenges plans and issuers may face dis-
closing this element, but the Departments
are of the view that information regarding
out-of-network coverage is essential to the
goal of price transparency. With regard to
plans and issuers lacking the necessary in-
formation for providers with whom they
do not contract, the Departments are of the
view that plans and issuers should know
what they are willing to pay for certain
items and services, irrespective of provid-
er. The final rules provide flexibility for
plans and issuers to provide an estimate of
what the plan will pay by allowing plans
and issuers to disclose either the out-
of-network allowed amount or another
amount that would provide a reasonably
accurate estimate of what a plan would re-
imburse an out-of-network provider for a
covered item or service. Given that some
plans and issuers determine the allowed
amount for certain out-of-network items
and services based on a percentage of
billed charges, the final rules provide that
a percentage can be disclosed instead of
a dollar amount, if plans and issuers re-
imburse out-of-network providers a per-
centage of the billed charges for a covered
item or service.
One commenter sought clarification
that the tool is meant to provide cost-shar-
ing information for out-of-network pro-
viders and not just the allowed amounts.
As discussed earlier in this preamble
under the first content element, under the
final rules, the plan or issuer is required to
disclose both the out-of-network allowed
amount, as described earlier in this pream-
ble, and any cost-sharing liability, based
on that allowed amount, that the partici-
pant, beneficiary, or enrollee would be re-
sponsible for paying.
One commenter stated that the De-
partments should not require Health
Maintenance Organizations’ (HMOs’)
out-of-pocket calculators to provide out-
of-network data. The commenter noted
that the proposed rules limited the tool
to covered services, and HMOs general-
ly do not cover benefits provided by out-
of-network and, therefore, should not be
required to estimate out-of-network costs.
The Departments understand that some
plans and issuers may not provide any re-
imbursement to an out-of-network provid-
er for an otherwise covered item or ser-
vice. Nonetheless, it is the Departments’
understanding that some HMOs reimburse
an out-of-network provider for covered
items and services in certain circum-
stances and, therefore, the Departments
expect HMOs to provide cost-sharing in-
formation with regard to out-of-network
coverage. The Departments recognize
that in many cases, an HMO’s maximum
allowed amount for an out-of-network
service will be $0. However, the Depart-
ments are of the view that it is important
for a participant, enrollee, or beneficiary
to understand what the plan or issuer will
or will not pay for out-of-network costs.
Therefore, if the plan or issuer, including

November 30, 2020 1274 Bulletin No. 2020–49
an HMO, does not provide any reimburse-
ment for an item or service provided by an
out of network provider, the Departments
expect the plan or issuer to disclose $0 as
the allowed amount.
e. Fifth Content Element: Items and
services content list
The fifth content element is a list of
those covered items and services for
which cost-sharing information is being
disclosed for items or services subject to
a bundled payment arrangement. The De-
partments proposed that this requirement
would apply only when a participant, ben-
eficiary, or enrollee requests cost-sharing
information for an item or service that is
subject to a bundled payment arrange-
ment that includes multiple items or ser-
vices. The Departments proposed that, in
cases in which an individual requests a
cost-sharing liability estimate for a cov-
ered item or service that is subject to a
bundled payment arrangement, plans and
issuers would be required to disclose a list
of each covered item and service includ-
ed in the bundled payment arrangement
and the individual’s cost-sharing liability
for those covered items and services as
a bundle, but not a cost-sharing liability
estimate separately associated with each
covered item or service included in the
bundle.
While some commenters supported the
inclusion of cost-sharing information for
bundled payment arrangements, others
did not support requiring the disclosure
of bundled payment arrangements and the
items and services included in the arrange-
ment. These commenters stated disclosure
of this information would likely be un-
helpful to the participant, beneficiary, or
enrollee and might cause confusion. One
commenter encouraged the Departments
to clarify that disclosure for diagnostic
imaging procedures in particular should
be presented to consumers in a method
that is inclusive of the combined profes-
sional and technical rates, or the globally
billed rate.
The Departments are of the view that
understanding which items and services
are included in a bundled payment ar-
rangement will provide helpful informa-
tion for participants, beneficiaries, and
enrollees, so that they understand what
items and services are accounted for in
calculating their cost-sharing liability. The
Departments are of the view that this list
is unlikely to cause confusion. Instead, it
will reduce confusion by clearly identi-
fying what individual items and services
would be covered under their estimated
cost-sharing liability. If the plan or issuer
reimburses a procedure, such as imaging,
at a global rate that includes both profes-
sional and technical charges, then that
global rate is a rate for a bundled payment
arrangement for which the applicable con-
tent elements must be disclosed, just as for
all other items and services. The final rules
adopt the provision that plans and issuers
provide a list of items or services for items
and services subject to bundled payment
arrangements for which a cost-sharing
liability estimate is being disclosed, with
non-substantive edits for improved read-
ability.
f. Sixth Content Element: Notice of
prerequisites to coverage
The sixth content element is a notifica-
tion, whenever applicable, informing the
individual that a specific covered item or
service for which the individual requests
cost-sharing information may be subject
to a prerequisite for coverage. The pro-
posed rules defined the term prerequisite
to mean certain requirements relating to
medical management techniques for cov-
ered items and services that must be satis-
fied before a plan or issuer will cover the
item or service. Specifically, the proposed
rules provided that prerequisites include
such techniques as concurrent review,
prior authorization, and step-therapy or
fail-first protocols. In the proposed rules,
the Departments intended for the defi-
nition of prerequisite to capture medical
management techniques that apply to an
item or service that require action by the
participant, beneficiary, or enrollee be-
fore the group health plan or health insur-
ance issuer will cover the item or service.
Accordingly, the proposed definition of
prerequisite did not include medical ne-
cessity determinations generally, or other
forms of medical management techniques
that do not require action by the partici-
pant, beneficiary, or enrollee. While the
prerequisites enumerated in the proposed
rules were provided as an illustrative list,
the Departments solicited comment on
whether there are any additional medical
management techniques that should be
explicitly included as prerequisites in the
final rules.
Several commenters supported the in-
clusion of this element. One commenter
stated that helping patients understand any
coverage prerequisites prior to care, such
as prior authorization, may help to elimi-
nate some of the confusion and unneces-
sary administrative burden following care.
Another stated that requiring a plan to
disclose prerequisites in an easily under-
standable format may help patients com-
plete required protocols and thus would
improve adherence.
A few commenters recommended ad-
ditional disclosures or offered suggestions
to strengthen these requirements. One
commenter encouraged the Departments
to include clinical coverage policies for
services that are more specific than gener-
al medical necessity criteria. For example,
some plans and issuers utilize coverage
policies that require specific diagnoses or
documented symptoms before an item or
service may be covered. The commenter
explained that while these policies may
not technically require an action by the
beneficiary, they are important in deter-
mining whether the specific item or ser-
vice is covered. Another commenter rec-
ommended that plans and issuers clearly
disclose every utilization control that
stands between the participant, beneficia-
ry, or enrollee and a prescription, suggest-
ing that this type of disclosure would help
patients meet utilization control standards.
Another commenter urged the Depart-
ments to strengthen this requirement by
requiring plans and issuers to provide a
description of the actual required prereq-
uisites. The commenter stated that the pro-
posed regulation requires only notification
of the existence of a prerequisite, but not
any detail about what the prerequisite is
and how it can be satisfied. Two comment-
ers encouraged the Departments to stan-
dardize this type of notification language
to ensure that all consumers receive a con-
sistent message regarding the provision of
health care services.
One commenter requested that the De-
partments provide that the prerequisites
listed in proposed rules (that is, concurrent
review, prior authorization, step-therapy,

Bulletin No. 2020–49 1275 November 30, 2020
and fail-first protocols) are an exclusive
list. Another commenter stated that pre-
requisite notification should be limited
to simple notifications that prerequisites
apply to a service, and communication
of specific prerequisites should not be
required until a Fast Healthcare Interop-
erability Resources (FHIR) standard for
transmission of this information is estab-
lished and operationalized.
As discussed in the proposed rules,
the Departments intended for the defi-
nition of prerequisite to capture medical
management techniques that apply to an
item or service that require action by the
participant, beneficiary, or enrollee before
the plan or issuer will cover the item or
service. The Departments consider plan or
policy provisions that require a diagnosis
or documented symptoms before a service
or item would be covered to be medical
necessity determination requirements that
do not require action on behalf of the par-
ticipant, beneficiary, or enrollee. There-
fore, the Departments did not include such
terms in the proposed prerequisite require-
ment. The Departments are finalizing reg-
ulation text to reflect that concurrent re-
view, prior authorization, and step-therapy
or fail-first protocols are the exhaustive
list of prerequisites about which plans
and issuers would need to provide notice.
Furthermore, while the Departments ac-
knowledge that providing a complete de-
scription of prerequisites might be helpful
to consumers, the Departments are not of
the view that requiring plans or issuers to
provide such descriptions is necessary.
The Departments determined that requir-
ing a complete description of the prerequi-
site would create unnecessary complexity
and impose significant burdens on plans
and issuers regarding information that is
already available in plan documents. Ad-
ditionally, while the Departments recog-
nize the importance of FHIR in the push
towards greater interoperability, it is not
necessary to delay finalizing these rules
until the FHIR standards are finalized as
the final rules do not require any APIs to
be built nor exposed for public consump-
tion. The final rules adopt this content ele-
ment requirement, with the modifications
discussed in this section.
g. Seventh Content Element: Disclosure
notice
The seventh and final content element
proposed is a notice that communicates
certain information in plain language, in-
cluding several specific disclosures. First,
the Departments proposed that this notice
would include a statement that out-of-
network providers may bill participants,
beneficiaries, or enrollees for the differ-
ence between providers’ billed charges
and the sum of the amount collected from
the group health plan or health insurance
issuer and the amount collected from the
participant, beneficiary, or enrollee in the
form of cost-sharing (the difference often
referred to as balance billing) and that
these estimates do not account for those
potential additional amounts. In the pro-
posed rules, the Departments acknowl-
edged that there are numerous state laws
that address balance-billing practices
such that the notice described in the pro-
posed content element regarding balance
bills may be misleading or inaccurate for
beneficiaries, participants, or enrollees
enrolled in a plan or coverage in certain
states. The Departments requested com-
ment on whether any modifications to this
content element would be appropriate to
allow plans and issuers to accurately ad-
vise participants, beneficiaries, or enroll-
ees of their potential exposure to or pro-
tection from any balance bills.
Second, the Departments proposed that
the notice be required to convey that actual
charges for the participant’s, beneficiary’s,
or enrollee’s covered items and services
may be different from those described in a
cost-sharing liability estimate, depending
on the actual items and services received
at the point of care.
Third, the Departments proposed that
the notice be required to include a state-
ment that the estimated cost-sharing lia-
bility for a covered item or service is not
a guarantee that coverage will be provided
for those items and services.
Finally, the Departments proposed that
plans and issuers be permitted to include
any additional information, including oth-
er disclaimers that the plan or issuer deter-
mines appropriate, so long as the addition-
al information does not conflict with the
information they are required to provide.
For example, plans and issuers would
have been permitted to include additional
language so long as the language could not
reasonably be read to disclaim the plan’s
or issuer’s responsibility for providing a
participant, beneficiary, or enrollee with
accurate cost-sharing information, or
plans and issuers could choose to provide
a disclaimer that informs consumers who
are seeking estimates of cost-sharing lia-
bility for out-of-network allowed amounts
that they may have to obtain a price es-
timate from the out-of-network provider
in order to fully understand their out-of-
pocket cost liability. Plans and issuers
would also have been permitted to provide
a disclaimer indicating how long the price
estimate will be valid, based on the last
date of the contract term for the negotiat-
ed rate or rates (if multiple providers with
different contract terms are involved). The
Departments are of the view that this type
of disclaimer could provide participants,
beneficiaries, and enrollees with a better
understanding of how their cost estimate
may change over time. The Departments
sought comment on whether a specific
disclaimer indicating the expiration of
the cost estimate should be required. Fur-
thermore, the Departments explained in
the proposed rules that plans and issuers
may also include disclaimer information
regarding prescription drug cost estimates
and whether rebates, discounts, and dis-
pensing fees may impact the actual cost
to the participant, beneficiary, or enrollee.
The Departments developed model
language that plans and issuers could use,
but would not be required to use, to satis-
fy the disclosure notice requirements de-
scribed above. This model language was
proposed contemporaneously with, but
separate from, the proposed rules.
115
The
Departments sought comment on the pro-
posed model language and any addition-
al information that stakeholders believed
should be included in the model notice or
any information that should be omitted
from the model notice.
The proposed rules clarified that this
disclosure notice would be in addition
to the information that QHP issuers are
115
“Transparency in Coverage. Model Notice.” United States Department of Labor. Available at: https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/affordable-care-act/
for-employers-and-advisers/transparency-in-coverage-draft-model-disclosure.pdf.

November 30, 2020 1276 Bulletin No. 2020–49
currently required to publish on their
websites pursuant to 45 CFR 156.220(a)
(7) regarding cost-sharing and payments
with respect to out-of-network coverage.
In addition, some portions of this disclo-
sure may overlap with network adequa-
cy disclosure standards under 45 CFR
156.230(e). That section requires QHP
issuers to count the cost-sharing paid by
an enrollee for an out-of-network essen-
tial health benefit (EHB) provided by an
out-of-network ancillary provider in an
in-network setting toward the enrollee’s
out-of-pocket limit or provide a notice to
the enrollee that additional costs may be
incurred for an EHB, including balance
billing charges, if applicable.
The Departments requested comment
on the proposed notice disclaimers and
whether any additional disclaimers would
be necessary or beneficial to participants,
beneficiaries, and enrollees in learning
about their potential cost-sharing liability
for covered items and services. For exam-
ple, the Departments inquired whether the
Departments should require a notice that
explains that the cost-sharing informa-
tion provided may not account for claims
a participant, beneficiary, or enrollee has
submitted that the plan or issuer has not
yet processed. The Departments also con-
sidered whether to require plans and issu-
ers to provide a participant, beneficiary, or
enrollee information regarding non-cov-
ered items or services for which the indi-
vidual requests cost-sharing information.
For example, there could be a requirement
that a plan or issuer provide a statement,
as applicable, indicating that the item or
service for which the participants, ben-
eficiaries, and enrollees has requested
cost-sharing information is not a covered
benefit under the terms of the plan or cov-
erage, and expenses charged for that item
or service will not be reimbursed by the
plan or coverage.
Several commenters agreed with the
proposed disclosure notice requirements.
Specifically, many commenters supported
the disclosure that estimates may not re-
flect the amount ultimately charged to the
participant, beneficiary, or enrollee. One
commenter recommended the disclosure
include examples of circumstances under
which a participant’s, beneficiary’s, or en-
rollee’s actual cost-sharing liability may
differ from the estimate provided by their
plan or issuer (for example, comorbidities
or unanticipated complications). The com-
menter stated that a more comprehensive
explanation of how participant, beneficia-
ry, or enrollee characteristics might affect
charges for covered items and services
would help them better understand their
potential exposure to higher cost-shar-
ing amounts. One commenter suggested
that the notice include stronger wording
to educate the plan participant about the
strong likelihood of a surprise amount due
that differs greatly from the estimate. One
commenter recommended that the notice
include information that DIR Fees charged
to pharmacies inflate participants’, bene-
ficiaries’, and enrollees’ cost sharing and
that plans and issuers may claw back that
inflated cost sharing from the pharmacy.
One commenter recommended that
plans and issuers be required to disclose
additional information to help partici-
pants, beneficiaries, and enrollees un-
derstand the appropriate point of contact
for questions and complaints. This com-
menter recommended that the final rules
require issuers to provide participants,
beneficiaries, and enrollees with contact
information for their state departments
of insurance when covered by insurance
that is primarily state-regulated. For group
health plans that are not fully insured, the
commenter recommended that the plan
provide contact information for the appro-
priate federal regulator.
One commenter requested flexibility
with disclaimer language regarding a no-
tice provided in paper form to reflect that
the estimate may not be reflective of ser-
vices received or claims processing, or to
direct the participant, beneficiary, or en-
rollee to call their plan or issuer or use the
internet for more up-to-date information.
Similarly, one commenter recommended
that a timestamp be required for notices
provided in paper form to account for po-
tential price changes. Several commenters
supported requiring plans and issuers to
add to the notice a date on which the esti-
mate will expire, while other commenters
did not.
One commenter expressed concern re-
garding the statement in the preamble to
the proposed rules that the required dis-
closure notice regarding balance-billing
information “may be misleading or inac-
curate for beneficiaries, participants, or
enrollees enrolled in a plan or coverage
in certain states,” given the multi-state
nature of most employer-sponsored plans.
Another commenter stated that state reg-
ulators should be able to direct issuers to
include information in the disclosure that
accurately describes the state’s balance
billing laws, and that any notice provid-
ed to consumers in advance of receiving
services should have information as to
whether the participant, beneficiary, or
enrollee is likely to be protected from lia-
bility under state or federal balance billing
laws. The commenter further stated that
some states already have state laws re-
lated to disclosure of costs to consumers
and the final rules should be clear that this
requirement does not preempt these state
requirements. Two commenters urged the
Departments to make clear that partici-
pants, beneficiaries, and enrollees are not
protected from out-of-network provider
and facility balance billing, except where
balance billing would be barred by state
law.
The final rules are not intended to pre-
empt state laws regarding balance billing.
In the final rules, the Departments have
modified this requirement to clarify that
the balance billing statement is only re-
quired if balance billing is permitted under
state law. Plans and issuers have flexibility
to use the model notice language or create
their own notices with greater specificity
regarding their state’s laws.
One commenter expressed concern that
allowing plans to include a statement that
the estimated cost-sharing liability is not
a guarantee of coverage negates the intent
of the proposed rules, given that consum-
ers who receive a notice from their health
plan regarding estimated out-of-pocket
costs would naturally assume coverage of
those services.
The Departments acknowledge this
concern; however, there are many reasons
estimated cost-sharing information may
not be accurate when items and services
are ultimately furnished. For example, it
is possible for coverage to end (for ex-
ample, due to non-payment of premiums)
between the time an estimate is provided
and an item or service is furnished. Addi-
tionally, an estimate may show the cost for
an item or service as a treatment for a cer-
tain condition, but the item or service may
not be covered for the condition that is

Bulletin No. 2020–49 1277 November 30, 2020
ultimately diagnosed at the point of care.
Therefore, the final rules adopt the provi-
sion as proposed.
Several commenters recommended
that the Departments issue guidelines as
to what is considered “plain language.”
The commenters recommended that the
Departments provide examples of typi-
cal disclosure language compared to its
“plain language” equivalent. They further
recommended that these examples be test-
ed through various focus groups to ensure
consumer comprehension.
The final rules define “plain language”
to mean language written and presented
in a manner calculated to be understood
by the average participant, beneficiary,
or enrollee.
116
Determining whether this
standard has been satisfied requires taking
into account such factors as the level of
comprehension and education of typical
participants, beneficiaries, or enrollees in
the plan or coverage and the complexity
of the terms of the plan. Accounting for
these factors would require limiting the
use of technical jargon and long, complex
sentences, so that the information provid-
ed will not have the effect of misleading,
misinforming, or failing to inform par-
ticipants, beneficiaries, or enrollees. The
Departments are of the view that the final
rules and this preamble provide sufficient
detail regarding the meaning of plain lan-
guage.
Some commenters recommended that
plans and issuers should disclose wheth-
er they count copayment assistance and
other third-party payments in the calcu-
lation of the beneficiary’s deductible and
out-of-pocket maximum. The commenter
noted that as more plans implement copay
accumulators that do not count these pay-
ments, issuers should be required to dis-
close these policies to their beneficiaries.
The Departments are of the view that
knowing whether these payments apply to
accumulators is germane to price transpar-
ency and should be required in the final
rules. To that end, the final rules adopt a
fifth notice content requirement (codified
at 26 CFR 54.9815-2715A2(b)(1)(vii)(D),
29 CFR 2590.715-2715A2(b)(1)(vii)(D),
and 45 CFR 147.211(b)(1)(vii)(D)) that
plans and issuers must provide a statement
disclosing whether copayment assistance
and other third-party payments are includ-
ed in the calculation of the participant’s,
beneficiary’s, or enrollee’s deductible and
out-of-pocket maximum.
As discussed under the first content
element, some items or services may not
be subject to cost sharing if they are fur-
nished as preventive items or services,
while the same item or service could be
subject to cost sharing if it is furnished
for non-preventive purposes or provided
by an out-of-network provider. There-
fore, the final rules adopt an additional
notice requirement (codified at 26 CFR
54.9815-2715A2(b)(1)(vii)(E), 29 CFR
2590.715-2715A2(b)(1)(vii)(E), and 45
CFR147.211(b)(1)(vii)(E)) stating that,
for an item or service that is a recom-
mended preventive service under section
2713 of the PHS Act where the plan or is-
suer cannot determine whether the request
is for a preventive or non-preventive item
or service, the plan or issuer must provide
a statement that the item or service may
not be subject to cost-sharing if it is billed
as a preventive service.
One commenter recommended infor-
mation be included to help participants,
beneficiaries, and enrollees understand the
appropriate point of contact for questions
and complaints. This commenter recom-
mended issuers provide consumers with
contact information for the appropriate
regulator—either the State Department
of Insurance or the appropriate Federal
office.
The Departments appreciate this rec-
ommendation, but are declining to finalize
this additional requirement because the
Departments are of the view that plans and
issuers already have avenues in place to
address participants’, beneficiaries’, and
enrollees’ complaints.
Several commenters recommended that
additional notice disclaimers be provided.
One commenter suggested that the final
rules require a statement that cost-sharing
liability estimates may differ from actual
costs, depending on changes after claims
are processed. Another commenter rec-
ommended that the Departments devel-
op model disclaimers stating that quoted
amounts for drugs may be time-limited
and subject to manufacturer pricing prac-
tices. Another commenter recommended
the addition of consumer disclaimers in-
dicating that “services subject to the cost
estimate may be provided and billed by
providers associated with multiple pay-
er contracts which will result in multiple
EOBs.” Another commenter recommend-
ed the Departments permit plans to require
participants, beneficiaries, and enrollees
to review and acknowledge a disclaimer
prior to viewing or searching for any pric-
ing information, which would help ensure
that consumers understand that what they
are receiving may not be an accurate es-
timate of their total out-of-pocket costs.
Another commenter recommended that
the presentation of the out-of-network in-
formation make clear that the issuer is un-
able to provide an estimate for the full cost
of the service. The commenter suggested
that this disclosure should be presented on
the same screen as the maximum allowed
amount and the participant, beneficiary,
or enrollee’s cost liability because it may
be unclear that the maximum allowed
amount is not the total cost of care. An-
other commenter requested that the De-
partments add a requirement that plans or
issuers provide participants, beneficiaries,
or enrollees with meaningful and simple
explanations regarding emergency care,
including informing them of the prudent
layperson standard.
117
Another comment-
er that recommended plans and issuers
be required to provide explanatory infor-
mation about the operation of their plans,
including glossaries of relevant terms and
explanations of insurance plan features
and health care services, including in-net-
work and out-of-network costs, limited
plan designs, deductibles, telehealth, and
additional features in consumer-friendly
language.
The Departments decline to adopt these
commenters’ suggestions for additional
notice disclaimers. The Departments are
of the view that adopting these addition-
al requirements would add to the burden
imposed on plans and issuers without
creating corresponding benefits for par-
ticipants, beneficiaries, or enrollees that
would outweigh the burden, and would
be unhelpfully prescriptive regarding the
116
29 CFR 2520.102-2(a).
117
42 CFR 438.114.

November 30, 2020 1278 Bulletin No. 2020–49
information plans and issuers are required
to convey to these individuals. Existing
plan and issuer resources for this informa-
tion, such as the uniform glossary required
under the Summary of Benefits and Cov-
erage (SBC) final regulation
118
provide
consumer-friendly language definitions of
insurance terms. Additionally, in response
to comment, the Departments are provid-
ing flexibility to plans and issuers to de-
sign their internet-based tools and disclo-
sures so that they meet the needs of their
participants, beneficiaries, and enrollees.
However, the Departments encourage
plans and issuers to provide additional in-
formation at their discretion, if appropri-
ate. The final rules adopt these provisions
as proposed, with one correction of a typo-
graphical error (“bill” rather than “billed”)
in 26 CFR 54.9815-2715A2(b)(1)(vii)(A),
29 CFR 2590.715-2715A2(b)(1)(vii)(A),
and 45 CFR 147.211(b)(1)(vii)(A) and a
clarification that this statement element is
only required if balance billing is permit-
ted under state law, with paragraph (b)(1)
(vii)(D) re-designated as paragraph (b)(1)
(vii)(F), and with new paragraphs (b)(1)
(vii)(D) and (E) added, as described earli-
er in this section of this preamble.
2. Required Methods for Disclosing
Information to Participants, Beneficiaries,
or Enrollees
Section 1311(e)(3)(C) of PPACA re-
quires that cost-sharing information be
made available through an internet web-
site and other means for individuals with-
out access to the internet. Therefore, in
the proposed rules, the Departments pro-
posed to require that group health plans
and health insurance issuers disclose to
participants, beneficiaries, or enrollees the
cost-sharing information described earlier
in this preamble in two ways: (1) through
a self-service tool that meets certain stan-
dards and is available on an internet web-
site, and (2) in paper form.
a. First Delivery Method: Internet-based
self-service tool
Under the proposed rules, plans and is-
suers would be required to make available
a self-service tool on an internet website
for their participants, beneficiaries, or en-
rollees to use, without a subscription or
other fee, to search for cost-sharing in-
formation for covered items and services.
The tool would be required to allow users
to search for cost-sharing information for
a covered item or service provided by a
specific in-network provider, or by all
in-network providers. The tool also would
be required to allow users to search for
the out-of-network allowed amount for a
covered item or service provided by out-
of-network providers. The tool would be
required to provide users real-time re-
sponses that are based on cost-sharing
information that is accurate at the time of
the request.
Many commenters supported the De-
partments’ proposal to require plans and
issuers to make available personalized
out-of-pocket cost information for all
covered health care items and services
through an internet-based self-service
tool and urged the Departments to finalize
this section of the regulation as proposed.
Some commenters recommended the De-
partments identify a core set of function-
al requirements that must be included in
all price transparency tools. Commenters
suggested that these functional require-
ments should ensure all people enrolled
in commercial products have access to
the same baseline functionality, while
providing enough flexibility for issuers to
develop, and iterate on, innovative exist-
ing internet-based self-service tools. Ex-
amples of functional requirements include
providing tailored information to partici-
pants, beneficiaries, or enrollees on their
benefit summary (plan coverage, copay-
ments, deductibles); being able to browse
by service category (for example, medical
specialty, procedures, drugs, imaging,
labs) or diagnosis; or being able to select
from an A-Z list of popular searches or
episodes of care. One commenter recom-
mended the following functional require-
ments: (1) provide individuals with their
personal health plan details, a digital ID
card, deductible and copay information,
the ability to download and view claims,
and information on provider network sta-
tus and quality performance; (2) display
cost and quality information in clear, us-
er-friendly language to facilitate and in-
form health care decisions; (3) allow con-
sumers to compare facilities and clinicians
based on curated cost estimates, common
quality measures, value metrics, and pa-
tient ratings; (4) offer personalized out-of-
pocket cost estimates for episodes of care,
services, and prescriptions, calculated us-
ing their specific health plan design before
they receive care; (5) comply with all state
and federal health care data privacy and
security laws, including the Health Insur-
ance Portability and Accountability Act
(HIPAA) privacy and security rules and
the Health Information Trust (HITRUST)
Common Security Framework.
The Departments agree that the
self-service tool requirements should en-
sure all people enrolled in group health
plans and health insurance coverage have
access to the same baseline functionality,
while providing enough flexibility for
plans and issuers to develop and iterate
on innovative internet-based self-service
tools. It is the Departments’ intent that
the required elements be broad enough to
avoid being overly prescriptive for plans
and issuers. The Departments agree that
certain additional content elements could
be beneficial to participants, beneficiaries,
and enrollees, including general benefit
summary information and quality metrics.
However, the primary initial goal of the
self-service tool is to provide personalized
out-of-pocket cost estimates for episodes
of care, services, and prescriptions, and
to provide transparency around the pric-
ing elements that determine out-of-pocket
costs. Therefore, the Departments are not
inclined to require additional elements un-
related to this primary goal at this time.
The Departments note that the intent of the
final rules is to provide a minimum stan-
dard for the disclosure of pricing informa-
tion to lay a foundation for transparency
in coverage and the Departments may
consider additional disclosure require-
ments to build upon the final rules in the
future. To that end, the Departments are
finalizing the required content elements
for the self-service tool as described ear-
lier in this preamble to the final rules. The
final rules include a change regarding
118
80 FR 34292 (Jun. 16, 2015).

Bulletin No. 2020–49 1279 November 30, 2020
the search function related to out-of-net-
work allowed amounts. Specifically, that
element is modified to include the other
metrics that a plan or issuer is permitted
to use in place of out-of-network allowed
amounts, as discussed earlier in this pre-
amble in connection with the fourth con-
tent element that must be disclosed to
participants, beneficiaries, and enrollees.
Additionally, the Departments encourage
plans and issuers to add additional ele-
ments to their tools according to the needs
of the populations they serve.
In order for plans and issuers to pro-
vide accurate cost-sharing information,
the Departments noted that the partici-
pant, beneficiary, or enrollee will have to
input certain data elements into the tool.
Therefore, under the proposed rules,
plans and issuers would be required to
make available a tool that allows users
to search for cost-sharing information:
(1) by billing code (for example, Current
Procedural Terminology (CPT) Code
87804) or, (2) by a descriptive term (for
example, “rapid flu test”), at the option of
the user. The tool also would be required
to allow users to input the name of a spe-
cific in-network provider in conjunction
with a billing code or descriptive term,
to produce cost-sharing information,
and a cost-sharing liability estimate for
a covered item or service provided by
that in-network provider. Regarding a
request for cost-sharing information for
all in-network providers, under the pro-
posed rules, if a plan or issuer utilizes
a multi-tiered network, the tool would
be required to produce the relevant
cost-sharing information for the covered
item or service for individual providers
within each tier. In the proposed rules,
the Departments explained that to the
extent that cost-sharing information for
a covered item or service under a plan
or coverage varies based on factors oth-
er than the provider, the tool would also
be required to allow users to input suffi-
cient information for the plan or issuer to
disclose meaningful cost-sharing infor-
mation. For example, if the cost-sharing
liability estimate for a prescription drug
depends on the quantity and dosage of the
drug, the tool would be required to allow
the user to input a quantity and dosage
for the drug for which he or she is seek-
ing cost-sharing information. Similarly,
to the extent that the cost-sharing liabili-
ty estimate varies based on the facility at
which an in-network provider furnishes
a service (for example, at an outpatient
facility versus in a hospital setting), the
tool would be required to either permit a
user to select a facility, or display in the
results cost-sharing liability information
for every in-network facility at which the
in-network provider furnishes the speci-
fied item or service.
It remains the Departments’ under-
standing that a plan or issuer may require
certain information, in addition to the
identification of a covered item or service,
before it can provide an out-of-network
allowed amount for a covered item or ser-
vice, and that plans and issuers may have
different ways of establishing an allowed
amount for covered items or services from
an out-of-network provider (such as by
zip code or state). Therefore, under the
final rules, plans and issuers are required
to allow users to search for the out-of-net-
work allowed amount or other metric as
discussed in the fourth content element,
for a covered item or service provided by
out-of-network providers, by inputting a
billing code or descriptive term and the
information that is necessary for the plan
or issuer to produce the out-of-network al-
lowed amount (such as the zip code for the
location of the out-of-network provider).
To the extent a user’s search returns
multiple results, the tool would be re-
quired to have functionalities that would
allow users to refine and reorder results
(also referred to as sort and filter func-
tionalities) by geographic proximity of
providers and the amount of estimated
cost-sharing liability. The Departments
solicited comment on whether the tool
should be required to have additional re-
fining and reordering functionality, in-
cluding whether it would be helpful or
feasible to refine and reorder by provider
subspecialty (such as providers who spe-
cialize in pediatric psychiatry), or by the
quality rating of the provider, if the plan
or issuer has available data on provider
quality.
Some commenters stated that it is un-
realistic to expect consumers to know and
understand CPT/Diagnosis Related Group
(DRG)/International Classification of
Disease-10 (ICD-10) codes and support-
ed the inclusion of descriptive terms. One
commenter stated that search capability
by standard medical terms will be cru-
cial, and that, to be successful, this type
of search system will need to be broad and
user-friendly, accommodating an exten-
sive range of consumer inputs and terms.
Another commenter recommended the
tool also contain a layperson-friendly de-
scriptor of the service to improve under-
standing. Other commenters lauded the
requirement that issuers must use plain
language when disclosing price informa-
tion, which would ensure that patients can
understand their expected costs without
expert knowledge of insurance language
and practices. Some commenters rec-
ommended that the Departments follow
industry standards and use the CMS-ap-
proved National Correct Coding Initiative
(CCI) for consumer searches, as well as
for any information relating to standards
for services that fall into bundled payment
arrangements.
One commenter expressed concern that
the conversion of thousands of CPT codes
into plain English by thousands of health
plans, carriers, and TPAs is inefficient,
and will result in inconsistencies across
the country. For example, there are mul-
tiple CPT codes for procedures in a hos-
pital that differ in price depending upon
severity, which is often unknown when a
procedure is first recommended.
The Departments agree that it is essen-
tial for tools to support descriptive terms
because consumers may not be familiar
with specific procedure codes. The De-
partments acknowledge the challenge of
converting CPT code descriptions to plain
language but are of the view that the ben-
efit to consumers outweighs the burden to
plans and issuers. The Departments also
acknowledge the potential value in requir-
ing the use of CCI standards but are of the
view that their use should be voluntary,
not required, in order to avoid placing
additional burdens on plans and issuers
in the absence of clear benefits to con-
sumers. As noted earlier in this preamble,
the intent of the final rules is to provide
foundational requirements and to allow
plans and issuers maximum flexibility to
build upon existing tools while providing
consumers with reliable cost estimates.
The Departments also highlight that the
phased implementation of the final rules
affords plans and issuers additional time

November 30, 2020 1280 Bulletin No. 2020–49
to address administrative challenges. Ac-
cordingly, the final rules adopt this provi-
sion as proposed.
One commenter sought clarification
that the tool is not required to support
searches with multiple parameters at the
same time (for example, by provider name
and medical code at once). Another com-
menter suggested that the Departments al-
low that, as one permissible method, the
tool may provide for geographic proximi-
ty based on a zip code entered by the par-
ticipant, beneficiary, or enrollee to enable
the consumer to choose whether to search
based on the proximity to home or work or
some other location.
The self-service tool must allow users
to search for cost-sharing information for
a covered item or service by inputting the
name of a specific in-network provider in
conjunction with a billing code or descrip-
tive term, as well as other relevant factors
like location of service, facility name, or
dosage. For covered items and services
provided by out-of-network providers, the
tool should provide the out-of-network
allowed amount, percentage of billed
charges, or other rate that provides a rea-
sonably accurate estimate of the amount
a plan or issuer will pay by allowing con-
sumers to input a billing code, descriptive
code, or other relevant factor, such as lo-
cation. In addition, the final rules adopt
the requirement that the tool must allow
the user to refine and reorder search re-
sults based on geographic proximity of
in-network providers. The final rules re-
quire refining and reordering search re-
sults only for in-network providers, as the
Departments are of the view that doing
so for out-of-network providers would be
too burdensome at this stage. The Depart-
ments expect that in order for beneficia-
ries, participants, and enrollees to search
for out-of-network providers, they would
have to input, at minimum, the billing
code or name of an item or service and the
geographical location of the provider. In
addition, in order to align with revisions
to the fourth content element allowing
flexibility to provide another rate instead
of the out-of-network allowed amount, the
final rules have been revised to reflect that
participants, beneficiaries, and enrollees
can search for the out-of-network allowed
amount, the percentage of billed charges,
or other rate that provides a reasonably
accurate estimate of the amount a plan or
issuer will pay for a covered item or ser-
vice provided by out-of-network provid-
ers. This “other rate” is also included in
paragraph (b)(2)(i)(B)(2) of the final regu-
lations for consistency.
Regarding refining and reordering fea-
tures, one commenter suggested that the
tools include an ability to display only
in-network providers and an ability to fil-
ter or sort by provider quality if a quality
metric is made available. Three comment-
ers requested that requirements not limit
plans to developing provider and service
filters that only account for price and geo-
graphic proximity: they suggested that the
tools should also have functionality filters
based on sub-specialty and a measure of
value. Another commenter requested that
any additional functionality relating to
refining and reordering search results be
optional for plans and issuers at this time.
One commenter stated that, to enhance
the accuracy of the tool and better account
for fluctuations in cost-sharing amounts,
the Departments should require that it be
configured to allow users to self-select
health characteristics (for example, chron-
ic conditions, body mass index) in order to
further personalize its outputs for consum-
ers. The commenter recommended that
payers be given flexibility to dictate the
specific health characteristics to be includ-
ed in their tools based on their participant,
beneficiary, and enrollee populations, the
types of products that they offer, and other
elements that might cause cost-sharing es-
timates to fluctuate.
The Departments agree that plans and
issuers should have flexibility to design
tools that can maximize consumer utility
and acknowledge that the suggested ad-
ditions to search functionality could be
beneficial to consumers. However, the
Departments decline to require the adop-
tion of these suggestions to preserve plans
and issuers’ discretion regarding the most
effective way to provide search results and
to avoid being overly burdensome or pre-
scriptive.
The Departments intend that plans and
issuers create user-friendly internet-based
self-service tools, but the proposed rules
did not include a definition for “us-
er-friendly” because there are a variety
of ways a tool can be designed to be us-
er-friendly. The Departments wish to pre-
serve plan and issuer flexibility to create
tools that are best for their participants,
beneficiaries, or enrollees, including by
soliciting user feedback and consumer
testing in the development of their tools.
However, it is the Departments’ view
that a user-friendly tool would mean a
tool that allows intended users to search
for the cost-sharing information outlined
in the final regulations efficiently and ef-
fectively, without unnecessary steps or ef-
fort. The Departments are of the view that
plans and issuers can look to federal plain
language guidelines, ERISA requirements
for a Summary Plan Description’s method
of presentation at 29 CFR 2520.102-2(a),
and general industry standards for guid-
ance when designing and developing their
internet-based self-service tools.
119

The Departments also received com-
ments on whether the self-service tool
should be made available through an in-
ternet website, through a mobile appli-
cation, or both. The proposed rules pro-
vided that the self-service tool be made
available on an internet website to be
consistent with section 1311(e)(3)(C) of
PPACA, which provides that “at a mini-
mum,” cost-sharing information be made
available through an “internet website.”
However, the Departments sought feed-
back on whether this term should be inter-
preted to include other comparable meth-
ods of accessing internet-based content.
The statute was enacted in 2010, when the
primary mode of accessing internet-based
content was through a personal computer.
Since that time, ownership of mobile de-
vices with internet access and use of inter-
net-based mobile applications has become
much more common. The Departments
acknowledged that there may be technical
differences between a website and other
methods of viewing internet-based con-
tent, such as mobile applications. Howev-
er, as stated in the proposed rules, the De-
partments also understand that technology
119 “
Federal plain language guidelines.” United States General Services Administration. Available at: https://www.plainlanguage.gov/guidelines/.

Bulletin No. 2020–49 1281 November 30, 2020
evolves over time, and it is the Depart-
ments’ view that Congress did not intend
to limit the ability to access information
via alternative methods of viewing inter-
net-based content that may be available
now or in the future.
The Departments acknowledged that
mobile applications may provide bene-
fits beyond those of traditional websites.
Due to the portability of mobile devices,
a self-service tool that is made available
through a mobile application might pro-
vide participants, beneficiaries, enrollees,
and their health care providers greater op-
portunities to use the tool together at the
point of care to evaluate treatment options
based on price. The Departments further
acknowledged that mobile applications,
as a general matter, may offer greater
privacy and security protections than an
internet website, accessed either from a
mobile device or a computer.
120
Accord-
ingly, the Departments sought comment
on whether the final rules should permit
the proposed disclosure requirements to
be satisfied with a self-service tool that is
made available through a website or com-
parable means of accessing the internet,
such as a mobile application, or whether
multiple means, such as websites and mo-
bile applications, should be required. The
Departments also sought comment on the
relative resources required for building an
internet website versus an internet-based
mobile application.
Some commenters recommended that
the Departments finalize the proposed
rules with the self-service tool requirement
satisfied by being made available through
a website or comparable means of access-
ing the internet. Others believed that plans
and issuers should be free to determine
whether to offer a mobile app, an internet
website, or both. One commenter stated
the resources necessary for building and
supporting a mobile application are sig-
nificantly greater than building a website
and did not support a proposal to require
multiple applications, while other com-
menters supported a mobile application
to enable patients to make cost-effective
decisions in the doctor’s office. Another
commenter recommended both a mobile
application and an internet-based platform
with fully responsive internet-based de-
sign. Two commenters recommended that
the requirements not preclude a plan, issu-
er, or TPA from developing other means
of electronic delivery beyond internet dis-
closure.
The Departments have considered
these comments and are of the view that
requiring an internet website, as opposed
to a comparable means of accessing the
internet, such as a mobile application or
both, ensures access to a broader set of
consumers while limiting the burden on
plans and issuers to produce both an in-
ternet site and a mobile application. Inter-
net websites can be accessed on mobile
devices and people without access to the
internet or mobile devices can access tools
through resources where internet access
may be available, such as a local library.
Conversely, if the tool were available only
through a mobile device, people without a
capable mobile device would not have ac-
cess to the tool. The final rules, therefore,
adopt the requirement that the self-ser-
vice tool be provided via internet web-
site; however, the Departments encourage
plans and issuers to also provide a mobile
application version in addition to an inter-
net website.
b. Second Delivery Method: Paper form
Paragraph (e)(3)(C) of section 1311
of PPACA specifies that at a minimum,
cost-sharing information be made avail-
able to an individual through an internet
website and such other means for individ-
uals without access to the internet. There-
fore, the proposed rules included a pro-
posal that group health plans and health
insurance issuers would have to furnish,
at the request of the participant, benefi-
ciary, or enrollee, without a fee, all of the
information required to be disclosed under
paragraph (b)(1) of the proposed regula-
tions, as outlined earlier in this preamble,
in paper form. Further, the proposed rules
included a proposal that a plan or issuer
would be required to provide the informa-
tion in accordance with the requirements
under paragraph (b)(2)(i) of the proposed
regulations and as described earlier in
this preamble. That is, the plan or issuer
would be required to allow an individual
to request cost-sharing information for a
discrete covered item or service by billing
code or descriptive term, according to the
participant’s, beneficiary’s, or enrollee’s
request. Further, the plan or issuer would
be required to provide cost-sharing infor-
mation for a covered item or service in
connection with an in-network provider or
providers, or an out-of-network allowed
amount for a covered item or service
provided by an out-of-network provid-
er, according to the participant’s, benefi-
ciary’s, or enrollee’s request, permitting
the individual to specify the information
necessary for the plan or issuer to provide
meaningful cost-sharing liability informa-
tion (such as dosage for a prescription drug
or zip code for an out-of-network allowed
amount). To the extent the information the
individual requests returns more than one
result, the individual would also be per-
mitted to request that the plan or issuer re-
fine and reorder the information disclosed
by geographic proximity and the amount
of the cost-sharing liability estimates.
The Departments proposed that this in-
formation would be required to be mailed
to a participant, beneficiary, or enrollee
via the U.S. Postal Service or other deliv-
ery system no later than 2 business days
after a participant’s, beneficiary’s, or en-
rollee’s request is received.
Two commenters supported the De-
partments’ proposal to allow individuals
the ability to access their information
through electronic means or via paper
form, given that many Americans lack ac-
cess to high-speed internet services. Some
commenters opposed the requirement to
deliver the cost-sharing information to
participants in paper form due to admin-
istrative burden, while others recommend
limiting the requirements. Several rec-
ommended the timeframe to respond be
expanded, including a range of 5 days to
10 days. One commenter requested that
the compliance time for producing paper
copies of personalized information be
consistent with current federal require-
ments for furnishing paper copies of the
120
Kassner, M. “Apps vs. mobile websites: Which option offers users more privacy?” Tech Republic. September 30, 2016. Available at https://www.techrepublic.com/article/apps-vs-mobile-
websites-which-option-offers-users-more-privacy/; see also Colburn, K. “Is using a banking app safer for managing your account online?” AZcentral. September 17, 2018. Available at https://
www.azcentral.com/story/money/business/tech/2018/09/17/online-banking-app-safety-security-smartphone-tech-tips/1212736002/; see also Ogata, M., et al. “Vetting the Security of Mobile
Applications.” National Institute of Standards and Technology, United States Department of Commerce. April 2019. Available at: https://doi.org/10.6028/NIST.SP.800-163r1.

November 30, 2020 1282 Bulletin No. 2020–49
SBC, Summary Plan Description, or Con-
solidated Omnibus Budget Reconciliation
Act (COBRA) notices. Other commenters
expressed concern about volume, given
that a participant, beneficiary, or enrollee
could request cost estimates for all in-net-
work providers of a given service, which
could be tens of thousands of providers,
resulting in thousands of pages of results.
Some recommended a reasonable limit to
the volume of information that would be
provided in response to any single request
for a covered item or service—for, exam-
ple, no more than 20 or 25 providers per
request.
Several commenters recommended
that the Departments reconsider man-
dating paper responses “without a fee.”
While these commenters did not support
charging participants, beneficiaries, or
enrollees for access to cost-sharing in-
formation in general, they asserted that it
is unreasonable to expect health plans to
provide what could easily be boxes worth
of information in response to multiple re-
quests per enrollee.
Nothing in the proposed rules would
have prohibited a plan or issuer from
providing participants, beneficiaries,
or enrollees with the option to request
disclosure of the information required
under paragraph (b)(1) of the proposed
regulations through other methods (such
as, over the phone, through face-to-face
encounters, by facsimile, or by email).
The Departments requested comment
on these proposed disclosure methods,
including whether additional methods
of providing information should be re-
quired, rather than permitted. The De-
partments were particularly interested in
feedback on whether plans and issuers
should be required to provide the infor-
mation over the phone, or by email, at
the request of a participant, beneficiary,
or enrollee.
Several commenters requested alterna-
tives to the paper disclosure, particularly
a phone option. One commenter recom-
mended the final rules require that plans
or issuers set up a designated toll-free
number that participants, beneficiaries, or
enrollees can call to receive pricing infor-
mation, in addition to offering that as an
option on their main consumer informa-
tion phone line. Two commenters urged
the Departments to consider making the
second form of disclosure one of the plan
or issuer’s choice (that is, paper or phone
service). Conversely, one commenter
stated that the volume and complexity
of information that a given request could
produce would preclude providing this
information over the phone or in-person.
Another commenter recommended the
alternative format to include telephone,
in-person, or fax. One commenter recom-
mended emailing digital versions of the
paper requests to a participant’s, benefi-
ciary’s, or enrollee’s inbox at the partici-
pant’s, beneficiary’s, or enrollee’s request,
and another requested that if results were
emailed, the same information should not
also need to be provided via paper form.
The Departments acknowledge com-
menters’ concerns that the volume of pa-
per requests could be unwieldy. To that
end, the final rules adopt the requirement
that cost-sharing information be provided
in paper form, but a plan or issuer may
limit any results for a paper request to
20 providers per request, as suggested by
some commenters. The Departments are
of the view that the commenters’ sugges-
tion of limiting paper request to 20 provid-
ers per request is a reasonable approach to
balancing the burdens on plans and issuers
with the benefits of providing consumers
with enough information to be able to
compare cost and provider options. The
final rules provide an additional flexibil-
ity that, to the extent participants, benefi-
ciaries, or enrollees request disclosure by
another means (for example, by phone or
e-mail), plans and issuers may provide the
disclosure through the means requested
by the participant, beneficiary, or enroll-
ee, provided the participant, beneficiary,
or enrollee agrees that disclosure through
such means is sufficient to satisfy the re-
quest and the request is fulfilled at least
as rapidly as required for the paper meth-
od. The Departments further acknowledge
that requiring plans and issuers to set up
a designated toll-free number for pricing
information could be beneficial to partic-
ipants, beneficiaries, and enrollees, but
are not requiring this step given the De-
partments’ view that its burden outweighs
its benefit in light of the other available
disclosure methods, including the flexi-
bility to provide this information via the
preferred disclosure method of the partici-
pant, beneficiary, or enrollee.
3. Special Rule to Prevent Unnecessary
Duplication
a. Insured Group Health Plans
The proposed rules included a special
rule to streamline the provision of the re-
quired disclosures and to avoid unneces-
sary duplication of the disclosures with re-
spect to group health insurance coverage.
The Departments are finalizing this spe-
cial rule, which provides that, to the extent
coverage under a plan consists of fully-in-
sured group health insurance coverage,
the plan satisfies the requirements of the
final rules if the plan requires the issuer
offering the coverage to provide the in-
formation pursuant to a written agreement
between the plan and issuer. For example,
if a plan and an issuer enter into a written
agreement under which the issuer agrees
to provide the information required under
the final rules, and the issuer fails to pro-
vide full or timely information, then the
issuer, but not the plan, has violated the
transparency disclosure requirements.
121
Many commenters requested that the
Departments extend the special rule to
self-insured group health plans that are
administered by an administrative ser-
vice organization or other TPA. These
commenters stated that self-insured plan
sponsors that contract in good faith with
their TPAs to comply with the reporting
requirements should be held harmless
with respect to compliance obligations
and liability under this regulation because
in many instances a provider network is
merely rented from a TPA, necessary in-
formation may not be held by the plan
itself, and because liability could be con-
tractually assigned to the TPA.
Section 2715A of the PHS Act pro-
vides the authority for the Departments
to require this information from plans and
issuers, but not TPAs. Therefore, it is ul-
timately the responsibility of the plan or
121
Under section 4980D(d)(1) of the Code, the excise tax for group health plans failing to satisfy the final rules is not imposed on a small employer (generally fewer than 50 employees) which
provides health insurance coverage solely through a contract with an issuer on any failure which is solely because of the health insurance coverage offered by the issuer.

Bulletin No. 2020–49 1283 November 30, 2020
issuer to provide the information required
by the final rules. Nonetheless, the De-
partments note that nothing in the final
rules prevents a self-insured plan from
contracting with another party to provide
the required disclosure, including, to the
extent permitted under other federal or
state law, entering into an agreement for
the other party to indemnify the plan in the
event the other party fails to make the full
or timely disclosure required by the final
rules. However, the plan must monitor
the other party to ensure that the entity is
providing the required disclosure. More-
over, the Departments are of the view that
the special rules providing certain safe
harbors for actions taken in good faith as
further described later in this preamble
provide adequate protections for self-in-
sured plans. The final rules also include
the addition of the phrase “insured group
health plans” to clarify that this special
rule applies to insured group plans.
b. Other contractual arrangements
The Departments also received re-
quests for clarification about the responsi-
bility of employer plan sponsors that offer
benefits under a level-funded arrange-
ment. In general, under a level-funded
arrangement, a plan sponsor self-insures
expected claims and purchases stop-loss
insurance for claims that exceed a speci-
fied threshold. Group health plans that are
offered through a level-funded arrange-
ment are subject to the final rules. Just
like self-insured plans that are not lev-
el-funded, nothing in the final rules pre-
vents a level-funded plan from contracting
with another party to provide the required
disclosures, but the level-funded plan re-
mains liable for compliance with the final
rules, and must monitor the other party to
ensure that the entity is providing the re-
quired disclosure.
In several of the comments that ad-
dressed the special rule to prevent unnec-
essary duplication, commenters requested
that the Departments permit plans and is-
suers to fulfill pricing disclosure require-
ments for prescription drugs through a
third-party tool, such as a PBM tool. The
Departments agree that this approach is
permissible under the final rules. The
Departments recognize that self-insured
plans may rely on written agreements
with other parties, such as PBMs, to ob-
tain the necessary data to comply with the
disclosure requirements. A plan or health
insurance issuer may satisfy the require-
ments for prescription drug items and ser-
vices under paragraph (b) by entering into
a written agreement under which another
party (such as a PBM or other third-par-
ty) provides the information required by
paragraph (b) related to prescription drugs
in compliance with this section. Nonethe-
less, if a plan or issuer chooses to enter
into such an agreement and the party with
which it contracts fails to provide the in-
formation in compliance with the final
rules, the plan or issuer may be held re-
sponsible for violating the transparency
disclosure requirements of the final rules
for the same reasons explained above in
connection with self-insured plans enter-
ing into agreements with TPAs.
c. Application to account-based
arrangements
Another commenter sought clarifica-
tion about the responsibility of employ-
er plan sponsors that offer the following
types of coverage to employees: (1) in-
dividual coverage health reimbursement
arrangements (HRAs); (2) qualified small
employer HRAs (QSEHRAs); and (3)
flexible spending arrangements (FSAs)
that are not fully integrated with group
major medical coverage, stating that
these types of plans were not explicitly
addressed in the exemptions and the an-
ti-duplication provisions outlined in the
proposed rules.
The final rules do not apply to ac-
count-based group health plans, such as
HRAs, including individual coverage
HRAs, or health FSAs. QSEHRAs are not
group health plans and are, thus, not sub-
ject to the requirements of section 2715A
of the PHS Act.
122
Therefore, these types
of arrangements are not required to com-
ply with the final rules.
4. Privacy, Security, and Accessibility
The requirements for group health
plans and health insurance issuers to pro-
vide cost-sharing liability estimates and
related cost-sharing information will oper-
ate in tandem with existing state and fed-
eral laws governing the privacy, security,
and accessibility of the information that
will be disclosed under these disclosure
requirements. For example, the Depart-
ments are aware that the content to be dis-
closed by plans and issuers may be subject
to the privacy, security, and breach notifi-
cation rules under HIPAA or similar state
laws. Nothing in the final rules is intended
to alter or otherwise affect plans’, issuers’,
and other entities’ data privacy and securi-
ty responsibilities under the HIPAA rules
or other applicable state or federal laws.
The Departments also expect that plans
and issuers will follow applicable state
and federal laws regarding persons who
may or must be allowed to access and re-
ceive the information that is required to be
disclosed under the final rules. The final
rules refer to such persons as “authorized
representatives” and do not establish any
new class of persons or entities who are
authorized to access the information spec-
ified by the final rules.
One commenter expressed concerns
about potential privacy violations related
to implementation and compliance with
the proposed measure. This commenter
stated that all entities need to be made
aware of their existing privacy and da-
ta-security responsibilities and that states
and federal regulators need to be diligent
about compliance and enforcement. This
commenter further stated it is important
to note that employers, TPAs, and carriers
may incur increased costs related to com-
plying with the proposed rules regarding
potential data breaches, increased liabil-
ity, and cyber-coverage costs that could
impact plan premiums.
The Departments agree that it is import-
ant that entities subject to the final rules
be aware of their privacy and data-secu-
rity responsibilities. Accordingly, the De-
partments are finalizing, as proposed, a
provision that reminds plans and issuers
of their duty to comply with requirements
under other applicable state or federal
laws, including requirements governing
the accessibility, privacy, or security of in-
formation, or those governing the ability
of properly authorized representatives to
122
Section 9831(d)(1) of the Code; section 733(a)(1) of ERISA; and section 2791(a)(1) of the PHS Act.

November 30, 2020 1284 Bulletin No. 2020–49
access participant, beneficiary, or enrollee
information held by plans and issuers.
The Departments further appreciate the
concern that employers, TPAs, and issu-
ers may incur cybersecurity costs related
to providing an online tool that provides
some access to participant, beneficiary,
and enrollee protected health information
(PHI). However, given the Departments’
understanding that as many as 94.4 per-
cent of surveyed plans and issuers already
maintain and operate an internet-based
self-service tool,
123
the Departments antic-
ipate any additional costs associated with
cybersecurity will not be substantial.
124

The Departments have otherwise eval-
uated the burden of operating an inter-
net-based self-service tool in section VI,
later in this preamble.
One commenter expressed concern that
certain requests for cost-sharing informa-
tion could include items and services that
may reveal particularly sensitive health
information (for example, information
related to substance abuse, mental health,
or HIV). This commenter recommended
the Departments provide carve-outs so
that plans and issuers are not required to
disclose such information through un-
secured methods of communication (for
example, email or phone). Alternatively,
they recommended that the Departments
provide more clarity or examples of when
plans and issuers are not required to dis-
close certain information to comply with
HIPAA and other federal and state privacy
laws.
The Departments remind stakeholders
that current privacy and security require-
ments applicable under HIPAA rules and
other applicable federal requirements con-
tinue to apply under these rules. As not-
ed earlier in this section of the preamble,
the final rules are not intended to alter or
otherwise affect plans’, issuers’, or other
entities’ responsibilities under HIPAA or
other applicable federal privacy laws. Fur-
thermore, to the extent that state laws are
more stringent regarding the disclosure of
information subject to the final rules, plans
and issuers are required to comply with
the relevant state laws. The Departments
acknowledge that there have been several
recent security breaches affecting plans,
issuers, and third-party vendors that may
have compromised the PII and PHI of par-
ticipants, beneficiaries, and enrollees. As
acknowledged elsewhere in this preamble,
privacy and security are important to the
Departments and, while outside the scope
of this rule, these are issues the Depart-
ments will continue to monitor. In light
of existing risks and new risks that may
arise as a result of increased innovation
in the health care space, the Departments
encourage plans and issuers to continue to
educate their participants, beneficiaries,
and enrollees about these risks and about
ways to minimize or prevent unintended
usage or sharing of their health data and
encourage consumers to pay close atten-
tion to any new internet-based tools or ap-
plications they may choose to use.
C. Requirements for Public Disclosure
of In-Network Rates, Historical Allowed
Amount Data, and Prescription Drug
Pricing Information for Covered Items
and Services from In- and Out-of-
Network Providers
As explained earlier in this preamble
and in the proposed rules, the Departments
proposed to exercise specific authority un-
der section 1311(e)(3)(A)(vii) and (ix) of
PPACA (as applied to group health plans
and health insurance issuers in the indi-
vidual and group markets through section
2715A of the PHS Act), which requires
plans and issuers to publicly disclose in-
formation on cost-sharing and payments
with respect to any out-of-network cover-
age and any other information the Secre-
tary of HHS determines to be appropriate
to enhance transparency in health cover-
age. Consistent with this authority, the
Departments proposed for plans and issu-
ers to make public negotiated rates with
in-network providers and data outlining
the different amounts a plan or issuer has
paid for covered items or services, includ-
ing prescription drugs, furnished by out-
of-network providers. The Departments
proposed to require plans and issuers to
make this information available in ma-
chine-readable files that would include in-
formation regarding negotiated rates with
in-network providers, allowed amounts
for all covered items or services furnished
by particular out-of-network providers,
and other relevant information in accor-
dance with specific method and format
requirements. The Departments proposed
to require plans and issuers to update this
information on a monthly basis to ensure
it remains accurate. The Departments are
finalizing these policies and requirements
with modifications to clarify the proposed
requirements and underlying policies, and
to respond to commenter suggestions and
concerns.
The preamble to the proposed rules
outlined several reasons why the public
disclosure of negotiated rates and histor-
ical out-of-network allowed amounts is
both appropriate and necessary for trans-
parency in coverage. First, the Depart-
ments asserted that the public availability
of negotiated rates and historical out-of-
network allowed amounts would empow-
er the nation’s 26.1 million uninsured con-
sumers

to make more informed health care
decisions.
125
Uninsured consumers gen-
erally must pay a provider’s full charges
for health care items and services. Though
negotiated rates will not apply to the unin-
sured, it will offer a baseline when negoti-
ating with providers. Pricing information
is critical to their ability to evaluate their
service options and control their health
care spending. Uninsured consumers
could also use publicly available pricing
information to find which providers offer
the lowest price, depending on the con-
sumer’s personal needs and priorities. The
Departments noted in the preamble to the
proposed rules that provider lists of stan-
dard charges often do not reflect the true
cost of particular items and services.
126

Again, although a provider’s negotiated
123
124
Sharma A., Manning, R., and Mozenter, Z. “Estimating the Burden of the Proposed Transparency in Coverage Rule.” Bates White Economic Consulting. January 27, 2020. Available at:
https://www.bateswhite.com/newsroom-insight-Transparency-in-Coverage-Rule.html.
125
Income, Poverty and Health Insurance Coverage in the United States: 2019.” United States Census Bureau. September 15, 2020. Available at: https://www.census.gov/newsroom/press-re-
leases/2020/income-poverty.html.
126
Arora, V., Moriates, C., and Shah, N. “The Challenge of Understanding Health Care Costs and Charges.” 17 aMa J. ethicS 1046 (2015). Available at: https://journalofethics.ama-assn.org/
article/challenge-understanding-health-care-costs-and-charges/2015-11.

Bulletin No. 2020–49 1285 November 30, 2020
rates with plans and issuers do not neces-
sarily reflect the prices providers charge
to uninsured patients, uninsured consum-
ers could use this information to gain an
understanding of the payment amounts a
particular provider accepts for a service.
Uninsured patients or participants, benefi-
ciaries, or enrollees seeking care from an
out-of-network provider also may use this
data to negotiate a price prior to receiving
an item or service or negotiate down a bill
after receiving a service.
127

Second, the Departments stated in the
proposed rules that information regard-
ing negotiated rates and historical out-
of-network allowed amounts is critical
for any consumer, insured, or uninsured,
who wishes to evaluate available options
for group or individual market coverage.
Specifically, negotiated rate information
for different plans or coverage and their
in-network providers is key to consumers’
ability to effectively shop for coverage
that best meets their needs at prices they
can afford, whether the consumer wishes
to purchase new coverage or change ex-
isting coverage. Publicly-available nego-
tiated rate data will assist all consumers
in choosing the coverage that best meets
their needs in terms of deductible require-
ments, coinsurance requirements, and out-
of-pocket limits—all factors frequently
determined by plan’s or issuer’s in-net-
work rates, including negotiated rates, or
out-of-network allowed amounts. This
information, added to plan premium in-
formation and benefit design (for example
coinsurance percentages), will give con-
sumers an understanding of how afford-
able a particular coverage option will be.
In the preamble to the proposed rules,
the Departments noted that publicly avail-
able historical allowed amount data for
covered items and services provided by
out-of-network providers would enable
consumers who require specialized ser-
vices to find the best coverage for their
circumstances. For instance, plans and
issuers often place limitations on bene-
fits for specialized services, which causes
many specialists to reject insurance; this
can make it difficult, if not impossible,
for consumers in need of certain services
to find in-network providers in their area
who are accepting new patients or who
have sufficient availability or expertise
to meet their needs. The Departments un-
derstand, for example, that many speech
therapists and pathologists do not accept
insurance because of the limitations plans
and issuers place on coverage for their ser-
vices, such as annual visit limits on speech
therapy services. Accordingly, consumers
who have a need for such specialized ser-
vices may base their coverage choices pri-
marily, if not solely, on a plan’s or issuer’s
out-of-network benefits. Historical data
outlining different amounts paid to out-of-
network providers will enable consumers
who rely on out-of-network providers to
ascertain potential out-of-network bene-
fits among different plans and issuers.
Third, the Departments stated in the
preamble to the proposed rules that public
disclosure of pricing information is neces-
sary to enable consumers to use and under-
stand price transparency data in a manner
that will increase competition, potentially
reduce disparities in health care prices,
and potentially lower health care costs.
One of the recognized impediments to in-
creased competition for health care items
and services is the widespread lack of
knowledge many consumers have regard-
ing health care pricing. In the preamble to
the proposed rules, the Departments noted
that many consumers do not fully compre-
hend the basics of health coverage, much
less the more complex facets of the health
care system that can affect an individual’s
out-of-pocket cost for items and services,
including: its specialized billing codes
and payment processes; the various spe-
cialized terms used in plan and coverage
contracts and related documents (such as
copayment and coinsurance); and the var-
ious billing and payment structures plans
and issuers use to compensate providers
and assign cost-sharing liability to indi-
viduals (for example, bundled payment
arrangements).
128
Pricing information is
necessary to spur innovation that will
help educate consumers on how to get the
most value out of their plan or coverage.
Making the required pricing information
public could facilitate and incentivize the
design, development, and offering of in-
ternet-based self-service tools and support
services that are necessary to address the
general inability of consumers to use or
otherwise understand the available health
care pricing information.
In developing the proposed rules, the
Departments considered that, due to the
complexity of the health care system and
the data that drives plan and issuer pay-
ments for health care items and services,
such raw data is likely to be difficult for
the average consumer to understand and
effectively use. As a result, the Depart-
ments determined that proposing to make
public negotiated rates with in-network
providers and historical payment data out-
lining out-of-network allowed amounts
would be appropriate because it would en-
courage innovation that could ultimately
help consumers understand and effective-
ly use price transparency information.
The Departments stated that the pro-
posed requirement to make pricing in-
formation publicly available could allow
health care software application devel-
opers and other innovators to compile,
consolidate, and present this information
to consumers in a manner that allows con-
sumers to consider price as a factor when
making meaningful comparisons between
different coverage options and provid-
ers.
129
For instance, third-party develop-
ers could develop mobile applications
that operate as look-up tools and permit
comparison of prices for specific services
across plans. The tools could also allow
consumers to access their medical records
or other information about their health
care utilization and create estimates based
upon patient-specific information. Ulti-
127
“How to Research Health Care Prices.” Wall Street Journal. Dec. 4, 2009. Available at: https://guides.wsj.com/health/health-costs/how-to-research-health-care-prices/ (“Researching
health-care pricing online can also help after you’ve already had a medical procedure, if you want to dispute a bill, negotiate it down, or figure out if you’ve been overcharged.”).
128
Satter, M. “Survey: Most workers don’t understand health insurance.” BenefitsPRO. September 30, 2016. Available at: https://www.benefitspro.com/2016/09/30/survey-most-work-
ers-dont-understand-health-insuran/?slreturn=20190803010341 (a UnitedHealthcare Consumer Sentiment Survey found that even though 32 percent of respondents were using websites
and mobile apps to comparison shop for health care, only 7 percent had a full understanding of all four basic insurance concepts: plan premium, deductible, coinsurance, and out-of-pocket
maximum; although 60 percent of respondents were able to successfully define plan premium and deductible, respondents were not as successful in defining out-of-pocket maximum (36
percent) and coinsurance (32 percent)).
129
The Departments recognize that implementation of the API discussed in section III, Request for Information, could go even further toward the goal of empowering application developers
and other innovators to support price transparency in the health care market.

November 30, 2020 1286 Bulletin No. 2020–49
mately, the Departments are of the view
that improved access and usability of this
information has the potential to increase
health insurance literacy, consumerism,
and competition, resulting in more rea-
sonable costs for health care items and
services.
Fourth, in the proposed rules the De-
partments noted that, along with con-
sumers, sponsors of self-insured and
fully-insured group health plans are also
disadvantaged by the lack of price trans-
parency.
130
Absent action taken such as
through the final rules, health care cost
trends are expected to continue to outpace
inflation, with employer-sponsored large
group plans’ annual per employee costs
expected to increase between 5.5 to 9.0
percent over the next decade.
131
Without
information related to what other plans
or issuers are actually paying for partic-
ular items and services, employer plans
currently lack the pricing information
necessary to shop or effectively negotiate
for the best coverage for their participants
and beneficiaries. In the proposed rules,
the Departments stated that public avail-
ability of pricing information is appropri-
ate to empower plans to make meaningful
comparisons between offers from issuers
and evaluate the prices offered by provid-
ers who wish to be included in their pool
of in-network providers. The Departments
noted that the pricing information would
also assist employer plans that contract
with TPAs or issuers to provide a network
of physicians. That information would
provide valuable data an employer plan
could use to assess the reasonableness of
network access prices offered by TPAs
and issuers by evaluating the specific
price providers in a TPA’s or issuer’s net-
work are accepting for their services.
Armed with transparency data, em-
ployers could also use their leverage to
negotiate for lower prices for their par-
ticipants and beneficiaries and, poten-
tially, if enough employers take action,
it could help lower health care prices.
132

For instance, employers could employ
network and benefit design tools to move
participants and beneficiaries toward low-
er-priced providers and shift from less fa-
vorable provider contracting models (such
as a discounted-charge contact, which can
be vulnerable to list-price inflation) to
more favorable, alternative value-based
contracting models (such as refer-
ence-based pricing and bundled payment
arrangements).
133
As stated elsewhere in
this preamble, based on 2019 Census data,
there are 183 million Americans enrolled
in employer-sponsored health coverage
through a household member’s employer
at some point during the year.
134
Based on
estimates of the United States population
in 2019, this would mean that more than
56 percent of the nation’s insured popu-
lation has employer-sponsored coverage.
Therefore, the ability of employer plans to
effectively negotiate pricing for coverage
and services could be a boon to competi-
tion in the health care market.
Fifth, the Departments stated in the
proposed rules that public disclosure of
price transparency information is also
appropriate because it could assist health
care regulators in carrying out their duties
to oversee issuers in their states, as well as
in designing and maintaining sustainable
health care programs. Regulators may be
able to independently access, aggregate,
and analyze the data to support oversight
of plans and issuers. For example, because
the machine-readable files must be updat-
ed regularly, regulators could use the pric-
ing information to identify trends in rates
of items and services over time or identify
potentially collusive practices or substan-
tial price variations within a geograph-
ic area that may be in need of additional
monitoring or future regulatory action. It
may also become possible for regulators
to use the pricing information related to
items and services to assist in better un-
derstanding and monitoring premium rate
fluctuations and increases in their respec-
tive markets; further allowing them to as-
sess whether the trend rates issuers use in
their rate filings are reasonable in order to
assess whether proposed rates should be
approved. Because the in-network appli-
cable rate data will be reasonably current,
regulators may be able to address poten-
tial concerns more quickly than at present.
Local, state, and federal agencies re-
sponsible for implementing health care
programs that rely on issuers to provide
access to care would be privy to actual
pricing information that could inform their
price negotiations with issuers. Insights
gained from research using the pricing in-
formation could support regulators in their
oversight of plans and issuers and could
also help identify new ideas for market
reforms to enhance the performance and
efficiency of health insurance markets.
The public availability of health care
pricing information offers researchers the
ability to better understand the impact of
specific plan, issuer, and provider char-
acteristics on negotiated rates and out-
of-network payments, evaluate and sup-
plement existing models and predictions,
and formulate new policies and regulatory
improvements to improve competition
and lower health care spending. Research-
ers have already utilized localized and
state-wide data to review trends in issuer
market share, issuer location, and covered
services and their corollary effects on
consumer pricing and experience in the
market.
135
They have also examined these
similar effects on consumers by provider
market shares, structures, and offered sim-
ilar data. Expanding the availability of this
data could allow for the expansion and
validation of these and other models and
130
Whaley, C., et al. “Nationwide Evaluation of Health Care Prices Paid by Private Health Plans: Findings from Round 3 of an Employer-Led Transparency Initiative.” RAND Corporation.
2020. Available at: https://www.rand.org/pubs/research_reports/RR4394.html.
131
Congressional Budget Office, “The Budget and Economic Outlook: 2019 to 2029.” Congress of the United States Congressional Budget Office. January 2019. Available at: https://www.
cbo.gov/system/files/2019-03/54918-Outlook-3.pdf; see also “Medical cost trend: Behind the numbers 2020.” PwC Health Research Institute. June 2019. Available at: https://heatinformatics.
com/sites/default/files/images-videosFileContent/pwc-hri-behind-the-numbers-2020.pdf.
132
Whaley, C., et al. “Nationwide Evaluation of Health Care Prices Paid by Private Health Plans: Findings from Round 3 of an Employer-Led Transparency Initiative.” RAND Corporation.
2020. Available at: https://www.rand.org/pubs/research_reports/RR4394.html.
133
Id.
134
“Income, Poverty and Health Insurance Coverage in the United States: 2019.” United States Census Bureau. September 15, 2020. Available at: https://www.census.gov/newsroom/press-re-
leases/2020/income-poverty.html.
135
See Brown, Z. Y. “Equilibrium Effects of Health Care Price Information.” The Review of Economics and Statistics. Volume. 101. No. 4. September 30, 2019. Available at: https://www.
mitpressjournals.org/doi/full/10.1162/rest_a_00765; see also Wu, S. et al “Price Transparency For MRIs Increased Use Of Less Costly Providers And Triggered Provider Competition.”
Health Affairs. August 2014. Available at: https://www.healthaffairs.org/doi/10.1377/hlthaff.2014.0168.

Bulletin No. 2020–49 1287 November 30, 2020
hypotheses. With larger and more com-
plete datasets, researchers could refine
their policy and regulatory suggestions
regarding payment and delivery models,
including those that are most likely to
mitigate upwards pricing pressure from
issuer, provider, consumer, and geograph-
ic factors. The release of this data could
also supplement ongoing efforts to help
control health care costs.
The Departments acknowledge that
these stakeholders, notably researchers,
may have access to some pricing data
through existing sources, such as the
Health Care Cost Institute (HCCI) and
databases established through state health
care price transparency efforts. However,
it is the Departments’ understanding that
these health care pricing datasets are of-
ten costly to purchase, only contain older,
historical data, and generally only include
de-identified plan data for a limited num-
ber of plans and issuers who voluntarily
participate in the data collection.
136

By contrast, the pricing information
required through the final rules would
generally be current data for all plans and
issuers and will be available to the pub-
lic free of charge. This data, where it is
related to in-network coverage, can also
be tied back to specific plans and issuers
and the geographic regions in which they
provide plans or coverage. With access to
the pricing data required through the final
rules, researchers may be able to design
new studies that develop novel insights
into the health insurance markets. Stake-
holders, including employers, may be able
to gain insights, inform oversight efforts,
negotiate improved terms for items and
services, or make improvements to insur-
ance products, such as plans and issuers
moving toward value-based plan designs
or broadening or narrowing networks
based on customer shopping habits. The
pricing information could also support
market innovation and improvements by
plans and issuers. For example, research-
ers and industry experts could use pricing
information to establish baseline data to
assist in identifying, designing, and test-
ing new or existing health care delivery
and coverage models.
While all of these stakeholders stand to
benefit from access to the pricing informa-
tion required through the final rules, the
Departments continue to be of the view
that the ultimate beneficiaries of access
to pricing information are consumers. In-
deed, public access to health care pricing
information could lead to more targeted
oversight, better regulations, market re-
forms to ensure healthy competition, im-
proved benefit designs, and more consum-
er-friendly price negotiations.
The Departments expressed the view
that effective downward pressure on health
care pricing cannot be fully achieved
without public disclosure of pricing infor-
mation. Standard economic theory holds
that markets work best when there is price
competition.
137
When consumers shop for
services and items based on price, pro-
viders and suppliers typically compete
to lower prices and improve quality.
138

Based on this understanding of standard
economic principles and past experience,
the Departments are persuaded that inno-
vators and other entities in the health care
market will be incentivized to innovate
in the price transparency and health care
consumerism space once access to pricing
information that allows for meaningful
evaluation of different options for deliver-
ing health care items or services, coverage
options, and provider options becomes
available.
1. Information Required to be Disclosed
to the Public.
The Departments are finalizing require-
ments, under 26 CFR 54.9815-2715A3(b),
29 CFR 2590.715-2715A3(b), and 45 CFR
147.212(b), for plans and issuers to make
public applicable rates, including negoti-
ated rates, with in-network providers; data
outlining the different billed charges and
allowed amounts a plan or issuer has paid
for covered items or services, including
prescription drugs, furnished by out-of-
network providers; and negotiated rates
and historical net prices for prescription
drugs furnished by in-network provid-
ers.
139
The Departments are of the view
that public availability of in-network ap-
plicable rates, including negotiated rates,
billed charges and historical out-of-net-
work allowed amounts, and in-network
negotiated rates and historical net prices
for prescription drugs is appropriate and
necessary to provide comprehensive ef-
fective transparency in coverage, which
may, in turn, empower consumers to make
informed decisions about their health care,
spur competition in health care markets,
and slow or potentially reverse the rising
cost of health care items and services.
The vast majority of the commenters
agreed with the Departments’ objectives
of price transparency under the proposed
rule. Many commenters offered general
support (in whole or in part) of the pro-
posed requirements for public disclosure
of in-network negotiated rates and out-
of-network allowed amounts. One com-
menter supported the public disclosure
of out-of-network allowed amounts but
expressed concerns about disclosure of
in-network negotiated rates.
Disclosure of Pricing Information
Generally
Some commenters who offered support
stated that the requirements will help cre-
ate more efficient and value-based health
care systems by, for example, encourag-
ing plans and issuers to adopt innovative
benefit designs that push patients toward
lower-cost care. Another commenter who
offered support stated that requiring plans
and issuers to share publicly the negotiated
rates for in-network providers and allowed
136
For example, HCCI is expected to release their “2.0” dataset in December 2020. The “2.0” dataset includes over one billion commercial claims and 60 million covered lives per year from
Aetna, Humana, Kaiser Permanente, and the Blue Cross Blue Shield (BCBS) companies from 2012 through 2018. The data is nearly three years old and will cost $45,000 annually on a
per-project basis and does not include other “standard add-ons,” such as data mergers. Institutional membership prices will be customized for each organization. Taken from “Power Up Your
Analytics on the Privately Insured.” Health Care Cost Institute. Available at: https://healthcostinstitute.org/images/pdfs/Health_Care_Cost_Institute_-_Power_Up_Your_Analytics.pdf. In
addition to the HCCI dataset, BCBS companies also sell their data through their analytics and consulting platform, Blue Health Intelligence, with 20.3 billion claims from 203 unique member
organizations. The access price is not listed on their website. More information is available at: https://www.bluehealthintelligence.com/.
137
“FTC Fact Sheet: How Competition Works.” United States, Federal Trade Commission. Available at: https://www.consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/
FTC-Competition_How-Comp-Works.pdf.
138
Kessler, D., and McClellan, M. “Is Hospital Competition Socially Wasteful?” 115 Q. J. of Econ. 577. May 2, 2000. Available at: https://www.nber.org/papers/w7266.
139
As discussed in section II.B of this preamble, the Departments are also finalizing requirements under 26 CFR 54.9815-2715A2(b)(1)(iii) – (iv), 29 CFR 2590.715-2715A2(b)(1)(iii) – (iv),
and 45 CFR 147.211(b)(1)(iii) – (iv) that plans and issuers include negotiated rates and out-of-network allowed amounts within the internet-based self-service tool.

November 30, 2020 1288 Bulletin No. 2020–49
amounts for out-of-network providers
has the potential to increase competition
among issuers. One commenter stated
that public disclosure of negotiated rates
is needed to address the provider consoli-
dation that is driving up health care costs
and leading to more favorable reimburse-
ments to large hospitals with bargaining
power. Another commenter recommended
the Departments reject arguments against
transparency that payment data should be
protected as proprietary, and adopt a pre-
sumption in favor of transparency.
The Departments received comments
from state and local government regulators
who were supportive of the rules general-
ly and provided suggestions for improving
the proposals. Regulators recognized that
greater transparency holds promise in im-
proving pricing of health care items and
services in ways that improve consumer
comprehension and policymakers’ abili-
ty to manage the health care system. One
local government commenter supported
the goal of price transparency, but voiced
concern that the proposed rules might un-
intentionally drive up the cost of health
care. Individual consumers who submit-
ted comments offered general support and
emphasized the importance of obtaining
pricing information in advance of receiv-
ing health care for their personal health
care decision-making. Some individual
commenters noted that consumers seek
the price of a product or service in every
other sector prior to making a spending
decision and should be able to do so when
purchasing health care. Other individu-
al commenters stated their support for
policies that will help consumers choose
whether to seek care from an in-network
or out-of-network provider.
Many other commenters, comprised
largely of health insurance issuers and
health care providers, offered support for
the objective of price transparency, but
did not support the requirements for pub-
lic disclosure of in-network provider rates
and out-of-network allowed amounts,
expressing particular concerns about the
in-network provider rate disclosure re-
quirements
Commenters stated that, as proposed,
the disclosure of payer-specific negotiated
rates could distort the markets, creating an
unbalanced focus on costs at the expense
of other factors influencing market dy-
namics, such as quality, efficiency, and ef-
fectiveness. Some commenters stated that
negotiated rates reflect factors other than
price such as experience, previous vol-
umes/market power, anticipated growth,
strategic initiatives, and select conces-
sions.
The Departments do not agree that
publication of negotiated rates for items
and services will have negative distortive
effects on health care markets. Rather,
the Departments are of the view that the
final rules will help to counteract the rec-
ognized price distortions that result from
the unavailability of pricing information
to health care consumers.
140
As discussed
elsewhere in this preamble, the current
unavailability of pricing information for
health care items and services prohibits
the health care markets from achieving
a meaningful level of competition based
on price because it ensures that health
care consumers typically are not able to
include price in their health care purchas-
ing decisions. The Departments are of
the view that making pricing information
available could begin to ameliorate price
distortions in health care by encouraging
consumer decision-making that takes cost
into account.
Another commenter stated that the re-
lease of negotiated rates would inappro-
priately result in the steering of consumers
to particular providers based on contrac-
tual prices. The commenter stated that
informed decision-making is not solely
based on price, but is multi-factorial, in-
volving looking at a provider’s clinical ex-
pertise, ability to coordinate care, quality,
effectiveness of utilization management,
and guidance from a referring physician.
The Departments agree that informed de-
cision-making is not solely based upon
price. The final rules are only one part of
the solution to address issues contributing
to the lack of competition in the health
care market and resulting increases in
health care costs. While the Departments
address the problem of price transparency
through this rulemaking, other govern-
ment and industry stakeholders are work-
ing to address other issues highlighted by
commenters, such as the availability of
reliable quality data.
The Departments, in shaping the pro-
posed and final rules, considered that there
is quality data available to individual con-
sumers and other consumers of health
care like employers and government pro-
grams. Various government and industry
stakeholders sponsor programs that aim
to provide reliable health care quality in-
formation to health care purchasers. For
instance, HHS engages in continual ef-
forts to develop quality measures that are
meaningful and accurately reflect hospital
quality. CMS’s Hospital Inpatient Qual-
ity Reporting Program collects quality
data from certain hospitals with the goal
of driving quality improvement through
measurement and transparency.
141
CMS
publicly displays this quality data to help
consumers make more informed decisions
about their health care.
142
HHS’s Agen-
cy for Healthcare Research and Quality
(AHRQ) publishes comparative informa-
tion on health plans that include reports
sponsored by federal and state agencies,
private organizations, and purchasing co-
alitions.
143
The Departments appreciate
comments received through the RFI in
the proposed rule and are also evaluating
future actions to help ensure quality infor-
mation is more readily available.
The Departments are also of the view
that it is worth noting that private sector
entities have been working to provide use-
140
Under ideal market conditions, consumers have sufficient information to make good choices. When consumers do not have information on price, standard market forces cannot operate,
and prices for health care are distorted resulting in price discrimination (charging consumers different prices for the same product) and other problems that currently plague the health care
markets. See generally Mwachofi, Ari, and Assaf F. Al-Assaf. “Health care market deviations from the ideal market.” Sultan Qaboos University Medical Journal vol. 11, 3 (2011): 328-37.
Available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3210041/.
141
See CMS Hospital inpatient Quality Reporting Program Webpage at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/HospitalRH-
QDAPU, last accessed Sep. 21, 2020.
142
CMS Hospital Compare Website at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/HospitalRHQDAPU, last accessed Sept. 21,
2020.
143
AHRQ Comparative Reports on Health Plans, https://www.ahrq.gov/talkingquality/resources/comparative-reports/health-plans.html, last accessed Sept. 21, 2020.

Bulletin No. 2020–49 1289 November 30, 2020
ful quality information to consumers.
144

For example, the National Quality Forum
(NQF) is a private standard-setting orga-
nization focused on the evaluation and
endorsement of standardized performance
measurements that makes available on its
website all NQF work products, reports,
and quality measures.
145
As another ex-
ample, the Joint Commission is a not-
for-profit organization that develops and
applies standards that focus on patient
safety and quality of care.
146
Finally, the
National Committee for Quality Assur-
ance (NCQA) measures and accredits
health plans as well as the quality of med-
ical providers and practices. For example,
more than 191 million people are enrolled
in health plans that report quality results
using NCQA’s Healthcare Effectiveness
Data and Information Set (HEDIS),
147

which includes more than 90 measures
across six “domains of care,” including
effectiveness of care, access/availability
of care, and experience of care.
148

Once pricing data is available through
the final rules, existing quality data can be
considered with pricing data to produce a
more complete and accurate picture of to-
tal value. The same third-party developers
who will have access to the information
published pursuant to these final rules
could develop platforms capable of pre-
senting available quality data alongside
pricing information. The Departments,
therefore, anticipate that making health
care prices transparent may spur consum-
ers to seek and consider available quality
and price information to determine wheth-
er a particular item or service is worth a
higher or lower price. There is evidence
from retail sector studies showing that
consumers want high-quality, low-priced
goods and will seek the lower price among
products of the same quality.
149
Given the
high cost of health care, the Departments
are of the view that the same trend toward
seeking lower prices will more likely than
not hold true in the health care market
when prices become transparent.
150

The Departments received many com-
ments stating that publishing negotiated
rates is unlikely to meet the Departments’
goal of helping consumers understand
their health coverage and reasonably pre-
dict their out-of-pocket costs. Many of
these commenters stated that negotiated
rates information would not provide con-
sumers with meaningful, actionable pric-
ing information, and could possibly make
purchasing decisions more confusing and
difficult for consumers. One commenter
noted that the public disclosure of nego-
tiated rate information could distract from
relevant participant, beneficiary, or enroll-
ee-specific cost-sharing information such
as accumulated amounts. One commenter
stated that confusing and unhelpful pric-
ing information would erode consumer
trust and present long-term challenges for
the health care system.
The Departments disagree that pub-
lic knowledge of the price of health care
items and services will increase individu-
al consumers’ confusion regarding health
coverage or distract them from other in-
formation relevant to their out-of-pocket
costs, such as the status of their accumu-
lated amounts and note that commenters
who raised this point cited no empirical
or anecdotal evidence supporting these
concerns. On the contrary, as explained
throughout this preamble, the Depart-
ments are of the view that standard eco-
nomic theory, experience from several
states, and evidence from other markets
demonstrate that increased transparency
leads to better-informed purchasing de-
cisions, generally lower prices, and qual-
ity improvements. Moreover, the Depart-
ments expect that third-party developers
will compete to make pricing information
available to the public in formats that are
user-friendly, so disclosure of detailed
pricing information is unlikely to lead to
significant consumer confusion.
As noted earlier in this preamble, the
Departments expect the public disclosure
of pricing information related to health
care items and services to help both un-
insured and insured individuals in their
health care and health coverage purchas-
ing decisions. Furthermore, research sug-
gests that having access to pricing infor-
mation can increase consumers overall
satisfaction and provide opportunities for
education and engagement on health care
pricing.
151
For instance, when the Chil-
dren’s Hospital of Philadelphia incorpo-
rated a Patient Cost Estimate Department,
they found that cost estimates resulted
in “fewer billing-related complaints, de-
creased revenue losses, and increased
overall patient satisfaction.”
152
A targeted
study in the American Surgeon journal
found five out of six medical centers that
adopted price transparency reported in-
creases in patient satisfaction and patient
engagement after price transparency.
153

One commenter stated that public dis-
closure of pricing information through
144
See, for example, Ranard, B. L., Werner, R. M., Antanavicius, T., Schwartz, H. A., Smith, R. J., Meisel, Z. F., Asch, D. A., Ungar, L. H., & Merchant, R. M. (2016). “Yelp Reviews Of
Hospital Care Can Supplement And Inform Traditional Surveys Of The Patient Experience Of Care. Health Affairs” (Project Hope), 35(4), 697–705. Available at: https://doi.org/10.1377/
hlthaff.2015.1030 (“Online consumer-review platforms such as Yelp can supplement information provided by more traditional patient experience surveys and contribute to our understanding
and assessment of hospital quality.”).
145
See the National Quality Forum Website, http://www.qualityforum.org/how_we_do_it.aspx, last accessed Oct. 8, 2020.
146
See The Joint Commission Website, https://www.jointcommission.org/about-us/facts-about-the-joint-commission/joint-commission-faqs/, last accessed Oct. 8, 2020.
147
See NCQA Website, https://www.ncqa.org/hedis/, last accessed Oct. 8, 2020.
148
Id.
149
Shirai, M. “Impact of ‘High Quality, Low Price’ Appeal on Consumer Evaluations.” Journal of Promotion Management. December 2015. Available at https://www.tandfonline.com/doi/fu
ll/10.1080/10496491.2015.1088922.
150
Recent research evaluating the impact of New Hampshire’s price transparency efforts shows that providing insured patients with information about prices can have an impact on the out-
of-pocket costs consumers pay for medical imaging procedures, not only by helping users of New Hampshire’s website choose lower cost options, but also by leading to lower prices that
benefited all patients, including consumers in New Hampshire that did not use the website. See Brown, Z. Y. “Equilibrium Effects of Health Care Price Information.” The Review of Econom-
ics and Statistics. Volume. 101. No. 4. Available at: https://www.mitpressjournals.org/doi/full/10.1162/rest_a_00765; see also Brown, Z. Y. “An Empirical Model of Price Transparency and
Markups in Health Care.” August 2019. Available at: http://www-personal.umich.edu/~zachb/zbrown_empirical_model_price_transparency.pdf.
151
Revere, F. L., et al. “A consumer-based evaluation of Healthcare Price and Quality Transparency.” Journal of Health Care Finance. Summer 2016. Available at: http://www.healthfinance-
journal.com/index.php/johcf/article/download/72/74.
152
Otero, H., et al. “The Cost-Estimation Department: A Step Toward Cost Transparency in Radiation.” Journal of the American College of Radiology. Vol 16. Issue 2. February 2019. Avail-
able at: https://doi.org/10.1016/j.jacr.2018.07.033.
153
Mehta, A., et al. “The Impact of Price Transparency for Surgical Services.” The American Surgeon. April 2018. Available at: https://pubmed.ncbi.nlm.nih.gov/29712614/.

November 30, 2020 1290 Bulletin No. 2020–49
the machine-readable files is unlikely to
benefit uninsured consumers, in particu-
lar, as it will be difficult for them to make
the necessary comparisons or negotiate
with providers as providers are not incen-
tivized to negotiate with uninsured con-
sumers. Another commenter stated that
the machine-readable files would not be
very helpful for current beneficiaries, par-
ticipants, or enrollees, but acknowledged
they could benefit uninsured individuals
and enrollees considering alternative cov-
erage.
By contrast, other commenters, includ-
ing many individual commenters, stated
that access to negotiated rate information
would empower both insured and unin-
sured consumers by helping to correct the
lack of consumer choice and information
and help support efforts by other market
actors. In particular, one commenter stat-
ed that consumers would likely use the
pricing information, especially if their
cost-sharing liability is in the form of
coinsurance that is tied to the negotiated
rates. One commenter stated that release
of information on negotiated rates would
help consumers by spurring innovation
by third-party application developers to
create tools to help consumers and pay-
ers, especially self-insured group health
plans. Finally, one commenter did not
support the requirements for public dis-
closure of in-network provider rates but
did acknowledge that public disclosure
of de-identified aggregated data for both
in-network and out-of-network providers
could empower consumer decision-mak-
ing.
The Departments agree that transpar-
ency would help provide more consumer
information and support consumer choice
for both insured and uninsured consum-
ers. The Departments continue to be of
the view that market actors, including IT
developers, researchers, industry experts,
and plans and issuers would be incentiv-
ized to innovate in the price transparency
and health care consumerism space once
access to the pricing information required
to be disclosed through the final rules be-
comes available. In the proposed rule, the
Departments emphasized that individu-
al consumers need easy to use tools and
resources to help them better understand
their current health care coverage, health
coverage they consider purchasing, and
their out-of-pocket exposure under those
plans. Health care stakeholders and oth-
er industry participants, including web
and mobile application developers, are
already attempting to meet this need, de-
spite the incomplete pricing information
available to them. Given actionable data
that can improve such tools and resources,
industry actors will likely be incentivized
to design innovations to deliver the help
and information consumers need to make
informed health care decisions based, at
least in part, on the important factor of
price. The final rules will support current
and future efforts to help guide consumers
to the lowest cost items and services that
meet their specific needs and qualifica-
tions. To spur this innovation, the pricing
information must allow for meaningful
evaluation of different options for deliv-
ering health care items or services, cover-
age options, and provider options. One of
the main avenues through which the De-
partments assumed this innovation would
materialize is through IT developers who
could be incentivized to design and make
available internet-based tools and mobile
applications that could guide consumers
in accessing available price information;
as well as researchers who would have the
ability to analyze health care pricing at
local and national levels and provide the
public with their findings. Industry experts
and plans and issuers would also have the
ability to use pricing information to de-
velop innovative plan benefit designs that
could result increased competition and
cost savings. Based on comments received
from interested IT developers and other
innovators, the Departments continue to
believe many innovators are interested
in utilizing this pricing information, once
available, to spur innovation in the health
care space, as intended. The Departments
expect internet-based tools and mobile
applications will increase the likelihood
that both insured and uninsured consum-
ers will be able to use the information to
make informed health care purchasing
decisions. And, as stated by a comment-
er, the information required to be made
public through the proposed rules would
help reduce wasteful spending because it
would support efforts by employers, state
regulators, and other purchases of health
care to evaluate prices and identify un-
warranted spending variation. Therefore,
the Departments did not intend or expect
that behavioral changes emanating from
public disclosure of this information will
be limited to consumers but will benefit a
variety of stakeholders.
The goals the Departments seek to
achieve through these requirements for
public disclosure are not mutually exclu-
sive. The Departments expressed a desire
to bring about an outcome where innova-
tors, including researchers, would enter
or expand in the health care purchasing
space to develop tools, applications, and
public information that would support
consumer decision-making. Thus, the De-
partments disagree with commenters who
argued that public disclosure of negotiat-
ed rates would not support consumer deci-
sion-making.
The Departments disagree with com-
menters who suggested that pricing in-
formation presented through the public
disclosures would be confusing and mis-
leading to consumers and could erode
consumer trust and present long-term
challenges for the health care system.
Based on the review of the over 25,000
comments received on the proposed rules,
the vast majority of which were submit-
ted by individuals, consumer trust in the
health care system is already quite low,
due in substantial part to the opacity of
health care pricing.
154
In one study of a na-
tionally representative sample, research-
ers found that participants often believed
that providers and issuers set prices that
do not reflect either the quality or the cost
of goods and services, contributing to the
study’s conclusion that most Americans
do not perceive the price and quality of
health care to be associated. Study partic-
ipants described prices as both too high
and irrational, noting that prices varied
within their regions for unknown rea-
sons.
155
The Departments’ transparency
154
See, for example, Phillips, K. A., Schleifer, D., and Hagelskamp, C. “Most Americans Do Not Believe That There Is An Association Between Health Care Prices And Quality Of Care.”
Health Affairs. 2016. Available at https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2015.1334.
155
Id.

Bulletin No. 2020–49 1291 November 30, 2020
efforts are meant to increase transparen-
cy of health care pricing information. The
Departments do not agree that this infor-
mation would further frustrate consumers
compared to the status quo, even if it is
difficult to navigate for the average con-
sumer without the use of internet-based
tools or applications.
One commenter stated that disclosure
of negotiated rates could harm the ability
of health issuers to reward high perform-
ing providers with higher reimbursements.
Additionally, some commenters noted that
focus on price could particularly harm
small health plans and TPAs who may
have been able to negotiate discounted
rates by offering health plans in a limited
service area.
The Departments understand that re-
quiring release of this pricing information
may impact commercial arrangements and
result in certain one-time and ongoing ad-
ministrative costs, which could dispropor-
tionately affect small group plans, TPAs,
and issuers offering coverage in the small
group market. However, the Departments
view making this information available
to consumers and the public as beneficial
to the public’s long-term interests in fa-
cilitating a consumer-oriented, informa-
tion-driven, and more competitive market.
In addition, as discussed below, the De-
partments are establishing several special
rules for streamlining the provision of
public disclosures required through the
final rules. These special rules will help
mitigate the concerns of small group plans
and issuers by allowing them to leverage a
contractual relationship through an issuer
or clearinghouse to satisfy the public dis-
closure requirements of the final rules.
Several commenters submitted feed-
back on how disclosures in the proposed
rules could affect contractual arrange-
ments. One commenter expressed the
view that the requirement to release ne-
gotiated rates threatens contracts negoti-
ated between two private entities. Several
commenters submitted comments related
to gag clauses or non-disclosure agree-
ments contained in provider contracts as
well as other contract terms that are often
included in contracts between providers
and payers (such as anti-steering and an-
ti-tiering provisions) that may limit the
ability of third parties to use the data. Gag
clauses, which also may be referred to as
non-disclosure agreements, are terms that
are often included in provider-payer con-
tracts, which prohibit one or both parties
from making public the negotiated rates
therein.
156
Anti-steering and anti-tiering
provisions are terms that may be includ-
ed in provider-payer contracts (usually
between issuers and hospital systems),
which prohibit the plan or issuer from
directing participants, beneficiaries, or
enrollees toward higher-quality or low-
er-cost providers, and require that all pro-
viders associated with the contracting pro-
vider (for example, for a hospital system
this could include hospitals, other affiliat-
ed facilities, and physicians) to be placed
in the most favorable tier of providers.
157

One commenter stated that if the De-
partments do not fully address the im-
plications of non-disclosure agreements
in provider and payer contracts, legal
complications could arise from payers
attempting to meet the requirements to
disclose negotiated rates and violating
these agreements in the process. Another
commenter strongly supported revisions
to the proposed rules to address the bar-
riers associated with gag clauses. To ad-
dress this issue, another commenter rec-
ommended the Departments provide that
the final rules supersede any provider con-
tract gag clause to the extent the final rules
conflict with current or future contractual
language.
The Departments understand that this
requirement may require alterations to
some existing contracts. For example,
payers and providers may need to re-
move contract terms that conflict with
the requirement to disclose negotiated
rates such as gag clauses or non-disclo-
sure agreements.
158
It is not uncommon
for new or modified regulatory require-
ments or new statutory provisions to alter
private contractual arrangements such as
those between a health insurance payer
and health care provider. Because chang-
es in law or statute that may need to be
reflected in payer-provider contracts is
not uncommon, the Departments expect
that providers and payers have processes
in place address to these requirements of
the final rules. Often, the possibility that
that new or modified regulatory require-
ments or new statutory provisions could
alter such contracts is contemplated by the
contracts themselves; for example, draft-
ers may include contract language that in-
dicates terms may be altered by changes
in law or regulation. Such language would
obviate the need for updates outsides of
the regular contracting schedule.
As a general matter, the onus for en-
suring a contract provision does not vio-
late applicable law rests with the parties
to the contract. Nothing in the final rules
prevents providers and payers from im-
plementing contract revisions to ensure
terms are not in conflict with the require-
ments of the final rules. Because the De-
partments are of the view that prescription
or prohibition of specific contract terms or
language in payer-provider contracting is
not necessary, the Departments leave it to
plans, issuers, and providers to avoid con-
tract terms that would prohibit or frustrate
either party’s compliance with the final
rules.
Many commenters who did not support
the requirements for public disclosure of
in-network provider rates and out-of-net-
work allowed amounts requested that the
Departments withdraw the proposed rules
or otherwise work with stakeholders to de-
velop policy solutions that meet consumer
needs with less burden and guard against
potential unintended consequences. Some
commenters suggested the Departments
collect more data about the potential im-
pacts of public disclosure of negotiated
rates to ensure the policy is modified, if
needed, to protect against the risk of un-
intended consequences, noted earlier. One
commenter suggested the Departments pi-
lot the requirement for public disclosure
of negotiated rates. Another commenter
156
“Provider Contracts.” The Source on Healthcare & Price Competition, UC Hastings College of Law. Available at: https://sourceonhealthcare.org/provider-contracts/.
157
Id.
158
The Departments note that gag clauses that would prohibit a pharmacy from informing a participant, beneficiary, or enrollee of any differential between that individual’s out-of-pocket cost
under the coverage option offered by his or her plan or issuer regarding acquisition of the drug and the amount that individual would pay without using any health plan or health coverage
are already prohibited. See Sec. 2729 of the PHS Act.

November 30, 2020 1292 Bulletin No. 2020–49
recommended the Departments pilot the
release of negotiated rates in a state where
there are a few small carriers to gain a
clearer understanding of potential conse-
quences of the public disclosure require-
ments. Another commenter recommended
the Departments pilot full price transpar-
ency in several markets and conduct lon-
gitudinal studies on the impacts.
Some commenters suggested the De-
partments refocus transparency efforts to
already existing solutions or different ini-
tiatives. Some commenters recommended
that the final rules require plans and is-
suers to send claims data to the HCCI to
ensure that health care cost data reaches
the public domain through researchers
without disclosing confidential informa-
tion or distorting the market. A few com-
menters suggested the Departments lever-
age existing data sources such as all-payer
claims databases to promote transparency
goals. One commenter stated the Admin-
istration should support congressional and
states’ efforts to pursue and expand upon
transparency efforts, including through
all-payer claims databases.
The Departments appreciate both pri-
vate and public transparency efforts al-
ready underway. In the development of the
proposed and final rules, the Departments
sought feedback from industry and oth-
er stakeholders. While the Departments
agree that expanding data sent to HCCI
will help researchers gain a better un-
derstanding of market dynamics, the De-
partments are of the view that health care
pricing data should be coupled with plan
and issuer information. If the information
were to be decoupled, as through HCCI or
in an all-payer claims database, it would
not provide the degree of transparency in
prices needed to effectuate the objectives
the Departments seek to achieve through
the final rules. For example, pricing data,
decoupled from plan and issuer data,
would not provide actionable information
to consumers that seek to evaluate health
coverage options, as they would not be
able to connect pricing to specific plans.
The Departments view the disclosure
requirements set forth in the final rules
as complementary to and supportive of
state-level efforts. States act as incubators
for transparency efforts. Nothing in the
final rules precludes states from continu-
ing to establish and run state-level trans-
parency efforts. Indeed, the Departments
intend for state regulators to be able to use
the disclosures required to be made pub-
lic through the machine-readable files to
support their oversight of health insurance
markets, including supporting their own
state-level transparency efforts such as
all-payer claims databases. However, the
Departments are also aware that there are
limits to the pricing information that states
can obtain through state-level transparen-
cy efforts. For instance, states are not able
to obtain pricing information from self-in-
sured group health plans; the final rules
will help states obtain this information.
The Departments further maintain that
the final rules are significantly more likely
to achieve positive results for consumers
and health care markets than they are like-
ly to result in the potential negative con-
sequences outlined by certain comment-
ers. The Departments are of the view that
traditional market forces that affect prices
in any market, including competition be-
tween providers; the threat of new mar-
ket entrants that offer quality, lower cost
services; and the increased bargaining
power of consumers will be supported by
the final rules. The Departments also are
of the view that providers who choose to
arbitrarily or unreasonably increase their
prices based on publicly-available negoti-
ated rate data are more likely to damage
their own competitive positions and rep-
utation than they are to cause widespread
health care cost increases in their partic-
ular markets. For these reasons, the De-
partments remain confident that the final
rules’ requirements for disclosure of nego-
tiated rate information will benefit health
care consumers by giving them informa-
tion necessary to effectively shop for and
choose the health care coverage and pro-
viders that fit their needs and budgets. As
consumers make more informed choices,
based on available price data, market forc-
es will have a chance to operate and po-
tentially correct the current course of un-
sustainable increases in health care costs.
In light of the Departments’ commit-
ment to health care price transparency and
the importance of addressing the distortive
effects of the absence of pricing informa-
tion, the Departments are not convinced
there is a need to change the policies in
the final rules to mitigate the risk of unin-
tended consequences or violations of law
such as price fixing and collusion among
providers. As discussed elsewhere in this
preamble, research, academic literature,
and the experience of various state efforts
have provided support for the Depart-
ments’ conclusion that the public avail-
ability of in-network rate information is
substantially more likely than not to lead
to more informed health care choices, in-
creased competition, and lower prices.
The Departments note that price trans-
parency is not a novel concept, even in
health care pricing. Several states, in-
cluding New Hampshire and Maine, have
implemented state-level price transpar-
ency efforts. While the Departments ac-
knowledge that these state efforts differ
in material ways from the disclosure re-
quirements of the final rules, the same
underlying principle of price transparency
that undergirds state efforts also under-
girds the final rules. These state efforts
provide evidence that transparency at a
more localized geographic level does not
result in the extreme unintended conse-
quences postulated by some commenters.
The Departments acknowledge that other
national health policy initiatives are some-
times tested through pilots; however, the
Departments are of the view that such an
approach is not necessary for price trans-
parency, in part, because there is already
evidence through state initiatives that
price transparency is achievable.
The proposed and final rules reflect the
Departments’ conclusion that an expan-
sive implementation of these requirements
will be the most effective manner in which
to reasonably ensure that the impact will
be spread across all markets, rather than
isolated to particular geographic areas,
markets, or groups of consumers. The
goal of the final rules is to expand ac-
cess to price transparency information
among the public, which will not be re-
alized without an expansive implementa-
tion. The Departments are concerned that
if pricing information for group health
plans and insurance in the individual and
group markets is not made available to the
public or is made public in a piecemeal
fashion, there will be little incentive for
health care researchers, third-party appli-
cation developers, or other industry actors
to invest scarce resources into a tool that
will only offer regional or otherwise lim-
ited pricing data. Other stakeholders, such

Bulletin No. 2020–49 1293 November 30, 2020
as researchers and regulators, would also
find incomplete pricing information less
useful to their efforts to better understand,
better oversee, and develop innovations
in the health care markets. Finally, the
Departments are concerned that limiting
the implementation of this rule, by scope
or by geographic market area, will limit
the impact for the millions of consumers
(both individuals and employers) who are
expected to benefit from the public dis-
closures required through the final rules.
Consumers located in a geographic market
where data would not be made available
under a more limited requirement would
not experience any benefit from the avail-
ability of actionable pricing information
in other markets. Even those consumers
located in geographic markets where pric-
ing information would be made available
under a more limited requirement would
likely experience more limited benefits
than with a market-wide requirement to
release pricing information because these
consumers would likely not have access to
tools developed by third-party application
developers. These consumers would also
be less likely to experience downstream
benefits from contributions expected from
other stakeholders, such as researchers
and regulators.
In addition to establishing a prefer-
ence for establishing market-wide rules,
in the preamble to the proposed rules, the
Departments explained the importance of
timely action to increase transparency.
159

The Departments observed that contin-
uously rising health care costs and in-
creases in out-of-pocket liability, without
transparent, meaningful information about
health care pricing, have left consumers
poorly equipped to make cost-conscious
decisions when purchasing health care
items and services. In addition, consumers
across all markets should come to expect
and receive the same access to standard-
ized pricing information and estimates.
This broader applicability also has the
greatest potential to reform health care
markets. The Departments recognized the
need for a faster and nimbler approach
to addressing the pressing issue of rising
health care prices. For these reasons, the
Departments are of the view that a pilot
approach in a specific geographic area or
an otherwise phased-in approach for the
requirement to publicly disclose negoti-
ated rates through the machine-readable
files would not be sufficient to meet the
requirement for transparency in coverage.
Because the Departments have de-
termined a need for an expansive imple-
mentation of transparency in coverage re-
quirements, and for the reasons discussed
at length in response to public comments,
the final rules adopt the requirement to
publicly disclose negotiated rates for all
group health plans and individual and
group market issuers, regardless of geo-
graphic market.
Scope of Pricing Information to be Made
Publicly Available
Several commenters explicitly support-
ed public disclosure of negotiated rates
and out-of-network allowed amounts for
all items and services. However, other
commenters recommended the Depart-
ments limit the items and services to only
the most common items and services or a
narrow set of shoppable services in order
to make the machine-readable files more
meaningful to consumers. Another com-
menter did not support the negotiated rate
disclosure proposals, but acknowledged
that disclosure of rates for a subset of
shoppable services would be manageable,
could allow issuers to account for innova-
tive payment arrangements, and could be
used to gather empirical evidence on the
impact of transparency on the health care
markets.
The Departments understand that re-
quiring plans and issuers to include all
items and services in the machine-read-
able files could produce large data sets
that could be cumbersome and may be
costlier to maintain than a more limited
file of shoppable services. However, the
Departments are of the view that release
of this information for all items and ser-
vices, as proposed, is crucial for advanc-
ing the key objectives of the final rules to
spur innovation, increase competition, and
empower consumer activities in the health
insurance markets. The Departments are
of the view that limiting the data in the
machine-readable files would undermine
efforts to achieve these objectives. In par-
ticular, the Departments are concerned
that if the requirement were to be modi-
fied to apply to only a shoppable subset of
items and services, then third-party appli-
cation developers may not be as interested
in innovating in this area.
Furthermore, the Departments are of
the view that efficiencies will be gained
after initial development of these files.
Although the initial implementation bur-
den for some plans and issuers may be
sizeable, future releases of data could be
automated, greatly reducing the burden in
subsequent years.
One commenter stated the type of data
being required to be disclosed is prohib-
ited from disclosure by CMS for labora-
tory services under section 1834A of the
SSA, which requires CMS to keep confi-
dential payer rates reported by applicable
laboratories. The commenter stated sec-
tion 1834A of the SSA should also apply
to disclosure of similar information by
health plans.
Section 1834A of the SSA is appli-
cable to reporting of private sector pay-
ment rates for the limited purpose of es-
tablishing Medicare reimbursement rates
for laboratory services. Section 1834A
protects the confidentiality of informa-
tion disclosed to HHS by a laboratory
and prohibits the Secretary of HHS or a
Medicare contractor from disclosing the
information in a manner that identifies the
particular payer or laboratory, identifies
the prices charged, or identifies the pay-
ments made to any such laboratory not-
withstanding any other provision of law.
The confidentiality protections of the data
required to be disclosed to HHS under
section 1834A protects laboratories and
payers from re-disclosure by HHS and
Medicare contracts. These protections are
not applicable to the public disclosures re-
quired under the final rules. First, the final
rules require plans and issuers to publicly
disclose in-network providers’ negotiated
rates and out-of-network providers’ al-
lowed amounts for all covered items and
services. These disclosures must be made
through machine-readable files posted in a
public location on a plan or issuer’s web-
159
84 FR 65464, 65465 (Nov. 27, 2019).

November 30, 2020 1294 Bulletin No. 2020–49
site. HHS or contractors of HHS will have
no active role in publicizing the infor-
mation required to be public through the
final rules. Second, the confidentiality re-
quirements in section 1834A are applica-
ble “notwithstanding any other provision
of law.” The public disclosure require-
ments in the final rules are being finalized
through an exercise of specific authority
under section 1311(e)(3)(A)(vii) and (ix)
of PPACA (as applied to plans and issu-
ers in the individual and group markets
through section 2715A of the PHS Act).
Even if the public disclosures were to be
subject to section 1834A of the SSA, the
confidentiality provision of section 1834A
would not be applicable because the public
disclosure requirements established under
the final rules are required by an exercise
of authority under a separate provision of
law. For these reasons, and because labo-
ratory services fall within the scope of all
covered items and services, the final rules
clarify that disclosure by plans and issuers
of pricing information for laboratory ser-
vices is required under the final rules.
As discussed earlier in this preamble,
the Departments are modifying the pro-
posed requirements relating to inclusion of
all items and services in the internet-based
self-service tool. For the internet-based
self-service tool, 26 CFR 54.9815-
2715A2, 29 CFR 2590.715-2715A2, and
45 CFR 147.211 adopt a phased-in ap-
proach under which plans and issuers are
required to include only include a subset
of items and services during the initial
year of implementation. However, plans
and issuers will still eventually be required
to include all covered items and services
in their internet-based self-service tools in
order to meet the requirements of the fi-
nal rules. The Departments are of the view
that a similar phased-in approach for the
machine-readable files is not necessary
and would not support the achievement of
the goals of the final rules.
For these reasons, the final rules adopt,
as proposed, the requirement to include
all covered items and services, including
prescription drugs, in the public disclo-
sures required to be made through the ma-
chine-readable files.
One commenter made the point that in
order to provide meaningful transparency
to consumers, as well as to address the is-
sues of inconsistent pricing among hospi-
tals in particular, the Departments should
require public disclosure of data related to
pricing in addition to the negotiated rate.
The commenter stated the data elements
should include the following: number of
procedures performed by the provider in
the reported period, number of bed days,
total billed charges in the reporting period,
total amount received/paid for services in
the reporting period, mean billed charged
amount, mean accepted amount, median
billed charged amount, mean accepted
amount, median billed charged amount,
median accepted payment, minimum
billed charged amount, maximum billed
charged amount, minimum accepted pay-
ment, and maximum accepted payment.
A goal of the final rules is to provide
transparency for all covered health care
items and services. To this end, the final
rules’ public disclosures are tailored to
require only certain critical pricing infor-
mation that the Departments view as most
likely to achieve this goal, while minimiz-
ing the burdens for plans and issuers of
producing and maintaining the informa-
tion. Requiring additional data elements,
such as those listed by the commenter,
would introduce an increased level of
complexity to the machine-readable files
and increase the burden of making the
public disclosures.
Additionally, the Departments are of
the view that it would be unnecessarily
burdensome to isolate hospital pricing in-
formation for additional disclosure when
hospitals already have separate price
transparency disclosure obligations. As
discussed elsewhere in this preamble, the
Hospital Price Transparency final rule re-
quires hospitals to make public their stan-
dard charges for items or services they
provide.
160
The Hospital Price Transpar-
ency final rule requires disclosure of five
types of standard charges:
• the gross charge (the charge for an
individual item or service that is reflected
on a hospital’s chargemaster absent any
discounts);
• the discounted cash price (the charge
that applies to an individual who pays
cash, or cash equivalent, for a hospital
item or service);
• the payer-specific negotiated charge
(the charge that a hospital has negotiated
with a third-party payer for an item or ser-
vice);
• the de-identified minimum negotiated
charge (the lowest charge that a hospital
has negotiated with all third-party payers
for an item or service); and
• the de-identified maximum negotiat-
ed charge (the highest charge that a hos-
pital has negotiated with all third-party
payers for an item or service).
The Departments are of the view that
the public disclosure requirements for
hospitals under the Hospital Price Trans-
parency final rule, in combination with
the public disclosure requirements of the
final rules, will address the concern raised
by one commenter regarding inconsistent
pricing among hospitals. The disclosure
required for hospitals under the Hospital
Price Transparency final rule will help
provide local and more specific pricing
information through the availability of
information on five types of standard
charges, but the information will only
be made publicly available for the items
and services that hospitals provide. The
final rules supplement this information
by providing information related to ne-
gotiated rates or derived amounts and al-
lowed amounts for all covered items and
services. Thus, the final rules will provide
a window into pricing for all items and
services, while the Hospital Price Trans-
parency final rule requires disclosure of
more specific pricing information for the
items and services provided by hospitals.
Finally, the final rules also supplement the
Hospital Price Transparency final rule be-
cause the final rules make the information
for all contracted network hospitals avail-
able from one plan or issuer in a single,
centralized file. Therefore, the final rules
permit consumers—especially when us-
ing third-party web-based tools—to more
readily compare hospital rates within and
across plans and issuers.
Several commenters expressed con-
cerns about participant, beneficiary, and
enrollee privacy related to the proposed
disclosures of negotiated rates and al-
lowed amounts. Some commenters ex-
160
84 FR 65524 (Nov. 27, 2019).

Bulletin No. 2020–49 1295 November 30, 2020
pressed concerns about how third-party
developers or other downstream entities
would use and protect participant, benefi-
ciary, and enrollee data. They noted that
even though the Departments’ disclosure
requirements do not include PHI, patients
could be enticed to share personal data
with third-party developers and other sec-
ondary entities who could potentially use
the information to re-identify consumers.
Some commenters stated that parties not
subject to HIPAA could seek to commer-
cialize consumers’ information. One com-
menter suggested the Departments look to
HCCI as an example of how de-identified
data can advance the goals of transparen-
cy, which could mitigate concerns about
proprietary information while maintaining
meaningful, granular information that il-
luminates price variation in the health care
system.
One commenter stated that the Depart-
ments should consider the proposed rules
in the context of other HHS rules related
to the interoperability of data and delay
the implementation of all such rules until
HHS develops consumer privacy and pro-
tection requirements for third-party appli-
cations developed by non-HIPAA-covered
entities. Another commenter recommend-
ed that, if the rules are finalized without
additional privacy protections, the De-
partments should conduct an education-
al campaign to inform consumers of the
consequences of providing information to
third-party application developers. A com-
menter also expressed national security
concerns regarding the machine-readable
files, noting that the health status of Amer-
icans is a valuable commodity for foreign
intelligence services.
The Departments acknowledge com-
menters’ concerns about third-party ap-
plication developers and other entities
gaining access to personally identifiable
information (PII) and PHI through con-
sumer use of online applications. The De-
partments further acknowledge comments
that consumers may not always fully un-
derstand how their information, including
sensitive medical information, will be
used or stored by such third parties. How-
ever, the Departments also acknowledge
that consumers have a right to access,
use, and share their own health informa-
tion, both generally and under HIPAA.
The Departments are also of the view that
there is ample evidence that consumers
require help to understand their health
coverage, their out-of-pocket costs for
health care items and services, and how
their health care choices affect the overall
costs of their health coverage and health
care items and services.
161
The final rules
will allow access to data, supplementary
resources, and other assistance consumers
need to make informed choices by foster-
ing innovation and offering access to tools
that consumers may use to make informed
health care choices.
The Departments likewise considered
evidence of significant consumer reliance
on the internet for all kinds of informa-
tion, but especially for health information.
In a study conducted by the Pew Internet
& American Life Project and published in
July 2003, researchers found that 80 per-
cent of internet users, or about 93 million
Americans, have searched for a health-re-
lated topic online, a 62 percent increase
since 2001.
162
Popular search topics in-
cluded health insurance (25 percent); a
particular doctor or hospital (21 percent);
and alternative treatments (28 percent).
163

By 2013, the number of Americans
searching for health information online
had nearly doubled from 2003, to about
182 million people.
164
A 2018 study found
a significant correlation between the use
of online resources to obtain health infor-
mation and the decisions consumers take
concerning health care services.
165

The Departments are of the view that
many American consumers have some
experience with dealing with the disclo-
sure of sensitive health information on the
internet
166
and that consumer reliance on
the internet for health care information
will only increase despite inherent pri-
vacy risks. The Departments considered
that websites and internet applications
that collect consumer information provide
information through privacy policies and
terms of service that are available to us-
ers of how their information may be used
and shared. Federal laws and enforcement
mechanisms are in place to help protect
consumers from unfair and deceptive
practices, including deceptive data collec-
tion and the sale of data collected without
adequate consumer notice.
167
Given exist-
ing measures to protect consumer privacy
on the internet, the Departments are of the
view that common internet privacy risks
should not operate to deprive consumers
of the information, tools, and support they
need to make informed choices related to
health care coverage, providers, items,
and services.
Even though the Departments are not
persuaded that privacy risks common to
the use of internet applications outweigh
the benefits of the disclosures under these
161
Arora, V., Moriates, C., and Shah, N. “The Challenge of Understanding Health Care Costs and Charges.” The American Medical Association Journal of Ethics. November 2015. Available
at: https://journalofethics.ama-assn.org/article/challenge-understanding-health-care-costs-and-charges/2015-11.
162
“Health Searches and email Have Become More Commonplace, But There is Room for Improvement in Searches and overall internet access.” Internet Health Resources. Pew Research
Center. July 16, 2003. Available at: https://www.pewresearch.org/internet/2003/07/16/internet-health-resources/.
163
Id.
164
Fox, S., and Duggan, M. “Health Online 2013.” Pew Research Center. January 15, 2013. Available at: https://www.pewresearch.org/internet/2013/01/15/health-online-2013/.
165
Chen, Y. et al. “Health Information Obtained From the Internet and Changes in Medical Decision Making: Questionnaire Development and Cross-Sectional Survey.” Journal of Medical
Internet Research. Volume 20. No. 2. February 2017. Available at: https://www.jmir.org/2018/2/e47/pdf.
166
Zhu, P., Shen, J., and Xu, M. “Patients’ Willingness to Share Information in Online Patient Communities” Questionnaire Study.” Journal of Medical Internet Research. Volume 22. No. 4.
April 2020. Available at: https://pubmed.ncbi.nlm.nih.gov/32234698/.
167
“Privacy & Data Security Update: 2019.” United States Federal Trade Commission. Available online at: https://www.ftc.gov/system/files/documents/reports/privacy-data-security-up-
date-2019/2019-privacy-data-security-report-508.pdf; see also “Privacy and Security Enforcement.” United States Federal Trade Commission. Available at: https://www.ftc.gov/news-events/
media-resources/protecting-consumer-privacy/privacy-security-enforcement (“the FTC can and does take law enforcement action to make sure that companies live up to [the] promises”
regarding how consumer information will be safeguarded); see also Complaint in United States v. Facebook, Case No. 19-cv-2184, U.S. District Court for the District of Columbia. Available
at: https://www.ftc.gov/system/files/documents/cases/182_3109_facebook_complaint_filed_7-24-19.pdf (FTC complaint leading to a historic $5 billion fine for, among other things, decep-
tive practices in violation of section 5(a) of the FTC Act where the social media company failed to effectively disclose that consumer information would also be used for advertising). The
referenced fine can be found at: https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions, last accessed Sep. 11, 2020 (press
release announcing fine).

November 30, 2020 1296 Bulletin No. 2020–49
the final rules or the general need for price
transparency, ensuring the privacy and
security of consumer PII and PHI is a top
priority for the Departments. The Depart-
ments will work with plans and issuers to
provide information they can use to edu-
cate participants, beneficiaries, and enroll-
ees about sharing their health information
with third party applications. This will
include information on about the roles
of federal agencies such as the Office for
Civil Rights (OCR), the FTC, and ONC,
which already focus on ensuring that con-
sumer privacy rights and interests are ap-
propriately protected. The Departments
will encourage plans and issuers to share
this information with their participants,
beneficiaries, and enrollees who might
elect to share health information with
third-party applications.
In finalizing the rules, the Departments
considered the large number of consumers
who have decided to share personal infor-
mation because they have determined that
the benefits offered by an internet website
or mobile application outweigh potential
risks to their privacy. The Departments are
of the view that consumers will be able to
make similar determinations with regard
to applications that make use of data to be
disclosed through the machine-readable
files required by the final rules.
As discussed earlier in the preamble to
the final rules, the Departments also are
not persuaded by the argument that the
disclosures required under the final rules,
or disclosures consumers may make to ap-
plications that leverage the data required,
could introduce national security concerns.
First, the information the Departments are
requiring to be disclosed through the ma-
chine-readable files does not include PHI
or PII. Additionally, as discussed in more
detail later in this preamble, in an effort to
ensure that the disclosures balance price
transparency with the need to protect pri-
vacy, the Departments have modified the
proposed rules to increase the minimum
disclosure threshold from 10 to 20 unique
payment amounts, where any historical
payment amounts connected to less than
20 claims for payment would be omitted
from the machine-readable file contain-
ing out-of-network allowed amounts and
historical billed charges (the Allowed
Amount File). The increase will further
limit the possibility that individual par-
ticipants, beneficiaries, and enrollees may
be identified through historical allowed
amount data. Second, the information a
consumer could share with applications
incorporating data required to be disclosed
through the final rules is not significantly
different from data consumers already ac-
tively share through similar applications.
Therefore, the Departments are not con-
vinced there are unique national security
concerns flowing from the disclosures re-
quired by the final rules.
One commenter was concerned about
allowing third parties to use plan and
issuer information to provide cost and
pricing information to consumers with-
out those third parties being obligated to
provide accurate and relevant information
to consumers. The accuracy of third-par-
ty internet-based tools and applications
will be important to achieving the goals
of transparency in coverage. However,
the cost and pricing information includ-
ed in third-party internet-based tools,
and tools developed by other secondary
entities, would only be as accurate as the
public disclosures made by plans and is-
suers. Therefore, the Departments are of
the view that it is in the best interest of
plans and issuers to ensure data accuracy
through a robust quality assurance process
if they have concerns about the accuracy
of cost and pricing information being pro-
vided to consumers through third-party
internet-based tools. Furthermore, nothing
in the final rules prohibits plans and issu-
ers from including comprehensive data
dictionaries and other supplementary doc-
umentation along with the machine-read-
able files. Plans and issuers are also free to
provide plan-specific disclaimers or clar-
ifications regarding the information they
are required to produce. Finally, the De-
partments expect that consumers, plans,
issuers, and other health care stakeholders
will monitor third-party internet-based
tools for accuracy and will and report
concerns to the developer, the public, and
appropriate state and federal agencies, in-
cluding the Departments, for evaluation
and potential action.
The Departments further expect that
market forces will act to weed out appli-
cations that do not provide reliable infor-
mation. Consumers who use a third-party
application or other online tools for health
care decision support and later conclude
that the tool misled or misinformed them
will, at minimum, cease use of the tool.
Such consumers are also likely to rate
the application poorly or leave unfavor-
able reviews, reducing the likelihood that
other consumers who see the rating or
review will rely on the tool. Over time,
consumers and other stakeholders may
collectively identify the most accurate
and highest quality tools, while reducing
use of less accurate, unreliable tools. The
Departments also expect that third-party
tools will inform users of limitations on
the accuracy of their information and will
present relevant disclaimers informing
consumers that any estimates of out-of-
pocket liability are not guarantees regard-
ing consumer liability for services. Tool
users also will have the opportunity to
evaluate and could attempt to confirm any
cost estimates provided by online tools by
contacting the plan, issuer, or health care
provider they ultimately choose based on
information provided by the tool. Such
measures will address the risk that con-
sumers will be led to unreasonably rely on
any cost estimate provided by a third-par-
ty tool to their financial detriment.
The Departments are of the view that it
is in plans’, issuers’, and developers’ best
interests to provide accurate information.
However, the Departments will monitor
the accuracy of the information provided
through third-party developers and sec-
ondary entities and will take information
obtained through this monitoring into ac-
count for future regulatory action or guid-
ance, as appropriate.
One commenter recommended that any
information made available to the public
should provide an explanation of why the
cost of care is variable among hospitals.
The commenter further suggested the
explanation reference unique challenges
faced by essential hospitals that care for
a larger proportion of vulnerable patients.
Being mindful of the goal to provide
sufficient technical flexibility in the for-
matting of the machine-readable files, the
Departments decline to require plans and
issuers to include specific supplementa-
ry information beyond reporting the data
specified for the machine-readable file for-
mats. As noted above, nothing in the final
rules prevents a plan or issuer from pro-
viding supplementary materials, including
footnotes, disclaimers, data dictionaries,

Bulletin No. 2020–49 1297 November 30, 2020
and other explanatory language, as ac-
companiments with the machine-readable
files. The Departments are of the view
that any additional context around the ma-
chine-readable files that can be provided
through supplementary materials are like-
ly to be a benefit to consumers and others
who seek to understand and use the data
contained in the machine-readable files.
The Departments recommend plans and
issuers work closely with providers, con-
sumers, developers, community leaders,
and other stakeholders to ensure that all
perspectives are taken into account when
developing materials supplemental to the
machine-readable files. While declining to
require plans and issuers to include a spe-
cific explanation for why the cost of care
could vary among hospitals, the Depart-
ments acknowledge that this information
is an example of appropriate explanatory
language that could accompany the ma-
chine-readable files.
The final rules adopt, with modifica-
tions, the requirements that plans and is-
suers publicly disclose applicable in-net-
work rates (including negotiated rates,
derived amounts, and underlying fee
schedule rates), out-of-network allowed
amounts for covered items and services,
including prescription drugs, through ma-
chine-readable files. The final rules also
adopt the requirement that plans and issu-
ers publicly disclose in-network historical
net prices for covered prescription drugs
through a machine-readable file. In recog-
nition of the unique pricing attributes of
prescription drugs, the final rules require
the reporting of information on prescrip-
tion drugs that would have been included
in the In-network Rate File (referred to as
the Negotiated Rate File in the proposed
rules) in a separate machine-readable
file, as described later in this preamble.
The Departments continue to be of the
view that the release of this information
is appropriate and necessary to empower
consumers to make informed decisions
about their health care, spur competition
in health care markets, and to slow or po-
tentially reverse the rising cost of health
care items and services.
The Departments stated the intention
in the proposed rules to make available
non-substantive technical implementa-
tion guidance through the collaborative
GitHub platform (an online hosting plat-
form for development and source code
management that permits version control),
which will facilitate further technical as-
sistance in addressing how unique plan
designs can comply with the requirements
of the final rules, as needed. The Depart-
ments received comments that supported
the Departments’ development of specific
technical standards for the files to which
plans and issuers must adhere. One com-
menter recommended the Departments
provide guidance to plan sponsors who
are able to provide some, but not all, of
the file data elements. Another commenter
stated that the proposed rules do not make
clear how to report items and services
provided through capitated and bundled
payment arrangements in the files; noting
that this information is necessary for con-
sumers to measure provider value. One
commenter supported the Departments’
statement that it would provide technical
implementation guidance for the files but
requested a robust public comment solic-
itation far in advance of the applicability
date for the rules.
The Departments are of the view that
providing specific technical direction in
separate technical implementation guid-
ance, rather than in the final rules, will
better enable the Departments to update
the file technical requirements to keep
pace with and respond to technological
developments. The Departments note that
the technical implementation guidance is
intended to facilitate a collaborative effort
between the Departments and plans and
issuers in order for plans and issuers to
meet the public disclosure requirements
of the final rules, while providing flexibil-
ity to account for unique IT systems, and
issuer and plan attributes. To the extent a
plan’s or issuer’s unique attributes (such
as use of an alternative contracting mod-
el) are not addressed sufficiently through
the technical implementation guidance,
the Departments intend to provide tar-
geted technical assistance to help ensure
all plans and issuers are able to meet the
public disclosure requirements under the
final rules. Therefore, the Departments
are developing technical implementation
guidance for plans and issuers, which will
be available on GitHub, to assist them in
developing the machine-readable files.
In the proposed rules, the Departments
indicated that minimum requirements for
standardized data elements would be nec-
essary to ensure users would have access
to accurate and useful pricing information.
Without such baseline requirements, the
negotiated rate and allowed amount data
for out-of-network services made avail-
able by each group health plan and health
insurance issuer could vary dramatical-
ly. This would further create a disincen-
tive to health care innovators developing
tools and resources to enable consumers
to accurately and meaningfully use, un-
derstand, and compare pricing informa-
tion for covered items and services across
providers, plans, and issuers. Accordingly,
under the proposed rules, a plan or issu-
er would be required to publish two ma-
chine-readable files. The first file would
include information regarding rates ne-
gotiated with in-network providers. The
second file would include historical data
showing allowed amounts for covered
items and services furnished by out-of-
network providers. The preamble to the
proposed rules referred to these files as
the Negotiated Rate File and the Allowed
Amount File, respectively. For the final
rules, the file referred to as the Negotiated
Rate File in the proposed rules has been
renamed the In-network Rate File to re-
flect modifications made in the final rules
to ensure the file accommodates plans and
issuers operating under payment models
other than the fee-for-service (FFS) mod-
el. The final rules adopt the requirement
to produce both the In-network Rate File
and Allowed Amount File with the mod-
ifications discussed elsewhere in this
preamble. As previously discussed, the
final rules also adopt the requirement to
produce an additional file, referred to in
this preamble as the Prescription Drug
File through which plans and issuers are
required to publicly disclose negotiated
rates and historical net prices connected to
prescription drugs.
As noted, the final rules modify the
In-network Rate File requirements to clar-
ify the expectations for reporting negotiat-
ed rates (or comparable derived amounts,
which are explained in detail later in this
section) for plans and issuers using alter-
native reimbursement models. The final
rules also clarify that plans and issuers
must include an underlying fee sched-
ule rate when one is used to determine
cost-sharing liability, where that amount

November 30, 2020 1298 Bulletin No. 2020–49
differs from the negotiated rate (or compa-
rable derived amount) used to determine
provider reimbursement.
The final rules modify the Allowed
Amount File to clarify that it must also in-
clude information related to billed charges
in addition to allowed amounts. The final
rules also finalize additional requirements
for the In-network Rate File, Allowed
Amount File, and Prescription Drug File
to require plans and issuers to include a
Place of Service Code and a provider tax
identification number (TIN) in addition to
the provider NPI. These modifications are
discussed in more detail later in this sec-
tion of this preamble.
Specific Content Elements
In the proposed rule, the Departments
indicated that the Negotiated Rate File
and the Allowed Amount File would be
required to include content elements dis-
cussed in this section of this preamble.
In the final rules, these content elements
continue to apply to the In-network Rate
File and the Allowed Amount File, as well
as to the Prescription Drug File, except
where otherwise indicated.
a. First Content Element: Name and
Identifier for Each Coverage Option
The first content element that plans
and issuers will be required to include
in the machine-readable files is the name
and identifier for each coverage option
offered by a group health plan or health
insurance issuer. For the identifier, the
Departments proposed that plans and
issuers use their Employer Identifica-
tion Number (EIN) or Health Insurance
Oversight System (HIOS) IDs, as appli-
cable. The Departments sought comment
on whether EINs and HIOS IDs are the
appropriate identifiers for this purpose.
The Departments also sought comment
on whether there are other plan or issuer
identifiers that should be considered and
adopted.
The Departments did not receive any
comments on this content element, and the
final rules adopt this provision with mod-
ifications to ensure clarity of the expec-
tations for reporting. As reflected in the
updated regulatory text, the Departments
are clarifying whether an EIN or HIOS ID
is applicable for this element. Plans and
issuers must include their HIOS ID at the
14-digit product level unless the plan or
issuer does not have a HIOS ID at the plan
or product level, in which case the plan or
issuer must use the HIOS ID at the 5-digit
issuer level. If a plan or issuer does not
have a HIOS ID, it must use its EIN.
b. Second Content Element: Billing
Codes
The second content element that plans
and issuers will be required to include
in the machine-readable files is any bill-
ing code consistent with the definition of
billing code provided in the final rules,
including:
• a CPT code,
• a Healthcare Common Procedure
Coding System (HCPCS) code,
• a DRG,
• a National Drug Code (NDC) (The fi-
nal rules define the NDC code as a unique
10-digit or 11-digit 3-segment number
assigned by the Food and Drug Adminis-
tration (FDA), which provides a universal
product identifier for drugs in the United
States),
168
or
• another common payer identifier used
by a plan or issuer, such as a hospital rev-
enue code, as applicable, and a plain lan-
guage description for each billing code.
The Departments proposed to require
that plans and issuers associate each ne-
gotiated rate or out-of-network allowed
amount with a CPT, HCPCS code, DRG,
NDC, or other common payer identifier,
as applicable, because plans, issuers, and
providers uniformly understand these
codes and commonly use them for bill-
ing and paying claims (including for both
individual items and services and items
and services provided under a bundled
payment arrangement). The Departments
also proposed that plans and issuers must
include plain language descriptions for
each billing code. In the case of items and
services that are associated with common
billing codes (such as the HCPCS codes),
the Departments specified that the plan
or issuer could use the codes’ associated
short text description.
In order to ensure that the ma-
chine-readable files provide meaningful
information to consumers, as well as oth-
er stakeholders, the final rules adopt this
content element as proposed, with the
following modifications. For clarity, the
regulation text is amended to remove lan-
guage that merely restated the definition
for the term “billing code” for each ma-
chine-readable file.
169
This modification
has been made purely to streamline the
regulatory language, and it does not sub-
stantively alter the requirement to include
a billing code, except as otherwise noted
in this preamble. Additionally, along with
separating prescription drugs into a sepa-
rate machine-readable file, the final rules
include a modification that clarifies that,
in the case of prescription drugs, plans and
issuers may only use the NDC as the bill-
ing code type because, as discussed later in
this preamble, the accuracy of pricing in-
formation for prescription drugs requires
precise and specific product information,
including package size and manufacturer,
which can only be achieved through the
use of the NDC billing code. However,
the Departments recognize that prescrip-
tion drug products may be included in the
In-network Rate File to the extent a plan
or issuer uses an alternative payment ar-
rangement, such as a bundled payment
arrangement that includes prescription
drugs. Therefore the final rules clarify
that the In-network Rate file must include
the required information under paragraph
(b)(1)(i) of the final rules for all covered
items and services, except for prescription
drugs that are subject to a fee-for-service
reimbursement arrangement, which would
168
In the preamble to the HIPAA regulations, HHS stated that it was adopting a uniform 11-digit format to conform with customary practice used in computer systems (65 FR 50314, 50329).
(Aug. 17, 2000). The HIPAA 11-digit NDC format is standardized such that the labeler code is always 5 digits, the product code is always 4 digits, and the package code always 2 digits. To
convert a 10-digit NDC to an 11-digit HIPAA standard NDC, a leading zero is added to the appropriate segment to create the 11-digit configuration as defined above. See 83 FR 38666 (Aug.
7, 2018).
169
Specifically, the Departments have removed the following language from billing code requirements for the machine-readable files: “...or other code used by the group health plan or health
insurance issuer to identify covered items or services for purposes of claims adjudication and payment.”

Bulletin No. 2020–49 1299 November 30, 2020
be reported in the prescription drug ma-
chine-readable file pursuant to paragraph
(b)(1)(iii) of the final rules.
The final rules require plans and issuers
to include in the machine-readable files a
billing code or other code used to identi-
fy covered items or services for purpos-
es of claims adjudication, payment, and
cost-sharing liability when making pub-
lic the disclosure required under 26 CFR
54.9815-2715A3, 29 CFR 2590.715-
2715A3, and 45 CFR 147.212. The final
rules adopt the requirement that plans and
issuers associate each amount required to
be reported with a CPT, HCPCS, DRG,
NDC, or other common payer code iden-
tifier, as applicable, because plans, issu-
ers, and providers uniformly understand
these codes and commonly use them for
billing and paying claims (including for
both individual items and services and
for bundled payment arrangement). As
provided by the definition of billing code
in the final rules, the Departments intend
to provide flexibility to plans and issuers
to make the data available through the
codes that they use for billing services.
While the final rules do not require plans
and issuers to use a specific billing code
(for example, CPT codes) for making
public the disclosures required through
the final rules, definition of billing code
states that it is the code used by the plan
or issuer “for purposes of billing, adjudi-
cating, and paying claims for a covered
item or service.” Therefore, where a plan
or issuer uses a CPT code to identify a
covered item or service for purposes of
billing, adjudicating, and paying claims
for that covered item or service, then they
would need to use the CPT code in order
to make public the disclosure required
through the final rules for that item or
service.
One commenter recommended that the
negotiated rates should be clearly stated
in plain language that should be easy to
understand rather than provided by bill-
ing codes through the machine-readable
files. As an alternative, the Departments
received some comments stating that the
Departments should require hospitals
and health insurance issuers to disclose
all negotiated reimbursements by Inter-
national Classification of Disease (ICD)
code.
The preamble to the proposed rules
identified several common billing codes,
noting that the list provided was not ex-
haustive. Further, the Departments did
not explicitly prohibit including ICD-10
codes on the file. The Departments note
that nothing in the final rules would con-
strain plans or issuers from including ICD
codes in the machine-readable files when
these codes are used by the plan or issuer
in a manner that meets the definition of
a billing code in the final rules. In other
words, where the plan or issuer uses an
ICD code to identify health care items or
services for the purpose of billing, adju-
dicating, and paying claims for a covered
item or service, the plan or issuer may
use the ICD code in the machine-readable
files. As discussed earlier in this preamble,
the Departments intend to issue technical
implementation guidance; this guidance
will include sample file schemas for the
machine-readable files. To facilitate iden-
tification of the billing code type, there
will be an indicator in the file schemas that
will allow plans and issuers to specify the
particular type of billing code entered for
each data entry in the machine-readable
files.
The Departments are aware that some
covered items and services may not have a
corresponding HCPCS, ICD, DRG, NDC
or CPT code. The Departments clarify
that plans and issuers are still required to
include these covered items and services
in their machine-readable files regardless
of whether all corresponding data ele-
ments are available. When a covered item
or service does not have a corresponding
HCPCS, ICD, DRG, or CPT code asso-
ciated with an item or service, a plan or
issuer is permitted to choose its own indi-
cator or other method to communicate to
the public that there is no corresponding
code. In the alternative, a plan or issuer is
permitted to use the code to be defined by
the Departments in technical implementa-
tion guidance issued along with the final
rules that indicates that an item or service
is not defined.
At this time, the Departments have con-
cluded that the common data requirements
adopted by the final rules, which include
a requirement to include a plain language
description for each billing code, provides
consumers with sufficient information to
meaningfully inform health care purchas-
ing decisions.
Regarding information about prescrip-
tion drug pricing, a commenter also sug-
gested that, in lieu of NDC or HCPCS
codes, a useful unit for reporting for drugs
would be the RxNorm concept unique
identifier (RxCUI).
170
The commenter
suggested use of RxCUIs because it would
minimize burden by reducing the list of
entries (3,000 to 4,000 RxCUIs down
from 100,000 active NDCs) and because
existing prescription drug machine-read-
able file requirement for Medicare Part D
(Part D) and QHPs use RxCUIs.
The Departments appreciate the com-
menter’s alternative suggestion for includ-
ing prescription drug information in the
machine-readable files. The Departments
considered requiring prescription drug
pricing information through an alternative
identifier. The Departments understand
that an RxCUI could minimize the bur-
den on plans and issuers by reducing the
number of codes required to be included
in the Prescription Drug File. RxCUI is a
drug naming system that is produced by
the National Library of Medicine (NLM),
and RxCUIs are unique identifiers, which
can represent multiple NDCs for similar
drug products with the same brand name,
active ingredient, strength and dose form
(for example, multiple package sizes and/
or manufacturers can be represented by
a single RxCUI). The NDC, in contrast,
is a unique 10-digit or 11-digit 3-seg-
ment number, which provides a universal
product identifier for drugs in the United
States. The three segments of the NDC
identify: the labeler (any firm that man-
ufactures the drug); the product (specific
strength, dosage form, and formulation
of a drug); and the commercial package
size and types. As noted above, multiple
NDCs can be encompassed by one Rx-
CUI, which is why there are many fewer
RxCUI codes than NDCs. However, the
170
The Departments note that the comments used the term “Rx Common Unit Identifier” to identify the full phrase for the RxCUI. The Departments assume that this is a misnomer and that
the commenter was referring to RxNorm concept unique identifier, which is the generally accepted term for the acronym RxCUI.

November 30, 2020 1300 Bulletin No. 2020–49
accuracy of pricing information requires
precise and specific product information,
including package size and manufacturer.
The Departments are concerned that per-
mitting drug pricing information disclo-
sures to be made through RxCUIs would
potentially lead to inaccurate or mislead-
ing information being provided to the con-
sumer. If drug pricing information is pro-
vided in the machine-readable files in the
form of RxCUIs, then plans and issuers
may not be able to provide the manufac-
turer negotiated rate, especially for those
RxCUIs that include NDCs from several
manufacturers.
Some commenters noted that, because
RxCUI is used by the Part D program
and in the QHP program, the Depart-
ments should also require RxCUI in the
machine-readable file for consistency
across programs. While the Departments
acknowledge that RxCUI is used in some
contexts in both the Part D and QHP pro-
grams, namely formulary development,
these programs do not exclusively use
RxCUI. Indeed, both the Part D and QHP
programs use NDC in addition to RxCUI,
and NDCs are more generally used when
information is required to be submitted to
CMS for payment programs. For example,
the Part D program receives the NDC on
claims submitted by Part D plan sponsors
through Prescription Drug Events (PDEs)
and issuers in the individual and small
group market include NDCs on claims data
submitted to issuers’ EDGE servers for
HHS risk adjustment purposes. In short,
other programs cited by commenters actu-
ally use NDCs for prescription drugs data
submissions, particularly for payment that
is similar to the pricing data required by
the final rules. The Departments therefore
conclude that requiring use of NDCs for
the prescriptions drug pricing information
included in the machine-readable files is
consistent with the practices CMS follows
in other programs. Therefore, as stated
earlier, the Departments are requiring that
the only allowable billing code for pre-
scription drugs in the machine-readable
files is the NDC. The Departments de-
termined that the NDC should be the re-
quired billing code for the reasons stated
above and because the NDC is a standard
billing code required for prescription drug
transactions.
c. Third Content Element: In-Network
Applicable Amounts (Negotiated Rates,
Amounts in Underlying Fee Schedules,
and Derived Amounts); Out-of-Network
Allowed Amounts; or Negotiated Rates
and Historical Net Prices for Prescription
Drugs
The third-content element in the ma-
chine-readable files depends on the type
of file: in-network amounts for the In-net-
work Rate File, allowed amounts and
historical billed charges for the Allowed
Amount File, or negotiated rates and his-
torical net prices for the Prescription Drug
File.
All Machine-Readable Files
The proposed rules specified that the
specific pricing information within each
file would have to be associated with a
provider identifier, specifically the pro-
vider’s NPI. Some commenters suggested
additional data elements to support accu-
rately identifying the provider through the
machine-readable files. One commenter
recommended that the Departments in-
clude the Place of Service Code in the
machine-readable files. The commenter
explained that this data element would
clarify prices when provider entities as-
sociated with the same NPI have multiple
sites of service. Place of Service Codes
are CMS-maintained two-digit codes that
are placed on professional claims, includ-
ing Medicare, Medicaid, and private in-
surance, to indicate the setting in which
a service was provided.
171
The Place of
Service code set is required for use in the
implementation guide adopted as the na-
tional standard for electronic transmission
of professional health care claims under
HIPAA.
172

The Departments have considered this
comment and agree that, in addition to
NPI, including a Place of Service Code is
important where a provider could be us-
ing the same NPI for multiple places of
service. For instance, the same procedure
from the same provider NPI received at an
ambulatory surgery center (Place of Ser-
vice Code 24) could have a significantly
different price if received at an on-campus
outpatient hospital (Place of Service Code
22). The Departments are of the view that
being able to identify the place of service
would be beneficial to consumers seeking
to rely on the machine-readable files or
third-party applications developed using
the information publicly disclosed through
the machine-readable files, in order to
make health care purchasing decisions.
The Departments are also of the view that
this data element will help provide valu-
able insights regarding market dynamics
for researchers, employers, regulators,
and other files users. Because the Place of
Service Code is information that must be
included on a professional medical claim,
the Departments do not foresee any issue
with plans and issuers including this data
element in the machine-readable files in
addition to the NPI. For these reasons, the
Departments are finalizing a requirement
to include the Place of Service Code in all
three machine-readable files.
In addition to the NPI and the Place
of Service Code, the Departments have
also become aware, through independent
research, that a provider’s TIN can be rel-
evant to communication of accurate nego-
tiated rates and allowed amounts informa-
tion. It is the Departments’ understanding
that negotiated rates for items and services
are based on the unique combination of a
provider (NPI), service or item location
(Place of Service code), and the TIN un-
der which the provider is furnishing the
item or service. If the TIN is not required
in the file, the Departments are concerned
that plans and issuers could report multi-
ple negotiated rates for the same NPI for
the same item or service without context
to identify the underlying source of the
difference. For example, if a provider NPI
has a relationship with two different en-
tities that have negotiated rates and bills
under both of these entities, the same item
or service for that provider NPI could ap-
pear in the report with two different nego-
tiated rates. Without the TIN, consumers
of the file would not be able to discern
the reason for the difference in the two
distinct negotiated rates. With the TIN,
171
“Place of Service Code Set.” Centers for Medicare & Medicaid Services. Available at: https://www.cms.gov/Medicare/Coding/place-of-service-codes/Place_of_Service_Code_Set.
172
“Place of Service Codes.” Centers for Medicare & Medicaid Services. Available at: https://www.cms.gov/Medicare/Coding/place-of-service-codes.

Bulletin No. 2020–49 1301 November 30, 2020
consumers of the file could see that the
provider is billing for the same services
under two separate entities. Therefore, if
this unique combination of NPI, Place of
Service Code, and TIN is not required,
the pricing information represented in the
machine-readable files might not present
a complete and accurate picture of the
market or provide consumers with reliable
data upon which to base health care pur-
chasing decisions. The Departments are
of the view that this information is crucial
to ensure that consumers are ultimately
receiving location-specific pricing infor-
mation upon which they can rely to help
make informed health care purchasing de-
cisions. In order for the machine-readable
files to provide meaningful and actionable
information, the final rules adopt a modifi-
cation to all three machine-readable files,
to require plans and issuers to provide the
provider TIN in the file in addition to pro-
vider NPI and the Place of Service Code.
The Departments have updated the
technical implementation guidance and
schemas for all three machine-readable
files, so that location-specific pricing
information can be provided in the ma-
chine-readable files. This guidance will
also provide more details on how the Place
of Service Code, TIN, and NPI should be
reported in order to represent the informa-
tion for which public disclosure is required
through the machine-readable files. The
Departments are aware that this modifica-
tion to the machine-readable files will in-
crease the complexity and size of the ma-
chine-readable files and have considered
this additional burden in the Information
Collection Requests (ICR) section of the
of the final rules. The benefits of including
the Place of Service Code and TIN out-
weigh the costs, as the Departments are of
the view that location-specific pricing in-
formation is critical to the meaningfulness
of these files for the public.
Another commenter noted that using
NPIs to identify providers would make
it difficult for consumers to use the ma-
chine-readable files because consumers
do not usually have NPI information. The
commenter stated that it would also be
useful for consumers using the In-network
Rate Files (including the uninsured and
those shopping for alternative coverage)
to have access to public information that
lists the providers who participate in local
plan and issuer networks.
The Departments agree that including
provider names in the machine-readable
files in addition to NPIs would help con-
sumers and other stakeholders review and
use the machine-readable files. Howev-
er, the Departments have some concerns
about requiring inclusion of provider
names in the files. From a technical per-
spective, the Departments are concerned
that inclusion of provider names, which do
not have a consistent character length and
can be quite long, will increase the size of
the machine-readable files and, therefore,
increase the burden of the files for plans
and issuers. Additionally, provider names
may include non-alphanumeric or other
non-standard character encoding types
that could interfere with the coding of the
machine-readable files and cause defects.
The Departments are concerned that the
additional quality assurance procedures
that plans and issuers would need to im-
plement in order to address these issues
could add even more burden with limited
benefit.
In addition, because the Departments
expect the greatest benefits of these ma-
chine-readable files will be through the in-
novative tools developed by third parties,
the Departments are of the view that the
lack of availability of provider names in
the machine-readable files is not a signifi-
cant concern. The Departments anticipate
that third-party internet-based developers
and other secondary entities will be able to
link the NPIs in the machine-readable files
to publicly available provider informa-
tion. The Departments note that there are
several internet-based NPI lookup tools
available online, including CMS’s Nation-
al Plan & Provider Enumeration System
(NPPES) NPI registry.
173
Nothing in the
final rules prevents a plan or issuer from
linking to an NPI lookup tool or provid-
ing more information for consumers and
other stakeholders on its website through
supplementary materials supporting the
machine-readable files.
For these reasons, the final rules do not
require plans and issuers to include pro-
vider names in addition to NPI, TINs, and
Place of Service Codes in the three ma-
chine-readable files.
In-Network Rate File
The Departments finalize with mod-
ifications the proposed requirement that
group health plans and health insurance is-
suers publish as the third content element
negotiated rates in a machine-readable file
for all covered items and services—ex-
cept that the Negotiated Rate File in the
proposed rules has been re-named the
In-network Rate File. With the exception
of information relevant to prescription
drug products that are included as part of
an alternative payment arrangement (such
as a bundled payment arrangement), the
In-network Rate File will exclude infor-
mation relevant to prescription drugs, as
that information will be provided in the
third machine-readable file. Based on
comments and technical expertise within
the agencies, the Departments have made
modifications to clarify the expectations
for reporting negotiated rates (or compa-
rable derived amounts as explained else-
where in this section) for plans and issuers
using alternative reimbursement models
for health care items and services. These
modifications also clarify that plans and
issuers must include an underlying fee
schedule rate when one is used to deter-
mine cost-sharing liability, where that
amount differs from the negotiated rate
(or comparable derived amount) used to
determine provider reimbursement. The
Departments also finalize this change to
reflect other modifications to the proposed
rules meant to ensure the required In-net-
work Rate File accommodates plans and
issuers operating under payment mod-
els other than a standard fee-for-service
(FFS) model.
In the proposed rules, the third content
element was negotiated rates under a plan
or coverage regarding each covered item
or service, including prescription drugs
furnished by in-network providers. To the
extent a plan or issuer reimburses pro-
viders for an item or service based on a
formula or reference based-pricing (such
as a percentage of a Medicare reimburse-
173
CMS’s NPPES registry is available online at the following website address: https://npiregistry.cms.hhs.gov/.

November 30, 2020 1302 Bulletin No. 2020–49
ment rate), the proposed rules would have
required the plan or issuer to provide the
calculated dollar amount of the negotiated
rate for each provider.
In the proposed rules, the Departments
expressed the understanding that some
plans and issuers do not vary negotiated
rates across in-network providers. For in-
stance, some plans and issuers have a ne-
gotiated rate that applies to every provider
in a certain network tier. In such a case,
the Departments proposed to require the
plan or issuer to provide the negotiated
rate for a covered item or service sepa-
rately for every provider that participates
in that tier of the network. If the plan or
issuer reimburses for certain items and
services (for example, maternity care and
childbirth) through a bundled payment ar-
rangement, the Departments proposed to
require the plan or issuer to identify the
bundle of items and services by the rele-
vant billing code.
The Departments also proposed to re-
quire plans and issuers to include the last
date of the contract term for each provid-
er-specific negotiated rate that applies to
each item or service (including rates for
both individual and bundled items and
services).
Several commenters suggested mod-
ifications to the requirement for public
disclosure of negotiated rates, which they
claimed would help mitigate the risk of
unintended consequences, such as anti-
competitive practices and increased health
care prices. Commenters suggested that
the final rules require plans and issuers to
disclose the median rate or lowest negoti-
ated rate instead of negotiated rates. Other
commenters also expressed the opinion
that information presented as summary or
aggregated data would be more helpful for
consumers. One of these comments noted
that this could be achieved through plans
identifying a range of in-network rates for
common services.
The Departments considered modify-
ing the requirement to require plans and
issuers to report the median negotiated
rate, the lowest negotiated rate, or some
other aggregated negotiated rate. The
Departments noted in the proposed rules
that consumers, researchers, and regula-
tors gaining access to pricing information,
including information on the variation in
prices, could place downward pressure
on health care prices and reduce overall
health care spending, which is one of the
goals of the final rules. The Departments
are concerned that using an aggregated
or otherwise summarized rate would not
sufficiently address issues of pricing vari-
ation and could undermine other goals of
price transparency efforts. A median or
summarized rate would not be as reliable
for insured or uninsured consumers to use
when making health care purchasing deci-
sions as it is individual prices upon which
these consumers must rely to make health
care purchasing decisions. Under standard
economic theory, it is individual prices,
and consumers’ responses to those prices,
that drive market forces. If the public dis-
closures do not include specific individual
prices for in-network items and services,
consumers may not have actionable infor-
mation upon which to rely to make specif-
ic decisions.
174
A median or summarized
rate would not address the issue of price
variation or dispersion, as it would mask
the variation in a given geographic area.
175

Additionally, a median or summarized rate
could mask the differences between plans
and coverages in a manner incompatible
with drawing comparisons between cov-
erage options. Therefore, the Departments
are of the view that release of alternative
data points, such as aggregated negotiat-
ed rates, or other summarized forms of
negotiated rates, would not sufficiently
advance the price transparency efforts and
could undermine the intended impacts of
the In-network Rate File.
Commenters suggested the Depart-
ments limit the requirement for public
disclosure of negotiated rate information
in a way that protects plans and issuers
from reverse engineering specific rates.
For example, a commenter suggested the
Departments limit the disclosure to plans
and employer plan sponsors, while an-
other commenter suggested that the final
rules require plans and issuers to provide
limited information to the public, such as
statistical ranges, or rates distributions
and require the provision of more detailed
information to other stakeholders.
The Departments considered limiting
these disclosures by stakeholder type such
that the disclosure of the most detailed in-
formation to the widespread public would
be more limited. The Departments’ deter-
mined that these limitations would con-
flict with the statute, which requires public
disclosure, and the goals of the final rules.
The Departments’ goal is to empower
consumers through the disclosure of ac-
tionable pricing information through the
In-network Rate Files, as translated into
consumer-friendly tools by third-party ap-
plication developers.
Some commenters expressed the view
that public disclosure of rates by plans
and issuers with alternative reimburse-
ment models should be required and
suggested the Departments work with
stakeholders to establish requirements
that are consistent with innovative pay-
ment models. One commenter stated that
the Departments should not exclude from
the negotiated file requirements plans
with reimbursement arrangements dif-
ferent from FFS arrangements, such as
plans with reimbursements based on a
capitated amount or a value-based agree-
ment. Some commenters noted that the
release of negotiated rates places empha-
sis on FFS provider contracting and may
hinder innovation in alternative payment
contracting models, such as value-based
contracting.
The Departments received some com-
ments on how the Departments could
require plans and issuers to report capi-
tated and bundled payment arrangements
through the In-network Rate File. One
commenter noted that plans with a capi-
tated arrangement should be able to assign
a price to items and services based on an
internal methodology. The commenter ob-
served that plans with capitated payment
arrangements must assign prices for pur-
poses of submission of claims in support
of the HHS risk adjustment program un-
der 45 CFR 153.710(c). Some comment-
ers, however, argued that implementing
some aspects of the proposed rules would
not be feasible, such as listing prices for
quality-adjusted and risk-adjusted con-
tracts, which can only be calculated after
the fact.
174
Stigler, G. “The Economics of Information.” The Journal of Political Economy. Volume 69. Issue 3. June 1961. Available at https://home.uchicago.edu/~vlima/courses/econ200/spring01/
stigler.pdf.
175
Id.

Bulletin No. 2020–49 1303 November 30, 2020
By contrast, other commenters did not
support a requirement for plans and is-
suers with alternative reimbursement ar-
rangements to make public the disclosures
required through the In-network Rate File.
Commenters stated that releasing negoti-
ated rate information for bundled or capi-
tation arrangements would be a significant
operational burden and could lead to inac-
curacies and misinformed consumers. For
example, several commenters noted that
the entire suite of services that a consumer
might need to look up for an episode of
care is not known to patients or providers
prior to the receipt of care. Another com-
menter noted that the information could
be misleading to consumers because pric-
es may not include the services provided
by all providers that are involved in a pa-
tient’s hospital care such as surgeons and
anesthesiologists.
The Departments agree that plans and
issuers that use alternative reimburse-
ment arrangements should still be subject
to requirements to disclose rates through
the In-network Rate File. Nowhere in the
proposed rules did the Departments indi-
cate that only plans and issuers that reim-
burse on a standard FFS model would be
required to make public the disclosure of
negotiated rates. As evidenced by the dis-
cussion of reporting of bundled payment
arrangements and plans and issuers using
alternative reimbursement models such as
formula-based or reference-based pricing
in the proposed rules, the Departments
intended the disclosures required through
the final rules to apply to all plans and is-
suers, regardless of reimbursement model.
The Departments clarify that plans and is-
suers that reimburse providers on a basis
that is different from a standard FFS mod-
el would still be required to make public
the disclosures of in-network negotiated
rates, out-of-network allowed amounts
and prices for prescription drugs as re-
quired by the final rules.
Later in this preamble, the Departments
have summarized the general reporting
expectations for several alternative re-
imbursement models, including bundled
payment arrangements and capitation ar-
rangements (including sole capitation ar-
rangements and partial capitation arrange-
ments), reference-based pricing without a
defined network, reference-based pricing
with a defined network, and value-based
purchasing. This summary is not meant
to be exhaustive, as the Departments are
aware that other alternative reimburse-
ment or contracting models exist. How-
ever, before clarifying how these payment
arrangements would work under the final
rules, the Departments note modifications
to the requirements for the pricing infor-
mation that must be publicly disclosed
through the In-network Rate File.
Some commenters stated that the pro-
posed rules did not acknowledge that ne-
gotiated rates alone provide an inaccurate
or incomplete picture of health care item
and service pricing. In response, the De-
partments conducted additional research
to understand how the final rules could
require the appropriate level of detail in
the In-network Rate File and provide a
more complete and transparent picture of
prices of health care items and services. In
response to comments, and as a result of
this additional research, the Departments
are modifying the language describing the
requirement for the pricing information
that must be publicly disclosed through
the file. Specifically, the Departments are
clarifying that the In-network Rate File
should include all applicable rates, even
where not referred to as negotiated rates.
As described in the final rules, this could
include negotiated rates, an underlying fee
schedule rate or, derived amounts, as ap-
plicable. These modifications are intended
to clarify disclosure requirements for plans
and issuers that use alternative reimburse-
ment arrangements and to ensure that the
rates upon which consumer cost-sharing
liability is determined as well as negotiat-
ed rates are publicly disclosed through the
In-network Rate File. The Departments
are of the view that this approach is con-
sistent with the goals of transparency as
outlined in the proposed rules because it
ensures that the In-network Rate File will
be both meaningful for consumers and
requires transparency in price disclosures
that will promote increased competition in
health care markets. Without this clarifica-
tion, the In-network Rate File could have
potentially excluded rates that are used
to determine cost-sharing liability, which
is essential information upon which con-
sumers would need to rely to make health
care purchasing decisions. Further, retain-
ing as proposed the requirement to include
the negotiated rates that plans and issuers
use to determine provider reimbursement
is crucial to price transparency efforts,
which will help foster competition and
lower prices. Public disclosure of negoti-
ated rates and derived amounts will also
support research and regulatory oversight.
For example, this information will help
researchers evaluate alternative payment
models in relation to the traditional FFS
payment model, which could help spur
more innovation in health care markets.
State regulators will also be able to gain
further insight into the various payment
models, which would support general
oversight of plans and issuers using dif-
ferent payment models, and could support
market reform efforts.
One commenter noted that plans and
issuers that use capitated reimbursement
arrangements may assign prices to items
and services as a normal course of busi-
ness. Thus, they should be able to disclose
those prices as part of the In-network Rate
File. The Departments agree. The final
rules require a plan or issuer that does not
have a negotiated rate to disclose a “de-
rived amount,” which is defined as the
price that a plan or issuer assigns an item
or service for the purpose of internal ac-
counting, reconciliation with providers, or
for the purpose of submitting data in ac-
cordance with the requirements of 45 CFR
153.710(c).
45 CFR 153.710(c) sets forth a process
through which capitated plans that do not
generate individual enrollee claims in the
normal course of business must submit
data for the purpose of the HHS-operated
risk adjustment program.
176
As stated in
the preamble to the HHS Notice of Ben-
efit and Payment Parameters for 2014 fi-
nal rule, many capitated plans currently
use some form of encounter data pricing
methodology to derive claims’ prices, of-
ten by imputing an amount based upon the
176
HHS has operated the risk adjustment program for the individual and small group markets under section 1343 of PPACA on behalf of all states and the District of Columbia since the 2017
benefit year.

November 30, 2020 1304 Bulletin No. 2020–49
Medicare fee-for-service equivalent price
or the usual, customary, and reasonable
equivalent that would have been paid for
the service in the applicable state market
risk pool.
177
For the purposes of 45 CFR
153.710(c), an issuer offering a capitated
plan is required to use its principal internal
methodology for pricing those encounters
for purposes of submitting risk adjustment
data, such as the methodology in use for
other State or Federal programs (for ex-
ample, a methodology used for the Medi-
care Advantage market).
178
If an issuer,
including an issuer of a capitated risk ad-
justment covered plan, has no such meth-
odology, or has an incomplete methodol-
ogy, it must supplement the methodology
in a manner that yields derived claims that
are reasonable in light of the specific mar-
ket that the plan is serving. Given these
requirements under 45 CFR 153.710(c),
the Departments are of the view that most
issuers offering capitated plans that do not
process claims on an individual basis, and
therefore do not have negotiated rates,
will have a derived amount.
The Departments acknowledge that 45
CFR 153.710(c)does not apply to group
health plans or all health insurance issu-
ers subject to these rules and so they may
not calculate derived amounts for this pur-
pose. The final rules do not require plans
or issuers to develop a new methodology
for providing derived amounts if the plan
or issuer does not have an existing meth-
odology used in the normal course of
business. Therefore, the final rules require
plans and issuers that do not have a nego-
tiated rate to provide a derived amount, to
the extent these amounts are already cal-
culated in the normal course of business.
Where a plan or issuer does not have a
derived amount calculated in the normal
course of business, they are not required
to provide a derived amount.
The Departments also note that un-
der the final rules, where a plan or issu-
er includes in the In-network Rate File a
comparable derived amount in lieu of the
negotiated rate (for example, under a capi-
tation arrangement where a specific nego-
tiated rate is not available for a particular
item or service), they will be required to
add a notation to the machine-readable
files indicating that the rate is subject to an
alternative payment arrangement. The De-
partments are also aware that some plan
and issuer contracting models use a mix-
ture of approaches and note that plans and
issuers should follow the general guide-
lines (to be provided by the Departments
in the technical implementation guidance)
based on how a particular covered item
or service is reimbursed where a mixture
of approaches is used in the same plan or
coverage.
The final rules clarify that, where plans
and issuers use negotiated rates or a com-
parable derived amount and an underlying
fee schedule rate as defined in the final
rules, they are required to report both the
negotiated rate or comparable derived
amount and the underlying fee schedule
rate used for that item or service. There-
fore, the Departments are also modifying
the In-network Rate File to require public
disclosure of an underlying fee schedule
rate, when applicable. The Departments
are aware that under some reimbursement
models, one set of negotiated rates is used
for provider reimbursement (or compara-
ble derived amounts are used for internal
accounting purposes) and another set of
rates, referred to in the final rules as an
underlying fee schedule rate, is used for
determining consumer cost-sharing liabil-
ity. The Departments view the modifica-
tion to the In-network Rate File to require
public disclosure of an underlying fee
schedule rate important to ensuring the
public disclosures required through the
rules include transparency in the prices
used by all plans and issuers in making
determinations of consumer cost-sharing
liability. The final rules define the under-
lying fee schedule rates as the rate for an
item or service that a plan or issuer uses
to determine a participant’s, beneficiary’s,
or enrollee’s cost-sharing liability from
a particular provider or providers, when
that rate is different from the negotiated
rate. For instance, under certain capita-
tion payments which reimburse a provider
a PMPM rate, the PMPM rate would be
the negotiated rate. However, the plan or
issuer would also have assigned a price
for an item or service from that provider
for the purpose determining cost-sharing
liability; that amount is the underlying fee
schedule rate. Therefore, in this example,
in the In-network Rate File, the plan or is-
suer would be required to report the nego-
tiated rate, which in this case is the PMPM
rate, and the underlying fee schedule rate
used to determine cost-sharing liability.
In the final rules, plans and issuers are
required to disclose only those rates that
are applicable to their particular reim-
bursement arrangement model. If a plan
or issuer only uses one rate for deter-
mining both provider reimbursement and
consumer cost-sharing liability, then only
that rate would be applicable to the plan
or issuer, and therefore required to be dis-
closed through the In-network Rate File.
Where a plan or issuer uses an alternative
reimbursement arrangement and does not
have a negotiated rate, as defined in the
final rules, the plan or issuer would be
required to publicly disclose through the
In-network Rate File the derived amount,
to the extent the plan or issuer generates
such an amount in the normal course of
business. If a plan or issuer has a nego-
tiated rate or a derived amount but does
not also use that applicable rate to make
determinations of consumer cost-sharing
liability, then the plan or issuer would be
required to publicly disclose both the ne-
gotiated rate or derived amount and the
underlying fee schedule rate used to deter-
mine consumer cost-sharing liability.
The Departments note that, while a
scenario where a plan or issuer uses both
negotiated rates or a comparable derived
amount and an underlying fee schedule
rate in their operations is more likely to
occur under an alternative reimbursement
model, it is possible to have both a nego-
tiated rate and an underlying fee schedule
rate in an FFS reimbursement arrange-
ment. Such a scenario is possible where a
plan that uses a traditional negotiated rate
to reimburse a provider for a particular
covered item or service and bases partici-
pant, beneficiary, or enrollee cost-sharing
liability upon a different rate for the same
item or service.
Under bundled payment arrangements,
plans and issuers may reimburse a provid-
er for multiple services and items under a
single billing code. Under these arrange-
177
78 FR 15410, 15499-15500 (Mar. 11, 2013).
178
Id., see also 78 FR 15410, 15470-71 (Mar. 11, 2013).

Bulletin No. 2020–49 1305 November 30, 2020
ments, plans and issuers should provide
a negotiated rate (or comparable derived
amount) for that single billing code and
list the items and services, including pre-
scription drugs, that are included in that
bundle. If a negotiated rate (or compara-
ble derived amount) exists for each item
and service, including prescription drugs,
within the bundle, the plan or issuer
should include the negotiated rate for the
total bundle and also include in the In-net-
work Rate File the respective negotiated
rates (or comparable derived amount) for
all covered items or services included in
the bundle.
It is the Departments’ understanding
that, if the bundled payment arrangement
exists to the exclusion of any reimburse-
ment arrangement for the underlying
services and items, payers and providers
often continue to track, for purposes of
informing renegotiation of the bundle, re-
imbursement at the level of the individual
item or service using a derived amount.
For the In-network Rate File, plans and is-
suers with this type of model are required
to disclose the negotiated rate for the total
bundle and the derived amounts for in-
dividual items or services in the bundled
payment arrangement. If a derived amount
for these purposes does not exist, then
plans and issuers would not be required
to report a derived amount. Where a plan
or issuer uses a derived amount or reason-
able estimate in lieu of the negotiated rate,
they will be required to add a notation to
the machine-readable files indicating that
the rate is subject to an alternative pay-
ment arrangement.
The Departments acknowledge that
there are many different types of capi-
tation models. As stated in the example
earlier, for capitation arrangements that
reimburse a provider a capitated amount,
such as a PMPM, or a similar direct pri-
mary care arrangement, the plan or issuer
would report the negotiated rate, which in
this case is the PMPM amount, and the
underlying fee schedule, as applicable.
Under certain other capitation models,
the provider’s capitation amount may be
weighted dependent upon certain charac-
teristics of the participant, beneficiary, or
enrollee, such as age, gender, or co-mor-
bidities. Plans and issuers with this type of
capitation arrangement should provide the
base negotiated rate, which is the nego-
tiated rate before adjustments have been
made for certain participant, beneficiary,
or enrollee characteristics. Plans and issu-
ers using capitation arrangements should
notate any entry that represents a capitat-
ed amount and list all items and services,
including prescription drugs that are cov-
ered under a particular capitation amount
in the In-network Rate File.
In some cases, a sole capitation ar-
rangement exists, such as staff model
HMOs under which services are provided
by in-network salaried providers and there
are neither negotiated rates nor an under-
lying fee schedule rate. In this case, plans
and issuers are required to include a de-
rived amount in the In-network Rate File.
If an applicable rate (a negotiated rate, de-
rived amount, or underlying fee schedule
rate) does not exist for an item or service,
then plans and issuers are not be required
to report pricing information for that par-
ticular item or service.
The Departments are aware that some
plans and issuers use a partial capitation
model where the plan or issuer reimburses
providers under a variable FFS amount in
addition to a flat capitation amount. The
Departments expect plans and issuers
using a partial capitation model to make
public the FFS negotiated rate as well as
the capitation amount. Plan and issuers
must also add a notation to the file indi-
cating that a capitation arrangement (or
a partially capitated arrangement) exists.
For specific items and services where
plans and issuers using this model do not
have an FFS negotiated rate in addition
to a capitation amount (that is, for items
and services where they do follow a full
capitation model), plans and issuers are
required to follow the reporting require-
ments described for sole capitation ar-
rangements.
Reference-based pricing without a de-
fined network is an arrangement where
payers reimburse providers based on a
percentage (usually 120 percent to 200
percent) of the Medicare rate, but do not
have contractual agreements with provid-
ers. The Departments expect there will be
no In-network Rate File for this type of ar-
rangement because the plan or issuer does
not have in-network providers as defined
in the final rules.
By contrast, under a reference-based
pricing model with a defined network,
payers have contractual agreements to re-
imburse providers based on a percentage
of a different rate that is known or deter-
minable by the parties (usually 120 per-
cent to 200 percent of the Medicare rate),
which is subject to change based upon ad-
justments that can be specific to the partic-
ipant, beneficiary, or enrollee, such as age,
gender, and severity of illness. To repre-
sent this type of arrangement, and other
provider reimbursement models that are
based upon participant, beneficiary, or en-
rollee-specific adjustments, the final rules
clarify that plans and issuers are required
to include for each item or service in the
In-network Rate File, the base negotiated
rate that applies before adjusting for par-
ticipant, beneficiary, or enrollee -specific
characteristics. The negotiated rate in the
referenced-based pricing model must be
represented as a dollar value that is the
result of the calculation of the referenced
amount and the applicable reference-based
percentage. For example, a plan calculates
provider reimbursement using a refer-
ence-based pricing model that sets reim-
bursement to Provider X at 120 percent of
the Medicare rate for covered Item A. The
reference-based percentage used to deter-
mine the base negotiated rate would be
120 percent. In the general course of busi-
ness, the plan determines the Medicare
rate for Item A using participant, benefi-
ciary, or enrollee-specific characteristics,
but, because there is no specific partici-
pant, beneficiary, or enrollee for purposes
of populating the In-network Rate File,
the plan or issuer must report the base
negotiated rate that would apply prior to
application of any participant, beneficiary,
or enrollee-specific characteristics. In this
example, the Medicare rate for Item A is
$150, before applying adjusters for par-
ticipant, beneficiary, or enrollee-specific
characteristics. Therefore, the plan would
report a negotiated rate for Item A when
received from Provider X of $180 ($150
multiplied by 120 percent) and must in-
clude this rate in the In-network Rate File.
Finally, under a reimbursement ar-
rangement that adjusts payments or rec-
onciles provider payments after providing
care, such as in many value-based pur-
chasing models, the plan or issuer must
also provide the base negotiated rate for
the specific provider in the In-network
File. For instance, in a value-based pur-

November 30, 2020 1306 Bulletin No. 2020–49
chasing model, payers may adjust nego-
tiated rates for a particular provider if the
provider meets certain contractual goals,
which may be related to quality, volume,
and efficiency of care. The Departments
clarify that quality or value dependent
weighting factors or adjusters are not re-
quired to be included in the negotiated rate
made public under the final rules.
As noted earlier in this preamble,
nothing in the final rules prevents a plan
or issuer from providing supplementary
materials, including footnotes, disclaim-
ers, data dictionaries, and other explana-
tory language, as accompaniments with
the machine-readable files. For example,
a plan or issuer may choose to provide
clarifying information related to how the
negotiated rate, if reported as a base ne-
gotiated rate, may change depending on
quality or value-dependent weighting fac-
tors, or participant, beneficiary, or enroll-
ee-specific factors such as the severity of
illness, age, or gender. Because base rates
unadjusted for participant, beneficiary, or
enrollee-specific factors are required to be
reported for reference-based pricing ar-
rangements, the Departments note that it
is a best practice to include a disclaimer
noting that the rate could change subject
to participant, beneficiary, or enrollee-spe-
cific characteristics.
Some commenters noted that simply
listing the negotiated rates without con-
text regarding overall cost would not help
consumers make informed decisions. The
commenter further noted that consumer
decision-making could be harmed if rely-
ing on negotiated rate information without
context regarding provider billing practic-
es. Other commenters stated that non-ne-
gotiated billed charges would be useful as
an additional category of pricing informa-
tion for the public, especially for the un-
insured and those seeking out-of-network
care. Another commenter agreed that in-
formation on provider-billed charges is
important for transparency, but this com-
menter suggested that providers, not is-
suers, would be the appropriate source of
this information.
As discussed later in this preamble, the
Departments are of the view that inclusion
of billed charges in the In-network Rate
File is unnecessary to achieve the goals
of the final rules because in-network pro-
viders are not permitted to balance bill
participants, beneficiaries, or enrollees
as in-network providers have agreed to
accept the negotiated rate as payment in
full (less any participant, beneficiary, or
enrollee cost-sharing liability) for the item
or service. However, inclusion of billed
charges in the Allowed Amount File will
provide meaningful information when
coupled with allowed amount informa-
tion because it will allow consumers to
estimate their potential balance billing li-
ability when receiving items and services
furnished by out-of-network providers if
balance billing is allowed in their state.
Therefore, inclusion of billed charges in
the In-network Rate File would not pro-
vide additional value for consumers.
Moreover, the Departments are of the
view that inclusion of the billed charge
could be more misleading in the In-net-
work Rate File because the billed charge is
very rarely what the consumer or the payer
ends up paying for a particular claim and
may not have a clear relationship with the
negotiated rate or underlying fee schedule.
While the Departments agree that inclu-
sion of billed charges in the In-network
Rate File would provide another data point
for developers in developing the tools,
adding billed charges would also increase
both the size and complexity of the In-net-
work Rate File. Because it appears that in-
clusion of this data element could obscure
other pricing information and would not
increase transparency of actual prices paid
by participants, beneficiaries, enrollees, or
payers, the Departments decline to add a
billed charge data element requirement to
the In-network Rate File at this time.
As discussed earlier in this preamble,
the final rules finalize a requirement for
plans and issuers to associate the pricing
information disclosed on each of the three
machine-readable files with three data el-
ements that identify the provider and the
location where the service was provided:
NPI, TIN, and Place of Service Code. For
the In-network Rate File, the Departments
proposed that the negotiated rate should
be the rate that applies to each item or ser-
vice that is associated with the last date of
contract term for each provider NPI. The
final rules modify this requirement to clar-
ify that the applicable rates publicly dis-
closed in the In-network Rate File should
be the rates that apply to each item or ser-
vice that is associated with the last date
of the contract term or the contract expi-
ration date for each provider as identified
by NPI, TIN, and Place of Service Code.
Allowed Amount File
For the Allowed Amount File, the third
content element is historical out-of-net-
work allowed amounts for covered items
and services. The proposed rules would
require plans and issuers to include in the
Allowed Amount File each unique out-of-
network allowed amount in connection
with covered items or services furnished
by a particular out-of-network provider
during the 90-day time period that begins
180 days prior to the publication date of
the Allowed Amount File. As with the
In-network Rate File, where a plan or is-
suer reimburses providers for an item or
service based on a formula or reference
based-pricing (such as a percentage of a
Medicare reimbursement rate), the plan
or issuer would be required to provide
the calculated dollar amount of the al-
lowed amount for each provider. Allowed
amounts would have to be associated with
the provider’s NPI, TIN, and Place of Ser-
vice code.
The Departments designed this report-
ing requirement to elicit payment data that
reflects recent out-of-network allowed
amounts in connection with claims for
out-of-network covered services. The De-
partments assumed these amounts would
provide payment data that is useful to con-
sumers because it is reflective of the most
recent reimbursements. Specifically, the
Departments proposed to require report-
ing based on dates of service within 180
days of the Allowed Amount File publica-
tion date to ensure that data is composed
of recent claims (rather than older claims
from multiple time periods) and to avoid
the reporting of payments from incon-
sistent periods of time. The Departments
took the view that payment data from de-
fined periods of time would enable users
to make meaningful comparisons across
plans and coverage options.
When disclosing an out-of-network al-
lowed amount under this requirement, the
Departments proposed to require a plan
or issuer to disclose the actual amount the
plan or issuer paid to the out-of-network
provider, plus the participant’s, beneficia-
ry’s, or enrollee’s share of the cost. For

Bulletin No. 2020–49 1307 November 30, 2020
instance, if the out-of-network allowed
amount for a covered service was $100,
and the plan or issuer paid 80 percent of
the out-of-network allowed amount ($80)
per the terms of the plan or coverage, so
that the participant, beneficiary, or en-
rollee was responsible for paying twenty
percent of the out-of-network allowed
amount ($20), the plan or issuer would re-
port an out-of-network allowed amount of
$100. This unique payment amount would
be associated with the particular covered
item or service (identified by billing code)
and the particular out-of-network provider
who furnished the item or service (iden-
tified by NPI, TIN, and Place of Service
Code).
The Departments clarify that, in con-
trast to the In-network Rate File, no special
considerations for reporting alternative
payment arrangements are necessary for
the Allowed Amount File because plans
and issuers are required to disclose actual
amounts paid in the Allowed Amount File
and can therefore account for retrospec-
tive reconciliations and weighting factors
that require special considerations. For the
Allowed Amounts File, the Departments
expect plans and issuers that reimburse
in-network providers using alternative
payment methodologies to adhere to the
standard requirement of providing al-
lowed amounts on historical claims paid
to out-of-network providers for each cov-
ered item or service during the applicable
reference period. Plans and issuers gener-
ally do not reimburse out-of-network pro-
viders, with whom they do not maintain
a contractual relationship, under an alter-
native payment arrangement. However, to
the extent a plan or issuer uses an alter-
native payment arrangement to reimburse
out-of-network providers, the plan or issu-
er would still be required to report the al-
lowed amount paid to the out-of-network
provider. The Departments will address,
through the technical implementation
guidance, how a plan or issuer will be able
to represent data in the Allowed Amount
File, as necessary. The Departments antic-
ipate that plans and issuers that reimburse
providers using reference-based pricing
without a network will have larger than
average Allowed Amount Files, as all of
the payments would be made to out-of-
network providers and would therefore be
subject to this requirement.
Some commenters supported disclo-
sure of the “historical” payments made
by plans and issuers to out-of-network
providers. One commenter acknowledged
that bulk de-identified data that informs
a consumer of historical out-of-network
allowed amounts may be relevant to con-
sumer decision-making regarding a par-
ticular provider or procedure. One com-
menter pointed out that if the Departments
failed to adopt this requirement in tandem
with the In-network Rate File requirement,
providers could withdraw from networks
to avoid transparency requirements.
By contrast, other comments were
less supportive of the Allowed Amount
File proposal. Several commenters stated
that publishing historical out-of-network
allowed amounts would not meet the
Departments’ purported goal of helping
consumers understand costs and would
possibly lead to consumer confusion.
Commenters expressed concern that the
Allowed Amount File could result in con-
sumers receiving misleading information,
which would lead to negative financial
consequences for consumers because the
file would not provide all information
about potential out-of-network costs, such
as those that could be incurred through
balance billing, if allowed in their state.
One commenter stated that inclusion of
billed charges would allow the develop-
ment of open source charge schedules.
One commenter pointed out that the in-
formation in the machine-readable files
would not address scenarios where a par-
ticipant, beneficiary, or enrollee receives
out-of-network care in an in-network fa-
cility. Still other commenters expressed
concerns about the reliability of the data
as historical allowed amounts with out-of-
network providers may not provide an ac-
curate portrait of future cost information
because issuers do not have contracts with
out-of-network providers. Similarly, an-
other commenter stated that health plans
should not be responsible for publishing
rates for providers with whom they do not
maintain a relationship.
One commenter recommended the De-
partments withdraw the proposal, making
the argument that small health plans are
unlikely to have a sufficient number of
claims billed for any one procedure from a
particular provider to make the file mean-
ingful. In lieu of requiring the Allowed
Amount File, another commenter suggest-
ed the Departments instead place the onus
on out-of-network providers or suppliers
to provide consumers with information
about the costs of their services.
The Departments continue to be of
the view that release of this information
is appropriate and necessary to empower
consumers to make informed decisions
about their health care, spur competition
in health care markets, and to slow or po-
tentially reverse the rising cost of health
care items and services. As noted earlier
in this preamble and in the preamble to the
proposed rules, limiting access to data to
a subset of consumers would not promote
the transparency goals of PPACA and the
final rules, and would reduce the potential
for the final rules to drive down health
care costs by increasing competition. If
the Departments were to eliminate the Al-
lowed Amount File requirement or reduce
its scope, it would significantly reduce the
benefits of the final rules for uninsured
consumers and insured consumers evalu-
ating out-of-network treatment options.
The information in the Allowed
Amount File, especially as filtered through
innovative platforms and tools, will help
consumers make more informed decisions
regarding changes to their health coverage
(for example, the purchase of new cover-
age or switching to a new plan). Further-
more, this information may help insured
consumers make more informed health
care decisions when seeking out-of-net-
work treatment; and may help uninsured
consumers make health care decisions and
potentially allow them to negotiate more
effectively with providers. Finally, the
creation of Allowed Amount Files may
help researchers and regulators monitor
plan benefit design and help spur innova-
tion.
While there is some potential for some
consumers to be confused by the infor-
mation in the Allowed Amount Files, the
Departments do not agree that the files
will provide misleading information to
consumers. The Departments expect most
consumers to access this information
through tools created by third-party appli-
cation developers and other stakeholders,
which will be able to provide additional
context for the average consumer.
The Departments proposed to require
plans and issuers to report out-of-network

November 30, 2020 1308 Bulletin No. 2020–49
allowed amounts for services furnished at
least 90 days in the past to help ensure the
availability of reasonable volumes of out-
of-network allowed amount data in the
Allowed Amount File. The Departments
expressed the view that a 90-day lag be-
tween the end of a reporting period and
the publication of required out-of-network
allowed amount data will allow plans and
issuers sufficient time to adjudicate and
pay claims from out-of-network providers
for the relevant reporting period. Claims
processing times may vary between plans
and issuers, and external factors may in-
crease processing timelines. For example,
the Departments noted in the proposed
rules that many out-of-network providers
do not send claims directly to plans and
issuers but instead require participant,
beneficiary, or enrollee to file out-of-net-
work claims. This could mean that an out-
of-network claim may not reach a plan or
issuer for 6 to 12 months after a service
is rendered. Such delays could negatively
affect the volume of out-of-network al-
lowed amount data and the ultimate use-
fulness of this data. For this reason, the
Departments sought comment regarding
whether requiring plans and issuers to re-
port out-of-network allowed amounts for
items and services furnished at least 90
days in the past is sufficient to ensure the
proposed disclosures will yield sufficient
volumes of historical data to be useful to
consumers who wish to shop for services
based on price. The Departments request-
ed comment on whether there should be
more time between the end of the report-
ing period and publication of the data,
such as 120 days, 180 days, or longer,
which would increase the likelihood that
out-of-network claims from the relevant
reporting period have been adjudicated
and paid by the time of publication.
The Departments did not receive com-
ments directly in response to this comment
solicitation and are finalizing the Allowed
Amount File historical lookback period as
proposed. The final rules, therefore, adopt
a requirement for the Allowed Amount
Files to include data for the 90-day period
beginning 180 days before the file publi-
cation date. For example, a file published
on June 30, 2021, should include data for
a 90-day period beginning on January 1,
2021. The Departments will monitor the
implementation of this requirement for
the Allowed Amount Files and may revisit
the lookback period if the 90-day report-
ing period beginning 180 days before file
publication fails to yield sufficient out-of-
network data on allowed amounts.
The Departments specifically sought
comment on whether the required disclo-
sures of historical out-of-network allowed
amounts would provide useful informa-
tion that can assist consumers in locating
services at an affordable cost, or whether
there could be additional information that
would be both useful to anticipated users
and practical for plans and issuers to dis-
close for this purpose. For instance, the
Departments stated in the preamble to the
proposed rules that the Departments con-
sidered requiring plans and issuers to dis-
close amounts out-of-network providers
have charged participants, beneficiaries,
and enrollees for covered services in the
Allowed Amount File. The Departments
noted they understood that such charged
amounts would be included in any claim
for out-of-network benefits and could be
helpful to consumers shopping for ser-
vices based on price. The Departments
sought comment on this data element.
As summarized earlier in this preamble
regarding the In-network Rate File, some
commenters who supported the inclusion
of non-negotiated billed charges in the
In-network Rate File also supported in-
clusion of billed charges in the Allowed
Amount File. These commenters not-
ed that billed charge information would
be especially useful for the uninsured or
those seeking out-of-network care. Anoth-
er commenter agreed that information on
provider-billed charges is important for
transparency, but this commenter stated
that providers, not issuers, would be the
appropriate source for this information.
Regarding these comments, the De-
partments agree that that a billed charges
data element is important to ensure that
the public disclosures required through
the out-of-network Allowed Amount File
are as useful to consumers as possible, in-
cluding in the scenario where an insured
consumer receives items or services from
an out-of-network provider. Although the
Departments are aware that the amount
an out-of-network provider will ultimate-
ly balance bill (if allowed in their state)
a consumer for an item or service does
not always equal the difference between
the billed charge and the allowed amount,
the Departments are of the view that this
information would aid consumers in un-
derstanding their potential out-of-pocket
liability. In the jurisdictions that do not
prohibit or limit balance billing, informa-
tion on billed charges could aide consum-
ers in their health care decision-making as
it is possible that consumers may choose
to receive or forgo a particular item or ser-
vice from a particular provider based on
the additional out-of-pocket liability they
could be expected to pay through a bal-
ance billing charge from a provider.
Consumers may be able to shop for a
particular out-of-network provider based
on total cost of an item or service. For ex-
ample, in a state that allows providers to
balance bill, a consumer has a coinsurance
of 40 percent for Service X when Service
X is furnished by an out-of-network pro-
vider. Out of network Provider A’s billed
charge for Service X is $200, and the con-
sumer’s plan allows an amount of $100
to be paid to the provider. Therefore, the
consumer is responsible for a coinsurance
amount of $40 ($100 allowed amount
multiplied by the consumer’s 40 percent
coinsurance) and the consumer may be
balance billed an additional $100 ($200
billed charge minus the $100 allowed
amount). In comparison, out-of-network
Provider B’s billed charge for Service X
is $120 and the consumer’s plan allows
the same amount of $100 to be paid to
the provider. If the consumer receives
Service X from Provider B, they will be
responsible for the same coinsurance
amount of $40 ($100 allowed amount
multiplied by the consumer’s 40 percent
coinsurance). However, if the consumer
receives Service X from Provider B, the
consumer may only be balance billed $20
($120 billed charge minus $100 allowed
amount), which would be an $80 savings
to the consumer compared with receiving
the Service X from Provider A. Note that
this example assumes that both Provider A
and Provider B will balance bill consum-
ers, which is not always true even in states
that allow balance billing. Consumers
should also contact providers to inquire
whether they will balance bill before mak-
ing health care purchasing decisions using
this information. Therefore, with informa-
tion on both allowed amounts and billed
charges, the consumer may choose to re-

Bulletin No. 2020–49 1309 November 30, 2020
ceive Service X from Provider B because
their total out-of-pocket costs will likely
be lower.
The Departments note that it is possi-
ble that plans and issuers will populate the
Allowed Amount File with multiple billed
charges for the same item or service fur-
nished by the same out-of-network pro-
vider. If this is the case, the billed charge
in the Allowed Amount File will present
an expected range and give consumers ac-
cess to a reasonably accurate estimate of
how much they can expect to be balance
billed by an out-of-network provider, but
the billed charge cannot provide to the
consumer the exact amount they can ex-
pect to be balance billed when receiving
items and services furnished by the out-
of-network provider.
For these reasons, the Departments are
of the view that inclusion of the billed
charges in the Allowed Amounts File
will help provide a more complete pic-
ture of the full amount a provider could
receive for a particular item or service,
either from plans and issuers or directly
from a participant, beneficiary, or enroll-
ee. Furthermore, the Departments are of
the view that requiring this information is
consistent with the goal of providing con-
sumers an understanding of their potential
out-of-pocket liability in advance, similar
to an EOB provided in advance, as billed
charges are included on a participant’s,
beneficiary’s, or enrollee’s EOB and are
often the first data available for under-
standing a participants, beneficiary’s, or
enrollee’s out-of-pocket liability.
The Departments are aware that plans
and issuers have information regarding
providers’ billed charges, even if they do
not necessarily have information regard-
ing specific balance billing amounts. The
Departments are therefore of the view that
the inclusion of billed charges in the Al-
lowed Amount File will not substantially
increase the burdens of the final rules.
Nonetheless, the Departments are aware
that adding billed charges will also in-
crease both the size and complexity of the
Allowed Amounts File. The Departments
do not intend to increase the burden of
developing and maintaining these files
unless the inclusion of the additional data
element is essential for providing mean-
ingful pricing information to consumers.
Because it is the Departments’ view that
this data element will increase transpar-
ency of actual prices paid by participants,
beneficiaries, enrollees, and payers, the
Departments are finalizing the Allowed
Amounts File with the modification to add
billed charges as an additional data point
required to be disclosed through the file.
The final rules define billed charges as
total charges for an item or service billed
to a plan or issuer by a provider. Plans and
issuers are required to publicly disclose
billed charges associated with each unique
allowed amount that would be required
under the final rules. The final rules fur-
ther clarify that plans and issuers must re-
port each unique combination of allowed
amounts and billed charges for each out-
of-network provider, and their associated
Place of Service Code, provider NPI, and
provider TIN. For example, an out-of-net-
work provider (under a single NPI, TIN,
and Place of Service Code) submits 25
claims (or any other number of claims to
meet the 20 unique claim threshold re-
quirement discussed in more detail later
in this preamble) to a plan or issuer for
the service Y. The 25 claims have three
179

different billed charges ($100, $150 and
$200) and two different allowed amounts
($50 and $150) for item Y. The plan or is-
suer should have one entry that represents
each unique combination of billed charges
and allowed amounts submitted by the
out-of-network provider. Therefore, in
this example, the Departments would
expect the plan or issuer to represent in
the Allowed Amounts File no fewer than
three unique entries, and no more than six
unique entries for item Y from this out-of-
network provider. For example:
• Entry A has a billed charge of $100
and an associated allowed amount of $50;
• Entry B has a billed charge of $150
and an associated allowed amount of $50;
• Entry C has a billed charge of $200
and an associated allowed amount of $50;
• Entry D has a billed charge of $100
and an associated allowed amount of
$150;
• Entry E has a billed charge of $150
and an associate allowed amount of $150;
• Entry F has a billed charge of $200
and an associated allowed amount of
$150.
The Departments do not expect to see 25
different entries, unless they represented
25 distinct combinations of billed charges
and associated allowed amounts from the
out-out network provider for Item Y.
In the Allowed Amount File, the file
structure is envisioned as a parent/child
data relationship, where certain data el-
ements are included under or belong to
other data elements, as a child to a parent.
In the Allowed Amount File, the billed
charge data element would serve as a child
to the parent allowed amount element.
Therefore, under each unique allowed
amount for a particular item or service
from a particular provider, the amount of
each provider-billed charge is listed as a
unique dollar amount.
One commenter requested the Depart-
ments clarify what is meant by “allowed
amounts for covered items or services
furnished by particular out-of-network
providers,” questioning whether through
inclusion of the word “particular” the
Departments intended to reference spe-
cialized out-of-network providers upon
which plans and issuers might place cov-
erage limitations. The Departments clari-
fy that inclusion of the word “particular”
as a modifier of “out-of-network provid-
ers” was not intended to be a reference
to specialized out-of-network providers
upon which plans and issuers might place
coverage limitations. Rather, use of the
word “particular” indicates that Allowed
Amount Files must include the historical
allowed amounts for covered items and
services furnished to each out-of-network
provider to whom such payments were
made during the reference period. The De-
partments clarify that under the final rules,
and as contemplated in the proposed rules,
plans and issuers are expected to include
historical allowed amounts for every cov-
ered item or service furnished by each out-
of-network provider so long as the unique
claims threshold for the out-of-network
provider is met.
179
The Departments note that it is possible for a provider to have different allowed amounts for the same item or service covered by the same out-of-network provider because the plan or issuer
does not have a contractual relationship with that out-of-network provider, by definition. For similar reasons, it is also possible for the billed charged submitted by the same out-of-network
provider to for the same item or service to be variable.

November 30, 2020 1310 Bulletin No. 2020–49
The Departments further clarify that
plans and issuers are only required to in-
clude in the Allowed Amount File those
covered items and services furnished by
an out-of-network provider for which the
plan or issuer has adjudicated claims and
determined it will pay an allowed amount.
If the plan or issuer has not adjudicated
claims and determined it will pay an al-
lowed amount for items or services fur-
nished by an out-of-network provider, the
plan or issuer is not required to include
those allowed amounts or billed charges
in the Allowed Amount File.
In response to the comment that the
information in the files would not address
the scenario where a participant, benefi-
ciary, or enrollee receives out-of-network
care in an in-network facility, the Depart-
ments clarify that the expectation is that
this information would be captured in the
Allowed Amounts File. If a participant,
beneficiary, or enrollee receives out-of-
network care, even if the facility is in the
participant’s, beneficiary’s, or enrollee’s
network, the provider will generate a
claim and send a billed charge to the pay-
er that will establish an allowed amount
for the claim; the Departments expect this
allowed amount to appear in the Allowed
Amounts File in this scenario. As noted
elsewhere in this preamble, the Depart-
ments will provide technical implemen-
tation guidance (as well as individualized
technical assistance, as needed) to ensure
that plans and issuers are able to make
public the disclosures required through
the final rules.
The Departments do not agree with the
commenter who asserted that, because
some small health plans will not have a
sufficient number of any one procedure
from a particular provider to make the
file meaningful, the Allowed Amount
File requirement should be withdrawn.
The relevant commenter did not provide
a number of claims that it believed would
make the file meaningful. In contrast, the
Departments are of the view that the files
will be meaningful to the public regarding
all covered items and services from a par-
ticular provider regardless of the specific
numbers of claims at issue, even if a par-
ticular provider bills relatively few claims
to a particular plan or issuer. As discussed
elsewhere in this preamble, for privacy
and security reasons, the Departments are
requiring disclosure for all covered items
and services from a particular provider
that meets the unique claims threshold
established by the final rules. If a small
health plan does not have sufficient claims
for a covered item or service to meet the
unique claims threshold for a particular
provider, then that health plan is not per-
mitted to publicly disclose information
for that particular item or service paid to
the particular provider. The Departments
are of the view that most health plans
and issuers will meet the unique claims
threshold for a large proportion of items,
services, and providers to make the files
sufficiently meaningful to justify this re-
quirement.
In the preamble to the proposed rules,
the Departments noted that providing this
information could raise health privacy
concerns. The Departments are commit-
ted to protecting PHI and other sensitive
information. To address these privacy
concerns, as discussed in this preamble,
the Departments proposed that plans and
issuers would not be required to provide
out-of-network allowed amount data in
relation to a particular provider and a par-
ticular item or service when compliance
would require a plan or issuer to report
out-of-network allowed amounts to a par-
ticular provider in connection with fewer
than 10 different claims for payment. The
Departments also noted that disclosure of
such information would not be required
if compliance would violate applicable
health information privacy laws. In addi-
tion to proposing this exemption, the De-
partments proposed to require plans and
issuers to include only unique out-of-net-
work allowed amounts to mask the total
episodes of care for a particular provider
and item or service. In the proposed rules,
the Departments expressed the view that
these mitigation strategies, in addition to
flexibilities proposed to allow the aggre-
gation of reported data (as described later
in this preamble), were sufficient to pro-
tect patients from identification based on
information in the Allowed Amount File.
The Departments solicited comment on
whether additional privacy protections
would be required.
The Departments specifically request-
ed comment on whether a higher mini-
mum claims threshold, such as a threshold
of 20 claims, would better mitigate priva-
cy concerns and minimize complexity in
complying with federal or state privacy
laws without compromising the integrity
of the compiled information. The Depart-
ments also sought comment on additional
approaches that could decrease the poten-
tial for aggregated health information that
would be disclosed under the proposed
rules to be identified, especially with re-
spect to smaller group health plans.
In response, some commenters ex-
pressed concerns about maintaining HI-
PAA protections on the Allowed Amount
File due to the small number of claims as-
sociated with specific services for out-of-
network providers. Several commenters
stated the threshold of 10 unique claims
to require public disclosure of unique
historical allowed amounts would be too
low to protect consumers’ PHI. One com-
menter requested that the Departments
clarify how they arrived at the 10 claims
threshold. Some commenters recommend-
ed different minimum thresholds. Some
commenters recommended a minimum
threshold of 50 claims. On the other hand,
other commenters did not support increas-
ing the threshold, noting that the files do
not contain identifiable data and so would
not pose a risk. One commenter stated
that the files should be released including
the lowest number of claims necessary to
achieve the goal of protecting participant,
beneficiary, and enrollee privacy and rec-
ommended keeping the proposed thresh-
old of 10 claims. Another commenter
requested that the Departments not make
the threshold any higher, and even con-
sider lowering the cutoff to five claims, to
maintain access to price transparency data
for rural Americans.
Based upon comments received the fi-
nal rules adopt a 20 unique claim thresh-
old. The Departments are of the view that
the 20 unique claim threshold balances the
concerns expressed by commenters who
suggested the Departments increase the
threshold to 50 claims with the concerns
of commenters who expressed the opinion
that the proposed 10 claim threshold (or an
even lower threshold) would be sufficient
to ensure the files include a meaningful
amount of data. The Departments are of the
view that 20 unique claims are sufficient to
balance the privacy concerns against the
needs for transparency through the Allowed
Amounts File. This 20 unique claim thresh-

Bulletin No. 2020–49 1311 November 30, 2020
old is more stringent than CMS’ cell size
suppression policy, which requires cells
containing values of 1 through 10 to be sup-
pressed in CMS data sets.
180
Increasing the
unique claim threshold from 10 to 20 claims
will not significantly reduce the amount of
data that are required to be made public
through the Allowed Amount File. How-
ever, if the Departments were to increase
the unique claim threshold to 50 claims,
as suggested by some commenters, the
Departments are concerned that this could
significantly reduce the amount of data that
are required to be made public through the
Allowed Amount File, which could under-
mine the goal of price transparency.
The Departments are of the view that
increasing the unique claim threshold from
10 to 20 claims will better balance the poli-
cy goal of maximum transparency with the
need to protect participants, beneficiaries,
and enrollees from the possibility of being
re-identified through the data included in
the Allowed Amount File. In addition to
this strategy, the Departments expect that
the flexibility discussed later in this pre-
amble under the special rule to permit ag-
gregation of reported data will help protect
participants, beneficiaries, and enrollees
from identification based on information
in the Allowed Amount File. Finally, the
Departments reiterate that the disclosure of
the information is not required if disclosure
would violate applicable health informa-
tion privacy laws. The Departments note
that this exception does not mean that these
disclosures are not required where a law
that would otherwise prohibit the disclo-
sure permits disclosure if required by law.
Prescription Drug File
The Departments finalize negotiated
rates for prescription drugs as the third
content element in the Prescription Drug
File. The Departments received several
comments related to whether negotiated
rates for prescription drugs should be dis-
closed through the machine-readable files,
and if so, which price or prices related to
prescription drugs should be required to
be included. Many commenters provided
general support for the public release of
negotiated rates for prescription drugs.
One commenter asserted that releasing ne-
gotiated rates for prescription drugs would
result in lower costs for health plans and
consumers, which could lead to a reduc-
tion in manufacturer discounts of upwards
of three percent.
Several commenters did not support dis-
closure of negotiated rates for prescription
drug prices through the machine-readable
files. Commenters recommended that the
In-network Rate File should not include
prescription drugs for several reasons.
These reasons include: the complexity of
prescription drug pricing (prices are deter-
mined by a formula that is determined at
the point-of-sale and can change on a dai-
ly basis; the information would not be rel-
evant to consumer decision-making; and
the existence of established drug pricing
tools that provide support for consumer
decision-making. Some commenters stat-
ed that the unique nature of prescription
drug pricing would make the release of
negotiated rates difficult and further noted
that the rates negotiated between PBMs
and pharmacies are considered confiden-
tial. Another commenter stated that the
Departments should only require disclo-
sure of prescription drug prices when the
information disclosed is directly related to
the cost a plan participant, beneficiary, or
enrollee would need to pay out of pocket
so as not to undermine group health plans’
and health insurance issuers’ ability to ne-
gotiate lower drug costs. Some comment-
ers claimed that plans and issuers have no
control over prescription drug costs and
may not be able to provide this informa-
tion. Instead, commenters asserted that
information related to prescription drug
costs should come from PBMs or pre-
scription drug manufacturers.
In 2018, retail prescription drug
spending represented approximately nine
percent ($335 billion) of overall health
spending.
181
In 2017 large group health
plans and issuers accounted for the larg-
est share of prescription drug spending
amongst other payers, despite generally
having a younger and healthier population
than public payers.
182
The Departments
maintain that plans and issuers have an es-
sential role,
183
and vested interest in con-
trolling prescription drug spending. More-
over, as prescription spending continues
to rise,
184
so does the trend of prescription
rebates.
185
According to surveyed health
plan and PBM personnel, PBMs passed
through 78 percent of manufacturer re-
bates to health plans in 2012 and 91 per-
cent in 2016.
186
And while some plans and
issuers may use these rebates to dampen
premium increases,
187
there remains an
unclear prescription drug supply chain
that masks the true costs of prescription
drugs. The Departments are of the view
that it would not advance the goals of the
final rules to exclude a category of items
and services that comprises such a signif-
icant proportion of health care spending.
The Departments agree that prescrip-
tion drug pricing is complex but are of the
view that complexity is not a valid reason
for inaction. There are many different
players in the prescription drug supply
chain that may have some control over
costs, including plans and issuers, man-
ufacturers, wholesalers, pharmacies, and
180
The CMS Cell Size Suppression Policy is outlined on the CMS website at the following location: https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/Data-Dis-
closures-Data-Agreements/DUA_-_NewLDS.
181
“National Health Expenditures 2018 Highlights.” Centers for Medicare & Medicaid Services. Available at: https://www.cms.gov/files/document/highlights.pdf.
182
Cubanski, J., and Rae, M. “How Does Prescription Drug Spending and Use Compare Across Large Employer Plans, Medicare Part D, and Medicaid?” Kaiser Family Foundation. May 20,
2019. Available at: https://www.kff.org/medicare/issue-brief/how-does-prescription-drug-spending-and-use-compare-across-large-employer-plans-medicare-part-d-and-medicaid/.
183
“How are prescription drug prices determined?” American Medical Association. April 9, 2019. Available at: https://www.ama-assn.org/delivering-care/public-health/how-are-prescrip-
tion-drug-prices-determined.
184
“National Health Expenditure Projections 2019-28.” Office of the Actuary. Centers for Medicare & Medicaid Services. March 24, 2020. Available at: https://www.cms.gov/files/document/
national-health-expenditure-projections-2019-28.pdf.
185
According to the Academy of Managed Care Pharmacy, a prescription drug rebate is a monetary amount returned to a payer from a prescription drug manufacturer based on pharmaceuti-
cal use by a covered person or purchases by a provider. “AMCP Guide to Pharmaceutical Payment Methods, 2013 Update.” Available at: https://www.amcp.org/sites/default/files/2019-03/
Full-Pharmaceutical-Guide-%283.0%29.pdf; see also “The Prescription Drug Landscape, Explore.” PEW Charitable Trusts. March 8, 2019. Available at: https://www.pewtrusts.org/en/
research-and-analysis/reports/2019/03/08/the-prescription-drug-landscape-explored.
186
Id.
187
Id.

November 30, 2020 1312 Bulletin No. 2020–49
PBMs.
188
As commenters stated, it is often
the case that PBMs negotiate the price of a
prescription drug for a plan or issuer based
on a contract the plan or issuer maintains
with the PBM; however, it is ultimately
the plan or issuer who is responsible for
deciding how the costs of prescription
drugs are passed along to a participant,
beneficiary, or enrollee. The Departments,
therefore, are of the view that plans and
issuers are aware of the negotiated rate for
a prescription drug for which their partici-
pants, beneficiaries, or enrollees may have
cost-sharing liability, or can be informed
of this negotiated rate by their contracted
PBM.
The Departments do not agree that
prescription drug pricing information,
such as negotiated rates, will confuse
consumers. As discussed elsewhere in
this preamble, the Departments recognize
that the information included in the ma-
chine-readable files may not be easy for an
average consumer to navigate and expect
that third-party developers will use this
information to make tools available that
make this information more useful for the
average consumer.
The Departments agree with comment-
ers who acknowledged the existence of
many tools that provide prescription drug
prices. However, the Departments are of
the view that existing prescription drug
pricing tools are insufficient as they lack
competitive pricing information across
all PBMs, and health plans and issuers.
189

Once prescription drug pricing is made
more fully available, health care provid-
ers will have greater opportunity to factor
pricing information into their prescribing
decisions. Many health care providers
benefit financially when they can reduce
costs and improve their patients’ medica-
tion adherence.
190
This benefit to providers
can also have a significant impact on over-
all health care spending.
For these reasons, and those discussed
more fully below, the Departments are
finalizing, with modifications from the
proposed rules, requirements to disclose
pricing information for prescription drugs
through a machine-readable file. However,
reflecting the unique attributes of prescrip-
tion drug pricing, the final rules respond to
comments by adopting requirements that
are more detailed than what was included
in the proposed rules, including the inclu-
sion of a third machine-readable file for
prescription drug pricing information.
The final rules require plans and issu-
ers to produce a third machine-readable
file for reporting prescription drug pricing
information, the Prescription Drug File,
whereas the proposed rules would have re-
quired plans and issuers to include nego-
tiated rates for covered prescription drugs
in the In-network Rate File. The Depart-
ments have made this change to ensure
that prescription drug pricing information
is produced in a manner that is most use-
ful to the public. As noted earlier in this
preamble, there are upwards of 100,000
NDCs for prescription drugs. Divorcing
negotiated rates for prescription drugs
from negotiated rates for other items and
services allows the pricing information for
medical items and services to be discern-
ible from pricing information for prescrip-
tion drugs. Further, a PBM may administer
pharmacy benefits for a plan or issuer in
addition to any other services it may pro-
vide to a plan or issuer. Therefore, keeping
prescription drugs pricing data separate
from pricing data for other items and ser-
vices is generally better aligned with plan
and issuer operations and will reduce the
burden associated with combining data
from different sources. As discussed in the
Information Collection Requests (ICR)
section of this preamble, the Departments
estimate that the Prescription Drugs File
requirement will not add significantly to
the development and maintenance costs
of the machine-readable files because the
cost and burdens related to prescription
drugs will largely be transferred from the
In-network Rate File to the Prescription
Drug File. Additionally, the Departments
anticipate that removal of prescription
drugs from the In-network Rate Files will
significantly reduce the size of those files,
which could reduce the costs associated
with maintenance and storage of each in-
dividual file. The Departments are of the
view that removing prescription drugs
from the In-network Rate File and requir-
ing this information to be included in a
separate Prescription Drug File is consis-
tent with the Departments’ goal of sepa-
rating fundamentally different types of
data into distinct files. Because, as many
commenters observed, prescription drug
prices are unique, the Departments are of
the view that this information would be
more appropriately represented through a
third machine-readable file. Furthermore,
the updated machine-readable file struc-
ture will support consumers, researchers,
and third-party developers in reviewing,
ingesting, aggregating, and analyzing the
data.
The Disclosure of Prescription Drugs
Pricing Information
Under the proposed rules, group health
plans and health insurance issuers would
be required to publicly disclose negotiat-
ed rates in the In-network Rate file. The
Departments defined negotiated rates in
the proposed rule as the amount a group
health plan or health insurance issuer, or
a third party on behalf of a group health
plan or health insurance issuer, has con-
tractually agreed to pay an in-network
provider for covered items and services,
pursuant to the terms of an agreement be-
tween the provider and the group health
plan or health insurance issuer, or a third
party on behalf of a group health plan or
health insurance issuer. As discussed in
the Definitions section of this preamble,
the final rules adopt this definition as pro-
posed, with modifications to provide addi-
tional clarity.
In the preamble to the proposed rules,
the Departments acknowledged that
cost-sharing liability for prescription
drugs is often based on an amount other
than the negotiated rate, such as manufac-
turer list prices or undiscounted list prices
such as AWP or WAC. The Departments
further acknowledged that, because of the
application of rebates and other discounts,
the inclusion of just the negotiated rate for
prescription drugs could mislead consum-
188
“How are prescription drug costs really determined?” Biotechnology Innovation Organization. Available at: https://www.drugcostfacts.org/prescription-drug-costs.
189
Galewitz, P. “Doctors Slow To Adopt Tech Tools That Might Save Patients Money On Drugs.” NPR. July 5, 2019. Available at: https://www.npr.org/sections/health-
shots/2019/07/05/738283044/doctors-slow-to-adopt-tech-tools-that-might-save-patients-money-on-drugs.
190
Id.

Bulletin No. 2020–49 1313 November 30, 2020
ers because the rate paid by the plan could
ultimately be lower than the price paid by
the consumer at the point-of-sale, as it is
the Departments’ understanding that these
rebates and other discounts typically are
not passed on to the consumers at the point
of sale. The Departments expressed the
concern that including only the negotiated
rate for prescription drugs used to deter-
mine cost-sharing liability could perpetu-
ate the lack of transparency surrounding
prescription drug pricing. To this end, the
Departments solicited comment on which
pricing information related to prescription
drugs should be disclosed.
191

Despite the Departments’ concerns re-
garding negotiated rates for prescription
drugs outlined in the preamble to the pro-
posed rules, commenters responded that
negotiated rates, in addition to other infor-
mation, are an important data point neces-
sary to achieving useful transparency into
coverage and out-of-pocket costs for pre-
scription drugs. Several commenters rec-
ommended that the machine-readable file
include both the negotiated price and the
undiscounted “list” price, upon which co-
insurance and deductibles are often based,
in order to promote competition. Other
commenters suggested that plans and is-
suers should disclose to enrollees when
they do not pass through manufacturer
rebates and discounts at the point-of-sale
or factor these amounts into enrollee cost
sharing. Another commenter recommend-
ed the Departments consider requiring a
“net price” for prescription drugs rather
than the negotiated rates. This commenter
stated that, it is vital that this “negotiated
rate” also include the “net price” (which
accounts for all price concessions, in-
cluding direct and indirect remuneration
fees (DIR) and/or similar policies/termi-
nology, such as “true up” practices under
employer-sponsored and private plans to
accurately estimate participant, benefi-
ciary, and enrollee cost-sharing liability
for prescription drugs). One commenter
noted that if the public disclosure did not
include information related to rebates, the
file could be misleading and could lead to
a continuing overemphasis on prescription
drug list prices without recognition of the
role played by rebates.
Another commenter recommended that
the Departments allow plans and issuers
to report the most appropriate available
price type based on the plan’s benefit de-
sign. This commenter suggested that plans
should also be required to identify the
price reported, such as AWP or WAC or
the contracted pharmacy reimbursement
amount (for example, the Part D negoti-
ated price).
The Departments have closely re-
viewed the comments to determine the
prescription drug pricing information
plans and issuers should provide in the
Prescription Drug File in order to achieve
the goals of transparency. Based on this
review, the final rules are adopting as
content element three for the Prescription
Drug File a requirement for plans and is-
suers to publicly disclose two amounts
for prescription drugs in the Prescription
Drug File: the negotiated rate and the his-
torical net price.
Prescription Drug Negotiated Rate
Disclosure
As evidenced by the comments and
the Departments’ independent research,
there is wide variability in how negotiated
rates are assigned for prescription drugs.
For instance, some commenters noted that
negotiated rates for prescription drugs in-
clude rebates, price concessions, and other
“true-ups, while others likened the nego-
tiated rates to the undiscounted list price
used for determining cost-sharing liabili-
ty. Therefore, plans and issuers may use
varying types of prices when reimbursing
providers for prescription drugs. For ex-
ample, it is the Departments’ understand-
ing that for generic prescription drugs, the
Maximum Allowable Cost (MAC)—an
amount the plan or issuer uses as the max-
imum amount they will pay for a particu-
lar prescription drug product—may be the
amount that plans and issuers use to pay
providers for a prescription drug. Plans
and issuers may reimburse providers for
other prescription drugs using a UCR
amount or an amount based on the undis-
counted list price, such as AWP or WAC.
It is the Departments’ understanding that
contracts negotiated between plans and
issuers (or their contracted PBM) and
providers generally do not include specif-
ic negotiated rates for prescription drugs,
but instead include formulas that deter-
mine the type of price that will be used
to reimburse providers for a particular
prescription drug product. The negotiated
rate may differ by drug or class of drug in
the contract as the lesser of several types
of prices based on one of the benchmarks
described above—that is, WAC, AWP,
MAC, or UCR. Because prices for pre-
scription drugs can fluctuate on a daily
basis, the price that is used to reimburse
the provider can also fluctuate based on
application of the contract terms.
In addition to better appreciating the
wide variability in how negotiated rates
are assigned, the Departments also now
understand based on comments and in-
dependent research, that, contrary to the
Departments’ understanding as explained
in the preamble to the proposed rule, no
matter what benchmark or formula is used
to determine the negotiated rate, the nego-
tiated rate is frequently also the rate upon
which cost-sharing liability is based for
prescription drugs.
Based on the circumstances described
above, the Departments therefore agree
with commenters that a certain amount of
flexibility is required for plans and issuers
as it relates to the benchmarks and inputs
required for the disclosure of negotiated
rates for prescription drugs. To allow for
flexibility, as proposed, the final rules do
not assign a benchmark or necessary in-
puts to the definition of negotiated rates.
The final rules include a broad definition
191
The Departments note that this discussion in the preamble to the proposed rules occurred in the context of the third content element (negotiated rates) for the internet-based self-service
tool. However, as negotiated rates were a proposed content element for the machine-readable files, the Departments are of the view that the comments received regarding negotiated rates in
the context of the internet-based self-service tool are equally applicable to the prescription drug disclosures plans and issuers are being required to make through the machine-readable files.
The definition of “negotiated rate” for prescription drugs applies to both the internet-based self-service tool and machine-readable file provisions. Regarding the machine-readable files, the
Departments proposed that plans and issuers be required to include in-network negotiated rates and out-of-network allowed amounts for all covered items and services. In the Departments’
view, the use of the same term regarding both requirements underscores the relevance of these comments to all disclosure requirements applicable to items and services, including those
applicable to prescription drugs. Furthermore, several commenters did not clearly separate their comments regarding the internet-based self-service tool and the machine-readable files and
provided broad comments that applied to all relevant sections of the proposed rules.

November 30, 2020 1314 Bulletin No. 2020–49
for negotiated rates to mean the amount
a group health plan or health insurance
issuer has contractually agreed to pay an
in-network provider, including an in-net-
work pharmacy or other prescription drug
dispenser, for covered items and services,
whether directly or indirectly, including
through a TPA or PBM.
As noted above, the negotiated rate can
be one of several different rates and can
fluctuate on a daily basis depending on the
terms of the contract between plans or is-
suers (or the PBM for the plan or issuer)
and the provider, which includes pharma-
cies and other prescription drug dispens-
ers. Therefore, the Departments clarify
that, where a plan or issuer uses a formula
as described above to determine the rate
that will be used to reimburse providers
for a prescription drug, the negotiated rate
that should be included in the Prescription
Drug File should be the rate that would
be used by the plan or issuer to reimburse
providers on the date that the file is ex-
tracted.
Notably, the final rules do not finalize
a requirement to include the manufactur-
er list price, as contemplated in the pro-
posed rules. The manufacturer list price is
a manufacturer-specified metric for drug
prices that is commonly used by both fed-
eral and commercial health care programs
as a benchmark for negotiated rates. The
manufacturer list price in this context is
often the WAC, which is defined in statute
as,
[T]he manufacturer’s list price for the
drug or biological to wholesalers or
direct purchasers in the United States,
not including prompt pay or other dis-
counts, rebates or reductions in price,
for the most recent month for which the
information is available, as reported in
wholesale price guides or other publi-
cations of pricing data with respect to a
drug or biological.
192

Like negotiated rates, the list price does
not include discounts, dispensing fees,
rebates, or other retrospective pricing ad-
justments. The manufacturer list price is
not plan- or issuer-specific. If the Depart-
ments were to require plans and issuers to
include the manufacturer list price in the
Prescription Drug File, the information
included in the files would be the same or
similar across all plans and issuers. Fur-
ther, manufacturer list price information
is already aggregated, available through
several companies, and could be incor-
porated into third party applications to
be made accessible to consumers. WAC
prices for drugs and biologics are collect-
ed and published by several companies,
including First Databank and Medi-Span.
Additionally, CMS publishes a monthly
National Average Drug Acquisition Cost
(NADAC), which provides a national
benchmark for the prescription drug pric-
es paid by retail pharmacies.
193
Because
information on manufacturer list prices
would be largely redundant across plans
and issuers, and because this information
is publicly available through other exist-
ing resources, the Departments concluded
this information would be of limited value
for the public.
The Departments do not intend to
increase the burden of developing and
maintaining the machine-readable files
unless the inclusion of the additional data
element is essential to provide meaning-
ful, transparent pricing information to
the public. Inclusion of the manufacturer
list price would not significantly advance
transparency as this information is already
available publicly, and it would increase
the burden of developing the Prescription
Drug File. The Departments expect that
third-party developers will access and
incorporate publicly available databases,
such as those including manufacturer list
pricing information, where that informa-
tion is relevant to providing meaningful
information to consumers.
The Departments are of the view that
it is important for transparency for nego-
tiated rates to be included in the Prescrip-
tion Drug File. Consumers, both insured
and uninsured, can use this information to
better understand the cost of prescription
drugs and to advocate for less expensive
alternatives. The Departments are also of
the view that making the negotiated rate
public in a manner that is highly visible
to consumers, researchers, innovators and
regulators could potentially place pressure
on manufacturers to lower their list pric-
es, which could, in turn, lower negotiated
rates upon which consumer cost-sharing
liability is based.
Nonetheless, as stated in this preamble
and in the preamble to the proposed rules,
requiring disclosure of only the negotiated
rate for prescription drugs could perpetu-
ate the lack of transparency surrounding
prescription drug pricing. As comment-
ers noted, the negotiated rate is not gen-
erally tied to the amount a plan or issuer
will ultimately pay for the prescription
drug or prescription drug service due to
the use of post-point-of-sale rebates, dis-
counts, and other price concessions that
reduce the price that plans and issuers pay
for prescription drugs. To address this is-
sue and to introduce greater transparency
surrounding prescription drug pricing, in
response to comments, the Departments
are also finalizing a requirement that plans
and issuers must publicly disclose histori-
cal net prices, as discussed in detail below.
Prescription Drug Historical Net Price
Disclosure
For purposes of the final rules, histori-
cal net price means the retrospective aver-
age amount a plan or issuer paid for a pre-
scription drug, inclusive of any reasonably
allocated rebates, discounts, chargebacks,
fees, and any additional price conces-
sions received by the plan or issuer with
respect to the prescription drug. Net price
is the price for a prescription drug after
discounts are deducted, and is paid at dif-
ferent points in the prescription drug dis-
tribution chain (for example, the plan or
issuer to the pharmacy, the pharmacy to a
wholesaler, and the wholesaler to the man-
ufacturer).
194
For the purposes of the final
rules, the Departments are concerned with
the price ultimately paid by a plan or issu-
er to a drug manufacturer.
195
Essentially,
rebates, discounts, chargebacks, fees, and
192
42 U.S.C. 1395w-3a(c)(6).
193
“National Average Drug Acquisition Cost.” Centers for Medicare & Medicaid Services. September 15, 2020. Available at: https://data.medicaid.gov/Drug-Pricing-and-Payment/NAD-
AC-National-Average-Drug-Acquisition-Cost-/a4y5-998d.
194
“AMCP Guide to Pharmaceutical Payment Methods, 2013 Update” Academy of Managed Care Pharmacy. 2013. Available at: https://www.amcp.org/sites/default/files/2019-03/Full-Phar-
maceutical-Guide-%283.0%29.pdf.
195
The Departments note that each plan or issuer (or the PBM acting under contract with the plan or issuer) may utilize a different combination of price concessions.

Bulletin No. 2020–49 1315 November 30, 2020
other additional price concessions are ad-
justments made after the point-of-sale that
affect the total price paid by the plan or is-
suer (or through a contract with the PBM)
to the manufacturer for a prescription drug
product. As a general matter, a price con-
cession is a discount or rebate available
to a purchaser of a product or service,
wherein the discount or rebate is condi-
tioned upon the purchaser complying with
the contractual terms of the rebate or dis-
count offer.
196
More specifically, a rebate
is an amount that the prescription drug
manufacturer returns to a payer based on
utilization by consumers enrolled through
a plan or issuer or based on purchases by
a provider.
197
A chargeback is a type of
discount process through a prescription
drug wholesaler where manufactures re-
imburse wholesalers who offer drugs to
purchasers at discounted prices, and the
discount negotiation occurs between the
manufacturer and the purchaser.
198
Final-
ly, fees include any payment adjustments,
incentives, or other discounts that are not
included in the negotiated price for a drug
(for example, prompt pay discounts, phar-
macy network fees, performance-based
fees, and incentive fees).
199
The Depart-
ments note that manufacturers also may
offer additional price concessions to cer-
tain providers or directly to consumers in
the form of coupons. The final rules only
require disclosure of reasonably allocated
rebates, discounts, chargebacks, fees, and
any additional price concessions received
by the plan or issuer (or the PBM under
contract with the plan or issuer).
As noted earlier, several commenters
commented on the nature of the prescrip-
tion drug pricing information that should
be captured to achieve the goals of price
transparency. Some commenters noted
the net price would be important to price
transparency efforts because it would put
consumers on notice when the net price
is less than their cost-sharing amount and
it would capture the actual prices of pre-
scription drugs after the application of
price concessions, which would provide
transparency regarding actual prescription
drug costs. The Departments agree with
these commenters that disclosure of infor-
mation about the net price for prescription
drugs (and therefore rebates and other
price concessions that are included in the
net price) is necessary to achieve the goals
of the final rules.
Therefore, the final rules adopt a re-
quirement to make public a historical net
price, as defined by the final rules. Fur-
thermore, rather than require disclosure of
the actual net price, the final rules estab-
lish and adopt a definition of historical net
price that balances the need for transpar-
ency against concerns expressed by oth-
er commenters that release of net prices
could affect issuers and PBMs’ ability to
negotiate drug prices, including rebates
and other price concessions. Specifically,
the final rules define historical net price as
the retrospective average amount a plan
or issuer paid an in-network provider, in-
cluding any in-network pharmacy or other
prescription drug dispenser, for a prescrip-
tion drug, inclusive of any reasonably al-
located rebates, discounts, chargebacks,
fees, and any additional price concessions
received by the plan or issuer with respect
to the prescription drug or prescription
drug service. The Departments note that
for the purposes of the final rules, the defi-
nition of historical net price only includes
those price concessions received by the
plan or issuer (or under the contract be-
tween the PBM and the plan or issuer).
Because of timing delays related to appli-
cation of rebates, discounts, chargebacks,
fees, and other price concessions, plans
and issuers are required to provide histor-
ical or retrospective data, rather than pro-
spective or current pricing data regarding
the net price of prescription drugs. In the
case prescription drug net prices, histori-
cal data will provide valuable information
for stakeholders, as the actual prices plans
and issuers ultimately pay for prescrip-
tion drugs cannot be known until after the
application of time-delayed rebates, dis-
counts, chargebacks, fees, and other price
concessions. As discussed later in this
section, plans and issuers will be required
to include historical net prices for a 90-
day period beginning 180 days before the
date a particular Prescription Drug File
is published. The final rules also require
the historical net price, as defined earlier
in this section, to be disclosed through the
Prescription Drug File.
As discussed earlier in this preamble,
the Departments are aware that an esti-
mated allocation of rebates, discounts,
chargebacks, fees, and any other addi-
tional price concessions may be neces-
sary to represent the historical net price.
Product-specific and non-product specific
rebates, discounts, chargebacks, fees, and
other price concessions must be allocated
by dollar value if the total amount of the
price concession is known to the plan or
issuer at the time of file publication. It is
the Departments’ understanding that most
discounts, such as those related to market
sharing and rebates based on volume, are
calculated within time periods as short as
one to three months. Therefore, the De-
partments expect the total amounts for
these types of discounts, rebates, and oth-
er price concessions will be known at the
time of file publication. Where the total
amount of a price concession is known at
the time of file publication, plans and issu-
ers must allocate the price concession by
the total dollar amount.
The Departments also understand that
some product-specific and non-product
specific price concessions are based upon
outcomes- or value-based payment ar-
rangements that calculate rebates over a
longer period of time—usually six months
to more than three years. Because these
price concessions will not be known at the
time of file publication, the Departments
are requiring plans and issuers to estimate
the historical net price using a reasonable
allocation and good faith estimate of the
total concession amount. Therefore, if the
total amount of the price concession is not
known to the plan or issuer at the time of
file publication, then rebates, discounts,
chargebacks, fees, and other price conces-
sions should be reasonably allocated us-
ing an estimate of the average price con-
196
“AMCP Guide to Pharmaceutical Payment Methods, 2013 Update. Academy of Managed Care Pharmacy. 2013. Available at: https://www.amcp.org/sites/default/files/2019-03/Full-Phar-
maceutical-Guide-%283.0%29.pdf.
197
Id.
198
Id.
199
“Final Medicare Part D DIR Reporting Requirements for 2017.” Centers for Medicare & Medicaid Services. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/
Computer-Data-and-Systems/HPMS/HPMS-Memos-Archive-Weekly-Items/SysHPMS-Memo-2018-May-30th.

November 30, 2020 1316 Bulletin No. 2020–49
cessions based on the rebates, discounts,
chargebacks, fees, and other price conces-
sions received over a time period prior to
the current reporting period and of equal
duration to the current reporting period.
Rebates may reflect discounts negoti-
ated with drug manufacturers that lower
drug prices for the plan or issuer. Rebates
may not directly benefit participants, ben-
eficiaries, or enrollees, however, as the
decision of whether and how to share
savings from rebates is at the discretion
of the plan or issuer. Nonetheless, there
is evidence that rebates are positively
correlated with increased manufacturer
list prices for prescription drugs, which
is typically the basis for a consumer’s
cost-sharing liability.
200
A recent analy-
sis found that, on average, from 2015 to
2018, a $1 increase in rebates was asso-
ciated with a $1.17 increase in manufac-
turer list prices.
201
Therefore, due to the
positive correlation between rebates and
manufacturer list prices, a policy that re-
sults in a reduction to rebates may result
in a reduction in the manufacturer list
price (and also overall prescription drug
prices). A policy that requires plans and
issuers to make public historical net pric-
es could expose the extent of rebates and
other price concessions, and this transpar-
ency in historical net price could cause a
reduction in the use of rebates and other
price concessions, and, therefore, a reduc-
tion in the manufacturer list price.
202
The
resulting reductions in manufacturer list
price could lead to lowered out-of-pocket
costs for both uninsured consumers who
must pay the manufacturer list price and
insured consumers with deductibles and
coinsurance. Because negotiated rates for
prescription drugs are largely based upon
the manufacturer list price, the reduction
in the manufacturer list price will likely
be reflected in the negotiated rate. Further,
because negotiated rates are used to deter-
mine cost-sharing liability for prescription
drugs, a reduction in such rates will likely
result in lower consumer costs through a
reduction to deductibles and coinsurance.
The Departments are of the view that
requiring both the negotiated rate and the
historical net price, as defined by the final
rules, will produce sufficient transparency
regarding prescription drug pricing infor-
mation to support consumer health care
purchasing decisions and provide other
stakeholders insight into actual prescrip-
tion drug pricing. Inclusion of both the
negotiated rate and historical net price
addresses the Departments’ concern, ex-
pressed in the preamble to the proposed
rules, that merely requiring disclosure of
the rate that is used to determine an indi-
vidual’s cost-sharing liability (that is, as
clarified in the final rules, the negotiated
rate) could perpetuate the lack of transpar-
ency in prescription drug pricing.
Additionally, in the preamble to the
proposed rules, the Departments specif-
ically solicited comment on whether and
how the public disclosure requirements
should account for rebates, discounts, and
dispensing fees to ensure individuals have
access to meaningful cost-sharing liability
estimates for prescription drugs.
203
Upon
review of the comments, the Departments
are of the view that public disclosure of
the historical net price, which takes into
account rebates, discounts, dispensing
fees, and other price concessions, in ad-
dition to the negotiated rate, upon which
cost sharing is based, provides the appro-
priate combination of pricing information
to achieve the goals of transparency and
ensure that individuals have access to
meaningful prescription drug pricing in-
formation. First, the negotiated rate will
help support consumer health care pur-
chasing decisions. Second, the historical
net price will support the public in gaining
enhanced knowledge of actual drug prices.
Enhanced knowledge of actual drug his-
torical net prices could also support con-
sumer health care purchasing decisions,
as consumers could use the information
to determine whether their out-of-pocket
costs are commensurate with the rebates,
discounts, and other price concessions
received by their plan or issuer. The his-
torical net price will also make consumers
and other stakeholders aware of situations
where cost-sharing liability for a prescrip-
tion drug exceeds the amount their plan
or issuer ultimately paid for the prescrip-
tion drug. In these situations, participants,
beneficiaries, and enrollees will be able
to make an informed decision regarding
whether to utilize their plan or coverage
when purchasing the prescription drug.
Furthermore, plans and issuers could be
incentivized to pass through a larger or
more significant share of the rebates and
other discounts that they receive from
drug manufacturers if those discounts are
effectively disclosed via historical net
price information.
The Departments acknowledge that
there are potential adverse consequenc-
es of requiring plans and issuers to make
public rebates and other price conces-
sions, directly or indirectly, through the
historical net price. For instance, stake-
holders such as PBMs and prescription
drug manufacturers could attempt to find
ways to obscure rebates and other price
concessions such that they would not be
required to be publicly disclosed under the
final rules. However, the Departments are
of the view that such attempts would like-
ly be discouraged by the nature of the dis-
closures themselves and would otherwise
be unsuccessful if attempted. A benefit of
requiring the widespread public disclosure
of pricing information for prescription
drugs is that the transparency data itself
can be used to identify where plans and
issuers (or third parties acting on their be-
half) may be attempting to circumnavigate
disclosure requirements. Researchers and
other entities who aggregate and analyze
the data will be able to compare pricing
data across plans and issuers. This can
help identify plans and issuers whose data
is an outlier and identify them for further
scrutiny by regulators. The current lack
of transparency in prescription drug pric-
ing does not allow this type of oversight
and monitoring. While it is possible that
stakeholders will act in ways that conflict
with the intent of the public disclosures,
it is also very likely that transparency it-
self will help state and local regulators to
identify these anti-competitive practices.
Indeed, it is possible that the public dis-
closures could help to uncover other un-
200
Sood, N., et al. “The Association Between Drug Rebates and List Prices.” USC Schaeffer Center for Health Policy and Economics. February 11, 2020. Available at: https://healthpolicy.
usc.edu/research/the-association-between-drug-rebates-and-list-prices/.
201
Id.
202
Id.
203
84 FR 65464, 65472 (Nov. 27, 2019).

Bulletin No. 2020–49 1317 November 30, 2020
known anti-competitive business practic-
es that exist today. For these reasons, the
Departments are of the view that the ben-
efits of public disclosure of prescription
drug pricing information outweigh the po-
tential risk that certain stakeholders may
seek to take advantage of the disclosure
requirements in ways that would increase
prescription drug costs.
A commenter observed that if the De-
partments were to include the net price,
it would be important to clarify that that
the information is not necessarily predic-
tive of future transactions because infor-
mation about rebates is not known with
certainty before a drug is dispensed. The
Departments recognize that prospective
net prices for prescription drugs could be
complicated to estimate accurately due to
the nature of prescription drug pricing.
Nonetheless, the Departments are of the
view that the historical net price will be
a sufficiently accurate guide for potential
prescription drug prices and will fulfill the
objectives of the final rules.
The final rules adopt a requirement to
include in the Prescription Drug File the
historical net price over a 90-day report-
ing period for each NDC for dates of ser-
vice within 180 days of the Prescription
Drug File publication date. This approach
will ensure that data is composed of the
historical net price for relatively recent
claims (rather than older claims from mul-
tiple time periods) and will avoid the con-
flation of payments from different periods
of time. The Departments are of the view
that historical net prices from defined pe-
riods of time will enable users to make
meaningful comparisons across plans and
coverages. Additionally, the Departments
chose this reporting reference period to be
consistent with the period proposed and
being finalized through the final rules for
reporting of allowed amounts through the
Allowed Amounts File. The Departments
are of the view that consistency across ma-
chine-readable file requirements, where
applicable, will reduce potential confusion
among file users as well as reduce burdens
for plans and issuers. The Departments are
of the view that the 180-day lookback pe-
riod (which is expected to capture many of
the market-share and volume rebates and
other price concessions) and requirement
to make a reasonable allocation will bal-
ance the need to be transparent in current
prices with the delayed timing of the ap-
plication of certain rebates and other price
concessions.
To reasonably allocate any particular
non-product specific or product-specific
rebate, discount, chargeback, fee, or other
additional price concession by dollar val-
ue of the drug where the totals amount is
fully known at the time of file publication,
plans and issuers should divide the rebate
or discount amount by the total dollar val-
ue of drugs on which the rebate is calcu-
lated, and then apply that percentage to all
applicable drugs. For example, if a rebate
amount of $20,000 is received during the
3-month file reference period in connec-
tion with $100,000 in sales on two drugs
during the same period, the rebate is allo-
cated as a 20 percent discount to the prices
of those two drugs. Sales for Drug A to-
taled $60,000 and sales for Drug B totaled
$40,000. A rebate of $12,000 ($60,000
multiple by 20 percent) is allocated to
Drug A, resulting in a historical net price
populated in the Prescription Drug File of
$48,000. Similarly, a rebate of $8,000 is
allocated to Drug B, resulting in a histori-
cal net price populated in the Prescription
drug file of $32,000. The Departments are
aware that this allocation methodology
will not always perfectly allocate the re-
bate amounts because of the complexities
of rebate calculation, or because of tim-
ing issues. However, the Departments are
of the view that this simplified approach
balances the goal of providing actionable
drug pricing information to the public
while limiting the burdens on plans and
issuers in producing the information.
To reasonably allocate any particular
non-product specific or product-specific
rebate, discount, chargeback, fee, or oth-
er additional price concession where the
total amounts are not fully known at the
time of file publication, plans and issuers
must make a good faith, reasonable esti-
mate of the price concession using an his-
torical adjustment amount. To make this
estimate, plans and issuers shall determine
the average value of price concessions for
the relevant product over a time period
prior to the current reporting period and
of equal duration to the current reporting
period and use that amount to apply an
estimated adjustment amount in the cur-
rent reporting period. For example, Plan
X has $100,000 in total sales for 20,000
units—averaging $5 per unit—of Drug A
during the current reporting period, which
is January 1, 2020, through March 31,
2020. However, Plan X will not know the
total amount of product-specific rebate to
expect for sales of Drug A for at least an-
other six months. To address this timing
issue, Plan X can apply a reasonable esti-
mate to allocate an adjustment to the cur-
rent reporting period. For instance, Plan X
can look back to the total rebates received
for the product during a comparable time
period. In this example, Plan X reviews
its historical data and determines the re-
bates received for Drug A, from the period
between January 1, 2019, and March 31,
2019, totaled $10,000 for sales of 30,000
units totaling $160,000. The average price
per unit was $5.33 and the average dis-
count per unit was $0.33 resulting in an
average final net price of $5 for Drug A.
Plan X then applies this historical rebate
percentage to the current reporting peri-
od for Drug A. Plan X subtracts $6,250
($100,000 total sales for the current re-
porting period multiplied by the estimated
6.25 percent historical rebate percentage)
from the $100,000 total sales for a total
net price of $93,750 and an average net
price for Drug A, rounded to the nearest
hundredth, of $4.69. Plan X reports in the
Prescription Drug File an average histor-
ical net price for Drug A of $4.69 for the
current reporting period.
In the discussion of the Allowed
Amounts File in the preamble to the pro-
posed rules, the Departments noted that
providing the Allowed Amounts informa-
tion could raise health privacy concerns.
The Departments are of the view that
similar concerns could be raised regard-
ing the historical net price information
in the Prescription Drug File. For exam-
ple, there may be instances—such as in
a small group plan or with respect to an
NDC for a rare chronic condition—where,
through deduction, disclosure of historical
net price information may enable users to
identify the participant, beneficiary, or en-
rollee who received a particular prescrip-
tion drug because a very small number of
claims are used to derive the historical net
price of a particular NDC at a particular
pharmacy or other prescription drug dis-
penser. Additionally, as noted in relation
to the Allowed Amount File, there may
also be instances when the historical net

November 30, 2020 1318 Bulletin No. 2020–49
price public disclosure requirement would
be inconsistent with federal or state laws
governing health information that are
more stringent than HIPAA regarding
the use, disclosure, and security of health
data that was produced pursuant to a legal
requirement, such that plans and issuers
would be required to further de-identify
data. For example, some of the claims
for payment used to derive the historical
net price could relate to services provided
for substance use disorders, which could
implicate disclosure limitations under 42
CFR part 2 governing the confidentiality
of patient records related to treating a sub-
stance use disorder. The Departments are
committed to protecting PHI. To address
privacy concerns, the final rules adopt
an approach consistent with the out-of-
network Allowed Amount File. The final
rules do not require plans and issuers to
provide historical net price data in relation
to a particular pharmacy or other prescrip-
tion drug dispenser and a particular NDC
when compliance would require a plan or
issuer to report an historical net price for
a particular pharmacy or other prescrip-
tion drug dispenser calculated with fewer
than 20 different claims for payment. Fur-
thermore, the Departments note that dis-
closure of historical net prices will not be
required if compliance would violate ap-
plicable health information privacy laws.
The Departments are of the view that
these mitigation strategies, in addition to
the historical net price being an average of
amounts paid to a particular provider for a
particular NDC during the reference peri-
od, are sufficient to protect patients from
identification based on information in the
Prescription Drug File. The Departments
note that the low volume exemption ap-
plies only to the requirement to include
the historical net price and does not affect
the requirement to include the negotiated
rates in the Prescription Drug File.
Regarding prescription drugs, the De-
partments received a comment that re-
quested discounts under section 340B of
the PHS Act be included in the applicable
machine-readable file, noting that provid-
ing this information is important to en-
sure consumers can access those savings.
However, this commenter acknowledged
that health plans often do not have access
to information about when a section 340B
discount is paid and so recommended the
Departments develop and implement a
process to help health plans identify this
information.
Discounts under the section 340B Drug
Pricing Program are only available to eli-
gible providers (known as covered entities
as outlined in section 340B of the PHS
Act) and regulations under section 340B
of the PHS Act are outside of the scope of
the final rules.
2. Required Method and Format for
Disclosing Information to the Public
As explained in section II.C.1.c of
this preamble, the final rules adopt the
requirement that plans and issuers pro-
duce the In-network Rate File, the Al-
lowed Amount File, and the Prescription
Drug File. The Departments are final-
izing a requirement that the In-network
Rates, Allowed Amounts, and Prescrip-
tion Drug Files must be disclosed as ma-
chine-readable files. The final rules define
“machine-readable file” to mean a digital
representation of data or information in a
file that can be imported or read by a com-
puter system for further processing with-
out human intervention, while ensuring no
semantic meaning is lost. The requirement
ensures that the machine-readable file can
be imported or read by a computer system
without those processes resulting in alter-
ations to the ways data and commands are
presented in the machine-readable file.
The Departments proposed to require each
machine-readable file to use a non-propri-
etary, open format to be identified by the
Departments in technical implementation
guidance (for example, JavaScript Ob-
ject Notation (JSON), Extensible Markup
Language (XML), or Comma Separate
Value(s) (CSV)). A portable document
format (PDF) file, for example, would not
meet this definition due to its proprietary
nature.
Contemporaneous with the proposed
rules, the Departments published a PRA
package (OMB control number: 0938-
1372 (Transparency in Coverage (CMS-
10715)) that further described the specif-
ic data elements that would be disclosed
in the proposed machine-readable files.
Updated cost and burden estimates relat-
ed to the collection requirements are dis-
cussed in the ICR section of this preamble
and are included in in the corresponding
PRA package, including changes to costs
and burdens and additional collection in-
struments as a result of modifications to
the proposed rule made through the final
rules.
The Departments proposed requiring
group health plans and health insurance
issuers to publish their negotiated rates
and historical allowed amount data in
two machine-readable files, one including
required negotiated rate data with in-net-
work providers, and a second including
required out-of-network allowed amount
data. The Departments proposed requiring
plans and issuers to publish the data in two
separate machine-readable files to account
for the dissimilarity between the nego-
tiated rates paid to in-network providers
under contract and the more variable al-
lowed amounts paid to out-of-network
providers. The Departments solicited
comment on whether building and updat-
ing one file could be less burdensome for
plans and issuers than maintaining multi-
ple files, and whether having the data in a
single file could facilitate use by third-par-
ty developers. The Departments were par-
ticularly interested in comments regarding
whether a single file for disclosure of all
the required information would likely be
extremely large, making it less than opti-
mal for anticipated users, such as software
application developers and health care re-
searchers.
Some commenters supported keeping
the In-network Rates File and out-of-net-
work Allowed Amount File separate. One
commenter noted the structure would al-
low quick development of data aggrega-
tion efforts and consumer-friendly tools.
Additionally, the commenter stated that
keeping the files separate would support
file ingestion. Another commenter stated
that each file would contain fundamental-
ly different data, and the costs associated
with storing and maintaining a large com-
bined file would be very large.
The Departments agree that the infor-
mation being required to be publicly dis-
closed through the machine-readable files
related to negotiated rates and allowed
amounts is sufficiently distinct to justify
separating the information into separate
files. In particular, the out-of-network al-
lowed amounts information must be de-
rived from historical claims data, which
is fundamentally different in kind from

Bulletin No. 2020–49 1319 November 30, 2020
simply listing applicable rates for each
service. Furthermore, the Departments
also agree with comments indicating that
splitting the files would help reduce the
maintenance and storage burdens of the
files. Throughout this preamble, the De-
partments have stressed the importance of
ensuring the public disclosures required
through the final rules are accessible,
especially to internet-based and mobile
application developers, to support devel-
opment of innovative consumer-facing
tools, as well as to other entities, such as
researchers, and regulators, to support ef-
forts to better understand and support the
competitiveness of health care markets.
The requirement to publish more than
one machine-readable file which will fa-
cilitate the disclosure of data that is differ-
ent in character, scope, and other factors,
which will help facilitate data ingestion
for users of the machine-readable files, in-
cluding third-party developers, research-
ers, regulators, and other interested par-
ties. This approach will also help facilitate
file ingestion, data aggregation, and data
analysis by researchers whose projects
could lead to important market insights
that could inform efforts to further address
the wide variation in health pricing, and
by regulators who would be able to lever-
age the data in their oversight activities.
As discussed earlier in this preamble, the
final rules adopt a third Prescription Drug
File in recognition of the unique pricing at-
tributes of prescription drug products. Pric-
es related to prescription drug products that
plans and issuers would have been required
to include in the In-network Rate File un-
der the proposed rules will now be required
to be publicly disclosed through the third
Prescription Drug File. As discussed earlier
in this preamble, the Departments estimate
that requiring a third file for prescription
drugs will not add significantly to the bur-
dens and costs of developing and maintain-
ing the machine-readable files calculated in
relation to the final rules because costs and
burdens calculated for prescription drugs
as included in the In-network Rate File will
be transferred to the Prescription Drug File.
Additionally, the Departments anticipate
that removal of prescription drugs from
the In-network Rate File will significantly
reduce the size of that file, which could re-
duce the costs associated with maintenance
and storage for the In-network Rate File.
The Departments clarify that not all pre-
scription drug pricing information required
to be disclosed through the final rules is
required to be included in the Prescription
Drug File. Rather, the Prescription Drug
File is required to include prescription
drug pricing information for in-network
providers, including pharmacies and other
prescription drug dispensers, while the Al-
lowed Amount File is required to include
prescription drug pricing information for
out-of-network providers, including phar-
macies and other prescription drug dis-
pensers. The Departments also clarify that
the In-network Rate file may also contain
prescription drug information to the extent
the prescription drug is a part of a bundled
payment arrangement.
Some commenters argued that the meth-
od and format for providing information to
the public is not feasible. One comment-
er did not support the policy that the ma-
chine-readable files should be provided in
a public use file format, claiming the files
would be millions of rows long and very
difficult to review. Another commenter
expressed concern that the volume of data
would make it impossible to post all of the
information in two files and further stated
that there is no single set of codes that de-
scribe every item or service, so it would be
impossible to post this data without very
specific, standard definitions. Given the
lack of standard definitions, this comment-
er argued that there is no systematic way
to compile and display the information re-
quested, so claim compilation would have
to be done manually. The commenter fur-
ther stated that, even if there were standard
definitions, it would be impossible to pro-
vide them in “plain language.”
Based on consultations with industry
and IT development professionals, the
Departments do not agree with comment-
ers who stated that development of the
machine-readable files would not be fea-
sible as envisioned by the proposed rules.
The Departments are aware that these files
could be very large and could be difficult
for laypersons to navigate. However, the
Departments are of the view that the files’
primary benefit to health care consumers
will be the availability of web-based tools
and mobile applications developed for
consumer use by third-party developers,
aggregation and analysis conducted by
researchers, and oversight efforts by reg-
ulators. The required machine-readable
files will be optimal for ingestion, data ag-
gregation, and data analysis, all of which
are functions performed by third-party
internet-based developers, researchers,
and regulators who use large data sets
in a manner that will lead to benefits for
consumers. Additionally, notwithstanding
that the Departments have designed these
transparency requirements so that it is not
necessary that individual consumers use
or ingest the data in the machine-readable
files, the Departments are of the view that
many individual health care consumers do
possess the necessary expertise to access
and navigate the files. The final rules also
impose a requirement to include plain lan-
guage to identify each item and service in-
cluded in each file. This requirement will
help ensure consumers, third party appli-
cation developers, researchers, regulators,
and other interested parties are able to eas-
ily understand the information.
The Departments have determined that
the potential benefits for consumers of
requiring the disclosure of required data
through machine-readable files outweigh
the potential for consumer confusion at
the individual consumer level. Addition-
ally, the Departments expect that third
party application developers, researchers,
regulators, and other file users will have
the expertise to aggregate, standardize,
and interpret the pricing information in-
cluded in the file and translate the pricing
information into products, research, and
market oversight and reforms that will ul-
timately benefit consumers.
The Departments also do not agree that
the volume of data would make the ma-
chine-readable files too large to post pub-
licly, regardless of whether the data is post-
ed in two or three files. The Departments’
rough estimate of file size, based, in part,
upon numbers provided by commenters,
suggests a file size of approximately 5
gigabytes.
204
CMS currently makes avail-
able for download on its website some
204
As a reference point, a typical commercial two-hour Blu-ray film is approximately 15-25 gigabytes. “White Paper Blue-ray Disc Format General.” Blue-ray Disc Association. 2018. Avail-
able at http://www.blu-raydisc.com/Assets/Downloadablefile/White_Paper_General_5th_20180216.pdf.

November 30, 2020 1320 Bulletin No. 2020–49
large public use file (PUF) data sets that
are several gigabytes. For example, the
Part D Prescriber PUF,
205
available on the
CMS website, is over three gigabytes in
size. The Departments acknowledge that
because of the large file size, file users will
likely need to use database or statistical
software to download the machine-read-
able files as importing into Microsoft Ex-
cel would result in incomplete loading of
data. However, this approach is similar to
that used for some of the larger PUF data
sets available on the CMS website, includ-
ing the Part D Prescriber PUF, which must
be opened using specialty software.
Assuming that plans’ and issuers’ ne-
gotiated rates are in a digitized format,
even if the negotiated rates are not stored
in a single database, this information can
be systematically compiled and main-
tained by the plan or issuer. In recognition
that there is no single set of billing codes
for non-prescription drug services, the De-
partments are providing flexibility in the
final rules by not prescribing which code
or set of codes plans and issuers must use
to publicly disclose their data. Rather, the
Departments are requiring that plans and
issuers associate each in-network applica-
ble rate or out-of-network allowed amount
with a CPT, HCPCS code, DRG, or other
common payer identifier. In the case of
prescription drugs, the Departments are
requiring plans and issuers to associate
each negotiated rate and historical net
price with an NDC. The Departments’ ex-
pectation is that the type of billing code
plans and issuers use to populate the ma-
chine-readable files will be consistent
with the billing codes that plans and issu-
ers use in their operations when actually
determining provider reimbursement and
cost-sharing liability.
The Departments further note that
nothing prevents plans and issuers from
including in the files a mixture of billing
code types so long as the billing codes
included in the file are reflective of the
plan’s or issuer’s operations. To facili-
tate identification of the billing code type,
there will be an indicator in the file for-
mat described by the technical implemen-
tation guidance that will allow plans and
issuers to specify the particular type of
billing code entered for each data entry in
the machine-readable files. The final rules
also require that plans and issuers include
plain language descriptions for each bill-
ing code. The Departments note that in the
case of items and services that are asso-
ciated with common billing codes (such
as the HCPCS codes), plans and issuers
are permitted to use the codes’ associated
short text description.
The final rules further clarify that, in
the case of NDCs for prescription drugs,
the plain language description must be
the proprietary and nonproprietary name
assigned to the NDC by the FDA. The De-
partments have made this change to align
with the change to require only the NDC
billing code to be used for prescription
drugs. Requiring the proprietary and non-
proprietary name assigned to the NDC by
the FDA further standardized the product
identifiers for prescription drugs and will
facilitate comparisons across prescription
drug pricing information for plans and is-
suers.
For all other items and services, as the
Departments explicitly stated in the pro-
posed rules and elsewhere in this pream-
ble, plans and issuers can meet the “plain
language” description requirements by
using their chosen code’s short text de-
scription. However, the Departments note
that including the short text description
for each code is a minimum requirement
and nothing in the final rules prevents
plans and issuers from providing a more
consumer-friendly plain language de-
scription for each covered item or service.
Plans and issuers may be incentivized to
provide more consumer-friendly informa-
tion in machine-readable files because it
may permit them to include disclaimer or
clarifying language in the files, where ap-
plicable. Furthermore, if a plan or issuer
uses plain language descriptions for bill-
ing codes in its operations that are more
consumer-friendly than the established
short text descriptions, the Departments
expect plans and issuers to include in the
machine-readable files the plain language
descriptions they use in their operations.
The Departments received comments
that supported the Departments’ develop-
ment of specific technical standards for
the files to which plans and issuers must
adhere. One commenter recommended
the Departments provide guidance to plan
sponsors who are able to provide some,
but not all, of the file data elements. An-
other commenter stated that the proposed
rules do not make clear how to report
items and serviced provided through cap-
itated and bundled payment arrangements
in the files; noting that this information is
necessary for consumers to measure pro-
vider value. One commenter responded
positively to the Departments’ provision
of technical implementation guidance for
the files, but requested a robust public
comment solicitation far in advance of the
applicability date for the rules.
The Departments are of the view that
providing specific technical direction in
separate technical implementation guid-
ance, rather than in the final rules, will
better enable the Departments to respond
to technical issues and developments,
as well as compliance questions related
to novel or rare payment arrangements.
Therefore, as proposed, the Departments
are developing technical implementation
guidance for plans and issuers to assist
them in developing the machine-readable
files.
The technical implementation guidance
will be available online through GitHub, a
website and cloud-based service that helps
developers store and manage their code,
as well as to track and control changes to
their code. The GitHub space offers the
Departments the opportunity to collab-
orate with industry, including regulated
entities, and third-party developers to en-
sure the file format is adapted for report-
ing of the required public disclosure data
for various plan and contracting models.
For example, the Departments have up-
dated the schematics of the file formats in
response to comments received about and
bundled payments and capitated payment
arrangements, as well as other alternative
contracting models. Plans and issuers will
be able to access the GitHub schemas at
any time and collaborate with the Depart-
ments in real-time.
The Departments’ goal in using GitHub
is to facilitate this collaborative effort all
allow plans and issuers to meet the public
disclosure requirements of the final rules
while addressing their unique IT system,
issuer, and plan attributes. To the extent a
205
The Part D Prescriber Public Use File (PUF) is available on the CMS website at the following location: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Re-
ports/Medicare-Provider-Charge-Data/PartD2017.

Bulletin No. 2020–49 1321 November 30, 2020
plan or issuer’s unique attributes (for ex-
ample, IT system, plan benefit design, or
reimbursement model) are not addressed
sufficiently through the technical imple-
mentation guidance, the Departments in-
tend to provide targeted technical assis-
tance to ensure all plans and issuers are
able to meet the public disclosure require-
ments under the final rules. The technical
implementation guidance will provide in-
structions on how to obtain this technical
assistance should the need arise.
The technical implementation guid-
ance hosted on GitHub will include a
repository set of schemas describing the
data formats (encoded as JSON, XML,
and CSV) for all three machine-readable
files: the In-network Rate File, the Al-
lowed Amount File, and the Prescription
Drug File. The technical implementation
guidance will be available as part of the
PRA package developed for the ICRs
included in the final rules. As part of the
PRA process, stakeholders have an addi-
tional opportunity to submit comments re-
lated to the PRA for 30 days following the
publication of the final rules.
In the proposed rules, the Departments
requested comment on whether the final
rules should adopt a single non-proprietary
format for the machine-readable files, spe-
cifically JSON files. The Departments un-
derstand that this format generally is easily
downloadable, and it could simplify the
ability of file users to access the data.
The Departments received one com-
ment in support of requiring JSON as the
standardized file format for the required
machine-readable files. However, the
Departments’ internal technical experts
agreed that the speed of technology devel-
opments weighs heavily in favor of main-
taining flexibility to adopt a suitable file
format as a non-substantive, operational
requirement that will be identified in the
relevant implementation guidance for the
required machine-readable files. Addition-
ally, this flexibility will allow the Depart-
ments to adapt the file technical specifica-
tions for new and emerging technologies.
Therefore, the Departments decline to
require in regulation a more specific file
format for the machine-readable files.
The Departments reiterate that, as fi-
nalized, all machine-readable files must
conform to a non-proprietary, open-stan-
dards format that is platform-independent
and made available to the public without
restrictions that would impede the re-use
of the information. Therefore, because a
PDF file format is proprietary, it would
not be an acceptable file format in which
to produce the files. A plan or issuer’s file
will be acceptable so long as it includes
all required data elements required for
the respective file (that is, all applicable
rates in the In-network Rate File, allowed
amounts and billed charges in the Allowed
Amounts File, and negotiated rates and
historical net process in the Prescription
Drug File) and is formatted in a manner
consistent with the technical implementa-
tion guidance the Departments are devel-
oping.
The final rules therefore adopt, with
modification, the required method and
format for disclosure of information
through the machine-readable files. The
Departments note several non-substan-
tive modifications to the regulatory text,
which are being adopted in the final rules
to clarify and streamline the text. To fur-
ther highlight the file technical implemen-
tation guidance, the regulation text of the
final rules has been modified non-substan-
tively to specify that the machine-readable
files must be made available in a form and
manner specified in guidance issued by the
Departments. In the proposed rules, the
regulation text stated more broadly that
the machine-readable files must be made
available in a form and manner deter-
mined by the Departments. Additionally,
the proposed rule included two sentences
that simply restated what must be publicly
disclosed through the two proposed ma-
chine-readable files.
206
The Departments
have removed these sentences from this
this section of the regulatory text because
they duplicate language contained in the
previous sections of the regulatory text, do
not add any additional value to this sec-
tion of the regulatory text, and could cause
confusion.
3. Required Accessibility Standards for
Disclosure of Information to the Public
The Departments proposed to require a
plan or issuer to make available on an in-
ternet website the required machine-read-
able files, and that the files must be ac-
cessible free of charge, without having
to establish a user account, password, or
other credentials, and without having to
submit any personal identifying infor-
mation such as a name, email address,
or telephone number. The Departments
also proposed to allow plans and issuers
flexibility to publish the files in the loca-
tions of their choosing based upon their
superior knowledge of their website traf-
fic and the places on their website where
the machine-readable files would be read-
ily accessible by the intended users. The
Departments are finalizing these require-
ments as proposed. The Departments also
considered requiring plans and issuers to
submit the internet addresses for the ma-
chine-readable files to CMS, and having
CMS make the information available to
the public. A central location could allow
the public to access the information in one
centralized location, reducing confusion
and increasing accessibility. However,
the Departments opted to propose flexible
rules allowing plans and issuers to publish
the files in the locations they have chosen
based upon their determinations regarding
where the files will be most easily acces-
sible by the intended users. The Depart-
ments also considered that requiring plans
and issuers to notify CMS of the internet
address for their machine-readable files
would increase the burdens on plans and
issuers. The Departments requested com-
ment on whether the proposed require-
ment to allow issuers to display the files
in the location of their choice is superior
to requiring plans and issuers to report the
internet-based addresses of their files to
CMS for public display. The Departments
were specifically interested in whether the
burden associated with reporting file loca-
tions to CMS would be outweighed by the
risk that members of the public would be
unable to easily locate plans’ and issuers’
machine-readable files.
Several commenters supported the
Departments’ proposal to make the ma-
chine-readable files easily and public-
ly available. One commenter supported
making the files available free of charge
and stated that individuals should not be
required to register a user account, pass-
206
See 84 FR 65464, 65519 (Nov. 27, 2019).

November 30, 2020 1322 Bulletin No. 2020–49
word, or enter other credentials, or to sub-
mit PII to access the files. Several com-
menters suggested alternative methods or
more stringent requirements for making
public the information required to be dis-
closed through the machine-readable files.
One commenter expressed a preference for
CMS to maintain a centralized location on
the CMS website from which the public
can access links to the files. The comment-
er noted that if the Departments elected
not to maintain a centralized database, the
Departments should require plans and is-
suers to prominently display a link to the
files in the main menu of the homepage
on their respective websites. Similarly,
another commenter asserted that the final
rules should require issuers to report the
location of their files and provide a data
dictionary to facilitate oversight and en-
forcement of plans and issuers.
Other commenters suggested the De-
partments create a centralized database
to house the data required to be disclosed
through the machine-readable files. One
commenter recommended the information
required to be disclosed through the files
be loaded into a publicly available search-
able database that anyone can access prior
to receiving a medical service. Similarly,
another commenter recommended that
HHS aggregate the data to create a cen-
tralized database. By contrast, another
commenter recommended the Depart-
ments should not create a central location
for negotiated rate information and his-
torical data, making the argument that the
private sector is best suited to deliver this
information to consumers.
As proposed, the machine-readable
files must be made publicly available and
accessible to any person free of charge and
without conditions, such as establishment
of a user account, password, or other cre-
dentials, or submission of PII to access the
file. Additionally, the proposed rules spec-
ified that the files must be made available
in the form and manner specified by the
Departments. While the Departments con-
sidered comments related to the manner of
the public file disclosures (such as promi-
nent display on a plan or issuer’s homep-
age), the Departments are also mindful of
the need to provide flexibility to plans and
issuers so that they are able to house the
files in a location that meets their unique
technical specifications. At this time, the
Departments are of the view that report-
ing of the links to the file locations is not
necessary to achieve the goals of the final
rules. However, the Departments note that
nothing in the final rules prevents a feder-
al or state regulatory body, such as a state
Department of Insurance (DOI), from col-
lecting this information from issuers sub-
ject to their jurisdiction.
The Departments are aware and under-
stand commenters’ interest in HHS ag-
gregating and centralizing all of the data
required to be publicly disclosed through
the machine-readable files. However, the
Departments are of the view that HHS
is not best suited for this role. As noted
throughout this preamble, the Depart-
ments expect making negotiated rate and
allowed amount information available
through the machine-readable files will
spur third-party internet-based developers
to innovate, resulting in consumer-facing
tools. The Departments anticipate that
these consumer-facing tools developed
by third parties could act as centralized
databases, aggregating the pricing infor-
mation for many plans and issuers. The
Departments are of the view that the pri-
vate sector is better suited to developing
internet-based tools using this information
than the Departments, and further, that the
competition spurred by several different
third parties operating in this space could
benefit consumers seeking to find the
third-party tool that is best suited to their
individual consumer needs.
The final rules adopt, as proposed, the
accessibility requirements for the ma-
chine-readable files. The final rules clarify
that the accessibility requirements apply
to all three machine-readable files final-
ized within the final rules: the In-network
Rate File (referred to in the proposed rules
as the Negotiated Rate File), the Allowed
Amount File, and the Prescription Drug
File.
4. Required Timing of Updates of
Information to be Disclosed to the Public
The proposed rules would have re-
quired group health plans and health
insurance issuers to update the infor-
mation required to be included in each
machine-readable file monthly. The De-
partments also proposed to require plans
and issuers to clearly indicate the date of
the last update made to the In-network
Rate Files and Allowed Amount Files in
accordance with guidance issued by the
Departments.
The Departments recognized in the
proposed rules that information in In-net-
work Rate Files (referred to in the pro-
posed rules as the Negotiated Rate Files)
could change frequently and considered
whether to require plans and issuers to up-
date their In-network Rate Files more of-
ten than monthly to ensure that consumers
have access to the most up-to-date nego-
tiated rate information. Accordingly, the
Departments sought comment on whether
the final rules should require plans’ and
issuers’ In-network Rate Files to be updat-
ed more frequently. The Departments also
sought comment on an alternate propos-
al that would require plans and issuers to
update negotiated rate information within
10 calendar days after the effective date
of new rates with any in-network provid-
er, and on whether the update timelines for
negotiated rate information and historical
out-of-network payment data should be
the same.
For the reasons discussed elsewhere
in this section of this preamble, the final
rules adopt, as proposed, the requirement
for a plan or issuer to update the informa-
tion required to be included in each ma-
chine-readable file monthly. The final rules
clarify that this requirement to update the
machine-readable files monthly applies to
all three machine-readable files being fi-
nalized through the final rules: the In-net-
work Rate File, the Allowed Amount File,
and the Prescription Drug File.
Several commenters stated that the re-
quirement to update the In-network Rate
Files and Allowed Amount Files monthly
is operationally burdensome and the bene-
fits of this requirement are limited because
the information will not change signifi-
cantly on a monthly basis. Some com-
menters recommended the Departments
change the required frequency of updates
to every six months, while others suggest-
ed that the final rules require updates to
the In-network Rate File less frequently
than monthly (for example, quarterly or
semi-annually), but recommended that the
Allowed Amount File should be updat-
ed monthly. Another commenter recom-
mended a phased-in approach where the
files would be updated twice a year in the

Bulletin No. 2020–49 1323 November 30, 2020
first year of implementation and quarter-
ly thereafter. In contrast, one comment-
er recommended the files be updated in
real-time as soon as updates to rates are
made.
Based on consultation with govern-
ment-affiliated IT experts and the design
of the file schemas, the Departments are
of the view that building the first ma-
chine-readable file will facilitate the auto-
mation of the process to build future files.
In other words, the ability to produce sub-
sequent files should be streamlined after
completing initial development. There-
fore, the Departments do not find persua-
sive the contention that requiring file up-
dates monthly will significantly increase
the overall costs and burdens related to
producing the files. The Departments,
however, do not agree that the files should
be updated in real-time as soon as updates
are made. With the monthly update re-
quirement, the Departments are seeking
to balance the need to ensure the data is
current and accurate for consumers with
minimizing burdens on plans and issuers.
As noted in the proposed rules, the
Departments acknowledge there will be
some costs with making updates to the
files, including costs to ensure the quality
of data and costs associated with posting
the information on a public website. The
Departments are of the view that requir-
ing plans and issuers to update the files on
a monthly basis will sufficiently limit the
burden while ensuring that the most cur-
rent data generally available. However,
requiring updates to the files more or less
frequently would not adequately balance
these interests. Requiring updates to the
files more frequently (such as on a daily
basis), would add potentially unnecessary
burdens for plans and issuers. Requiring
updates to the files less frequently would
potentially result in consumers relying on
outdated information for health care pur-
chasing decisions. While negotiated rates,
in particular, may not change frequently
for any one contract with a provider or
group of providers, the Departments un-
derstand that payer-provider contracts are
updated on a rolling basis and throughout
the year. Therefore, updates throughout
the year are needed in order to ensure that
the information disclosed remains up-to-
date.
The final rules also require that the Pre-
scription Drug File be updated on a month-
ly basis. The Departments understand the
complexities of prescription drug pricing
and are aware that drug prices can fluc-
tuate as frequently as daily. However, the
Departments have determined that align-
ing the frequency of updates of all ma-
chine-readable files will mitigate the bur-
den associated with maintaining the files
for plans and issuers, and will best balance
the need for disclosing current and accu-
rate information against that burden. The
Departments are aware that the number of
pricing updates in the monthly Prescrip-
tion Drug File will likely be more than the
number of monthly pricing updates for
medical services in the In-network Rate
File. However, the Departments are of the
view that if plans and issuers can update
their pharmacy claims processing systems
in real-time to account for fluctuating
prices and adjudicate claims for prescrip-
tion drugs, then the burden to pull current
pricing information into the Prescription
Drug File should be manageable.
The Departments will monitor the im-
plementation of the machine-readable
file requirements and consider updates in
future rulemaking if it is determined that
monthly updates are not adequately bal-
ancing the need for accurate and current
information against the burdens for plans
and issuers.
5. Special Rules to Prevent Unnecessary
Duplication and Allow for Aggregation
Similar to the proposed cost-sharing
information disclosure requirements for
participants, beneficiaries, and enrollees,
the Departments proposed a special rule
to streamline the publication of data that
would be included in the proposed ma-
chine-readable files. This special rule has
three components: one for insured group
health plans where a health insurance is-
suer offering coverage in connection with
the plan has agreed to provide the required
information, another for plans and issuers
that contract with third parties to provide
the information on their behalf, and a spe-
cial rule allowing aggregation of out-of-
network allowed amount data.
a. Insured group health plans
The Departments proposed that, to the
extent coverage under a group health plan
consists of group health insurance cover-
age, the plan would satisfy the proposed
machine-readable file requirements if the
issuer offering the coverage were required
to provide the information pursuant to a
written agreement between the plan and
issuer. Accordingly, if a plan sponsor and
an issuer enter into a written agreement
under which the issuer agrees to provide
the information required under the pro-
posed rules, and the issuer fails to pro-
vide full or timely information, then the
issuer, but not the plan, has violated the
final rule’s disclosure requirements. This
special rule would only apply, however, to
insured group health arrangements where
the contractually-obligated issuer is inde-
pendently subject to the final rules.
The Departments received comments
expressing strong support of the special
rule to streamline public disclosure and
avoid unnecessary duplication of disclo-
sures for insured group health insurance
coverage. These commenters recommend-
ed the policy be retained in the final rules.
Accordingly, the final rules retain this spe-
cial rule as proposed.
b. Use of Third Parties to Satisfy Public
Disclosure Requirements
The Departments recognize that
self-insured group health plans may rely
on written agreements with other parties,
such as service providers, to obtain the
necessary data to comply with the final
rules’ disclosure requirements. Further-
more, it is the Departments’ understand-
ing that most health care coverage claims
in the U.S. are processed through health
care clearinghouses and that these enti-
ties maintain and standardize health care
information, including information re-
garding negotiated rates and out-of-net-
work allowed amounts.
207
As a result, the
Departments noted in the proposed rules
that a plan or issuer may reduce the bur-
207
The Departments are adopting the definition of health care clearinghouse under 45 CFR 160.103 for purposes of these rules. Under that definition, health care clearinghouse means a public
or private entity that performs one of two functions that involve the receiving and processing of health information data from a non-standard format to a standard format or non-standard data
elements to standard data elements and vice versa.

November 30, 2020 1324 Bulletin No. 2020–49
den associated with making negotiated
rates and out-of-network allowed amounts
available in machine-readable files by
entering a business associate agreement
and contracting with a health care claims
clearinghouse or other HIPAA-compliant
entity to disclose this data on its behalf.
208

Accordingly, the Departments proposed to
permit a plan or issuer to satisfy the pub-
lic disclosure requirement of the proposed
rules by entering into a written agreement
under which another party (such as a TPA
or health care claims clearinghouse) will
make public the required information in
compliance with this section. However, if
a plan or issuer chooses to enter into such
an agreement and the party with which it
contracts fails to provide full or timely
information, the plan or issuer will have
violated the final rules’ disclosure require-
ments.
Generally, commenters supported the
use of clearinghouses or TPAs to store all
of the information that must be disclosed
under the proposed rules. One commenter
suggested that all HIPAA-compliant third
parties, not just clearinghouses, be allowed
to satisfy the public disclosure require-
ments. Some commenters raised concerns
related to using clearinghouses noting that
the feasibility of using clearinghouses is
dependent on the clearinghouse receiving
all of the necessary data from health in-
surance issuers and providers who possess
the data. The commenter strongly recom-
mended the final rules require entities that
possess the data to share the information
in a timely manner with the relevant clear-
inghouses. The commenter also noted the
costs charged by clearinghouses associ-
ated with data storage and noted that the
prices must be reasonable and not dis-
criminatory (for example, against smaller
plans).
Several commenters recommended the
Departments’ special rule include protec-
tion for plan sponsors if they fail to meet
the public disclosure requirements due to
an inability, while acting in good faith, to
obtain the data from a third-party service
provider or when a contracted third-party
withholds information or fails to submit
information in a timely manner. One of
these commenters also requested the De-
partments establish a policy that liability
for failure to comply rests with a contract-
ed third party in the event a plan sponsor
can show that, acting in good faith, it is
unable to comply with the disclosure re-
quirements due to withholding of infor-
mation by the third party.
This special rule, as finalized, contin-
ues to permit a plan or issuer to satisfy the
public disclosure requirements of 26 CFR
54.9815-2715A3(b), 29 CFR 2590.715-
2715A3(b), and, 45 CFR 147.212(b) of the
final rules by entering into a written agree-
ment under which another party (such as a
TPA or health care claims clearinghouse)
will make public the required information
in compliance with this section. The final
rules identify TPAs and health care claims
clearinghouses as examples of the types of
parties a plan or issuer may contract with,
but these are not the only types of enti-
ties that may enter into such arrangements
and the Departments expect that they will
comply with any applicable privacy pro-
tection requirements, including applicable
privacy protections under HIPAA.
Plans and issuers are not required to
enter into such agreements in order to
comply with the public disclosure re-
quirements of the final rules. As the De-
partments noted in the preamble to the
proposed rules, if a plan or issuer chooses
to enter into such an agreement it is ulti-
mately the responsibility of the plan or is-
suer to ensure that the third party provides
the information required by the final rules.
As noted earlier in this section, the special
rule for insured plans is only available to
plans that contract with an entity that is
an issuer separately subject to final rules.
This requirement ensures that the Depart-
ments retain a mechanism to enforce the
final rules. Accordingly, this special rule
relating to the use of third parties to satis-
fy these requirements continues to provide
that the plan or issuer would violate the
requirements of the final rules if the third
party fails to provide full or timely infor-
mation.
Another commenter recommended
the Departments create a special rule or
“safe harbor” for plans that are unable to
disclose negotiated rate information due
to antitrust laws, which prevent the plan
from accessing information about its part-
ners’ contracts when engaged in a partner-
ship alliance agreement. The commenter
described a partnership alliance as shared
partner networks in other geographic ar-
eas in order to meet the needs of multi-
state employer groups.
As discussed earlier in this pream-
ble, the Departments acknowledge that
the Sherman Antitrust Act prohibits any
contract, combination, or conspiracy in
restraint of trade or commerce.
209
Specifi-
cally, the law prohibits any “person” from
entering into any such contract, trust, or
similar arrangement.
210
Nothing under
the proposed or final rules creates, com-
pels, or endorses agreements or conspir-
acies between or among persons to form
illegal arrangements or trusts in restraint
of trade or commerce. Antitrust law does
not proscribe or limit action by the federal
government, to improve competition and
lower costs to consumers, even if these
actions may involve disclosures that, if
made by private parties under a collusive
agreement, might invite antitrust scruti-
ny.
211
Because the Departments are of the
view that antitrust law will not prevent
plans and issuers from making the public
disclosures required under the final rules,
there is no need for the Departments to
create a special rule for plans that are un-
able to disclose negotiated rate informa-
tion due to antitrust laws.
One commenter expressed a concern
that multiemployer plans generally do not
have access to the rate information needed
to provide the cost-sharing disclosures re-
quired under the proposed rules, yet plans
could be subject to significant penalties for
failure to comply. The Departments note
that insured multiemployer plans would
qualify for the special rule for insured
plans under which an issuer providing
coverage for a plan enters into an agree-
ment to provide the required information,
which is being finalized through the final
rules. If a multiemployer plan sponsor en-
ters into a written agreement with an issu-
er under which the issuer agrees to provide
the information required under the final
208
45 CFR 164.502(a)(3) and 164.504(e)(2).
209
15 U.S.C. 1.
210
Id.
211
For example, see 84 FR 65464, 65464-65 (Nov. 27, 2019).

Bulletin No. 2020–49 1325 November 30, 2020
rules, and the issuer fails to provide full or
timely information, then the issuer, but not
the plan, has violated the transparency dis-
closure requirements and may be subject
to enforcement mechanisms applicable
to plans under the PHS Act.
212
Therefore,
insured multiemployer plans that contract
with an issuer to provide the information
required under the final rules would not be
subject to enforcement actions under this
mechanism; rather, the issuers with whom
they have contracted will be subject to en-
forcement action under the final rules for
failure to meet the transparency disclosure
requirements.
Under the second special rule, multi-
employer plans may also contract with a
TPA or other third party (for example, a
clearinghouse) to meet the transparency
disclosure requirements under the final
rules. However, this commenter is cor-
rect that if a plan or issuer chooses to en-
ter into such an agreement, and the party
with which it contracts fails to provide full
or timely information, the plan or issuer
would violate the transparency disclosure
requirements.
The notion that accountability for
compliance rests with a plan or issuer
when the issuer or plan enlists a contrac-
tor or vendor for a business function is
not inconsistent with other applicable
regulations.
213
While claims processing
is the main function for which an issuer
or plan has contracted in this example,
other responsibilities, such as respond-
ing to federal audits and report require-
ments, may fall within the scope of the
duties required by contract. The Depart-
ments clarify that nothing in the final
rules prevents an issuer or plan from en-
suring contracts with TPAs or other third
parties include clear terms specifying
functions required to meet the disclosure
requirements of the final rules, as well as
establish service level agreements and
performance metrics to hold the entities
with whom the issuer or plan decides to
contract accountable.
Because multiemployer plans may be
able to take advantage of the special rules
established under the proposed rules, the
Departments do not view additional spe-
cial considerations necessary to address
the ability of such plans to comply with
the transparency requirements of the final
rules.
c. Aggregation for Allowed Amount Files
In order to further mitigate privacy
concerns and to eliminate unnecessary
duplication, the Departments proposed
to permit plans and issuers to satisfy the
public disclosure requirements of the
proposed rules by making available out-
of-network allowed amount data that has
been aggregated to include information
from more than one plan or policy. As
previously discussed, a plan or issuer may
satisfy the disclosure requirement by dis-
closing out-of-network allowed amounts.
Accordingly, under such circumstances,
the proposed rules would have permitted
plans and issuers to aggregate out-of-net-
work allowed amounts for more than one
plan or insurance policy or contract.
To the extent a plan or issuer provid-
ed aggregated out-of-network allowed
amount information, the Departments
proposed to apply the minimum claims
threshold to the aggregated claims data
set, but not at the plan or issuer level.
Based on commenters’ requests for clarifi-
cation, the Departments have determined
that the proposed approach to apply the
minimum claims threshold to the full ag-
gregated claims data set could undermine
the goal of the minimum claims threshold.
The out-of-network Allowed Amount File
must include a unique plan identifier for
each plan or coverage included in the file
under 26 CFR 54.9815-2715A3(b)(1)(ii)
(A), 29 CFR 2590.715-2715A3(b)(1)(ii)
(A), and 42 CFR 147.212(b)(1)(ii)(A).
Therefore, even if the data for each plan
or coverage were to be aggregated for
purposes of determining whether the min-
imum claims threshold applies to a partic-
ular covered item or service, the data in
the Allowed Amounts File would be dis-
tinguishable at the level of the plan iden-
tifier. The Departments are of the view
that this could be problematic if all plans
or coverage included in an aggregated
Allowed Amount File meet the minimum
claim threshold for an item or service
when combined, but some or all individ-
ual plans do not independently meet the
minimum claim threshold of 20 claims.
For instance, data for two plans are
aggregated in the same Allowed Amount
File under this rule. Plan A has 20 claims
for Service X, while Plan B only has six
claims for Service X. In aggregate, the
plans meet the 20-claim threshold with 26
total claims for Service X. However, in-
dividually, only Plan A has met the mini-
mum claim threshold. Under the proposal,
data for Service X would be required to be
included for both Plan A and Plan B, along
with both the plan identifiers. The outcome
of this requirement would be that Plan B
would include data identifiable at the plan
level for Service X. The Departments are
of the view that allowing Plan B data to be
included in the file for Service X would
undermine the minimum claim threshold,
increasing risk that individual patients’
claims histories could be identified. To
prevent this outcome, data for each plan
or coverage included in an aggregated Al-
lowed Amount File must independently
meet the minimum claims threshold for
each item or service and for each plan or
coverage included in the aggregated Al-
lowed Amount File. To highlight this re-
quirement, the Departments are finalizing
this provision of the proposed rules with
a minor modification clarifying that the
flexibility to aggregate out-of-network
allowed amounts for more than one plan
or coverage in a single machine-readable
file is still subject to the minimum claims
threshold applicable to individual plans or
coverage as described under paragraph (b)
(1)(ii)(C) of the same section.
One commenter requested clarification
of a plan’s obligation if a third party ag-
gregates the Allowed Amount File. The
commenter specifically requested clarifi-
cation regarding whether the plan or third
party would be responsible for posting the
file, and whether there will be any special
labeling requirements for an aggregated
file, including if the file will need to in-
212
Section 2723 of the PHS Act.
213
For example, plans remain liable for violations of claims regulations under 26 CFR 54.9815–2719 and 29 CFR 2590.715-2719; and QHPs issuers who contract with downstream or dele-
gated entities must maintain compliance with all applicable standards under 45 CFR 156.340(a).

November 30, 2020 1326 Bulletin No. 2020–49
clude a disclosure that it includes aggre-
gated data.
Nothing in the final rules prevents the
Allowed Amount File from being host-
ed on a third-party website or prevents a
plan administrator from contracting with
a third party to post the file. The Depart-
ments have added text to the final rules
to make clear that this flexibility exists
and to provide that if a plan chooses not
to also host the file separately on its own
public website, it must provide a link on
its website to the location where the file
is publicly available. The Departments
will provide additional information on
the form and manner, including labeling,
through the file technical implementation
guidance.
III. Overview of the Final Rule
Regarding Issuer Use of Premium
Revenue under the Medical Loss
Ratio Program: Reporting and Rebate
Requirements – The Department of
Health and Human Services
As stated in the preamble to the pro-
posed rules, consumers with health in-
surance often lack incentives to seek care
from lower-cost providers, for example
when consumers’ out-of-pocket costs are
limited to a set copayment amount regard-
less of the costs incurred by the issuer.
Innovative benefit designs can be used to
increase consumer engagement in health
care purchasing decisions. HHS proposed
to allow issuers that empower and incen-
tivize consumers through the introduction
of new or different plans that include pro-
visions encouraging consumers to shop
for services from lower-cost, higher-val-
ue providers, and that share the resulting
savings with consumers, to take credit for
such “shared savings” payments in their
MLR calculations. HHS believes this ap-
proach preserves the statutorily-required
value consumers receive for coverage
under the MLR program, while encourag-
ing issuers to offer new or different plan
designs that support competition and con-
sumer engagement in health care.
Formula for Calculating an Issuer’s
Medical Loss Ratio (45 CFR 158.221)
Section 2718(b) of the PHS Act re-
quires a health insurance issuer offer-
ing group or individual health insurance
coverage (including grandfathered health
insurance plans) to provide rebates to en-
rollees if the issuer’s MLR falls below
specified thresholds (generally, 80 percent
in the individual and small group markets
and 85 percent in the large group market).
Section 2718(b) of the PHS Act general-
ly defines MLR as the percentage of pre-
mium revenue (after certain adjustments)
an issuer expended on reimbursement for
clinical services provided to enrollees and
on activities that improve health care qual-
ity. Consistent with section 2718(c) of the
PHS Act, the standardized methodologies
for calculating an issuer’s MLR must be
designed to take into account the special
circumstances of smaller plans, different
types of plans, and newer plans.
Several states have considered or ad-
opted legislation over the last few years
to promote health care cost transparen-
cy and encourage issuers to design and
make available plans that “share” savings
with enrollees who shop for health care
services and choose to obtain care from
lower-cost, higher-value providers.
214
In
addition, at least five states and a number
of self-insured group health plans have
incorporated such “shared savings” pro-
visions into all or some of their health
plans.
215
Under some plan designs, the
savings are calculated as a percentage of
the difference between the rate charged by
the provider chosen by the consumer for
a medical procedure and the average ne-
gotiated rate for that procedure across all
providers in the issuer’s network. Under
other plan designs, the “shared savings”
are provided as a flat dollar amount ac-
cording to a schedule that places provid-
ers in one or more tiers based on the rate
charged by each provider for a specified
medical procedure. Under various plan
designs, the “shared savings” may be pro-
vided in form of a gift card, a reduction in
cost sharing, or a premium credit. HHS is
of the view that such unique plan designs
would motivate consumers to make more
informed choices by providing consumers
with tangible incentives to shop for care at
the best price. As explained elsewhere in
the preamble to the proposed rules, there
is ample evidence that increased transpar-
ency in health care costs would lead to in-
creased competition among providers.
216

HHS is of the view that allowing flexibili-
ty for issuers to include savings they share
with enrollees in the numerator of the
MLR would increase issuers’ willingness
to undertake the investment necessary to
develop and administer plan features that
may have the effect of increasing health
care cost transparency, which in turn could
lead to reduced health care costs.
HHS has in the past exercised its au-
thority under section 2718(c) of the PHS
Act to take into account the special cir-
cumstances of different types of plans
by providing adjustments to increase the
MLR numerator for “mini-med” and “ex-
patriate” plans,
217
student health insurance
plans,
218
as well as for QHPs that incurred
Exchange implementation costs
219
and
certain non-grandfathered plans (that is,
214
24-A Maine Rev. Stat. Ann. Sec. 4318-A (adopted Jun. 19, 2017); Neb. Rev. Stat. Sec. 44-1401 et seq. (adopted Apr. 23, 2018); Utah Code Ann. Sec. 31A-22-647 (adopted Mar. 19, 2018);
AZ SB 1471 (2018); N.H. HB 1784-FN (2018); MA H2184 (2017).
215
See the State of Kansas’ SmartShopper program for state employees enrolled with BCBSKS, available at: https://healthbenefitsprogram.ks.gov/docs/default-source/site-documents/
sehp/vendor-documents/bcbs/smartshopper_state_of_kansas_steps.pdf?sfvrsn=cfa4e44_8; the state of Kentucky employee member handbook for Livingwell CDHP’s SmartShopper pro-
gram, available at: https://personnel.ky.gov/KEHP/2020%20LivingWell%20CDHP%20Medical%20Benefit%20Booklet.pdf and https://www.smartshopper.com/legacy?utm_expid=.WJ_
v45PuTXuo1k6ioPp4tA.1&utm; the State of Massachusetts employee member handbook for Fallon Health Select Care’s SmartShopper program, available at: https://www.mass.gov/doc/
fallon-select-care-handbook-fy21/download; the State of New Hampshire employee medical benefit, the Site of Service and Vitals SmartShopper Programs, available at: https://das.nh.gov/
riskmanagement/active/medical-benefits/cost-savings-programs.aspx#vitals-smartshopper; Utah Public Employees Health Program Cost Tools, available at: https://www.pehp.org/save.
216
Austin, D. A., and Gravelle, J. G. “Congressional Research Service Report for Congress: Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other
Markets for the Healthcare Sector.” Congressional Research Service. July 24, 2007.”Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf.
217
See 45 CFR 158.221(b)(3) for “mini-med” plans and 45 CFR 158.221(b)(4) for “expatriate” plans; see also the Health Insurance Issuers Implementing Medical Loss Ratio (MLR) Require-
ments Under the Patient Protections and Affordable Care Act; Interim Final Rule; 75 FR 74864, 74872 (Dec. 1, 2010).
218
See 45 CFR 158.221(b)(5); see also the Student Health Insurance Coverage; Final Rule, 77 FR 16453, 16458-16459 (Mar. 21, 2012).
219
See 45 CFR 158.221(b)(7); see also the Exchange and Insurance Market Standards for 2015 and Beyond; Final Rule; 79 FR 30240, 30320 (May 27, 2014).

Bulletin No. 2020–49 1327 November 30, 2020
“grandmothered” plans).
220
This authority
has also been exercised to recognize the
special circumstances of new plans
221
and
smaller plans.
222
Consistent with this ap-
proach, HHS proposed to exercise its au-
thority to account for the special circum-
stances of new and different types of plans
that provide “shared savings” to consum-
ers who choose lower-cost, higher-value
providers by adding a new paragraph 45
CFR 158.221(b)(9) to allow such “shared
savings” payments to be included in the
MLR numerator. HHS made this propos-
al so that issuers would not be required to
pay MLR rebates based on a plan design
that would provide a benefit to consum-
ers that is not currently captured in any
existing MLR revenue or expense catego-
ry. HHS proposed that the amendment to
45 CFR 158.221 would become effective
beginning with the 2020 MLR reporting
year (for reports filed by July 31, 2021).
HHS invited comments on this proposal.
After considering the public com-
ments, HHS is finalizing the amendment
to 45 CFR 158.221(b) as proposed.
The majority of comments on the pro-
posed amendments to the MLR program
rules supported the proposal to add a new
paragraph to 45 CFR 158.221(b). Sup-
porters noted that allowing issuers to in-
clude “shared savings” payments in their
MLR calculation aligns issuer and enroll-
ee incentives, aligns with MLR’s purpos-
es, is innovative, provides enrollees with
value, increases consumer engagement
and empowerment, and will promote bet-
ter enrollee decision-making and reduce
total health care costs. Several supportive
commenters also noted that the proposal
may encourage more issuers to offer such
“shared savings” programs, as allowing
“shared savings” payments to be included
in the MLR numerator will remove any
existing barriers to such programs and
facilitate the use of innovative benefit de-
signs that increase consumer engagement
in health care purchasing decisions, while
disallowing this approach punishes issu-
ers that offer innovative “shared savings”
programs and disincentivizes issuers from
adopting such programs. Several com-
menters stated that there is evidence that
patients are more likely to shop for care
when information on prices is coupled
with incentives, and that such shopping
can generate significant savings for issu-
ers and lead health care providers to lower
their prices in order to remain competitive
in the marketplace.
223
HHS agrees with the comments in sup-
port of the proposal and is finalizing this
amendment as proposed to provide addi-
tional flexibility to states and issuers and
encourage the economic effects the com-
menters highlighted.
Some commenters requested clarifi-
cation regarding certain aspects of the
“shared savings” plans. Several comment-
ers requested that HHS develop uniform
standards and a definition for “shared
savings,” which according to commenters
would, among other things, help prevent
fraud and abuse; and that HHS clarify the
criteria for low-cost, high-value provid-
ers. One commenter asked HHS to pro-
vide sub-regulatory guidance to specify in
what form the savings can be shared, how
issuers will report their “shared savings,”
how double-counting can be prevented,
and whether “shared savings” payments
are taxable income. Other commenters
suggested that HHS provide maximum
flexibility for issuers and states to inno-
vate and develop “shared savings” pro-
grams they determine are best suited for
their populations.
While HHS appreciates these sugges-
tions and is also concerned with preventing
fraud and abuse, HHS is of the view that
state legislators and regulators are current-
ly in a better position than HHS to work
with the issuers in their states to define the
“shared savings” programs that they sup-
port, issue standards and criteria for the
programs for their respective constituents,
and decide in what form the savings can
be made. These considerations include
the operational details of any “shared sav-
ings” program, such as creating standards
and definitions, developing acceptable
payment methods, and addressing fraud
concerns. HHS notes that several issuers
have already developed and implemented
such programs and that a few states have
done the same. The amendment being fi-
nalized in this rulemaking is specific to the
recognition of “shared savings” payments
in issuer MLR calculations and is intend-
ed to encourage more state and issuer in-
novation with these types of programs.
Accordingly, HHS will provide technical
guidance in the MLR Annual Reporting
Form Instructions to clarify the reporting
of “shared savings” payments specifical-
ly for MLR purposes. With respect to the
comment regarding how double-count-
ing can be prevented, HHS notes that 45
CFR 158.170 prevents double-counting
by requiring each expense to be reported
in only one category or to be pro-rated
between categories for MLR purposes. Fi-
nally, whether “shared savings” payments
to enrollees are taxable will vary based on
certain specific facts and circumstances.
Some forms of “shared savings” may be
taxable; however, HHS defers to the De-
partment of the Treasury to address the
taxability of such payments as necessary.
Opponents of the proposal stated that it
fails to ensure that the savings are actually
used for health care or quality improve-
ment activities (QIA), that HHS is sub-
verting the statutory scheme by allowing
issuers to spend less on enrollees’ care and
quality initiatives without returning the
premium dollars saved to all enrollees, and
that the proposal would allow issuers to
further boost profits and diminish the MLR
standards and issuer accountability. Some
opponents of the proposal argued that
220
See 45 CFR 158.221(b)(6); see also 79 FR 30240, 30320 (May 27, 2014). See 45 CFR 158.221(b)(6); see also 79 FR 30240, 30320 (May 27, 2014);

see also 45 CFR 158.221(b)(6); see
also 79 FR 30240, 30320 (May 27, 2014). “Grandmothered” plans is a term for certain non-grandfathered coverage in the small group and individual health insurance markets. Since 2014,
CMS has permitted, subject to applicable State authorities, health insurance issuers to continue certain coverage that could not otherwise remain in place without significant changes to comply
with PPACA. Such health insurance coverage would not be treated as out of compliance with sections 2701-2707 and 2709 of the PHS Act and section 1312(c) of PPACA (group health plans
must still comply with section 2704 and 270505 of the PHS Act). See Extended Non-Enforcement of Affordable Care Act-Compliance With Respect to Certain Policies, available at https://
www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Limited-Non-Enforcement-Policy-Extension-Through-CY2020.pdf and https://www.cms.gov/files/document/ex-
tension-limited-non-enforcement-policy-through-calendar-year-2021.pdf.
221
See 45 CFR 158.121; see also 75 FR 74864, 74872-74873 (Dec. 01, 2010) and the HHS Notice of Benefit and Payment Parameters for 2018 Final Rule; 81 FR 94058, 94153-94154 (Dec.
22, 2016).
222
See 45 CFR 158.230 and 158.232; see also 75 FR 74864, 74880 (Dec. 01, 2010).
223
For example, one commenter shared that since 2015, its “shared savings” program issued over 149,000 incentive reward payments, generating over $85 million in savings. See https://
beta.regulations.gov/document/CMS-2019-0163-14320.

November 30, 2020 1328 Bulletin No. 2020–49
since any plan type can offer “shared sav-
ings,” adding a “shared savings” payment
component to a policy does not make it a
“different” type of plan and it should not
be treated as such. Others were concerned
that the proposal would incentivize issuers
to artificially drive down negotiated rates
with providers and that these savings may
not make their way back to enrollees. One
commenter opposed extending “shared
savings” programs to self-insured ERISA
plans. Another commenter pointed out
that the National Association of Insurance
Commissioners (NAIC) did not mention
the proposal in its comments and the MLR
statute provides that the NAIC shall estab-
lish the definitions and methodologies for
MLRs.
HHS agrees that “shared savings” are
neither an incurred claim nor a QIA. In-
stead, in support of this amendment to 45
CFR 158.221(b), HHS is relying on the
statutory directive under section 2718(c)
of the PHS Act that the MLR standardized
methodologies shall be designed to take
into account the special circumstances of
different types of plans and newer plans,
such as plans that offer “shared savings”
payments to enrollees that seek care from
lower-cost, higher-value providers. HHS
believes that any issuer that includes in its
plan design(s) a “shared savings” compo-
nent is offering a “different” type of plan
and a “newer” plan, as a “shared savings”
program is a new and unique feature. HHS
notes that the amendment finalized in these
rules helps provide policyholders with
value for their premium dollars, as intend-
ed by section 2718 of the PHS Act. HHS
disagrees that the amendment somehow
subverts the statutory scheme as issuers
that implement these programs are sharing
the savings and returning dollars to enroll-
ees who participate in these programs, and
issuers must still otherwise meet the appli-
cable MLR threshold or provide a rebate
to enrollees. For the same reasons, HHS
does not share certain commenters’ view
that the amendment weakens the MLR
standards and enables issuers to improper-
ly boost profits, as the amendment simply
allows issuers to account for the portion of
the “shared savings” that is passed to par-
ticipating enrollees and that consequently
does not increase issuers’ profits. With re-
spect to comments regarding the impact
on provider negotiated rates and enrollee
access to savings, HHS is unsure how the
amendment would incentivize issuers to
artificially drive down negotiated rates
with providers. However, if as a result of
this amendment, provider rates decrease,
such a result would in fact benefit enroll-
ees. In addition, because only actual pay-
ments made to enrollees can be included
in an issuer’s MLR calculation under the
amendment, issuers will benefit for MLR
calculation and reporting purposes only if
the savings are actually shared with enroll-
ees. With respect to the comment regard-
ing self-insured ERISA plans, HHS notes
that this amendment does not apply to or
impact, either self-funded ERISA plans,
or self-funded non-ERISA plans, as these
plans are not subject to the MLR report-
ing and rebate requirements under section
2718 of the PHS Act. Last, with respect
to comments regarding the NAIC recom-
mendations to HHS, section 2718(c) of
the PHS Act directed the NAIC, subject
to certification by the Secretary, to estab-
lish uniform definitions and standardized
methodologies to guide MLR reporting
and calculations. The NAIC met its stat-
utory obligation when it provided recom-
mendations to HHS in 2010 in the form
of a model regulation.
224
The NAIC’s rec-
ommendations informed the Secretary’s
decisions about the federal definitions and
methodologies for calculating MLRs.
225
In
this rulemaking, HHS is taking further ac-
tion to recognize the special circumstanc-
es of the different and newer plans that
include “shared savings” programs with
the addition of new paragraph (b)(9) to 45
CFR 158.221.
Some commenters expressed concerns
that “shared savings” programs in general
could actually compromise the quality of
care by driving consumer choices based
on cost without regard for quality, and that
these programs could encumber and cur-
tail medically necessary clinical services
in serving the financial interest of the pay-
er. Some commenters requested that HHS
only allow “shared savings” where there
is evidence that the participating enroll-
ees actually receive better care at reduced
costs. One commenter stated that the pro-
posal fails to define higher-value, which
varies based on each enrollee’s circum-
stances. One commenter questioned the
feasibility of measuring whether reward
systems generate actual savings.
HHS disagrees that programs that re-
ward enrollees for critically examining
their options and pursuing cost-effective
care interfere with the provision of med-
ically necessary clinical services. Howev-
er, HHS agrees that quality as well as cost
should be determinants of what qualifies
for inclusion in any given issuer’s “shared
savings” program. That is why the amend-
ment to 45 CFR 158.221 includes both
a cost and quality component; it permits
issuers to include in the MLR numera-
tor “shared savings” payment made to
enrollees choosing to obtain care from
a lower-cost and higher-value provider.
However, HHS did not propose and is not
finalizing elements or criteria issuers must
address or otherwise include in their re-
spective “shared savings” programs. The
amendment finalized in this rulemaking is
specific to recognizing “shared savings”
payments in issuer MLR calculations. As
detailed above, HHS believes state legis-
lators and regulators are currently in the
best position to work with issuers in their
states to develop standards and criteria
for “shared savings” programs for their
respective constituents. HHS further be-
lieves that issuers are in the best position
to perform the necessary provider creden-
tialing activities that will ensure that net-
work providers that are included in their
“shared savings” programs are high-value,
high-quality providers. Since higher-val-
ue can vary by enrollee demographics
and provider type, issuers must determine
what this means for their enrollees and
providers and maintain all documents and
other evidence necessary to support that
224
“Regulation for Uniform Definitions and Standardized Methodologies for Calculation of the Medical Loss Ratio for Plan Years 2011, 2012, and 2013 per section 2718(b) of the Public
Health Service Act,” MDL-190. Available at: https://www.naic.org/store/free/MDL-190.pdf?4.
225
See the Health Insurance Issuers Implementing Medical Loss Ratio (MLR) Requirements Under the Patient Protection and Affordable Care Act; Interim Final Rule, 75 FR 74864 (Dec. 1,
2010); see also 45 CFR Part 158.

Bulletin No. 2020–49 1329 November 30, 2020
determination consistent with the mainte-
nance of records requirements contained
in 45 CFR 158.502. Issuers are sophisti-
cated entities that understand that if their
enrollees obtain lower-quality care, their
costs over the long-term will increase
rather than decrease as their enrollees will
likely need additional and possibly correc-
tive medical care. HHS therefore believes
that issuers’ incentives are aligned with
those of their enrollees when it comes to
designing “shared savings” programs.
HHS received a few comments urg-
ing that issuers be allowed to include
some or all of the costs of implementing
the requirements of these price transpar-
ency rules as a QIA in the numerator of
the MLR calculation. A few commenters
urged HHS to allow issuers to include
some or all of the costs of creating the cost
estimator tool required by the price trans-
parency aspects of the proposed rules.
Price transparency implementation
costs do not constitute an improvement to
the quality of health care and thus do not
qualify as QIA and cannot be included in
the numerator of the MLR calculation.
Lastly, several commenters expressed
support for or opposition to the MLR re-
porting and rebate requirements in gener-
al. HHS appreciates these comments but
notes that they are outside the scope of the
amendments to the MLR program rules
contained in the proposed rule.
IV. Applicability
A. In General
1. Entities Subject to the Final Rules
The Departments proposed requiring
group health plans, including self-insured
plans, and health insurance issuers of indi-
vidual and group health insurance cover-
age to disclose pricing information, with
certain exceptions as discussed in more
detail in this preamble. The Departments
are of the view that consumers across
the private health insurance market will
benefit from the availability of pricing
information that is sufficient to support
informed health care decisions. Although
the Departments considered making the
requirements applicable to a more limit-
ed segment of the private health insurance
market, the Departments are of the view
that consumers across the market should
receive and benefit from the same access
to standardized, meaningful pricing infor-
mation and estimates. Moreover, applied
broadly, these changes have a greater po-
tential to reform health care markets.
Additionally, the preamble to the pro-
posed rules discussed how pricing infor-
mation related to items and services that
are subject to capitation arrangements un-
der a specific plan or contract could meet
transparency standards by disclosing only
the consumer’s anticipated liability. The
Departments sought comment on whether
there are certain reimbursement or pay-
ment models (such as ACOs or staff mod-
el HMOs) that should be partially or fully
exempt from these requirements or should
otherwise be treated differently. Further,
the Departments sought comment on how
consumers may become better informed
about their cost-sharing requirements un-
der these reimbursement or payment mod-
els.
The Departments also considered lim-
iting applicability to issuers of individu-
al health insurance coverage and insured
group health insurance coverage, but con-
cluded that limiting applicability would
be inconsistent with section 2715A of the
PHS Act. The Departments are concerned
that a more limited approach might en-
courage plans and issuers to simply shift
costs to sectors of the market where the
final rules would not apply and where
consumers have diminished access to
pricing information. Additionally, the De-
partments are concerned that a more lim-
ited approach may distort the health care
market by creating perverse incentives for
plans and issuers to avoid participating in
certain markets that require compliance
with these requirements.
The Departments are aware that certain
plans and health coverage are not subject
to the transparency provisions under sec-
tion 2715A of the PHS Act and, therefore,
are not be subject to the final rules. This
includes grandfathered health plans, ex-
cepted benefits, health care sharing min-
istries, and short-term, limited-duration
insurance (STLDI).
Grandfathered health plans are
health plans that were in existence as of
March 23, 2010, the date of enactment
of PPACA, and that are only subject to
certain provisions of PPACA, as long as
they maintain their status as grandfathered
health plans under the applicable rules.
226

Under section 1251 of PPACA, section
2715A of the PHS Act does not apply to
grandfathered health plans. Therefore, the
proposed rules would not have applied to
grandfathered health plans (as defined in
26 CFR 54.9815-1251, 29 CFR 2590.715-
1251, and 45 CFR 147.140).
In accordance with sections 2722 and
2763 of the PHS Act, section 732 of ER-
ISA, and section 9831 of the Code, the
requirements of title XXVII of the PHS
Act, part 7 of ERISA, and chapter 100 of
the Code do not apply to any group health
plan (or group health insurance coverage
offered in connection with a group health
plan) or individual health insurance cover-
age in relation to its provision of excepted
benefits. Excepted benefits are described
in section 2791 of the PHS Act, section
733 of ERISA, and section 9832 of the
Code. Section 2715A of the PHS Act is
contained in title XXVII of the PHS Act,
and, therefore, the proposed rules would
not have applied to a plan or coverage
consisting solely of excepted benefits.
The Departments also proposed that
the rules would not apply to STLDI. Un-
der section 2791(b)(5) of the PHS Act,
STLDI is excluded from the definition of
individual health insurance coverage and
is therefore exempt from section 2715A
of the PHS Act.
227
Therefore, the proposed
rules would not have applied to STLDI
coverage.
The Departments also proposed that
the rules would not apply to health re-
imbursement arrangements, or other ac-
count-based plans, as defined in 26 CFR
54.9815-2711(d)(6)(i), 29 CFR 2590.715-
2711(d)(6)(i), and 45 CFR 147.126(d)(6)
(i), that simply make reimbursements sub-
ject to a maximum fixed dollar amount for
a period, with the result that cost-sharing
226
26 CFR 54.9815-1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.
227
See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.

November 30, 2020 1330 Bulletin No. 2020–49
concepts are not applicable to those ar-
rangements.
In contrast, the Departments pro-
posed that the final rules would apply to
grandmothered plans, meaning certain
non-grandfathered health insurance cov-
erage in the individual and small group
markets with respect to which CMS has
announced it will not take enforcement
action even though the coverage is out of
compliance with certain specified market
requirements.
228
The Departments sought
comment on whether grandmothered
plans may face special challenges in com-
plying with these transparency reporting
provisions and whether the proposed rules
should apply to grandmothered plans.
The final rules adopt these provi-
sions as proposed. The final rules apply
these requirements to group health plans,
and health insurance issuers offering
non-grandfathered group or individual
health insurance coverage, with certain
exceptions. Thus, the final rules apply to
grandmothered plans. The Departments
are finalizing, as proposed, that these re-
quirements will not apply to certain plans
and coverages that are not subject to the
transparency provisions under section
2715A of the PHS Act, including grand-
fathered health plans, excepted benefits,
and STLDI. Additionally, the final rules
will not apply to health reimbursement ar-
rangements, or other account-based plans,
as defined in 26 CFR 54.9815-2711(d)
(6)(i), 29 CFR 2590.715-2711(d)(6)(i),
and 45 CFR 147.126(d)(6)(i), as these ac-
count-based arrangements simply make
certain dollar amounts available, with the
result that cost-sharing and price setting
concepts are not applicable to those ar-
rangements.
The majority of commenters support-
ed applying these requirements to issuers
of individual health insurance coverage
and group health insurance coverage, as
well as group health plans. Commenters
supported allowing consumers across the
market to access important pricing infor-
mation. Some commenters suggested ad-
ditional plans and coverages that should
be required to comply with these require-
ments, as discussed later in this preamble.
The Departments did not receive com-
ments regarding application of the final
rules to grandmothered plans.
One commenter stated that the pro-
posed rules would create an uneven play-
ing field that would unfairly advantage
plans and issuers offering stand-alone
dental or vision coverage over plans
that incorporate such benefits into major
medical coverage. For example, the com-
menter stated that a plan offering essential
health benefits would have to include in
a machine-readable file negotiated rates
for pediatric dental services. However, a
plan offering stand-alone dental coverage
would not have to publish pricing infor-
mation. For these reasons, the comment-
er recommended that vision, dental, and
hearing benefits, if offered as part of a
plan or coverage subject to the transpar-
ency requirements, should be excluded
from information disclosed through the
internet-based self-service tool and ma-
chine-readable files.
In response to this comment, the De-
partments note that section 2721(b), (c)
(1) through (3) of the PHS Act provides
an exemption from title XXVII of the
PHS Act for “any individual coverage or
any group health plan (and group health
insurance coverage offered in connection
with a group health plan) in relation to its
provision of excepted benefits.” (See also
section 732 (b), (c) of ERISA, and sec-
tion 9831(b), (c) of the Code) (emphasis
added).
229
To the extent that a plan or is-
suer provides a participant, beneficiary,
or enrollee with the opportunity to opt
out of limited scope dental or vision ben-
efits, those benefits are considered as not
an integral part of the plan and, accord-
ingly, are considered excepted benefits.
230

Therefore, under the final rules, plans and
issuers that offer excepted benefits, such
as limited scope dental or vision benefits,
along with their major medical coverage
are not required to disclose the informa-
tion required by the final rules regarding
their provision of those excepted benefits.
Accordingly, the final rules do not create
an uneven playing field that would unfair-
ly advantage plans and issuers offering
stand-alone dental or vision coverage over
plans that incorporate such benefits into
major medical coverage.
The Departments received a mix of
comments regarding whether the final
rules should apply to alternative contract-
ing and alternative payment model struc-
tures, such as ACOs or HMOs. One com-
menter recommended a narrower scope
for ACOs and other capitated payment
arrangements, including only requiring
transparency tools to display amounts that
are not service dependent (for example,
flat copayments), as well as accumulator
information about deductibles and out-
of-pocket maximums. As discussed else-
where in this preamble, some commenters
expressed concern regarding how the final
rules would apply to reference-based pric-
ing models, direct primary care, bundled
or capitated payment arrangements, and
value-based insurance design. Addition-
ally, some commenters expressed concern
regarding how the final rules would apply
to plans with rental networks and qual-
ity-adjusted and risk-adjusted contracts
(under which prices can only be calcu-
lated after the fact). These commenters
recommended that these kinds of arrange-
ments be exempt from the final rules’ re-
quirements.
On the other hand, other comment-
ers suggested that there is no justifica-
tion for excluding plans that reimburse
their providers based on capitation from
the requirements of the final rules as this
would result in an incomplete data set,
and issuers of risk adjustment-covered
plans already assign values to services to
administer benefits with deductibles and
co-insurance, for risk adjustment purposes
under 45 CFR 153.710(c), and for internal
reporting. One commenter recommended
that the final rules should apply to ACOs
and other capitated arrangements and that
these arrangements should be required to
disclose their underlying financial incen-
tive arrangements, not just consumer’s
anticipated liability. The commenter also
noted that any exemptions may incentiv-
ize plans to move to these pricing mod-
els, which the commenter characterized
as opaque and potentially consumer-un-
friendly. Several commenters agreed that
228
Pate, R. “Insurance Standards Bulletin Series.” Centers for Medicare & Medicaid Services. January 31, 2020. Available at: https://www.cms.gov/files/document/extension-limited-non-en-
forcement-policy-through-calendar-year-2021.pdf.
229
See also section 2763 of the PHS Act.
230
26 CFR 54.9831-1(c)(3)(ii), 29 CFR 2590.732(c)(3)(ii), and 45 CFR 146.145(b)(3)(ii).

Bulletin No. 2020–49 1331 November 30, 2020
pricing information related to items and
services subject to capitation arrange-
ments could meet transparency standards
only through the disclosure of the con-
sumer’s anticipated liability.
Some commenters raised the concern
that the proposed rules would have a par-
ticularly negative impact on smaller enti-
ties that are less likely to have the finan-
cial reserves and technological resources
to build and maintain systems to opera-
tionalize disclosure requirements. Some
commenters requested that the final rules
be optional or that smaller plans and TPAs
be exempted from the requirements. For
example, a few commenters recommend-
ed providing an exception to the price
transparency requirement for small issu-
ers, TPAs, and plans with revenue below
the $41.5 million small entity threshold
or with 100,000 commercial participants,
beneficiaries, and enrollees or fewer. They
suggested that an exception to the final
rules would allow small issuers to adopt
elements of the requirements of most rel-
evance to their participants, beneficiaries,
and enrollees while not forcing them to
create a much more expensive option that
may be of limited appeal.
In considering these concerns, the De-
partments weighed the competing goals
of ensuring that consumers have access to
pricing information, the burden on plans,
including self-insured plans, and issuers
of individual health insurance coverage
and group health insurance coverage, and
encouraging innovative plan design. As
finalized, all issuers of non-grandfathered
individual and group health insurance cov-
erage and self-insured plans (that are not
account-based plans), are required to com-
ply with the final rules. Finalizing these
rules to be applicable to plans as proposed
is the most straightforward approach as it
is impossible to define and predict all pos-
sible modifications, plans, or models. Fur-
thermore, doing so mitigates creating in-
centives to adopt certain plan designs over
others. The Departments believe that this
is not likely to stifle innovation. Rather,
the Departments are of the view that this
approach creates a level playing field for
non-grandfathered individual and group
health insurance coverage and self-in-
sured plans (that are not account-based
plans) to create innovative plan designs
and increase consumers’ access to pricing
information that is sufficient to support in-
formed health care decisions. The Depart-
ments are of the view that exempting plan
designs, such as alternative contracting
and alternative payment model structures,
would create an opportunity for plans and
issuers to avoid sharing important pricing
information with consumers. The Depart-
ments maintain the view that consumers
across the market should come to expect
and receive the same access to standard-
ized, meaningful pricing information and
estimates for all plans affected by the final
rules. In addition, as detailed earlier in this
preamble, issuers of risk adjustment-cov-
ered plans that include capitation arrange-
ments are required under the final rules to
submit a derived amount, potentially using
the same internal methodology the issuer
uses to assign a price value to the item or
service for purposes of submitting risk ad-
justment data under 45 CFR 153.710(c).
A few commenters supported exempt-
ing grandfathered health plans, HRAs
or other account-based plans, excepted
benefits, and STLDI from the proposed
rules. However, a majority of comment-
ers were concerned that the final rules,
as proposed, would not apply to plans or
arrangements that may have the highest
potential cost-sharing obligations, such
as STLDI and health care sharing minis-
tries. These commenters were concerned
that STLDI plans often have dollar limits
on covered benefits, limits on prescrip-
tion drug coverage and covered doctor
visits, and excluded benefits, which of-
ten means consumers enrolled in these
plans can face higher cost-sharing liabil-
ity when seeking medical care than pa-
tients covered by individual health insur-
ance coverage, as defined under section
2791(b)(5) of the PHS Act. They stated
that it is even more important for these
patients to have access to their cost-shar-
ing liability under the final rules before
receiving care or even signing up for a
STLDI plan, so they are aware of their
coverage limits and are prepared to re-
ceive bills from the hospital and other
health care providers for amounts that
exceed their coverage. One commenter
stated that whether such plans are consid-
ered “individual health insurance” is not
relevant for such a determination, as the
proposed rules would not apply to just
individual health insurance, but would
also apply to group coverage and grand-
mothered plans.
The Departments appreciate the con-
cerns raised by commenters regarding
these plans. However, the final rules adopt
these policies as proposed. As noted earli-
er in this section of this preamble, certain
types of coverage and arrangements such
as STLDI, excepted benefits and health
care sharing ministries, are not subject to
the transparency provisions under section
2715A of the PHS Act and, therefore, are
not subject to the final rules. However, the
Departments encourage all plans that are
not subject to the final rules to work to in-
crease the transparency and availability of
pricing information, to enable consumers
to make informed health care decisions.
One commenter sought clarification
of the liability of individual employers
concerning Multiple Employer Welfare
Arrangements (MEWAs) and Taft-Hartley
plans. Section 715 of ERISA incorporates
section 2715A of the PHS Act into part 7
of ERISA. Generally, employers are only
responsible for ensuring compliance with
the requirements of ERISA for a Taft-Hart-
ley plan (also known as a multi-employer
plan), if they are a member of the associ-
ation, committee, joint board of trustees,
or other similar group of representatives
of the parties who establish or maintain
the plan, or are otherwise a fiduciary of
the plan. For MEWAs that are employee
welfare benefit plans, the bona fide group
or association that sponsors the MEWA
assumes and retains responsibility for
operating and administering the MEWA,
including ensuring compliance with Part
7 of ERISA. In cases where the MEWA
itself is not a plan, each employer that
provides benefits through a MEWA and,
therefore, maintains its own plan, is sep-
arately responsible for compliance with
ERISA requirements, and thus with the
requirements of the final rules.
Some commenters recommended add-
ing additional plans and coverages to the
list of health coverage not subject to these
transparency requirements. One com-
menter recommended adding expatriate
health plans because the Expatriate Health
Coverage Clarification Act of 2014 ex-
empts expatriate health plans from most
of the provisions of PPACA, including
sections 1311(e)(3) of PPACA and section
2715A of the PHS Act, both of which the

November 30, 2020 1332 Bulletin No. 2020–49
Departments cite in asserting statutory
authority to propose these transparency
requirements. Another commenter recom-
mended that Denominational Health Plans
be specifically exempted from the final
rules. This commenter noted that Denomi-
national Health Plans can only offer cover-
age to a limited segment of the population
—eligible employees in the denomination
—based on church requirements, beliefs,
and polity. Therefore, most of the individ-
uals to which this information would be
disclosed would not be eligible to enroll
in these plans even if they wished to do
so. Other commenters recommended ex-
tending the final rules to health coverage
to which 2715A of the PHS Act does not
apply. For example, a commenter recom-
mended that the Departments add Med-
icaid Managed Care Organization plans
and Medicare-Medicaid Plans to the list
of health plans not subject to the transpar-
ency requirements. The commenter noted
that the combination of Medicaid payment
rates and low cost-sharing requirements
limit the usefulness of this information in
the Medicaid context.
The Departments are finalizing the final
rules as proposed and, therefore, all plans
subject to section 2715A of the PHS Act
must comply with these requirements. The
Departments agree with commenters that
sections 1311(e)(3) of PPACA and 2715A
of the PHS Act do not apply to expatriate
health plans
231
and, therefore, such plans
are not subject to the requirements in the
final rules. Furthermore, the Departments’
authority for the final rules derive from
section 2715A of the PHS Act, which only
applies to group health plans and health
insurance issuers offering group or indi-
vidual health insurance coverage, and not
Medicaid Managed Care Organization
plans, Medicare-Medicaid Plans, and De-
nominational Health Plans.
Interaction of Final Rules with 45 CFR
156.220
The Departments recognize that health
insurance issuers offering group or indi-
vidual health insurance coverage as QHPs
through an Exchange are already subject
to reporting requirements under 45 CFR
156.220 that implement the transparen-
cy in coverage requirements of section
1311(e)(3) of PPACA. Pursuant to 45
CFR 156.220, issuers of QHPs offered
through an individual market Exchange or
a Small Business Health Options (SHOP)
Exchange, including stand-alone dental
plans, must submit specific information
about their plans’ coverage to the appro-
priate Exchange, HHS, and the state in-
surance commissioner, as well as make
the information available to the public in
plain language.
The Departments acknowledge the
similar purposes served by 45 CFR
156.220 and the final rules. The Depart-
ments, however, note the final rules do not
alter requirements under section 45 CFR
156.220. Accordingly, QHP issuers must
comply with both rules’ requirements. If
necessary and to the extent appropriate,
HHS may issue future guidance to address
QHP issuers’ compliance with both sec-
tion 45 CFR 156.220 and the final rules.
2. Applicability Dates
Except as otherwise provided for in
the proposed MLR requirements,
232
the
Departments proposed that all the pro-
posed requirements would become appli-
cable for plan years (or in the individual
market, policy years) beginning on or af-
ter one year after the finalization of the
final rules. The Departments requested
feedback about this proposed timing. In
particular, the Departments were interest-
ed in information regarding the time nec-
essary to develop cost estimation tools
and machine-readable files. The Depart-
ments are finalizing a modified applica-
bility timeline for the machine-readable
files at 26 CFR 54.9815-2715A3, 29 CFR
2590.715-54.9815-2715A3, and 45 CFR
part 147.212. The requirements to pub-
lish the machine-readable files will be-
come effective for plan years (or in the
individual market, for policy years) be-
ginning on or after January 1, 2022. The
Departments, in response to comments,
are finalizing an applicability date that
is generally one-year later than the pro-
posed applicability date for complying
with the internet-based self-service tool
requirements. Specifically, plans and is-
suers will be allowed to phase in the re-
quirements at 26 CFR 54.9815-22715A2,
29 CFR 2590.715-2715A2, and 45 CFR
part 147.211 regarding the items and
services included in the internet-based
self-service tool. Plans and issuers will
be required to provide pricing informa-
tion for a minimum of 500 items and
services identified by the Departments
beginning with plan years (or in the in-
dividual market, policy years) on or after
January 1, 2023. Plans and issuers will be
required to provide the pricing informa-
tion through the internet-based self-ser-
vice tool for all items and services by
plan years (or in the individual market,
policy years) beginning on or after Jan-
uary 1, 2024.
The Departments are finalizing appli-
cability dates that do not tie applicability
timelines to the beginning of plan years
(or in the individual market policy years)
that begin one year after the effective date
of the rules, as proposed. Because most
plan and policy years begin on January
1
st
, the Departments are of the view that
this change in the applicability date likely
will not shorten the amount of time plans
and issuers have to comply with the ma-
chine-readable file requirements, as it has
been the Departments’ intent, including
under the proposed rules, to require cal-
endar year plans and policies to come into
compliance with the final rules by January
1, 2022. The changed timeline is therefore
unlikely to lead to increased burdens or
costs. The Departments are finalizing a
3-year applicability timeline for the inter-
net-based self-service tool requirements.
Under the proposed rules, plans and is-
suers would have had to comply with all
relevant proposed requirements beginning
with plan or policy years beginning on or
after January 1, 2023. Under the final rules,
full compliance with all requirements as-
sociated with the internet-based self-ser-
vice tool will not be required until plan or
policy years beginning on or after January
1, 2024. For these reasons, the final rule’s
applicability dates for the self-service tool
231
42 U.S.C. 18014.
232
As noted above, HHS proposed and finalized that the amendment to the MLR regulation will become effective beginning with the 2020 MLR reporting year (for reports filed by July 31,
2021).

Bulletin No. 2020–49 1333 November 30, 2020
requirements are also unlikely to lead to
increased burdens or costs.
Many commenters submitted com-
ments regarding the proposed applicabil-
ity date of the proposed rules. The major-
ity of commenters strongly recommended
delaying the proposed applicability date
for the internet-based self-service tool and
machine-readable file requirements of the
rules for at least one year and up to five
years from publication of the final rules.
Commenters recommended delaying
the applicability date of the final rules be-
cause complying with the requirements
will require negotiations with adminis-
trative service providers, and the design,
building, and testing of websites. Other
commenters cited the challenges in ac-
cessing some of the required information
from third parties and the technical chal-
lenges plans will likely face as additional
reasons to delay the applicability dates of
these requirements. Additionally, com-
menters noted that the proposed rules
would require disclosure of large volumes
of data, which will have to be coordinat-
ed among various parties and for which
systems will need to be put into place to
ensure timely, accurate disclosure. Some
commenters noted that a delay would be
needed due to complex operational and
compliance issues related to contracting
with TPAs, ownership of data, and build-
ing and operating new IT systems.
Commenters also cited vendor supply/
demand challenges; extensive technolo-
gy design, development, and deployment
work; amending agreements with third
parties; financing required to meet the
requirements of the final rules; and time
needed to test the tools for consumer use
as reasons to delay the applicability date.
One commenter noted that their current
price estimator tools took considerable
time and resources to develop, and large
portions of a tool’s underlying logic or
feature set may not be compatible with
the approach envisioned in the proposed
rules. Moreover, testing, evaluating, and
resolving these types of issues will require
significant investment in IT development,
numerous iterations of quality assurance
and consumer testing, extensive education
and training for plan staff, and develop-
ment of new consumer-facing materials,
among other challenges. Another com-
menter recommended that employers/plan
sponsors should not have to comply with
the final rules until the first day of the first
plan year that is two years after the date on
which the rules are published. Similarly,
commenters requested a lengthy phase-in
period to give employers, third parties,
issuers, and health care providers time to
modify their contractual agreements to
provide all of the data the proposed rules
would require to be disclosed.
A few commenters stated the Depart-
ments severely underestimated the time
needed to implement the machine-read-
able files. The commenter noted that the
timeline to implement the machine-read-
able files is very short, which could com-
promise the integrity of the files and lead
to unintended consequences for consum-
ers. Another commenter noted that, if not
eliminated, the requirement to make ma-
chine-readable files available should be
applicable no earlier than plan or policy
years beginning three years after the date
the rules are finalized.
As discussed in the economic impact
analysis, the Departments are of the view
that developing the machine-readable files
should be straightforward for most plans
and issuers and that plans and issuers will
incur limited additional administrative
burdens or costs after the one-time ini-
tial file development. The development
activities needed to establish the ma-
chine-readable files involve gathering,
formatting, and making publicly available
already existing data that plans and issu-
ers use in their everyday operations. Plans
and issuers need to keep this information
current for operational purposes, and the
additional costs and burdens of ensuring
that the machine-readable files are up-
dated monthly is expected to decrease in
subsequent years and ultimately become
minimal, as the Departments expect plans
and issuers to automate the updating and
verification processes in the years follow-
ing initial development.
The Departments are of the view that
providing for a phased-in approach with
regard to the number of items and services
required for the internet-based self-service
tool will provide more time for plans and
issuers to plan for any increased costs,
work with various vendors, perform user
testing, and build appropriate technology
to handle the disclosure of data through
the internet-based self-service tool. There-
fore, the final rules require plans and is-
suers to include in the internet-based
self-service tool (and by request, through
the paper method) 500 items and services
identified by the Departments for plan
years (in the individual market, for poli-
cy years) beginning on or after January 1,
2023, and all items and services for plan
years (in the individual market, for pol-
icy years) beginning on or after January
1, 2024. The Departments are of the view
that providing more time to implement the
internet-based self-service tool while gen-
erally maintaining the timeline for the ma-
chine-readable files, strikes the appropri-
ate balance between minimizing burdens
for issuers and maximizing price transpar-
ency for the public. Providing information
to the public through the machine-read-
able files sooner will also accelerate re-
searchers’ and third-party developers’
access to pricing information and poten-
tially provide additional resources and in-
centives for plans to build out their own
consumer-tools.
Many commenters also encouraged the
Departments to allow for a phased-in ap-
proach for the internet-based self-service
tool and machine-readable files. Some
commenters suggested finalizing a rule
that allows for a phased-in approach for
different group health plans and health
insurance issuers of individual and group
health insurance coverage to come into
compliance with the final rules. Some
commenters recommended finalizing a
rule that allows for a phased-in approach
by allowing smaller entities an extended
implementation timeframe (that is, an
additional 3 to 5 years) due to the dispro-
portionate IT burden that will be placed
on these smaller entities. Additionally,
commenters were concerned that the rules
may create a competitive advantage for
larger issuers and TPAs.
A few commenters recommended that
the rules be implemented in a more grad-
ual fashion by requiring a price transpar-
ency tool that covers a narrower data set
initially, for example, one that includes
only the most common shoppable ser-
vices. These commenters asserted that,
over time, this scope could be broadened
to be fully inclusive, but an initial narrow
focus could increase the chance that pa-
tients have critical, actionable information
as soon as possible.

November 30, 2020 1334 Bulletin No. 2020–49
Other commenters recommended a
phased approach that would focus first on
the functionality providing the most value
to consumers to establish a baseline stan-
dard of price transparency across plans,
while allowing time for the industry to
solve more difficult technical challenges.
Another commenter recommended allow-
ing employers that have highly custom-
ized benefit structures additional time to
implement the internet-based self-service
tool. One commenter recommended al-
lowing for a transition period for issuers
and plans to use their current tools to meet
the requirements.
A few commenters recommended
including quality metrics. These com-
menters noted that requiring quality in-
formation in the disclosures would take
additional time. In particular, one com-
menter was concerned that in the absence
of quality data, price transparency could
actually increase spending. The comment-
er therefore recommended delaying the
implementation of the final rules until
quality information, such as information
related to patient satisfaction and experi-
ence, adherence to clinical standards and
evidence-based medicine, and patient
safety and clinical outcomes, could be
incorporated. Another commenter stat-
ed that, if pharmacy quality information
could be included, the Departments would
need to provide for several years to trans-
form existing consensus-based processes
to identify appropriate quality metrics to
include health plans serving different pop-
ulations. Another commenter urged the
Departments to perform a study on the
effects of price transparency and the po-
tential consequences on consumers seek-
ing care to better understand how best to
integrate quality information alongside
prices to allow consumers to evaluate the
services that best respond to their individ-
ual needs.
As the Departments explain in section
II.C.1 of this preamble, government and
private sector actors are working to de-
velop and implement reliable and reason-
able quality measures that can be applied
to produce quality rating information
that consumers may access and consid-
er alongside pricing. As commenters ac-
knowledged, delaying the final rules for
the purpose of requiring the integration
of quality information with price infor-
mation would require several additional
years. While the Departments appreciate
the value of quality information to in-
formed health care decision-making, the
Departments are of the view that price
transparency in health coverage must not
be delayed for years when some quality
information is already available or under
development. Indeed, the Departments ex-
pect that the ready availability of pricing
information will create greater consumer
interest in quality information and other
data relevant to health care decision-mak-
ing, and that the market will respond to
provide such information through innova-
tive resources such as online tools and mo-
bile applications. The Departments antici-
pate that innovators will seek ways to best
present and integrate pricing and quality
data. However, the Departments also will
consider what next steps are appropriate
and feasible within the Departments’ cur-
rent authorities, including the possibility
of conducting a study to evaluate how to
best integrate quality information along-
side prices. For these reasons and those
noted earlier in this preamble, the Depart-
ments decline to require plans and issuers
to include quality information in the dis-
closures required by the final rules.
The Departments are finalizing the
applicability dates of the final rules as
described earlier in this preamble. The
Departments are of the view that the ad-
ditional time and flexibility regarding the
internet-based self-service tool will help
address the concerns commenters raised
regarding smaller entities’ ability to com-
ply with these requirements.
B. Enforcement and Good Faith Special
Applicability
The preamble to the proposed rules did
not discuss how the proposed rules would
be enforced. State regulators, in their
comments to the proposed rules, sought
greater clarity on how the proposed rules’
requirements would be enforced as specif-
ically applied to health issuers in the indi-
vidual and group markets. Section 1311(e)
(3) is located in title I of PPACA and, un-
der section 1321(c)(2) of PPACA is sub-
ject to the enforcement scheme set forth
in section 2723 of the PHS Act. Similar-
ly, section 2715A of the PHS Act is sub-
ject to the enforcement scheme set forth
in section 2723 of the PHS Act. There-
fore, states will generally be the primary
enforcers of the requirements imposed
upon health insurance issuers by the final
rules.
233
The Departments expect to work
closely with state regulators to design ef-
fective processes and partnerships for en-
forcing the final rules.
The proposed rules included a spe-
cial applicability provision to address
circumstances in which a group health
plan or health insurance issuer, acting in
good faith, makes an error or omission
in its disclosures. Specifically, a plan or
issuer would not fail to comply with the
proposed rules solely because it, acting in
good faith and with reasonable diligence,
made an error or omission in a disclosure,
provided that the plan or issuer corrects
the information as soon as practicable.
Additionally, to the extent such an error
or omission was due to good faith reliance
on information from another entity, the
proposed rules included a special applica-
bility provision under which, to the extent
compliance would require a plan or issuer
to obtain information from any other en-
tity, the plan or issuer would not fail to
comply with this section because it relied
in good faith on information from the oth-
er entity, unless the plan or issuer knew,
or reasonably should have known, that the
information was incomplete or inaccurate.
Under the proposed rules, if a plan or is-
suer had knowledge that such information
was incomplete or inaccurate, the plan or
issuer would be required to correct the in-
formation as soon as practicable.
Furthermore, the proposed rules also
included a special applicability provision
to account for circumstances in which a
plan or issuer fails to make the required
disclosures available due to its internet
website being temporarily inaccessible.
Accordingly, the proposed rules provid-
233
DOL has jurisdiction to enforce the final rules as they apply to group health plans subject to ERISA. Treasury has jurisdiction over certain church plans. HHS has jurisdiction over non-fed-
eral governmental plans and over health insurance issuers where the HHS Secretary determines that a state has failed to substantially enforce the requirements. OPM has jurisdiction over the
Federal Employees Health Benefits Plans.

Bulletin No. 2020–49 1335 November 30, 2020
ed that a plan or issuer would not fail to
comply with this section solely because,
despite acting in good faith and with rea-
sonable diligence, its internet website is
temporarily inaccessible, provided that
the plan or issuer makes the information
available as soon as practicable.
The Departments solicited comments
regarding whether, in addition to these
special applicability provisions, addition-
al measures should be taken to ensure
that plans and issuers that have taken rea-
sonable steps to ensure the accuracy of
required information disclosures are not
exposed to liability by virtue of providing
such information as required by the pro-
posed rules.
In general, commenters supported the
good faith special applicability provi-
sions (also referred to as “safe harbors”)
and recommended certain clarifications.
One commenter requested clarification
regarding how the Departments would
determine whether a plan or issuer acted
in “good faith” and with “reasonable dili-
gence.” Another commenter requested ad-
ditional guidance on what it would mean
to “correct” information, and specifically
whether this requirement would apply on
a prospective or retrospective basis. An-
other commenter recommended the De-
partments allow health plans 30 days to
update accumulated amounts in the inter-
net-based self-service tool.
The Departments are finalizing the
“good faith” safe harbor as proposed.
While “good faith” is not explicitly de-
fined in the final rules, it is an established
legal and business term that is generally
understood to involve honesty in fact and
the observance of reasonable commercial
standards of fair dealing, according to the
Uniform Commercial Code.
234
Efforts to
correct omitted or erroneous information
should proceed promptly after the plan or
issuer is informed of the error. At a min-
imum, correcting information should in-
clude replacing the incorrect information,
and may include notifying those affected
of the error and the correction, using dig-
ital or written communications to notify
affected participants, beneficiaries, and
enrollees, and posting a notice on the in-
ternet website of the expected time before
the error will be corrected.
The Departments received few com-
ments on the good faith special applicabil-
ity provision to account for circumstances
in which a plan or issuer fails to make the
required disclosures available due to its
internet website being temporarily inac-
cessible. One commenter recommended
that the website inaccessibility safe harbor
be expanded to cover situations in which
the internet-based self-service tool or ma-
chine-readable files are temporarily inac-
cessible, including because the internet
website is inaccessible. This clarification
would cover other technical issues, for ex-
ample, that may affect only these resourc-
es, even though the remainder of the issu-
er’s or plan’s website is accessible.
Several commenters recommended
that the Departments expand the “safe
harbor” to account for additional circum-
stances. Commenters recommended that a
safe harbor be created for plans that do not
have direct access to negotiated in-net-
work rates and allowed amounts, or infor-
mation regarding reference based re-pric-
ing in real time, and that may be unable
to obtain some of the required information
despite good faith efforts. For example,
commenters recommended exempting
employers, plan sponsors, and self-in-
sured plans that rely on TPAs from liabil-
ity if they have made good faith efforts to
obtain the required data but have failed
to do so. Commenters also recommended
exempting plan sponsors that have been
unable to procure third-party vendors
from liability if these plans sponsors have
acted in good faith. One commenter rec-
ommended that the Departments finalize
a good faith special applicability provi-
sion to protect health plans and issuers
that provide cost estimates that meet the
requirements of the final rules if the esti-
mates do not match the amounts actually
paid by participants, beneficiaries, or en-
rollees. This commenter also requested
that this safe harbor be extended to the
cost-sharing estimate requirements.
Commenters also recommended that
the Departments consider a safe harbor
provision for covered entities that clearly
provides that issuers and plans are not re-
sponsible for the downstream privacy and
security of PHI shared by a participant,
beneficiary, or enrollee with a third-par-
ty application consistent with the recent
guidance issued by the HHS OCR.
235

Another commenter recommended the
creation of additional safe harbor provi-
sions to allow and encourage health care
organizations to share threat information
about security risks and incidents linked
to third-party applications.
One commenter noted that disclosure
of pricing information through the ma-
chine-readable files and cost-sharing tool
raises concerns for plan sponsors about
the potential for increased litigation under
ERISA based on the release of payer-spe-
cific negotiated rates. The commenter en-
couraged DOL to effectively and express-
ly address this issue so that any disclosure
requirement is crafted in a way that does
not increase fiduciary liability for employ-
er plan sponsors. The commenter recom-
mended that DOL consider proposing a
“safe harbor” to protect employers from
downstream litigation risk related to the
public disclosure of negotiated rates and
disclosure of negotiated rates through the
cost-sharing tool. Such a “safe harbor”
could provide that so long as an employer
can demonstrate it “considered” negoti-
ated rates as part of its decision-making
process in selecting an administrative ser-
vice organization (ASO) for its plan, so
that it would not be deemed to have acted
imprudently as a fiduciary for purposes
of ERISA with respect to the selection of
the ASO by virtue of the negotiated rates.
While the Departments appreciate this
comment regarding increased litigation
under ERISA, this request is beyond the
scope of this rulemaking.
Finally, several commenters requested
a deemed compliance standard for em-
ployers or plans that already offer trans-
parency tools designed to assist partici-
pants with cost estimates and obtaining
up-to-date cost-sharing information or for
plans and issuers that voluntarily submit
their data to multi-payer claims databases.
Other commenters noted that some exist-
ing state laws require plans to provide the
234
“Uniform Commercial Code. General Definitions.” Cornell Law School Legal Information Institute. Available at: https://www.law.cornell.edu/ucc/1/1-201#Goodfaith.
235
“HHS FAQ.” United States Department of Health and Human Services. Available at: https://www.hhs.gov/hipaa/for-professionals/faq/3009/does-a-hipaa-covered-entity-bear-liability.html.

November 30, 2020 1336 Bulletin No. 2020–49
ability for enrollees to look up their out-
of-pocket costs for several hundred pro-
cedures online or by phone. These com-
menters recommended—to reduce burden
on issuer implementation and avoid du-
plication of effort—that health plans that
comply with existing state laws requiring
treatment cost-estimator functionality be
deemed in compliance with any similar
federal requirements. Another commenter
recommended this safe harbor be extend-
ed to the machine-readable files.
The Departments understand that states
have been at the forefront of transparency
initiatives and some have required dis-
closure of pricing information for years.
However, it is important to note that states
do not have authority to require such dis-
closures by plans subject to ERISA, which
compose a significant portion of the pri-
vate market.
236
As a result, a significant
portion of consumers do not have access
to information on their plans, even in
states that have implemented transparency
requirements. The Departments are also
aware that many plans and issuers have
moved in the direction of increased price
transparency. Despite these price transpar-
ency efforts, the Departments understand
that there continues to be a lack of easily
accessible pricing information for con-
sumers to use when shopping for health
care services. The final rules are meant, in
part, to address this lack of easily acces-
sible pricing information, and represent a
critical part of the ‘Departments’ overall
strategy for reforming health care markets
by promoting transparency, competition,
and choice.
The Departments will take these addi-
tional safe harbor recommendations into
consideration for future rulemaking. The
Departments are not including in the fi-
nal rules any safe harbor rule that would
substitute the offering of existing tools or
compliance with existing state transparen-
cy laws. The Departments have concluded
that additional price transparency efforts
are necessary to empower consumers,
promote competition in the health care
industry, and reduce the overall rate of
growth in health care spending. The ad-
ditional safe harbors recommended by
commenters would not allow for the con-
sistent baselines and standards that the
Departments seek to establish with the fi-
nal rules. As noted above, one of the goals
of the final rules is to empower plans and
issuers in the commercial health care mar-
ket to innovate and compete in an industry
where innovation and competition cur-
rently appear to be limited. By requiring
public disclosure of pricing data a year af-
ter the effective date of the rules, the final
rules will encourage issuers, TPAs, and
third-party developers and innovators to
create or enhance their shopping tools, in-
cluding the self-service tools also required
by these final rules. The development of
these tools in turn will create additional
consumerism, which will lead to lower
prices throughout the health care market.
This impact is only achievable, however if
all applicable plans and issuers are held to
the same standards and timelines. Further-
more, limiting the applicability of the final
rules would undermine the Departments’
overall strategy for reforming health care
markets by promoting transparency, com-
petition, and choice across the health care
industry.
The Departments are of the view that,
ultimately, plans and issuers are responsi-
ble for complying with the requirements
outlined in the final rules. The Depart-
ments understand that plans may have to
make adjustments to their contracts and as
such, the Departments have factored that
into the burden estimates and timing re-
quirements for implementation explained
elsewhere in the final rules. As plans and
issuers are responsible for complying with
the requirements outlined in the final rules,
they should carefully examine the capaci-
ty of any partners they may contract with
to provide the required information. Final-
ly, as discussed earlier in this preamble,
the Departments recognize the privacy
concerns raised by commenters, but are of
the view that the final rules, which include
an exemption for providers with fewer
than 20 different claims for payment and
do not require any disclosure of PII or PHI
through an API, and the continuing obli-
gation of plans and issuers to comply with
applicable privacy requirements, do not
raise sufficient privacy concerns to require
an additional privacy-related safe harbor.
V. Economic Impact Analysis and
Paperwork Burden
A. Summary/ Statement of Need
This regulatory action is taken, in
part, in light of Executive Order 13877
directing the Departments to issue an
ANPRM, soliciting comments consistent
with applicable law, requiring providers,
health insurance issuers, and self-insured
group health plans to provide or facili-
tate access to information about expected
out-of-pocket costs for items or services
to patients before they receive care. As
discussed previously in this preamble, in
response to Executive Order 13877, the
Departments published the proposed rules
entitled “Transparency in Coverage.” De-
spite the growing number of initiatives
and the growing consumer demand for,
and awareness of, the need for pricing in-
formation, there continues to be a gap in
easily accessible pricing information for
consumers to use to shop for health care
items and services. The final rules add new
requirements to 26 CFR part 54, 29 CFR
part 2590, and 45 CFR part 147 aimed
at addressing this gap, and are a critical
part of the Administration’s overall strat-
egy for reforming health care markets by
promoting transparency and competition,
creating choice in the health care industry,
and enabling consumers to make informed
choices about their health care. As dis-
cussed later in the RIA, the Departments
acknowledge that more than 90 percent
of plans, issuers, and TPAs currently pro-
vide some form of internet-based self-ser-
vice tool to their consumers. However, as
stated in section I.B of the final rules, the
Departments understand that utility and
accuracy among existing issuer cost esti-
mator tools varies widely. Based on issuer
demonstrations of their tools given to the
Departments, some estimators reflect a
combined range of possible costs; others
give estimates based off historical pricing
or claims data from various sources, while
others are restricted in the types of proce-
236
Panis, C. W. A., and Brien, M. J. “Self-Insured Health Benefit Plans 2019: Based on Filings through Statistical Year 2016.” Deloitte. January 7, 2019. Available at: https://www.dol.gov/
sites/ dolgov/ files/ EBSA/ researchers/ statistics/ retirement-bulletins/ annual-report-on-self-insured-group-health-plans-2019-appendix-b.pdf.

Bulletin No. 2020–49 1337 November 30, 2020
dures they include. Moreover, some exist-
ing issuer tools do not take into account
a participant’s, beneficiary’s, or enrollee’s
accumulators.
237
The Departments are of
the view that it is important to establish
a minimum set of standards of what is
acceptable so that consumers can take ad-
vantage of the information market-wide.
Consistency will give consumers confi-
dence that the information presented by
these tools will not change arbitrarily.
Reliability assures consumers that infor-
mation in these tools accurately reflects
plans’ and issuers’ best estimates of costs.
The availability of these tools across all
markets will ensure that no participant,
beneficiary, or enrollee is denied access
to the benefits of this rule and the Depart-
ments are of the view that this consisten-
cy is vital for success and utilization. As
discussed previously in section I.B, state
transparency requirements are generally
not applicable to self-insured group health
plans, and as a result, a significant portion
of consumers may not have access to in-
formation on their plans and their health
care costs. The Departments encourage
additional functionality and innovation
to be built around the requirements of the
final rules, but believe a baseline is re-
quired to give the participant, beneficiary,
or enrollee some confidence that no mat-
ter which plans tool they used, it would at
least offer the same basic information. By
requiring group health plans and health in-
surance issuers to disclose to participants,
beneficiaries, or enrollees such individu-
al’s cost-sharing information for covered
items or services furnished by a particular
provider, the final rules provide them suf-
ficient information to determine their po-
tential out-of-pocket costs related to need-
ed care and encourages them to consider
price when making decisions about their
health care.
B. Overall Impact
The Departments have examined the
impact of the final rules as required by Ex-
ecutive Order 12866 on Regulatory Plan-
ning and Review (September 30, 1993),
Executive Order 13563 on Improving
Regulation and Regulatory Review (Jan-
uary 18, 2011), the Regulatory Flexibili-
ty Act (RFA) (September 19, 1980, Pub.
L. 96-354), section 202 of the Unfunded
Mandates Reform Act of 1995 (March 22,
1995, Pub. L. 104-4), Executive Order
13132 on Federalism (August 4, 1999),
the Congressional Review Act (5 U.S.C.
804(2)), and Executive Order 13771 on
Reducing Regulation and Controlling
Regulatory Costs (January 30, 2017).
Executive Orders 12866 and 13563 di-
rect agencies to assess all 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 equi-
ty). Executive Order 13563 emphasizes
the importance of quantifying both costs
and benefits, reducing costs, harmonizing
rules, and promoting flexibility. A regula-
tory impact analysis (RIA) must be pre-
pared for rules with economically signifi-
cant effects ($100 million or more in any
1 year).
Section 3(f) of Executive Order 12866
defines a “significant regulatory action”
as an action that is likely to result in a
rule: (1) having an annual effect on the
economy of $100 million or more in any
1 year, or adversely and materially affect-
ing a sector of the economy, productivi-
ty, competition, jobs, the environment,
public health or safety, or state, local or
tribal governments or communities (also
referred to as “economically significant”);
(2) creating a serious inconsistency or oth-
erwise interfering with an action taken or
planned by another agency; (3) materially
altering the budgetary impacts of entitle-
ment grants, user fees, or loan programs
or the rights and obligations of recipients
thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the
President’s priorities, or the principles set
forth in the Executive Order. An RIA must
be prepared for major rules with econom-
ically significant effects ($100 million or
more in any 1 year), and a “significant”
regulatory action is subject to review by
the Office of Management and Budget
(OMB). The Departments have concluded
that the final rules are likely to have eco-
nomic impacts of $100 million or more
in at least 1 year, and, therefore, meet
the definition of “economically signifi-
cant rule” under Executive Order 12866.
Therefore, the Departments have provided
an assessment of the potential costs, bene-
fits, and transfers associated with the final
rules. OMB reviewed this regulation in
accordance with the provisions of Execu-
tive Order 12866.
Two commenters suggested that the
proposed rules failed to comply with
Executive Order 12866. Executive Or-
der 12866 defines rules likely to have an
economic impact in excess of $100 mil-
lion as “significant” and requires that the
agencies conduct an assessment of po-
tential costs. The commenters suggested
that the economic impact analysis and
cost assessment the agencies provided for
the proposed rules were short of the con-
crete, well-founded analysis required of
the economic analysis directed by Exec-
utive Order 12866 that must accompany
a proposed rulemaking as far-reaching,
and potentially costly, as the proposed
rules. One commenter suggested that the
proposed rules were inconsistent with
both Executive Order 12866 and Exec-
utive Order 13563, both of which direct
agencies to carefully consider alternatives
to regulations an agency has deemed nec-
essary, and to select the least burdensome
approach available. The commenter main-
tained that the agencies did not adequately
consider alternatives and are proposing
an unnecessarily and excessively burden-
some approach.
After consideration and discussion of
the comments related to proposed cost
estimates received in response to the pro-
posed rules, the Departments chose to
reevaluate the cost estimates associated
with the provisions in the final rules. The
Departments also consulted with inter-
nal and external IT professionals to gain
a better insight into what individuals and
tasks would be needed to design, develop,
237
See also “Are healthcare's cost estimate tools making matters worse for patients?” Becker’s Hospital CFO Report. Available at https://www.beckershospitalreview.com/finance/are-health-
care-s-cost-estimate-tools-making-matters-worse-for-patients.html (citing Gordon, E. “Patients Want To Price-Shop For Care, But Online Tools Unreliable.” NPR. November 30, 2015.
Available at https://www.npr.org/sections/health-shots/2015/11/30/453087857/patients-want-to-price-shop-for-care-but-online-tools-unreliable) (“Some estimators reflect a combined range
of possible costs, while others are based off historical pricing or claims data from various sources. Many online estimate tools are restricted in the types of procedures they include . . . .”).

November 30, 2020 1338 Bulletin No. 2020–49
and deploy the internet-based self-service
tool and the three machine-readable files
required by the final rules. Based on this
consultation and additional research, the
Departments have chosen to increase the
cost estimates to account for the updated
understanding of the costs posed by the fi-
nal rules, as well as the additional require-
ments included in the final rules. The De-
partments further discuss changes to the
final cost estimates later in this preamble
and in the associated ICR sections.
The final rules will enable participants,
beneficiaries, and enrollees to obtain in-
formation about their potential cost-shar-
ing liability for covered items and services
that they might receive from a particular
provider by requiring plans and issuers
to disclose cost-sharing information as
described at 26 CFR 54.9815-2715A2,
29 CFR 2590.715-2715A2, and 45 CFR
147.211. As discussed earlier in section
I.B. of the final rules, there has been a
shift in the health care market from co-
payments to coinsurance. Coupled with
increases in plans and coverages with
high deductibles, generally requiring
sizeable out-of-pocket expenditures prior
to receiving coverage under the terms of
the plan or policy, participants, beneficia-
ries, and enrollees are now shouldering a
greater portion of their health care costs
than before. For example, over the peri-
od from 2008 to 2018, the average health
care costs incurred by families covered
by large employers – including premium
contributions and out-of-pocket spending
on health care services – have increased
67 percent from $4,617 to $7,726 annual-
ly. Over the same period, the average out-
of-pocket costs alone have increased from
$1,779 to $3,020 annually.
238
The Depart-
ments are of the view that disclosure of
pricing information is crucial for partici-
pants, beneficiaries, or enrollees to engage
in informed health care decision-making
and believe that with greater price trans-
parency and access to more accurate and
actionable pricing information, partici-
pants, beneficiaries, and enrollees will be
able to consider the value of an item or
service when making decisions related to
their health care.
In addition, as described at 26 CFR
54.9815-2715A1, 26 CFR 54.9815-
2715A2, 26 CFR 54.9815-2715A3,
29 CFR 2590.715-2715A1, 29 CFR
2590.715-2715A2, 29 CFR 2590.715-
2715A3, and 45 CFR 147.210, 147.211
and 147.212, the final rules require group
health plans and health insurance issuers
to make public in-network rates, includ-
ing amounts in underlying fee schedules,
negotiated rates, and derived amounts for
in-network providers; historical allowed
amounts paid to out-of-network providers
and billed charges for all covered items
and services; and negotiated rates and his-
torical net prices for prescription drugs.
The Departments are of the view that these
requirements, through providing greater
transparency and access to pricing infor-
mation, will provide consistency and con-
fidence across all internet-based self-ser-
vice tools. Access to data provided by the
three machine-readable files will ensure
that all consumers have the pricing infor-
mation they need in a readily accessible
format, which could inform their choic-
es, in addition to potentially impacting
cost disparities and improvements to the
overall functioning of the health care mar-
ket. The Departments are of the view that
greater price transparency and the avail-
ability of price information to the public
will empower the 26.1 million uninsured
consumers
239
to make more informed
health care decisions and allow consum-
ers who wish to shop among plans and
coverage options to better understand the
potential cost of their care. Public avail-
ability of this information will also allow
third-party IT developers to provide con-
sumers with more accurate information on
provider, plan, and issuer value, as well as
prescription drug pricing information, en-
suring that such information is available
to consumers where and when it is need-
ed. Furthermore, providing the in-network
rates along with out-of-pocket costs will
also show what future costs could be for a
participant, beneficiary, or enrollee for the
same service, depending on the progress
of his or her deductible. This information
will help consumers make informed de-
cisions related to their health care needs
now and in the future.
The Departments received many com-
ments regarding the underlying econom-
ic principles of the proposed rules. Many
commenters were concerned the rules
as proposed could disrupt contract ne-
gotiations between providers and health
plans and result in providers acting in
anticompetitive ways (such as collusion,
consolidation, or price fixing), resulting
in increased rates (a so-called “race to the
top”). Some of these commenters were
particularly concerned with the potential
of the Departments’ proposals to spur
anticompetitive behavior in highly con-
centrated markets. Several of these com-
menters cited the FTC’s concerns about
the potential negative impacts of price
transparency on competition in the health
insurance markets, including the possibil-
ity that providers (or sellers) will coordi-
nate their behavior or bid less aggressive-
ly, leading to higher prices. Commenters
also cited similar concerns expressed by
the Department of Justice (DOJ) and
the Congressional Budget Office (CBO)
about the unintended consequences of
releasing competitive proprietary infor-
mation such as the in-network rates of
plans and issuers. Commenters further
stated increased costs would negatively
impact consumer choice and reduce the
affordability of health insurance coverage
of low- and middle-income consumers.
One commenter expressed concern that
plans and issuers could also coordinate
to reduce provider payment levels below
market competitive rates, which could
negatively impact patient access to quality
care. In contrast, one commenter suggest-
ed that concerns about potential collusion
among providers are unfounded as local
markets are currently populated by a lim-
ited number of providers who tend to have
238
Rae, M., Copeland, R., and Cox, C. “Tracking the rise in premium contributions and cost-sharing for families with large employer coverage.” Peterson-KFF. August 14, 2019. Available
at: https://www.healthsystemtracker.org/brief/tracking-the-rise-in-premium-contributions-and-cost-sharing-for-families-with-large-employer-coverage/?utm_campaign=KFF-2019-Health-
Costs&amp;amp;utm_medium=email&amp;amp;_hsenc=p2ANqtz-_72_RHB9Twe8BpbqOg28rdlGqxq_SBgV6rB-kbC4PuYMItIOSxHQLmh_D3OH4GOnUKZXa8&amp;amp;utm_
source=hs_email&amp;amp;hsCtaTracking=04848753-3235-436e-a0de-ae8238ad00ad%7Cc1097ae0-0521-4e9a-8e45-e5a87f67af4a.
239
“Income, Poverty and Health Insurance Coverage in the United States: 2019.” United States Census Bureau. September 15, 2020. Available at: https://www.census.gov/newsroom/press-re-
leases/2020/income-poverty.html.

Bulletin No. 2020–49 1339 November 30, 2020
knowledge of each other’s rates and con-
sumers currently receive pricing informa-
tion through EOBs. The commenter also
expressed the opinion that the argument
put forth by issuers that in-network rates
are trade secrets is self-serving and bene-
fits them at the expense of consumers and
the public.
One issuer stated that its experience
in state markets where health care price
transparency was implemented (Massa-
chusetts, New Hampshire, and Maine)
do not provide evidence that transparen-
cy efforts produce reduced health care
prices and that state price transparency
efforts negatively affected issuers’ ability
to negotiate lower rates. However, anoth-
er commenter cited a study of the New
Hampshire transparency initiative that
found “a significant reduction in negotiat-
ed prices.”
240

Some commenters suggested that the
Departments should ensure that strong
protections are in place to prevent price
fixing or unsustainably low reimburse-
ment for care before requiring public dis-
closure of in-network and out-of-network
rates. For example, to address concerns
about price fixing, one commenter sug-
gested working closely with the FTC and
other appropriate federal and state author-
ities to monitor health care provider mar-
kets for any incidence of collusion, poten-
tially leading to the prosecution of entities
for violations that raise costs for patients
and plan sponsors.
By contrast, several commenters ex-
pressed the view that the public disclosure
of payer-specific in-network rates and
transparency would promote competition
in the health insurance markets and will
drive down costs, which could result in
lower, more reasonable health care pric-
es. One commenter cited a paper that
reviewed outcomes after the implemen-
tation of price transparency efforts and
found evidence for behavioral changes
that could place pressure on providers
to lower rates.
241
Specifically, the pa-
per found evidence of shopping activity
among consumers, especially younger
consumers, evidence of development ac-
tivity by third-party application develop-
ers using this information, and evidence
that employers will use the data to negoti-
ate better rates. Another commenter noted
that employers and health plans would be
able to leverage the information to nego-
tiate rates that are more reasonable and
encourage patients to access higher-value
providers.
As noted previously in sections I.B
and I.C of this preamble, the Depart-
ments are of the view that greater price
transparency and the public disclosure of
pricing information is necessary to enable
consumers to use and understand pricing
data in a manner that will increase com-
petition, improve markets, reduce dispar-
ities in health care prices, and potentially
lower health care costs. The Departments
continue to be of the view that effective
downward pressure on health care pric-
ing cannot be fully achieved without in-
creased price transparency and the pub-
lic disclosure of pricing information. As
discussed in section E.3 of this preamble,
the federal government maintains laws
and processes to investigate reports of
collusive or other anticompetitive prac-
tices.
Section 1311(e)(3) of PPACA and sec-
tion 2715A of the PHS Act, as well the au-
thority vested in the Departments, grant
participants, beneficiaries, enrollees, and
the public the right to know the prices of
health care items and services, which will
enable them make informed health care
purchasing decisions. Without access to
price information, consumers are unable
to accurately assess and choose the least
costly care and coverage options among
all available options, and choice cannot
be meaningful without adequate infor-
mation about those choices. Currently,
insured participants, beneficiaries, or
enrollees, as well as uninsured consum-
ers, do not have access to adequate and
accessible pricing information related to
care and coverage. The potential benefit
of consumer access to this information is
enormous. Furthermore, the Departments
are aware of consumer demand for this
information. According to a May 2019
poll conducted by the Harvard Center for
American Political Studies, 88 percent
of U.S. registered voters (out of a sam-
ple of 1,295) stated they would support
an initiative by the government to man-
date issuers, hospitals, doctors and other
providers to disclose the cost of their ser-
vices and discounted or negotiated rates
between these groups.
242
Furthermore,
65 percent of these individuals would fa-
vor these initiatives even if in the short
term they lead to an increase in prices
by some providers.
243
The vast majority
of comments the Departments received
in response to the proposed rules were
from individuals who expressed general
support for the transparency proposals
and expressed frustration at the lack of
information available about health care
pricing and a desire to have access to this
information.
As noted in the preamble to the pro-
posed rules and earlier in this preamble,
the belief that greater price transparency
will reduce health care costs by encour-
aging providers to offer more competitive
rates is consistent with the predictions
of standard economic theory and a num-
ber of empirical studies regarding price
transparency in other markets. The De-
partments agree, however, that the health
care market presents unique challenges.
The Departments reviewed a study that
notes certain special characteristics of the
health care market, including that: (1) dis-
eases and treatments affect each patient
differently, making health care difficult to
standardize and making price dispersion
difficult to monitor; (2) patients cannot
always know what they want or need,
and physicians effectively must serve as
their agents (for example, by recommend-
ing specialists and determining whether a
240
Brown Z. Y. “Equilibrium Effects of Health Care Price Information.” 101 Review of Economics & Stat. 699 (2019). Available at: http://www-personal.umich.edu/ ~zachb/ zbrown_ eqm_
effects_ price_ transparency.pdf.
241
Blase, B. “Transparent Prices Will Help Consumers and Employers Reduce Health Spending.” Texas Public Policy Foundation. September 27, 2019. Available at: https://galen.org/assets/
Blase_Transparency_Paper_092719.pdf.
242
“The CAPS Harris Poll.” Harvard Center for American Political Studies, 45. May 2019. Available at: https://harvardharrispoll.com/wp-content/uploads/2019/06/HHP_May19_vF.pdf?
utm_source=hs_email&utm_medium=email&_hsenc=p2ANqtz--NgSdTYggGUP4tWyR2IEQ7i8TCg1s3DcHuQyhErIgkX3KFUi3SFgl9OZKm4-JUOOi9tmMQ.
243
Id.at 46.

November 30, 2020 1340 Bulletin No. 2020–49
patient is admitted to a hospital); and (3)
patients are typically in a poor position
to choose a hospital because they do not
have sufficient information about hospital
quality and costs.
244
This study suggests
that these special characteristics of the
health care market, among other relevant
factors, make it difficult to draw conclu-
sions based on empirical evidence gath-
ered from other markets. Nevertheless,
the same study concluded that despite
these complications, greater price trans-
parency, such as access to posted prices,
might lead to more efficient outcomes and
lower prices.
Another study evaluated hospital dis-
charge information following the pub-
lication of prices.
245
Hospital utilization
increased for hospitals that priced below
the mean market price, while hospital uti-
lization decreased for hospitals that priced
above the mean market price.
In a recent study of the New Hamp-
shire price transparency tool, researchers
found that health care price transparency
could shift care to lower-cost providers
and save consumers and payers money.
246

The study specifically focused on X-rays,
CT scans, and MRI scans; it determined
that the transparency tool reduced the
costs of medical imaging procedures by
five percent for patients and four percent
for issuers; and estimated savings of $7.9
million for patients and $36 million for is-
suers over a 5-year period.
In another example, in Kentucky, pub-
lic employees were provided with a price
transparency tool that allowed them to
shop for health care services and share
in any cost-savings realized by seeking
lower-cost care.
247
Over a 3-year period,
42 percent of eligible employees used the
program to research information about
prices and rewards.
248
The study found
that 57 percent of those that used the trans-
parency tool chose at least one cost-effec-
tive provider, saving state taxpayers $13.2
million and resulting in $1.9 million in
cash benefits paid to public employees for
seeking lower cost care.
249

The Departments recognize the trans-
parency efforts in New Hampshire and
Kentucky are not necessarily generaliz-
able nationwide and provide only some
empirical data to support the overarching
goal of these final rules that transparency
in health care can lead to savings for con-
sumers and issuers by putting downward
pressure on prices. The Departments are
of the view that consumers equipped
with information about the cost of their
medical options prior to receiving care
will allow them to be able to make more
informed decisions that will put addi-
tional downward pressure on health care
costs. While the often-unequal relation-
ship between patients and providers can
sometimes mean that patients are not
always best equipped to determine their
care, there are many health care purchas-
ing decisions that could and should take
into account a patient’s financial con-
cerns. For instance, physician providers
may also be able to provide health care
transparency information when referring
patients to specialists for in- or out-of-
network care, such as for elective pro-
cedures. The pricing information, com-
bined with the physician’s advice, could
help health care consumers evaluate
options along the cost and quality spec-
trums and help guide them to high-val-
ue options. The Departments are of the
view that health care pricing transparen-
cy may increase the impact of economic
market forces on the health care markets,
despite the health care market’s unique
characteristics. The Departments antici-
pate that once issuers, plans, and provid-
ers are aware that consumers can engage
with the markets in an informed manner,
they may adjust their costs to potentially
be more competitive in their pricing of
items and services.
1. Impact Estimates of the Transparency
in Coverage Provisions and Accounting
Table
The final rules set forth requirements
for group health plans and health in-
surance issuers to disclose to a partic-
ipant, beneficiary, or enrollee, his or her
cost-sharing information for covered
items or services from a particular pro-
vider or providers. The final rules also in-
clude requirements for plans and issuers
to disclose in-network rates (including
negotiated rates, amounts in underlying
fee schedules and derived amounts) for
in-network providers, historical allowed
amounts and billed charges for covered
items and services provided by out-of-net-
work providers, and negotiated rates and
historical net prices for prescription drugs
through machine-readable files posted on
a public internet website. In accordance
with OMB Circular A-4, Table 2 depicts
an accounting statement summarizing the
Departments’ assessment of the benefits,
costs, and transfers associated with this
regulatory action.
The Departments are unable to quanti-
fy all benefits and costs of the final rules.
The effects in Table 2 reflect non-quan-
tified impacts and estimated direct mon-
etary costs and transfers resulting from
the provisions of the final rules for plans,
issuers, beneficiaries, participants, en-
rollees, and state and the federal govern-
ments.
244
Austin, A. D., and Gravelle, J. G. “Congressional Research Service Report to Congress: Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other
Markets for the Healthcare Sector.” Congressional Research Service. July 24, 2007. Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf.
245
Kim, M. “The effect of hospital price transparency in health care markets.” University of Pennsylvania. 2011. Available at: https://repository.upenn.edu/dissertations/AAI3475926.
246
Brown, Z. Y. “Equilibrium Effects of Health Care Price Information.” 100 Rev. econ. & Stat. 1. (2018). Available at: http://www-personal.umich.edu/~zachb/zbrown_eqm_effects_price_
transparency.pdf.
247
Rhoads, J. “Right to Shop For Public Employees: How health care incentives are saving money in Kentucky.” The Dartmouth Institute for Health Policy and Clinical Practice. March 8,
2019. Available at: https://thefga.org/wp-content/uploads/2019/03/RTS-Kentucky-HealthCareIncentivesSavingMoney-DRAFT8.pdf.
248
Id.
249
Id.

Bulletin No. 2020–49 1341 November 30, 2020
TABLE 2: Accounting Table
Intended Outcomes:
• Provides consumers with a tool to determine their estimated out-of-pocket costs, potentially becoming more informed on the
cost of their health care, which could result in lower overall costs if consumers choose lower-cost providers or items and ser-
vices.
• Potential increase in timely payments by consumers of medical bills as a result of knowing their estimated overall costs prior
to receiving services and having the ability to budget for expected health care needs.
• Potential profit gains by third-party mobile application developers by selling and exchanging consumer health data and po-
tential benefits to consumers through the development of mobile applications that may be more user-friendly and improve
consumer access to cost information, potentially resulting in reductions in out-of-pocket costs.
• Potentially enable consumers shopping for coverage to understand the in-network rates for providers and the negotiated rates
and historical net prices for prescription drugs in different group and individual health plans available to them and choose a
plan that could minimize their out-of-pocket costs.
• States could potentially use the In-network Rate and Prescription Drugs Files to determine if premium rates are set appropri-
ately.
• Potential reduction in cross-subsidization, which could result in lower prices as prices become more transparent.
• Public posting of in-network rates (including negotiated rates, amounts in underlying fee schedules, and derived amounts),
negotiated rates, and historical net prices for prescription drugs could facilitate the review of anti-trust violations and potential
collusion.
• Potential for the disclosure of in-network rates to apply pressure on providers to bill less aggressively.
• Strengthening of stakeholders’ ability to support consumers.
Benefits
• Potential societal resource savings (non-quantified efficiency portion of any overall reduction in consumer health care expen-
ditures).
• Potential to reduce the cost of surprise billing to consumers.
Costs:Low EstimateHigh EstimateYear DollarDiscount RatePeriod Covered
Annualized Monetized ($/year)
$4,080.2 million$5,472.4 million20207 percent2021-2025
$4,047.7 million$5,392.9 million20203 percent2021-2025
Quantitative:
• Cost to plans, issuers and TPAs to plan, develop, and build the required internet-based self-service tool and machine-readable
files, to provide in-network rates for in-network providers and out-of-network allowed amounts, and negotiated rates and his-
torical net prices for prescription drugs, maintain appropriate security standards and update and maintain the machine-readable
files per the final rules.
• Increase operating costs to plans and issuers as a result of training staff to use the internet-based self-service tool, responding
to consumer inquiries, and delivering consumer’s cost-sharing information and required notices.
• Cost to plans and issuers to review all the requirements in the final rules.
Non-Quantified:
• Potential cost incurred by plans and issuers that wish to develop a mobile accessible version of their internet-based self-service
tool.
• Potential exposure of consumers to identity theft as a result of breaches and theft of PII.
• Potential increase in cyber security costs by plans and issuers to prevent data breaches and potential loss of PII.
• Potential increase in out-of-pocket costs for consumers if providers or prescription drug manufacturers increase prices for
items and services or plans and issuers shift those costs to consumers in the form of increased cost sharing other than increased
deductibles.
• Potential costs to states to review and enforce provisions of the final rules.
• Potential increase in consumer costs if reductions in cross-subsidization are for uncompensated care, as this could require
providers finding a new way to pay for those uncompensated care costs.
• Potential increase in health care costs if consumers confuse cost with quality and value of service.
• Potential costs to inform and educate consumers on the availability and functionality of an internet-based self-service tool.
• Potential consumer confusion related to low health care literacy and the potential complexity of internet-based self-service
tools.
• Potential cost to plans and issuers to conduct quality control reviews of the information in the in-network rate, out-of-network
allowed amounts, and prescription drug machine-readable files.

November 30, 2020 1342 Bulletin No. 2020–49
• Potential costs to plans, issuers, and TPAs if they are required to renegotiate contracts in order to remove gag clauses in order
to meet the requirements of the final rules.
• Potential costs to plans, issuers, and TPAs if they incur use cases per user CPT licensure charges.
• Potential increase in costs to consumers and issuers if providers or prescription drug manufacturers engage in anticompetitive
behaviors.
• Potential state and federal costs associated with any changes in prescription drug prices resulting from the prescription drug
machine-readable file release that may impact state Medicaid, CHIP, and Basic Health Plan programs and federal health care
programs.
Transfers:EstimateYear DollarDiscount RatePeriod Covered
Federal Annualized Monetized ($/year)
$425.2 million20207 percent
2021-2025
$423.0 million20203 percent2021-2025
Other Annualized Monetized ($/year)
$274 million20207 percent2021-2025
$274 million20203 percent 2021-2025
Quantitative:
• Transfers from the federal government to consumers in the form of increased premium tax credits by approximately $1,047
million in 2022, $623 million in 2023, $216 million in 2024, and $218 million in 2025 as a result of estimated premium in-
creases by issuers in the individual market to comply with the final rules.
• Transfer from consumers to issuers in the form of reduced MLR rebate payments in the individual and group markets by
approximately $120 million per year by allowing issuers to take credit for “shared savings” payments in issuers’ MLR calcu-
lations.
• Transfers from providers to consumers and issuers of approximately $154 million per year as a result of lower medical costs
for issuers and consumers by allowing issuers to share with consumers the savings that result from consumers shopping for
care from lower-cost providers.
Non-Quantified:
• Potential transfer from providers to consumers facing collections to reduce the overall amounts owed to providers if they are
able to use competitor pricing as a negotiating tool.
• Potential transfer from providers to consumers if there is an overall decrease in health care costs due to providers reducing
prices to compete for customers.
• Potential transfer from issuers to consumers if there is an overall decrease in prescription drug costs due to potential reductions
in prescription drug prices.
• Potential transfer from consumers to issuers or prescription drug manufacturers if drug manufacturers increase prescription
drug prices.
• Potential transfer from consumers to providers if there is an increase in health care costs if providers and services increase their
in-network rates to match those of competitors.
• Potential transfer from issuers to consumers if premiums decrease and potential transfer from consumers to issuers if premiums
increase.
• Potential transfer from issuers to consumers and the federal government in the form of decreased premiums and premium tax
credits as a result of issuers adopting provisions encouraging consumers to shop for services from lower-cost providers and
sharing the resulting savings with consumers.
• Potential Transfers from the federal government to drug manufacturers, PBMs, and retail pharmacies for any change in pre-
scription drug costs, which could impact prices paid by federal health care programs should prescription drug costs increase.
• Potential Transfers from drug manufacturers, PBMs, and retail pharmacies to the federal government to for any change in pre-
scription drug costs, which could impact prices paid by federal health care programs should prescription drug costs decrease.

Bulletin No. 2020–49 1343 November 30, 2020
Table 2 provides the anticipated bene-
fits and costs (quantitative and non-quan-
tified) to plans and issuers to disclose
cost-sharing information as described
at 26 CFR 54.9815-2715A2, 29 CFR
2590.715-2715A2, 45 CFR 147.211,
and at 26 CFR 54.9815-2715A3, 29
CFR 2590.715-2715A3, 45 CFR 147.
212, and make public in-network rates,
amounts in underlying fee schedules, or
derived amounts of in-network provid-
ers, out-of-network allowed amounts
paid for covered items and services, and
negotiated rates and historical net pric-
es for prescription drugs. The following
information describes the benefits and
costs – qualitative and non-quantified –
to plans and issuers separately for these
three requirements. Some commenters
stated that the Departments attempted
analysis of the economic impact of the
proposed rules was wholly inadequate
and demonstrated that the Departments
had not performed the basic fact-gath-
ering and analysis that agencies are ex-
pected to undertake before undertaking
notice-and-comment rulemaking. These
comments stated that the material the
Departments presented under section
VII, “Economic Impact Analysis and
Paperwork Burden” was a patchwork
of speculation and assumptions with-
out any grounding in empirical data or
analysis. The commenters further stat-
ed: the Departments listed 10 specific
cost elements that they did not attempt
to quantify; failed to include any con-
sideration of regulatory familiarization
costs; omitted consideration of training
costs for both government employees
who will be charged with enforcing the
regulation and for the staff of regulated
issuers and plan sponsors who will be
responsible for compliance; and failed
to account for the impact of the litiga-
tion burden on regulated issuers, plan
sponsors, and the public judicial sys-
tem. Another commenter suggested that
the Departments failed to conduct an
adequate cost-benefit analysis because
they failed to consider and quantify reg-
ulatory alternatives, failed to quantify
potentially knowable costs, and failed
to quantify benefits or offer additional
evidence supporting such benefits. Sim-
ilarly, another commenter stated that the
Departments’ analysis was lacking in
any quantitative assessment of benefits
and did not credibly demonstrate that
quantification of benefits might be dif-
ficult.
The Departments consulted with var-
ious stakeholders in an effort to develop
the economic analysis associated with
the final rules, including the estimated
costs. Additionally, the Departments re-
quested comment on the estimates pre-
sented in the proposed rules to obtain
more information and input with respect
to the unquantified costs and benefits.
The Departments received a number of
comments related to the cost estimates,
which are discussed later in the RIA and
ICR sections. However, the Departments
did not receive any comments providing
actionable information as it relates to a
number of the unquantifiable aspects of
the proposed rules.
As previously discussed in sections
II.B.2.C and V.B.1 in this preamble, the
Departments received comments related
to the lack of estimated costs associat-
ed with the renegotiation of provider
contracts, litigation expenses, and the
removal of gag clauses. However, none
of the comments received provided any
information that would aid the Depart-
ments in estimating such costs. The De-
partments recognize that there are nu-
merous aspects associated with the final
rules that they are unable to estimate due
to an overall lack of knowledge and in-
formation with regard to the actions that
issuers, providers, or TPAs may be re-
quired to take to meet the requirements
of the final rules. As discussed in sections
V.C and D, the Departments have sought
to provide estimates to account for the
regulatory familiarization costs and other
estimates related to the alternatives con-
sidered in the development of the final
rules. For the final rules, the Departments
have updated the regulatory review costs
to include familiarization costs for each
state DOI (including the District of Co-
lumbia), issuers, and TPAs.
2. Requirements for Disclosing Cost-
sharing information to Participant,
Beneficiaries, or Enrollees under 26 CFR
54.9815-2715A2, 29 CFR 2590.715-
2715A2, and 45 CFR 147.211
Costs
Under 26 CFR 54.9815-2715A2(b), 29
CFR 2590.715-2715A2(b), and 45 CFR
147.211(b) of the final rules group health
plans and health insurance issuers must
disclose required cost-sharing information
in accordance with prescribed method
and format requirements upon the request
of a participant, beneficiary, or enrollee.
The required cost-sharing information in-
cludes seven content elements, which are
described in paragraph (b)(1) of the reg-
ulations and discussed earlier in section
II.B.1 in this preamble. The quantitative
costs associated with this requirement are
detailed in the section VI.A.2 –of the ICR
later in this preamble.
In addition to the costs described lat-
er in the corresponding ICR, the Depart-
ments recognize there may be other costs
associated with this requirement that are
difficult to quantify given the lack of in-
formation and data. For example, while
the Departments are of the view that the
overall effect of the final rules will lower
health care costs, the Departments recog-
nize that price transparency may have the
opposite effect because in some markets
where pricing is very transparent, price
ranges can narrow in response to greater
transparency, and costs can increase.
250
In
section II.B.2.C in this preamble, the De-
partments addressed comments related to
the potential for unintended consequences
related to the public disclosures required
through the In-network Rate. The Depart-
ments note that the current lack of pricing
information means that health care con-
sumers are generally not able to include
price in their health care purchasing de-
cisions. The Departments are of the view
that making pricing information available
will begin to ameliorate distortions re-
sulting from consumer decision-making
not taking costs sufficiently into account.
Additionally, the Departments recognize
250
Kutscher, B. “Report: Consumers demand price transparency, but at what cost?” Modern Healthcare. June 2015. Available at: https://www.modernhealthcare.com/article/20150623/
NEWS/150629957/consumers-demand-price-transparency-but-at-what-cost.

November 30, 2020 1344 Bulletin No. 2020–49
that states may incur additional costs to
enforce the requirements in the final rules.
As described in section VI, the Depart-
ments assume most self-insured group
health plans will work with a TPA to meet
the requirements of the final rules. The
Departments estimated costs in the high-
range estimate by assuming that all issuers
and TPAs (for self-insured group health
plans) will need to develop and build their
internet-based self-service tool.
As described in section VI.A.1 of
the ICR, the Departments assume most
self-insured group health plans will work
with a TPA to meet the requirements of
the final rules. The Departments estimated
cost in the high-end estimate by assuming
that all issuers and TPAs (for self-insured
group health plans) will need to develop
and build their internet-based self-service
tools from scratch. However, the Depart-
ments also provide a low-end estimate by
assuming that over 90 percent of plans,
issuers, or TPAs currently provide an in-
ternet-based self-service tool and will
only be required to modify an existing in-
ternet-based self-service tool which may
already meet some (if not all) the require-
ments in the final rules.
251
The Depart-
ments recognize that some plans, issuers,
or TPAs might also voluntarily elect to
develop or enhance a mobile application,
if one is already available or in some stage
of planning and implementation, which
will result in additional costs. Addition-
ally, TPAs generally work with multiple
self-insured group health plans, and as a
result, the costs for each TPA and self-in-
sured group health plan may be lower to
the extent they are able to coordinate their
efforts and leverage any resulting econo-
mies of scale.
Moreover, health care data breach
statistics show there has been an upward
trend in data breaches over the past 10
years, with 2019 having more reported
data breaches than any other year since
records first started being published. Be-
tween 2009 and 2019 there have been
3,054 health care data breaches involving
more than 500 records; resulting in the
loss, theft, exposure, or impermissible
disclosure of 230,954,151 health care re-
cords, equating to more than 69.78 percent
of the United States population. Health
care data breaches are now being reported
at a rate of more than one per day.
252
Based
on this information, the Departments rec-
ognize the requirements of the final rules
provide additional opportunities for health
care data breaches. Although privacy and
security costs have been imbedded into
the development and implementation cost
estimates discussed in the section VI.A.1
and further discussed in section II.B.4 of
this preamble, the Departments expect
that plans and issuers will follow existing
applicable state and federal laws regard-
ing persons who may or must be allowed
to access and receive the information. The
Departments recognize that some plans
and issuers may incur additional expens-
es to ensure a consumers’ PHI and PII
are secure and protected. Additionally, as
consumers accessing the internet-based
self-service tool may be required to input
personal data to access the consumer-spe-
cific pricing information, consumers may
be exposed to increased risk and experi-
ence identity theft as a result of breaches
and theft of PII. As noted previously in
section II.B.4 of this preamble, the De-
partments are finalizing a provision that
reminds plans and issuers of their duty
to comply with requirements under other
applicable state or federal laws, including
requirements governing the accessibili-
ty, privacy, or security of information, or
those governing the ability of properly au-
thorized representatives to access partici-
pant, beneficiary, or enrollee information
held by plans and issuers.
One commenter stated that since mul-
tiemployer plans do not directly control
the process of negotiations or the result-
ing information, these plans do not have
access to the information necessary to
satisfy the final rules and plans could be
subject to significant penalties for failure
to comply. Another commenter, that sur-
veyed employers who sponsor self-in-
sured ERISA-covered plans, noted that
respondents would likely contract with
a TPA to comply with the final rules be-
cause employers do not have all the neces-
sary data nor the capability to collect that
data. Employers indicated that contracting
with a TPA for these requirements would
come at a significant compliance cost to
them. Commenters noted that they rent
networks from issuers and contract with
those issuers as TPAs to administer plan
benefits. It is the issuer that holds the pric-
ing information for medical services, fa-
cilities, and providers, not the self-insured
employer. Another commenter stated that
the burden incurred by plans, issuers, and
TPAs would be crippling for smaller TPAs
and health plans, and that burden would
ultimately be passed along to employers,
and, therefore, to consumers. Another
commenter expressed concern that all of
the data aggregation and collection re-
quired under the regulations—along with
the need to contract with a third-party
developer to create an on-line cost-shar-
ing liability service tool that is capable of
providing customized cost-sharing infor-
mation to a particular participant, benefi-
ciary, or enrollee—may be overly costly
to plans. The commenter further suggest-
ed that there may also be significant costs
associated with data storage.
The Departments appreciate the com-
ments received in response to the proposed
rules and recognize that not all plans will
be the source of the material information
required to meet the requirements of the
final rules, and that many plans will ulti-
mately seek out third-party assistance in
the development of their internet-based
self-service tool and machine-readable
files, thus avoiding any potential penalties
for noncompliance. As noted in section
II.B.5 of this preamble, multiemployer
plans may contract with a TPA or other
third party (for example, a clearinghouse)
to meet the requirements under the final
rules. The Departments note that it is pos-
sible that obtaining third-party assistance
to meet the requirements of the final rules
could result in additional costs. The De-
partments expect, however, that TPA, or
other third party, assistance will help alle-
viate some of the cost concerns expressed
by commenters as a result of economies of
251
Sharma, A., Manning, R., and Mozenter, Z. “Estimating the Burden of the Proposed Transparency in Coverage Rule.” Bates White Economic Consulting. January 22, 2020. Available at:
https://www.bateswhite.com/media/publication/183_Estimating%20Burden%20of%20Proposed%20TCR.pdf. In order to determine our estimates in determining the low-range cost estimate,
the Departments estimated that only 90 percent of plans, issuers, and TPAs provided an online tool that would meet the assumptions used in developing the estimated costs.
252
“Healthcare Data Breach Statistics.” HIPAA Journal. Available at: https://www.hipaajournal.com/healthcare-data-breach-statistics/.

Bulletin No. 2020–49 1345 November 30, 2020
scale. As noted above, commenters noted
that many self-insured ERISA plans rent
networks from issuers and contract with
issuers as TPAs to administer plan bene-
fits. By leveraging their relationships with
their issuer-TPA, self-funded plans may
be able to reduce their overall costs by
using any tools developed by those issu-
ers. The Departments also recognize that
in order to meet the requirements of the
final rules, some smaller TPAs and issu-
ers could face disproportionate increases
in costs. However, the Departments an-
ticipate that a number of TPAs and is-
suer-TPAs will seek to coordinate their
efforts and take advantage of any result-
ing economies of scale to reduce their
overall costs, and that this approach can
be leveraged in order to reduce concerns
related to the development of both the in-
ternet-based self-service tool as well as
the required machine-readable files. The
Departments recognize that issuers and
TPAs will incur potential costs associated
with data storage and providing access to
the internet-based self-service tool. These
costs can be generally broken down into
two sections: bandwidth pricing and disc
space. Bandwidth Pricing accounts for
the amount of traffic going to a site, the
size of the information that is transferred
from the server to the user’s browser, and
the speed in which that happens. Provided
that 99 percent of websites do not exceed 5
gigabytes of bandwidth per month,
253
this
means if an issuer’s or TPA’s self-service
tool, hosted on Microsoft’s cloud product,
would be free or minimal if beyond five
gigabytes.
254
Disk Space Pricing accounts
for the size of the hard drives necessary
to host a website. Assuming that each is-
suer or TPA would need an estimated 351
gigabytes of storage this would translate
to approximately $8 per month. Thus, as-
suming that each issuer or TPA will not
require five gigabytes of bandwidth for
their internet-based self-service tool, the
Departments are of the view that the over-
all costs to store and provide data through
the internet-based self-service tool will be
minimal. The Departments recognize that
the final rules will impose significant costs
on plans, issuers, and TPAs, and that some
of these costs may be transferred to con-
sumers in the form of higher premiums or
changes in the cost-sharing structure of
plans.
Intended Outcomes
Informed Consumers. Through in-
creased price transparency, consumers
armed with pricing information will have
greater control over their own health care
spending, which can foster competition
among providers, resulting in less dispar-
ity in health care prices or an overall re-
duction in health care prices. Consumers
who use the internet-based self-service
tool will be able to access their cost-shar-
ing amount paid to date; their progress
toward meeting their accumulators, such
as deductibles and out-of-pocket limits;
their estimated cost-sharing liability for
an identified item or service; negotiated
rates for in-network providers for covered
items and services, and the out-of-net-
work allowed amounts for covered items
and services. Additionally, consumers will
know how much health care services will
cost for a particular treatment-, and, and
if applicable, whether coverage of a spe-
cific item or service is subject to a prereq-
uisite. As discussed previously in section
II.B.1.a of this preamble, section 2713 of
PPACA requires group health plans and
health insurance issuers to provide cer-
tain recommended preventive items and
services without cost-sharing. However, if
the same items or services are furnished
as non-preventive actions or by an out-of-
network provider, the participant, bene-
ficiary, or enrollee may be subject to the
cost-sharing terms of his or her plan. If
a plan or issuer cannot determine wheth-
er the request is for a preventive item or
service, the plan or issuer must display
the non-preventive cost-sharing liability,
along with a note that the item or service
may not be subject to cost-sharing if it is
billed as a preventive service. Pricing in-
formation also gives consumers the abil-
ity to plan ahead for any known items
and services they may require in the near
future. The Departments are of the view
that access to this information is essential
to enable consumers to make informed
decisions regarding specific services or
treatments, budget appropriately to pay
any out-of-pocket expenses, and deter-
mine what impact any change in provid-
ers, items, or services will have on the cost
of a particular service or treatment.
Several consumers stated that they
want the opportunity to shop for the best
price when seeking out medical care and
expressed that this information is critical
when deciding whether to proceed with
a test or procedure. Other consumers ex-
pressed the desire to shop for items and
services and stated that shopping for health
care would give them more control over
their personal health care decisions and
spending. Some consumers felt strongly
that they should be able to compare prices
to find the best deal for non-life-threaten-
ing care. Some other consumers also ex-
pressed frustration when describing their
own experiences of trying and failing to
obtain pricing information before receiv-
ing a particular service.
The Departments agree that providing
the information required in the final rules
will provide consumers with tools and in-
formation they can use to determine and
evaluate the potential costs associated
with their particular health care needs,
thus providing them the opportunity to ob-
tain the care they need at a cost they find
acceptable.
Consumers may become more cost
conscious. The Departments are of the
view that with increased price transpar-
ency consumers may begin to focus more
carefully on the costs of services. Current-
ly, consumers may be aware they have a
coinsurance of 20 percent for an item or
service, but they may be unaware of what
dollar amount they will ultimately be re-
sponsible for paying. Knowing that dollar
amount may motivate consumers to seek
lower-cost providers and services or seek
needed care they did not obtain because
of uncertainty or concerns about the costs.
As discussed in sections I.E.3, II.C, and
V.B.2-4 in this preamble, there has been
recent evidence in New Hampshire and
Kentucky that supports the Departments’
view that having access to pricing infor-
mation, along with currently available in-
formation on provider quality and incen-
tives to shop for lower prices, can result in
253
“How Much Bandwidth and Disk Space Do I Really Need?” Hosting Manual. Available at: https://www.hostingmanual.net/bandwidth-disk-space-need/.
254
“Bandwidth Pricing Details.” Microsoft Azure. Available at: https://azure.microsoft.com/en-us/pricing/details/bandwidth/.

November 30, 2020 1346 Bulletin No. 2020–49
consumers choosing providers with lower
costs for items and services, thus poten-
tially lowering overall health care costs.
255

The Departments acknowledge that this
may only hold true if cost and cost shar-
ing varies between services and providers.
Depending on the degree of cost variation
between specific items and services, there
could be large variations in the degree
to which prices change per item or ser-
vice resulting in wide variations in health
care costs and associated out-of-pocket
costs.
256
Cost sharing in some alternative
contracting models, such as HMOs and
Exclusive Provider Organizations (EPO),
generally occurs through fixed copay-
ment amounts regardless which provider
furnishes a covered item or service and,
therefore, the internet-based self-service
tool will provide little incentive for con-
sumers to choose less costly providers in
this context.
Timely Payment of Medical Bills. The
Departments anticipate that consumers
with access to the information provided
in response to the final rules will be more
likely to pay their medical bills on time.
A recent Transunion survey found that 79
percent of respondents said they would be
more likely to pay their bills in a timely
manner if they had price estimates before
obtaining care.
257
In addition, a non-prof-
it hospital network found that the more
information they shared with patients,
the better prepared those patients were
for meeting their responsibilities. The
hospital network reported that providing
price estimates to patients resulted in in-
creased point of service cash collections
from $3 million in 2010 to $6 million in
2011.
258
However, the Departments rec-
ognize that consumers may not be aware
of any potential balance billing charges,
where not prohibited by state law, and
other potential costs associated with their
health care such as facility fees etc. While
these consumers will have a better idea of
the costs they will incur when obtaining
health care, they will likely be unaware
of any additional charges they could incur
as a result of obtaining care resulting in
higher than expected out-of-pocket costs.
Additionally, consumers may not fully be
aware of their costs due to potential med-
ical complications that might arise during
the course of treatment or while obtaining
a specific service.
Increased Competition Among Pro-
viders. Studies have found that state price
transparency regulations have resulted in
hospitals decreasing their charges and a
decrease in mean price and price vari-
ability for queried procedures. One study
found the publication of chargemas-
ter data resulted in a decrease in mean
price and price variability for queried
procedures.
259
However, another study
attributed the reduction in charges to the
“reputational costs of perceived over-
charging,” yet also noted that reductions
in charges were associated with decreas-
es in discounts leading to no consumer
savings.
260
Another issuer-initiated price
transparency program, designed to en-
courage the selection of high-value pro-
viders, provided consumers with price
differences among MRI facilities.
261

Those patients provided pricing infor-
mation saw an 18.7 percent reduction in
the cost per test and a decrease in the use
of hospital-based facilities.
262
The study
also found that price variations between
hospital and non-hospital facilities were
reduced by 30 percent.
263
As discussed
in sections I.B in this preamble, the De-
partments recognize that requiring hos-
pitals to display payer-specific negotiat-
ed charges, discounted cash prices, and
de-identified minimum and maximum
negotiated charges for as many of the
70 CMS selected shoppable services and
additional hospital-selected shoppable
services for a combined total of at least
300 shoppable services may play a role
in decreasing mean prices and price vari-
ability.
264
However, the Departments are
of the view that the Hospital Price Trans-
parency final rule does not, in itself, re-
sult in reduced prices and price variabili-
ty as the rule does not result in consumers
receiving complete price estimates for
health care items and services from both
hospitals and issuers. Further, the Hospi-
tal Price Transparency final rule does not
provide price transparency with respect
to items and services provided by oth-
er health care providers. Therefore, the
Departments are of the view that the re-
quirements of the final rules will provide
the additional price transparency neces-
sary to empower a more price-conscious
and responsible health care consumer
and lead to increased competition among
providers as consumers will be aware of
and have the ability to compare the out-
of-pocket cost of a covered item or ser-
vice prior to receiving an item or service,
which could force higher-cost providers
to lower their prices in order to compete
for the price sensitive consumer.
255
Brown, Z. Y. “Equilibrium Effects of Health Care Price Information.” 100 Rev. of Econ. and Stat. 1. July 16, 2018. Available at: http://www-personal.umich.edu/~zachb/zbrown_eqm_ef-
fects_price_transparency.pdf; see also Rhoads, J. “Right to Shop for Public Employees: How health care incentives are saving money in Kentucky.” The Dartmouth Institute for Health Policy
and Clinical Practice. March 8, 2019. Available at: https://thefga.org/wp-content/uploads/2019/03/RTS-Kentucky-HealthCareIncentivesSavingMoney-DRAFT8.pdf.
256
The evidence cited in this RIA yields per-capita annual savings estimates ranging from between $3 and $5 (=$2.8 million + $1.3 million + $7.0 million + $2.3 million two-year savings,
across 1.3 million California public employees and their family members, per Boynton and Robinson (2015)), to $6.50 (=$7.9 million + $36 million five-year savings found by Brown (2018),
divided across the 1.36 million residents of New Hampshire), to $17 (=$13.2 million three-year savings across 0.26 million beneficiaries, per Rhoads (2019)). If these results were extrapolated
to the entire U.S. population, the estimate of rule-induced reductions in annual consumer expenditures could range from $0.98 billion to $5.5 billion, with the median result across the three
studies at $2.1 billion. This range has a tendency toward overestimation, in that effects of the Hospital Price Transparency final rule and existing non-federal transparency programs have not
been subtracted off.
257
Kutscher, B. “Report: Consumers demand price transparency, but at what cost?” Modern Healthcare. June 2015. Available at: https://www.modernhealthcare.com/article/20150623/
NEWS/150629957/consumers-demand-price-transparency-but-at-what-cost.
258
“Reimagining Patient Access.” Insurancenewsnet. December 29, 2015. Available at: https://insurancenewsnet.com/oarticle/reimagining-patient-access#.
259
Ward, C., and Reeder, T. “The Evolution and Impact of Hospital Price Transparency in North Carolina.” North Carolina Medical Journal. Volume 81. Issue 2. April 2020. Available at:
https://www.ncmedicaljournal.com/content/81/2/95.short.
260
Christensen, H. B., Floyd, E., and Maffett, M. “The Only Prescription is Price Transparency: The Effect of Charge-Price-Transparency Regulation on Healthcare Prices.” Management
Science. February 21, 2019. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2343367.
261
Wu, S. J., et al. “Price transparency for MRIs increased use of less costly providers and triggered provider competition.” Health Affairs. August 2014. Available at: https://www.healthaf-
fairs.org/doi/full/10.1377/hlthaff.2014.0168.
262
Id.
263
Id.
264
84 FR 65524 (Nov. 27, 2019).

Bulletin No. 2020–49 1347 November 30, 2020
3. Requirements for Public Disclosure of
In-network Provider Rates for Covered
Items and Services, Out-of-network
Allowed Amounts and Prescription Drug
Pricing Information Through Machine-
readable Files under 26 CFR 54.9815-
2715A3, 29 CFR 2590.715-2715A3, and
45 CFR 147.212.
Costs
Under 26 CFR 54.9815-2715A3(b),
29 CFR 2590.715-2715A3(b), and 45
CFR 147.212(b) of the final rules, group
health plans and health insurance issuers
are required to make available to the pub-
lic, on an internet website, three digital
files in a machine-readable format. The
first file (the In-network Rate File) must
include information regarding all applica-
ble rates, which may include negotiated
rates, underlying fee schedules, or derived
amounts, to the extent they may be used
for purposes of determining provider re-
imbursement or cost-sharing for in-net-
work providers. The Departments note
that prescription drug products may be
included in the In-network Rate File only
to the extent they are included as part of
an alternative payment arrangement, such
as a bundled payment arrangement. The
second file (the Allowed Amount File)
must provide data showing the allowed
amounts and billed charges with respect
to covered items and services, including
prescription drugs, furnished by out-of-
network providers over a 90-day period
beginning 180 days prior to the publica-
tion date of the machine-readable file. The
third file (the Prescription Drug File) must
include information for negotiated rates
and historical net prices for prescription
drugs, organized by NDC. Plans and issu-
ers are required to make the information
available in accordance with certain meth-
od and format requirements described at
paragraph (b)(2) and update these files
monthly as required under paragraph (b)
(3). The quantitative costs associated with
meeting these requirements are detailed in
section VI.2 of the ICR section.
Some commenters stated that the re-
quirement to use billing codes would be
very costly and potentially cost-prohib-
itive. One commenter indicated this is
because use of CPT codes, the most com-
monly used billing codes, requires licen-
sure by the American Medical Association
(AMA). According to the commenter, the
AMA charges licensing fees based on use
cases per user. Another commenter noted
that some self-funded plans rent networks
and do not have real-time access to net-
work pricing, and there are fees charged
to plans to access the negotiated discounts
with the provider network the plan has
rented. As a result, the commenter sug-
gested that plans will have to pay the
network access fees twice—once the in-
formation required under the final rules
and a second time when the actual claim
is received and processed through an in-
termediary—to meet the requirements of
the final rules.
The Departments understand that the
use of CPT codes may represent an ad-
ditional cost for some plans and issuers.
Generally, the Departments anticipate that
if a plan or issuer currently has the capa-
bility or licensure to record CPT codes
on EOBs mailed to consumers, the plans
or issuers should also be able to use that
CPT code to make the public disclosures
required through the final rules without,
or with minimal, additional costs. The
Departments also have concluded that, as
plans and issuers would already include
licensing costs for using CPT codes in the
cost of doing business, they would not in-
cur additional costs to use the CPT codes
to populate the machine-readable files.
The Departments acknowledge that some
plans and issuers could face instances
where they could incur additional costs in
order to access the required CPT or net-
work information based on the structure
of licensing agreements to which they
are currently parties. However, due to an
overall lack of specific information and
knowledge associated with the number
of plans and issuers that currently have
such licensing agreements, the structure
of those agreements, and the alternatives
available to those plans and issuers, the
Departments are unable to accurately es-
timate any associated costs that might be
incurred under these circumstances.
One commenter stated that for many
employer-sponsored health plans, in-net-
work rates usually belong to a network
administrator, not the health plan, and,
in the event network administrators were
to update their contractual agreements to
permit plans to receive and share pricing
information, it is likely they will charge
fees or request financial concessions from
plans, which will increase administrative
burdens on group health plans.
The Departments understand that re-
quiring release of this pricing information
will affect certain commercial arrange-
ments and expectations that prevail in
parts of the health care industry today,
which could result in certain one-time
and ongoing administrative costs. How-
ever, the Departments are of the view
that making this information available to
consumers and the public will serve con-
sumers’ long-term interests in facilitating
a consumer-oriented, information-driven,
more competitive market. Additionally, as
discussed previously in section II.C in this
preamble, the Departments are finalizing
several special rules to streamline the pro-
vision of the public disclosures required
through the final rules. These special rules
were designed to reduce the overall com-
pliance costs of the disclosures required
by the final rules and to support smaller
issuers and plans in meeting the require-
ments of the final rules by permitting cer-
tain contractual arrangements and the ag-
gregation of allowed amount data in some
circumstances.
The Departments also recognize that a
certain amount of data storage will be re-
quired to post the machine-readable files
on a publicly available internet website.
Through the efficiencies of cloud com-
puting and data storage, the cost to host
large files dramatically decreased in price
in the past several years. Popular services
such as Simple Storage Service from Am-
azon Web Services and Standard Storage
from the Google Cloud Platform can host
files for roughly $0.026 per gigabyte. The
Departments’ size estimates of roughly 5
gigabytes for each machine-readable file
would incur a monthly data storage cost
of approximately $0.39 for all of the ma-
chine-readable files.
Non-Quantified Costs for Public Dis-
closure of In-Network Rates. In addition to
the costs described in section VI.A.2, the
Departments recognize there may be other
costs associated with the requirement to
make in-network rates publicly available
that are difficult to quantify given the cur-
rent lack of information and data. While
the Departments are of the view that the
overall effect of the final rules will be to

November 30, 2020 1348 Bulletin No. 2020–49
provide greater price transparency and
potentially lower health care prices, there
are instances in very transparent markets
where price ranges can narrow and aver-
age costs can increase as a result of price
transparency.
265
The Departments also rec-
ognize that plans and issuers may experi-
ence ongoing additional costs (for exam-
ple, the cost of quality control reviews) to
ensure they comply with the requirements
of the final rules. In addition, the Depart-
ments are aware that information disclo-
sures allowing competitors to determine
the rates their competitors are charging
may dampen each competitor’s incentive
to offer a lower price or result in a higher
price equilibrium.
266
While plans and issu-
ers with the highest in-network rates may
see a decrease in their in-network rates, as
their providers respond to consumer and
smaller issuers’ concerns regarding pay-
ing more for the same item and service,
plans and issuers with the lowest in-net-
work rates may see their lower cost pro-
viders adjust their rates upward. However,
most research suggests that when better
price information is available, prices for
goods sold to consumers fall. For exam-
ple, in an advertising-related study, re-
searchers found that the act of advertising
the price of a good or service is associated
with lower prices.
267

A potential additional non-quanti-
fied cost could be the cost to remove gag
clauses from contracts between plans, is-
suers, and providers. Contracts between
plans, issuers, and providers often include
a gag clause, which prevents plans and
issuers from disclosing in-network rates.
The Departments recognize that plans, is-
suers and providers may incur a one-time
expense for their attorneys to review and
update their provider contracts to remove
any relevant gag clauses. Comments re-
ceived regarding gag clauses and contract
negotiations are further discussed in sec-
tion VI.A.2 later in this preamble.
Another potential cost concerns the
final rules’ impact on a plan’s or issuer’s
ability or incentive to establish a robust
network of providers. A health insurance
provider network is a group of providers
that have contracted with a plan or issuer
to provide care at a specified price the pro-
vider must accept as payment in full. Many
times, plans and issuers want consumers to
use the providers in their network because
these providers have met the plan’s or issu-
er’s quality standards and agreed to accept
an in-network rate for their services in ex-
change for the patient volume they will re-
ceive by being part of the plan’s or issuer’s
network.
268
Some plans and issuers offer a
narrow network: these networks operate
with a smaller number of providers, mean-
ing a consumer will have fewer choices
when it comes to in-network providers, but
often offer lower monthly premiums and
out-of-pocket costs.
269
The Departments
recognize that making in-network rates
public may create a disincentive for plans
and issuers to establish a contractual rela-
tionship with a provider (including in nar-
row networks) because providers may be
unwilling to give a discount to plans and
issuers when that discount will be made
public. As addressed further in section
VI.C later in this preamble, the require-
ments of the final rules could result in a re-
duction in revenue for those smaller plans
and issuers that are unable to pay higher
rates to providers and may require them
to narrow their provider networks, which
could affect access to care for some con-
sumers. Due to smaller plans’ and issuers’
potential inability to pay providers with
higher rates, smaller plans and issuers may
further narrow their networks to include
only providers with lower rates, possibly
making it more difficult for smaller plans
and issuers to fully comply with network
adequacy standards described at 45 CFR
156.230 or other applicable state network
adequacy requirements.
Some commenters stated that public
disclosure of in-network rates could af-
fect the sustainability and affordability of
QHPs offered through the Exchanges by
placing upward pressure on rates and by
placing provider participation in networks
at risk. One commenter stated that the po-
tential negative effects on QHPs would
especially harm unsubsidized consumers
and consumers in rural areas where pro-
vider consolidation is most common and
could impact overall marketplace stability
and the risk pool. Furthermore, comment-
ers asserted that increased premiums for
QHPs could result in increased federal
spending in the form of higher premium
tax credit (PTC) payments, which could
substantially increase the federal deficit
over 10 years. One commenter stated that
the Departments should not finalize the
release of in-network rates until they fully
evaluate the impact on affordable plan op-
tions on the Exchanges and the effects on
federal spending.
As discussed later in section V.B.5 of
this preamble, the Departments estimate
premiums for the fully-insured markets
will be $471 billion for 2022, including
the individual, small group, and large
group markets. The Departments esti-
mate that the cost for 2022 represents
approximately 2.4 percent of projected
commercial insured premiums for the ful-
ly-insured market, 1.4 percent in 2023, 0.5
percent in 2024, and 0.5 percent in 2025.
Assuming this level of premium increase
in the individual market, PTC outlays are
estimated to increase by about $1,047 mil-
lion in 2022, $623 million in 2023, $216
million in 2024, and $218 million in 2025.
Given that the 2021 President’s Budget
estimates that PTC outlays are expected to
be $43.8 billion in 2022, $44.8 billion in
2023, $45.875 billion in 2024, and $48.2
billion in 2025,
270
the Departments expect
the estimated increase of $1,047 million
in 2022, $623 million in 2023, $216 mil-
265
Kutscher, B. “Report: Consumers demand price transparency, but at what cost?” Modern Healthcare. June 2015. Available at: https://www.modernhealthcare.com/article/20150623/
NEWS/150629957/consumers-demand-price-transparency-but-at-what-cost.
266
Koslov, T., and Jex, E. “Price transparency or TMI?” United States, Federal Trade Commission. Available at: https://www.ftc.gov/news-events/blogs/competition-matters/2015/07/
price-transparency-or-tmi.
267
Austin, D. A, and Gravelle, J. G. “Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other Markets for the Health Sector.” Congressional Re-
search Service. June 2007. Available at: https://fas.org/sgp/crs/secrecy/RL34101.pdf.
268
Davis, E. “Health Insurance Provider Network Overview.” Verywell Health. August 2019. Available at: https://www.verywellhealth.com/health-insurance-provider-network-1738750.
269
Anderman, T. “What to Know About Narrow Network Health Insurance Plans.” Consumer Reports. November 23, 2018. Available at: https://www.consumerreports.org/health-insurance/
what-to-know-about-narrow-network-health-insurance-plans/.
270
OMB 2021 President’s Budget. Available at: https://www.whitehouse.gov/wp-content/uploads/2020/02/budget_fy21.pdf.

Bulletin No. 2020–49 1349 November 30, 2020
lion in 2024, and $218 million in 2025
to have minimal impacts on anticipated
enrollment and are not of the view that
this increase will result in any widespread
negative effects on market stability. Addi-
tionally, the Departments have determined
that enrollment impacts will be minimal,
as estimated premium impacts are rela-
tively small, and rate increases for subsi-
dized enrollees in the individual market
will be largely mitigated. Additionally,
participants, beneficiaries, and enrollees
currently make health insurance coverage
decisions based on their particular health
and financial situations, and it is not pre-
dictable how information provided as a
result of the final rules will significantly
impact those health insurance coverage
decisions. Thus, the Departments do not
expect the final rules to significantly in-
crease the selection risk beyond the levels
that currently exist. The Departments do
acknowledge that the estimated increases
in premiums could result in minor harm to
unsubsidized consumers as they could be
faced with increased premiums that would
not be negated by any increases in PTC
and this could impact those consumers’
decisions related to obtaining health in-
surance coverage.
The Departments received several
comments from issuers, providers, and
employers stating that the requirement to
publicly disclose in-network rates would
threaten the viability of their business
models or business models upon which
they rely. One commenter stated that
the proposal to release in-network rates
could affect the viability of individual
and small group market health plans sold
by small issuers. The commenter further
suggested that “safety net” health plans
(which serve individuals and families
that do not have access to other sources
of coverage in markets that other issu-
ers find unprofitable) currently may be
able to access more favorable contract
terms with providers, and these types
of arrangements would be at risk if the
in-network rate information were re-
quired to be made public. The comment-
er expressed particular concern that ex-
posure of the rates of safety net hospitals
may uniquely disadvantage them in ne-
gotiations with plans and issuers because
they may have to raise rates on certain
services to support safety net activities.
Similarly, a hospital system stated that
publishing in-network rates would neg-
atively impact its ability to contain costs
and threaten its current participation in
the networks of nearly all area health
plans. Another commenter indicated that
providers would leave plans’ and issu-
ers’ networks if plans’ and issuers’ at-
tempts to achieve more favorable rates
using public in-network rate information
proved unsuccessful. Another comment-
er argued that the policy requiring dis-
closure of in-network rates could also
result in the collapse of the network
administrator business model, which
would result in significantly increased
administrative costs for health plans that
would need to contract separately with
each participating provider.
The Departments understand that re-
quiring the release of this pricing infor-
mation will upset certain commercial ar-
rangements and expectations that prevail
in parts of the health care industry today,
which could result in certain one-time and
ongoing administrative costs. However,
the Departments have concluded that pro-
viding increased price transparency and
making this information available to the
public will serve the public’s long-term
interests in facilitating a consumer-ori-
ented, information-driven, more compet-
itive market potentially leading to reduced
overall health care costs.
Some commenters suggested that, by
using publicized in-network rate infor-
mation, plans and issuers could also coor-
dinate to reduce provider payment levels
below market competitive rates, a so-
called “race to the bottom.” Some of these
commenters stated that this “race to the
bottom” could also potentially hurt access
to, and quality of, care. For example, one
commenter stated that if provider reim-
bursement rates were set too low, patient
access to care would be negatively im-
pacted because providers will not have the
resources to invest in technology, training,
and equipment.
One commenter suggested that plans
and issuers would likely want to re-nego-
tiate rates once they learn local prices and
that dominant issuers could use payer spe-
cific in-network rate information to deter
and punish hospitals that lower their rates
or enter into value-based arrangements
with the dominant issuer’s competitors.
Several commenters stated that re-
quired disclosure of in-network rates
could result in an increase in health care
prices. Others specifically expressed con-
cerns that making payer-specific in-net-
work rates available would disrupt con-
tract negotiations between providers and
health plans and result in providers chang-
ing their rates in anticompetitive ways
(“race to the top”) and could promote an
environment that could support collusion
between providers, resulting in increased
prices. Other commenters suggested
that required disclosures would lead to
the consolidation of providers and even
greater consolidation in the commercial
health insurance industry, and expressed
concerns that disclosures could particu-
larly harm small health plans and TPAs
who may have been able to get discounted
rates by offering health plans in a limited
service area.
One commenter noted that other states’
transparency systems used several distin-
guishable features to mitigate the risks of
publicizing rates, but noted that, despite
these efforts, the data was still used in
contract negotiations.
The Departments recognize that there
is the potential for adverse market out-
comes as a result of the final rules. As not-
ed previously, the Departments are aware
of the potential that plans and issuers
could seek to use the public availability of
in-network rates or underlying fee sched-
ules in attempts to lower prices in what
certain commenters called a “race to the
bottom.” As noted previously in this sec-
tion, the Departments recognize the po-
tential for anticompetitive behaviors and
increased consolidation that may occur
should providers use the in-network rate
or fee schedule data to increase their rates
or should smaller plans and issuers strug-
gle to comply. The Departments recognize
that provider collusion could result in in-
creased prices, and also recognize that this
sort of behavior could result in distinct
coverage areas or agreements where pro-
viders choose not to compete for consum-
ers. As discussed previously in this pre-
amble, the Departments nonetheless have
concluded that providing increased price
transparency and making this informa-
tion available to the public will serve the
public’s long-term interests in facilitating
a consumer-oriented, information-driven,

November 30, 2020 1350 Bulletin No. 2020–49
more competitive health care market.
271

Should the market become more com-
petitive, as the Departments anticipate,
the reduction in prices may provide more
options for those providers that function
as “safety-net providers” to expand their
networks or enhance the services they
currently provide by organizing and de-
livering a significant level of health care
and other related services to uninsured,
Medicaid, and other vulnerable popula-
tions. The Departments also reason that
the likelihood of price and other forms of
collusion will be mitigated to some extent
by the actions of state and federal regula-
tory and antitrust enforcement authorities
and the enforcement of current market
laws and regulations. The Departments
are of the view that enforcement actions
taken to reduce the likelihood of price col-
lusion will further reduce the chances that
issuers will seek to reduce the size of their
networks.
Although consumer education is not a
requirement of the final rules, plans, issu-
ers and TPAs may face additional costs
if they chose to inform and educate their
consumers about the options available
to them, how to use these tools, increase
their general health care knowledge.
Providing educational opportunities to
participants, beneficiaries, or enrollees
could encourage those participants, ben-
eficiaries, or enrollees to seek lower cost
services, providing plans, issuers and
TPAs the potential to realize a return on
the investments incurred to comply with
the final rules.
Non-Quantified Cost for Public
Disclosure of out-of-network allowed
amounts. In addition to the costs de-
scribed in section VI.A.2 and the previ-
ous analysis related to the public disclo-
sure of in-network rates, the Departments
recognize that there may be other costs
associated with the requirement to make
historical payments of out-of-network
allowed amounts and billed charges pub-
licly available that are difficult to quanti-
fy, given the current lack of information
and data.
Furthermore, while plans and issuers
must de-identify data (such as claim pay-
ment information for a single provider)
and ensure certain sensitive data are ad-
equately protected, unauthorized disclo-
sures of PHI and PII may increase as a
result of manual preparation and manip-
ulation of the required data. The potential
disclosures of PHI and PII may require
plans, issuers, and TPAs to obtain addi-
tional cyber-security insurance that could
lead to additional costs.
Non-Quantified Cost for Public Dis-
closure of Prescription Drug Pricing
Information. In addition to the costs de-
scribed in section VI.A.2and the previous
analysis related to the public disclosure of
in-network rates and allowed amounts, the
Departments recognize that there are oth-
er costs associated with the requirement
to make negotiated rates and historical
net prices for prescription drugs public-
ly available that are difficult to quantify,
given the current lack of information and
data. For example, as a result of the avail-
ability of consolidated negotiated rates
and historical net prices, drug manufac-
turers may seek to restructure their rebate
and discount programs and could poten-
tially cease providing rebates to plans
and issuers, PBMs, or pharmacies, which
could then result in less savings being
passed on to consumers.
Intended Outcomes
The Departments are of the view that
providing greater price transparency by
requiring group health plans and health
insurance issuers to make information re-
garding all applicable rates publicly avail-
able, which may include negotiated rates,
amounts in underlying fee schedules, or
derived amounts for in-network provid-
er rates; 90-days of historical allowed
amount and billed charges data for out-of-
network providers; and prescription drug
negotiated rates and historical net prices
will ultimately benefit plans and issuers,
regulatory authorities, consumers, and the
overall health care market.
Group Health Plans and Health Insur-
ance Issuers. Plans and issuers may bene-
fit from these requirements because under
the final rules a plan or issuer would have
a better understanding of other plans’ or
issuers’ in-network rates. This may allow
plans and issuers paying higher rates for
the same items or services to negotiate
with certain providers to lower their rates,
thereby lowering provider reimbursement
rates, reducing price variation, and po-
tentially resulting in an overall decrease
in health care costs. The Departments
acknowledge, however, as noted in the
“costs” section (V.B.3) earlier in this pre-
amble, that knowledge of other providers’
in-network rates could also drive up rates
if a provider discovers they are currently
being paid less than other providers by a
plan or issuer and, therefore, seek to nego-
tiates higher rates.
In addition, the final rules may result in
more plans and issuers using a reference
pricing structure. Under this structure, par-
ticipants, beneficiaries, or enrollees who
select a provider charging above the ref-
erence price (or contribution limit) must
pay the entire difference and these differ-
ences do not typically count toward that
individual’s deductible or out-of-pocket
limit. Plans and issuers may want to use
a reference pricing structure to pass on
any potential additional costs associated
with what they can identify as higher-cost
providers to the participant, beneficiary, or
enrollee. The Departments recognize that
reference pricing might not impact every
consumer. For example, the California
Public Employees’ Retirement System
(CalPERS) provides exceptions from ref-
erence pricing when a member lives more
than 50 miles from a facility that offers the
service below the price limit. It also ex-
empts the patient if the patient’s physician
gives a clinical justification for using a
high-priced facility or hospital setting. An-
other example is a business with a self-in-
sured group health plan that exempts labo-
ratory tests for patients with a diagnosis of
cancer from its reference pricing program.
However, reference pricing has generally
been shown to result in price reductions,
as opposed to mere slowdowns in the rate
of price growth. For example, in the first
two years after implementation, reference
pricing saved CalPERS $2.8 million for
joint replacement surgery, $1.3 million for
271
Gudiksen K. L., Chang, S. M., and King, J. S. “The Secret of Health Care Prices: Why Transparency Is in the Public Interest.” California Health Care Foundation. July 2019. Available at:
https://www.chcf.org/ wp-content/ uploads/ 2019/ 06/ SecretHealthCarePrices.pdf.

Bulletin No. 2020–49 1351 November 30, 2020
cataract surgery, $7.0 million for colonos-
copy, and $2.3 million for arthroscopy.
272
Regulatory Authorities. In many states,
issuers must obtain prior approval for rate
changes from the state’s DOI. Regulatory
authorities such as state DOIs might ben-
efit from the final rules because knowl-
edge of provider in-network rates and
out-of-network allowed amounts paid to
out-of-network providers could support
determinations of whether premium rates,
including requests for premium rate in-
creases, are reasonable and justifiable.
Consumers. Access to the in-net-
work rates between plans and issuers and
in-network providers, the amount plans
and issuers have paid to out-of-network
providers, and prescription drug pric-
ing information will allow consumers to
understand the impact of their choice of
health insurance coverage option and their
choices of providers on the cost of a par-
ticular service, item, or treatment. Giving
consumers access to this information as
part of their health care decision-making
process may facilitate a greater degree of
control over their own health care costs.
Furthermore, having access to public-
ly available out-of-network allowed
amounts will provide consumers who are
shopping for health insurance coverage
the ability to compare the different rates
plans and issuers ultimately pay for items
and services, including items and services
from providers that might be out-of-net-
work. While the Departments are of the
view that consumers will benefit from the
final rules, the Departments recognize that
utilizing the required information will not
be practical or reasonable in an emergency
situation. Similarly, some consumers may
need assistance in understanding complex
terms or other associated mechanisms in
order to utilize this information.
The Departments recognize that ben-
eficiaries and enrollees in state and fed-
eral health care programs (including
Medicare, Medicaid, CHIP, Basic Health
Program and coverage provided by the
Department of Defense and Veterans Ad-
ministration) will be impacted by spill-
over effects related to any reductions or
increase in prices for individual items and
services and prescription drugs as a result
of the final rules. For example, Medicare
Part B has historically reimbursed phy-
sicians for physician-administered drugs
using a formula that is based off the av-
erage sales price (ASP). To the extent the
final rules drive changes in prescription
drug prices, that will change the federal
reimbursement rates under Medicare Part
B and may impact Medicare beneficiaries’
out-of-pocket costs for their prescriptions.
In addition, by law, Medicaid programs
in every state receive the lowest nego-
tiated rate for prescription drugs. To the
extent the final rules drive changes in pre-
scription drug prices, this will impact the
amount all states, the federal government,
and some beneficiaries pay for prescrip-
tion drugs. Similarly, if providers start
increasing (or decreasing) their in-net-
work rates, there could also be spillover
effects for Medicare Advantage or Medic-
aid Managed Care Organizations (MCO),
particularly for issuers and plans that use
the same network for both private plans,
Medicare Advantage Plans and Medicaid
MCOs. These changes will impact the
amount the federal government, states,
and beneficiaries will need to pay for their
Medicare and/or Medicaid.
Overall Health Insurance Market. The
price transparency required by the final
rules may also induce an uninsured person
to obtain health insurance coverage. De-
pending on premium rates, an uninsured
individual might select health insurance
coverage after learning the actual dollar
difference between the usual and cus-
tomary rates that he or she pays for items
and services and the in-network rates and
out-of-network allowed amounts under
the terms of a plan or issuer’s policy. In
addition, the final rules might force pro-
viders to lower their rates for certain items
and services in order to compete for the
price sensitive consumer, plan, or issuer.
Although the immediate payment impact
would be categorized as a transfer, any
accompanying health and longevity im-
provements would be considered benefits
(and any accompanying increases in uti-
lization would, thus, be considered addi-
tional costs). As discussed in section V.B
in this preamble, a study of New Hamp-
shire’s HealthCost initiative found that the
availability of pricing information result-
ed in a five percent reduction in costs for
medical imaging procedures. The study
further found that patients saved approxi-
mately $7.5 million dollars on X-Ray, CT,
and MRI scans over the five-year study
period (dollars are stated in 2010 dol-
lars).
273
Some commenters suggested that the
biggest impact on health care spending
and costs would come from self-insured
employers who would now be able to ac-
cess and use in-network rate data to nego-
tiate lower rates on behalf of plan partic-
ipants; improve their provider networks;
make more informed decisions about plan
offerings; help steer enrollees to high-
er-quality, lower-cost providers; and more
meaningfully implement value-based pay-
ment designs. Other commenters stated
that the proposed rules would help create
more efficient and value-based health care
systems by encouraging issuers to design
innovative benefit designs that push pa-
tients toward lower-cost care. Another
commenter stated that requiring plans and
issuers to share publicly their in-network
rates and the allowed amounts paid to out-
of-network providers had the potential to
increase competition among plans and is-
suers.
The Departments are of the view that
the requirements in the final rules will
provide providers, plans, and issuers the
ability to provide quality health care ser-
vices at lower costs to participants, ben-
eficiaries, or enrollees through enhanced
provider and payer competition.
4. Medical Loss Ratio (45 CFR 158.221)
“Shared savings” programs allow is-
suers to share with enrollees any savings
that result from enrollees shopping for,
and receiving care from, lower-cost, high-
er-value providers. In the final rules, HHS
is amending 45 CFR 158.221(b) to allow
health insurance issuers that elect to offer
“shared savings” programs to take cred-
it for such “shared savings” payments in
their MLR calculations. For this impact
272
Boynton, A., and Robinson, J. “Appropriate Use of Reference Pricing Can Increase Value.” Health Affairs Blog. July 7, 2015. Available at: https://www.healthaffairs.org/do/10.1377/
hblog20150707.049155/full/.
273
Brown, Z. Y. “Equilibrium Effects of Health Care Price Information.” 100 Rev. Econ. & Stat. 1. (2018). Available at: http://www-personal.umich.edu/~zachb/zbrown_eqm_effects_price_
transparency.pdf.

November 30, 2020 1352 Bulletin No. 2020–49
estimate, HHS is assuming that only rel-
atively large issuers (with at least 28,000
enrollees) that have consistently reported
investment costs in health IT on the MLR
Annual Reporting Form of at least $10.50
per enrollee, which represents issuers with
70 percent of total reported commercial
market health IT investment or issuers
that operate in states that currently or may
soon support “shared savings” plan de-
signs,
274
will initially choose to offer plan
designs with a “shared savings” compo-
nent. HHS assumes that such issuers will
share, on average, 50 percent of the sav-
ings with enrollees (which will increase
the MLR numerator under the final rules),
and that issuers whose MLRs were pre-
viously below the applicable MLR stan-
dards will use their retained portion of the
savings to lower enrollees’ premiums in
future years (which will reduce the MLR
denominator). Based on 2017-2019 MLR
data, HHS estimates that this will reduce
MLR rebate payments from issuers to
enrollees by approximately $120 million
per year, while facilitating savings that
will result from lower medical costs of
approximately $154 million per year for
issuers and enrollees (some of which will
be retained by issuers, shared directly with
enrollees, or used by issuers to reduce fu-
ture premium rates).
5. Summary of Estimated Transfers
The Departments are assuming that
because 2021 premium rates are nearly
finalized, health insurance issuers will
not be able to charge for the expenses in-
curred to implement the requirements of
the final rules in their 2021 rates. Because
issuers will not have the opportunity to
reflect the 2021 development costs in the
2021 premium rates, some issuers may
apply margin to the ongoing expenses
as they develop premium rates for 2022
and after. The Departments estimate pre-
miums for the fully-insured markets will
be $471 billion for 2022, $494 billion
in 2023, $516 billion in 2024, and $539
billion in 2025, which includes the indi-
vidual, small group, and large group mar-
kets.
275
The Departments estimate that the
ongoing expense represents approximate-
ly 2.4 percent of projected commercial
insured premiums for the fully-insured
market in 2022, 1.4 percent in 2023, and
0.5 percent in 2024 and 2025 (an average
of 1.2 percent per year). Assuming this
level of premium increase in the individ-
ual market, PTC outlays are estimated to
increase by about $1,047 million in 2022,
$623 million in 2023, $216 million in
2024, and $218 million in 2025. Given
that 2022 PTC outlays are expected to
be $44 billion,
276
the Departments expect
that the estimated premium impacts will
be relatively small, and rate increases
for subsidized enrollees in the individual
market will largely be mitigated. There-
fore, the Departments expect enrollment
impacts to be minimal. The Departments
note that any impact of the final rules on
provider prices has not been estimated as
limited evidence has generally shown no
predictable impact on provider prices. As
a result, the Departments are assuming
that the overall impact will be minimal.
However, there is a large degree of un-
certainty regarding the effect on prices, so
actual experience could differ.
The Departments received comments
stating that the broader impact to premi-
ums was not considered in the proposed
rules. Several commenters stated that in-
creased health care prices could be passed
along to consumers, patients, and taxpay-
ers in the form of higher premiums. Some
commenters specifically observed that the
cost of developing and maintaining the re-
quired machine-readable files on a month-
ly basis would likely be passed on to con-
sumers in the form of higher premiums.
Another commenter noted that employers,
TPAs, and issuers might incur increased
costs relative to the rules regarding po-
tential data breaches, increased liability,
and cyber-coverage costs (liability insur-
ance designed to cover financial losses
that result from data breaches and other
cyber events) that could also impact plan
premiums.
Other commenters suggested that use
of information in the In-network Rate File
could be used by consumers to engage in
practices that would lead to adverse se-
lection and potentially higher premiums.
One commenter asserted that the proposed
rules would allow individuals to enter the
insurance pool for specific costly treat-
ments or procedures and then drop cover-
age or switch coverage at the end of the
contract year for a plan with lower premi-
ums, which would result in higher premi-
ums for all consumers because there is no
ability for health plans to spread the risk
across a reliable and long-term customer
base.
By contrast, one commenter observed
that premium increases could be mitigated
if low- deductible participants, beneficia-
ries, or enrollees were given information
about the cost of the health care they uti-
lize, and that over time price transparency
could create lower health care costs.
The Departments recognize that many
issuers and TPAs will likely transfer the
costs associated with meeting the require-
ments in the final rules to consumers in
the form of increased premiums. Howev-
er, the Departments do not currently have
enough information or evidence to deter-
mine the overall effects the final rules will
have on premiums and therefore have not
estimated how the final rules will impact
an individual’s premium. The Depart-
ments also note that adverse selection risk
currently exists in the individual market;
individuals already make health care cov-
erage decisions based on their particular
health and financial situations. It is not
clear how the price information contained
in the In-network Rate, Allowed Amount,
and Prescription Drug Files will signifi-
cantly impact an individual’s health care
coverage decisions. The Departments do
not expect the final rules to significantly
increase the selection risk beyond the lev-
els that currently exist.
Also, it is questionable how much the
final rules will lower health care costs for
low deductible participants, beneficiaries,
or enrollees because cost-sharing amounts
274
The states that supported “shared savings” plan designs at the time the estimate was developed and therefore were included in the estimate are Maine, Massachusetts, New Hampshire,
and Utah.
275
2017 earned premium data was taken from amounts reported for MLR, and trended forward using overall Private Health Insurance trend rates from the NHE projections.
276
OMB 2021 President’s Budget. Available at: https://www.whitehouse.gov/wp-content/uploads/2020/02/budget_fy21.pdf.

Bulletin No. 2020–49 1353 November 30, 2020
are usually much less than the cost of the
services, so that the participants, benefi-
ciaries, or enrollee have no economic in-
centive to seek lower cost services. Addi-
tionally, evidence is limited but generally
does not show significant differences in
insured participant, beneficiary, or enroll-
ee behavior as a result of price transpar-
ency.
C. Regulatory Review Costs
Affected entities will need to under-
stand the requirements of the final rules
before they can comply. Group health
plans and health insurance issuers are re-
sponsible for ensuring compliance with
the final rules. However, as assumed
elsewhere, it is expected that issuers
and TPAs (for self-insured group health
plans) will incur this cost and burden
for most group health plans, and only
the largest self-insured plans may incur
this cost and burden directly. Thus, issu-
ers and TPAs (and possibly some of the
largest self-insured plans) will be respon-
sible for providing plans with compliant
services. The Departments are currently
not aware of any specific number of large
self-insured plans that will seek to meet
the requirements of the final rules with-
out third-party assistance and are thus
unable to accurately account for those
plans, however, those plans will incur
similar costs and burdens as TPAs and
issuers in order to develop the required
tools and to review and understand the
final rules. Therefore, the cost and bur-
den for the regulatory review is estimated
to be incurred by the 1,959 issuers and
TPAs. The Departments also are of the
view that each state DOI, 50 states plus
the District of Columbia, will need to re-
view and understand the final rules in or-
der to be able to provide the appropriate
level of oversight and enforcement.
If regulations impose administrative
costs on private entities, such as the time
needed to read and interpret the final rules,
the Departments should estimate the cost
associated with regulatory review. Due to
the uncertainty involved with accurately
quantifying the number of entities that
will review and interpret the final rules,
the Departments are assuming that the
total number of issuers, TPAs, and state
DOIs will be required to comply with the
final rules.
Nonetheless, the Departments ac-
knowledge that this assumption may un-
derstate or overstate the costs of review-
ing the final rules. It is possible that not all
affected entities will review the final rules
in detail, and some entities may seek the
assistance of outside counsel to read and
interpret them. For these reasons, the De-
partments are of the view that the number
of issuers, TPAs, and DOIs would be a fair
estimate of the number of reviewers of the
final rules.
Using the wage information from the
Bureau of Labor Statistics (BLS)
277
for a
Computer and Information Systems Man-
ager (Code 11-3021), a Lawyer (Code
23-1011) and a state Compliance Officer
(Code 13-1041).
278
The Departments esti-
mate that the cost for each issuer or TPA
to review the final rules will be $285.66
per hour, including overhead and fringe
benefits, and each state DOI will incur a
cost of approximately $55.58 per hour.
279

Assuming an average reading speed, the
Departments estimate that it will take
approximately two hours for each staff
member to review and interpret the final
rules; therefore, the Departments estimate
that the cost of reviewing and interpreting
the final rules for each issuer and TPA will
be approximately $571.32 and $111.16
for each state DOI, including the District
of Columbia. Thus, the Departments esti-
mate that the overall cost for the estimat-
ed 1,959 issuers and TPAs and each state
DOI will be $1,124,885.04 (($571.32 x
1,959 (total number of estimated issuers
and TPAs)) + ($111.16 x 51 (total number
of DOIs))).
D. Regulatory Alternatives Considered
In developing the policies contained in
the final rules, the Departments consid-
ered alternatives to the final rules. In the
following paragraphs, the Departments
discuss the key regulatory alternatives the
Departments considered.
1. Limiting Cost-sharing Disclosures to
Certain Covered Items and Services, and
Certain Types of Group Health Plans and
Health Insurance Issuers
The final rules require group health
plans and health insurance issuers to dis-
close cost-sharing information for any
requested covered item or service. The
Departments considered limiting the
number of items or services for which
plans and issuers would be required to
provide cost-sharing information to less-
en the costs on these entities. However,
limiting disclosures to a specified set of
items and services reduces the breadth
and availability of useful cost estimates
to determine anticipated cost-sharing lia-
bility and limits the impact of price trans-
parency efforts by reducing the incentives
to lower prices and provide higher-qual-
ity care. The Departments assumed that
plans (or TPAs on their behalf) and issu-
ers, whether for a limited set of covered
items and services or for all covered items
and services, would be deriving these
data from the same data source. Because
the data source would be the same, the
Departments assumed that any addition-
al costs to produce the information re-
quired for all covered items and services,
as opposed to a limited set of covered
items and services, would be minimal.
The Departments are of the view that
this limited additional cost is outweighed
by the potentially large benefit to con-
sumers of having access to the required
pricing information for the full scope of
items and services covered by their plan
or issuer. For these reasons, in order to
allow consumers to estimate their out-
of-pocket costs for all services and items
covered under their plan or coverage, and
to achieve lower health care costs and
reduce spending through increased price
transparency, the final rules are requiring
cost-sharing information be disclosed for
all covered items and services. However,
in recognition of commenters’ concerns
regarding the implementation timetable
for the internet-based self-service tool,
the final rules include a staggered imple-
mentation schedule for the disclosure of
277
Wage information available at https://www.bls.gov/oes/current/oes_nat.htm.
278
Wages obtained for State Government, excluding schools and hospitals at https://www.bls.gov/oes/current/naics4_999200.htm.
279
Adjusted hourly wages are determined by multiplying the mean hourly rate by 100 percent to account for fringe benefits and overhead costs.

November 30, 2020 1354 Bulletin No. 2020–49
cost-sharing information through the in-
ternet-based self-service tool.
The Departments also considered
implementing a more limited approach
by imposing requirements only on in-
dividual market plans and fully-insured
group coverage. However, the Depart-
ments are concerned that this limited ap-
proach might encourage plans to simply
shift costs to sectors of the market where
these requirements would not apply and
where consumers would have less access
to pricing information. The Departments
are of the view that all consumers should
be able to access the benefits of greater
price transparency and that a broader ap-
proach will have the greatest likelihood
of controlling the cost of health care in-
dustry-wide. Indeed, if the requirements
of the final rules were limited to only indi-
vidual market plans, the Departments es-
timate only 9,716,000 individuals would
receive the intended benefits of the final
rules. In contrast, under the final rules, a
total of 212,314,000 participants, bene-
ficiaries, and enrollees may receive the
intended benefits.
280
The Departments ac-
knowledge that limiting applicability of
the requirements of the final rules to the
individual market would likely reduce the
overall cost estimates identified in sec-
tion V.B.2, but the overall cost estimates
per covered life would likely increase.
Further, there is a great deal of overlap
in issuers that offer coverage in both the
individual and group markets. Issuers of-
fering coverage in both markets would be
required to comply with the requirements
of the final rules even if the Department
limited the applicability to only the in-
dividual market. Because TPAs provide
administrative functionality for self-in-
sured group health insurance coverage,
those non-issuer TPA entities would not
incur any costs because they do not have
any overlap between the individual and
group markets. The Departments are of
the view that the benefits of providing
consumer pricing information to an es-
timated total 212,314,000 participants,
beneficiaries, and enrollees outweigh the
increased costs that a subset of plans, is-
suers, and TPAs, that are not active par-
ticipants in the individual market, would
incur. The Departments have determined
that the benefits of the final rules being
widely applicable will not only provide
access to health care pricing information
to a greater number of individuals, but
that any developed economies of scale
will have a much greater likelihood of
achieving the goal of controlling the cost
of health care industry-wide.
As noted in section I.B of this pream-
ble, in the summer and fall of 2018, HHS
hosted listening sessions in which at-
tendees stated that existing tools usually
use historical claims data, which results
in broad, sometimes regional, estimates,
rather than accurate and individualized
prices. The Departments considered al-
lowing plans and issuers to use rate in-
formation from historical claims data to
calculate price estimates. The Depart-
ments recognize that many plans and is-
suers use historical claims data to inform
and determine cost-sharing estimates, but
the Departments are of the view that us-
ing pricing information such as negotiat-
ed rates will provide for a more accurate
and reliable estimate. Providing more
accurate estimates of consumer prices
will provide more benefit to consumers,
allowing them to better estimate their
potential out-of-pocket costs and search
for items and services they feel are more
affordable.
2. Requirement to Make Available
Machine-Readable Files of In-Network
Rates, Historical Data for Out-of-network
Allowed Amount Payments Made to Out-
of-network Providers, and Prescription
Drug Pricing Information on a Public
Website
In proposing the requirement that
group health plans and health insurance
issuers post in-network rates, historical
data for out-of-network allowed amount
payments made to out-of-network pro-
viders, and negotiated rates and histori-
cal net prices for each prescription drug
on a publicly accessible website, the De-
partments considered requiring plans and
issuers to submit the internet addresses
for the machine-readable files to CMS.
CMS would then make the information
available to the public from CMS’s web-
site. A central location could allow the
public to access in-network rate informa-
tion, out-of-network allowed amounts,
and prescription drug information for
all plans and issuers in one place, poten-
tially reducing confusion and increasing
accessibility. Posting in-network rates,
out-of-network allowed amounts, and
prescription drug information in a central
location might also make it easier to post
available quality information alongside
price information. However, to provide
flexibility and reduce costs, the Depart-
ments are of the view that plans and is-
suers should determine where to post the
in-network rate, out-of-network allowed
amount, and prescription drug informa-
tion rather than prescribing the location
where the information is to be disclosed.
Further, requiring plans and issuers to
submit internet addresses for their ma-
chine-readable files to CMS would result
in additional costs to the extent plans and
issuers already post this information in a
different location.
3. Frequency of Updates to Machine-
Readable Files
In developing 26 CFR 54.9815-
2715A3(b)(3), 29 CFR 2590.715-
2715A3(b)(3), and 45 CFR 147.212(b)
(3) of the final rules, the Departments
considered requiring more frequent up-
dates (i.e., within 10 calendar days of new
rate finalization) to the in-network rates,
out-of-network allowed amounts, and pre-
scription drug information. More frequent
updates would provide a number of bene-
fits for patients, providers, and the public
at large. Specifically, such a process would
ensure that the public has access to the
most up-to-date rate information so that
consumers can make the most meaning-
ful, informed decisions about their health
care utilization. Requiring group health
plans, health insurance issuers, and TPAs
280
“Health Insurance Coverage in the United States: 2019” (Appendix A). United States Census Bureau/ September 15, 2020. Available at: https://www2.census.gov/programs-surveys/demo/
tables/p60/271/table1.pdf. The number of covered individuals in the individual market and the total number of covered individuals have been updated from those estimated in the proposed
rule. The numbers provided in this final rule are based on more recent data and more accurately reflect the number of covered individuals in the private market (excluding those enrolled in
Tricare coverage). The data provided is for 2019, whereas the data presented in the proposed rule was derived from multiple sources for multiple years (2016 and 2019).

Bulletin No. 2020–49 1355 November 30, 2020
(or other entity acting on a plan or issuers
behalf) to update the machine-readable
files more frequently would result in in-
creased costs for those affected entities,
however. With respect to the In-network
Rate File, the Departments estimate that
requiring updates within 10 calendar days
of rate finalization would result in each
plan, issuer, or TPA incurring a burden of
4,428 hours, with an associated equiva-
lent cost of $635,112 in the second year
after implementation of the final rules and
an annual burden of 1,116 hours, with an
associated equivalent cost of $162,828 in
subsequent years. Based on recent data
the Departments estimate a total 1,959
entities – 1,754 issuers
281
and 205 TPAs
282

– will be responsible for implementing the
final rules. For all 1,959 issuers and TPAs,
the total burden, in the second year of
implementation of the final rules, would
be 8,674,452 hours, with an associated
equivalent cost of $1,244,184,408 and
an annual ongoing burden of 2,186,244
hours, with an associated ongoing annu-
al costs of $318,980,052 in subsequent
years. As discussed in section VI.A.2,
requiring a less frequent 30 calendar day
update will reduce the burden, in year
two, for each entity to 1,476 hours with
an associated equivalent cost of $211,704.
The burden and associated costs, in subse-
quent years, will be reduced to 372 hours,
with an associated cost of $54,276. For
all 1,959 issuers and TPAs, the total bur-
den, in year two, is reduced to 2,891,484
hours, with and associated equivalent cost
of $414,728,136. For subsequent years,
the total burden is reduced to 728,748
hours, with an associated equivalent cost
of $106,326,684. With respect to the Al-
lowed Amount File, the Departments esti-
mate that requiring updates within 10 cal-
endar days of rate finalization would result
in each plan, issuer, or TPA incurring a
burden of 1,908 hours, with an associated
equivalent cost of $290,628 in the second
year and an annual ongoing burden of 468
hours, with an associated equivalent cost
of $61,452 in subsequent years. For all
1,959 issuers and TPAs, the total burden,
in year two, would be 3,737,772 hours
with and associated equivalent cost of
$569,340,252. For subsequent years, the
total ongoing burden would be 916,812
hours, with an associated equivalent cost
of $120,384,468. As further discussed in
section VI.A.2, requiring a less frequent
update will reduce the year two burden for
each issuer and TPA to 636 hours, with an
associated equivalent cost of $96,876. For
subsequent years, the total ongoing bur-
den will be reduced to 156 hours, with an
associated equivalent cost of $20,848. For
all 1,959 issuers and TPAs, the total bur-
den for year two is reduced to 1,245,924
hours, with an associated equivalent cost
of $189,780,084. For subsequent years,
the total ongoing burden will be reduced
to 305,604 hours, with an associated
equivalent cost of $40,128,156. With re-
spect to the Prescription Drug File, the
Departments estimate that requiring up-
dates within 10 calendar days of rate fi-
nalization would result in each plan, is-
suer, or TPA incurring a burden of 2,700
hours, with an associated equivalent cost
of $416,664 in the second year and an an-
nual ongoing burden of 1,116 hours, with
an associated equivalent cost of $162,828
in subsequent years. For all 1,959 issuers
and TPAs, the total burden, in year two,
would be 5,289,300 hours with and asso-
ciated equivalent cost of $816,244,776.
For subsequent years, the total ongoing
burden would 2,186,244 hours, with an as-
sociated equivalent cost of $318,980,052.
As discussed in section VI.A.2, requiring
a less frequent update will reduce the year
two burden for each issuer and TPA to 900
hours, with an associated equivalent cost
of $138,888. For subsequent years, the
total ongoing burden will be reduced to
372 hours, with an associated equivalent
cost of $54,276. For all 1,959 issuers and
TPAs, the total burden for year two is re-
duced to 1,763,100 hours, with an associ-
ated equivalent cost of $272,081,592. For
subsequent years, the total ongoing annual
burden will be reduced to 728,748 hours,
with an associated equivalent cost of
$106,326,684. By requiring monthly up-
dates to the machine-readable files, rather
than updates every 10 calendar days, the
Departments have chosen to strike a bal-
ance between placing a significant burden
on issuers (and their service providers)
and assuring the availability of accurate
information.
4. File Format Requirements
In 26 CFR 54.9815-2715A3(b)(2),
29 CFR 2590.715-2715A3(b)(2), and 45
CFR 147.212(b)(2), the final rules re-
quire group health plans and health insur-
ance issuers to post information in three
machine-readable files. A machine-read-
able file is defined as a digital represen-
tation of data or information in a file that
can be imported or read by a computer
system for further processing without
human intervention, while ensuring no
semantic meaning is lost. The final rules
require each machine-readable file to use
a non-proprietary, open format. The De-
partments considered requiring issuers
and TPAs to post in-network rates, al-
lowed amounts paid for out-of-network
services, and prescription drug informa-
tion using a specific file format, namely
JSON. However, the Departments are of
the view that being overly prescriptive
regarding the file type will impose an
unnecessary costs on issuers and TPAs
despite the advantages of JSON, name-
ly that JSON files are downloadable and
readable for many health care consum-
ers, and the potential for JSON to simpli-
fy the ability of price transparency tool
developers to access the data. Therefore,
the Departments are requiring that issu-
ers and TPAs post the in-network rate,
allowed amount, and prescription drug
pricing information in three distinct ma-
chine-readable files using a non-propri-
etary, open format. The Departments will
provide additional guidance regarding
the file format in future technical imple-
mentation guidance.
In addition, the Departments consid-
ered requiring plans and issuers to pro-
vide the specific out-of-network allowed
amount methodology needed for con-
sumers to determine out-of-pocket lia-
bility for services by providers not con-
sidered in-network by the plan or issuer,
rather than historical data on paid out-of-
network claims. However, the Depart-
281
2018 MLR Data Trends.
282
Non-issuer TPAs based on data derived from the 2016 Benefit Year reinsurance program contributions.

November 30, 2020 1356 Bulletin No. 2020–49
ments understand providing a formula or
methodology for calculating a provider’s
out-of-network allowed amount does not
provide the data users need in an easy-
to-use machine-readable format. The
Departments determined that providing
monthly data files on allowed amounts
by plans and issuers over a 90-day period
for items and services provided by out-
of-network providers will enable users to
more readily determine what costs a plan
or issuer may pay toward items or ser-
vices obtained out-of-network. Because
a plan or issuer does not have a contract
with an out-of-network provider that
establishes negotiated rates, the plan or
issuer cannot anticipate what that provid-
er’s charges will be for any given item
or service; therefore, the Departments,
as discussed previously in this pream-
ble, are requiring the inclusion of billed
charges in the Allowed Amounts File.
Providing data on the billed charge
in connection with each unique allowed
amount on the out-of-network Allowed
Amount File will provide consumer with
information related to what their plan or
issuer will likely contribute to the costs
of items or services obtained from out-of-
network providers and the billed charges
associated with those item or services.
This information will provide the con-
sumer with a reasonably accurate esti-
mate of the amount of additional liability
a consumer could be required to pay for a
particular item or service received from an
out-of-network provider. Out-of-network
allowed amount and billed charges data
will provide increased price transparen-
cy for consumers, and the costs related to
producing these data are not considered to
be significantly higher than that associated
with producing the methodology for de-
termining allowed amounts for payments
to out-of-network providers. Given these
circumstances, the final rules are requir-
ing that payers provide allowed amount
data for out-of-network covered items or
services furnished by a particular out-of-
network provider during the 90-day time
period that begins 180 days prior to the
publication date of the Allowed Amount
File, and billed charges rather than requir-
ing plans and issuers to report their meth-
odology or formula for calculating the al-
lowed amounts for out-of-network items
and services.
5. Requiring Disclosure of Cost-sharing
information to Participants, Beneficiaries,
and Enrollees and Publicly-posted
Machine-readable Files with In-
network Rates, Out-of-network Allowed
Amounts, and Prescription drug pricing
information.
The Departments considered whether
it would be duplicative to require group
health plans and health insurance issu-
ers to disclose cost-sharing information
through an internet-based self-service tool
or in paper form to participants, beneficia-
ries, or enrollees so that they may obtain
an estimate of their cost-sharing liability
for covered items and services and public-
ly-posted machine-readable files contain-
ing data on in-network rates, out-of-net-
work allowed amounts, and prescription
drug pricing information. The require-
ment to disclose cost-sharing information
to participants, beneficiaries, or enrollees
in the final rules require plans and issuers
to provide consumer-specific informa-
tion on potential cost-sharing liability to
enrolled consumers, complete with infor-
mation about their deductibles, copays,
and coinsurance. However, cost-sharing
information for these plans and coverage
would not be available or applicable to
consumers who are uninsured or shopping
for plans pre-enrollment. Data disclosed
to participants, beneficiaries, or enrollees
would also not be available to third par-
ties who are interested in creating inter-
net-based self-service tools to assist both
uninsured and insured consumers with
shopping for the most affordable items or
services. Limiting access to data to a sub-
set of consumers would not promote the
transparency goals of the final rules and
would reduce the potential for the final
rules to drive down health care costs by
increasing competition.
As discussed in more detail in section
VI.A.1 in this preamble, the Departments
have estimated the high-end three-year
average annual cost to develop only the
internet-based self-service tool, includ-
ing the initial tool build and maintenance,
customer service training, customer assis-
tance, and mailing costs. The Departments
estimate the three-year average total bur-
den per issuer, or TPA will be approxi-
mately 23,338 hours, with an associated
equivalent average annual cost of approx-
imately $3,262,262. For all 1,959 issuers
and TPAs, the Departments estimate the
total three-year average annual burden
will be 45,718,171 hours with an associat-
ed equivalent total average annual cost of
approximately $6,390,770,952.
Additionally, the Departments esti-
mated that for implementation of the re-
quired internet-based self-service tool
in conjunction with the out-of-network
allowed amount, in-network and pre-
scription drug machine-readable files,
the Departments estimate that the annual
high-end three-year average annual costs
and burden for each issuer or TPA will be
approximately 28,958 hours, with an as-
sociated equivalent cost of approximate-
ly $4,040,142. For all 1,959 issuers and
TPAs, the Departments estimate the total
three-year average annual burden and cost
to be 56,727,751 hours with an associated
equivalent total average annual cost of ap-
proximately $7,914,635,260.
In contrast, and as discussed in more
detail in section VI.A.1, the Departments
estimate that the low-end three-year aver-
age burden and cost to develop and main-
tain only the internet-based self-service
tool, including the initial tool build and
maintenance, customer service training,
customer assistance, and mailing costs.
The Departments estimate the total three-
year average cost and burden per issuer or
TPA will be approximately 15,475 hours,
with an associated equivalent average an-
nual cost of approximately $2,150,169.
For all 1,959 issuers and TPAs, the De-
partments estimate the total three-year
average annual burden to be 30,315,730
hours with an associated equivalent to-
tal average annual cost of approximately
$4,212,181,157.
Finally, the Departments estimated that
for implementation of the required inter-
net-based self-service tool in conjunction
with the out-of-network allowed amount,
in-network rate, and prescription drug ma-
chine-readable files, the Departments es-
timate that the three-year average annual
low-end cost and burden for each issuer or
TPA will be approximately 21,095 hours,
with an associated equivalent average an-
nual cost of approximately $2,928,048.
For all 1,959 issuers and TPAs, the Depart-
ments estimate the total three-year average
annual low-end burden and cost will be
41,325,310 hours with an associated equiv-

Bulletin No. 2020–49 1357 November 30, 2020
alent total average annual cost of approxi-
mately $5,736,045,465. While the Depart-
ments recognize that requiring disclosures
through all mechanisms will increase the
costs for issuers and TPAs required to com-
ply with the final rules, the Departments are
of the view that the additional costs asso-
ciated with greater price transparency are
outweighed by the benefits that will accrue
to the broader group of consumers (such as
the uninsured and individuals shopping for
coverage) and other individuals who would
benefit directly from the additional infor-
mation provided through the machine-read-
able files. Additionally, the Departments
are of the view that the final rules have the
potential to reduce the cost of surprise bill-
ing to consumers. The Departments further
believe that the final rules will, with the
disclosure of in-network rates, potential-
ly apply pressure on providers to bill less
aggressively. Consumer advocacy groups
could also use the wide price dispersion of
the same CPT level service or NDC level
drug by the same providers with different
negotiated rates, depending upon issuer or
TPA contract, to further place downward
pressure on health care costs. In addition,
as noted earlier in section II.C.1-2 of this
preamble, researchers and third-party de-
velopers will also be able to use the data
included in the machine-readable files in a
way that could create even more benefits
to consumers, including those consumers
not currently enrolled in a particular plan
or coverage. For these reasons, the De-
partments have concluded that, in addition
to requiring plans and issuers to disclose
cost-sharing information to participants,
beneficiaries, or enrollees through an inter-
net-based self-service tool, requiring plans
and issuers to publicly disclose information
regarding in-network rates, out-of-network
allowed amounts, and prescription drug
pricing will further the goals of price trans-
parency and create benefits for all poten-
tially affected stakeholders.
6. Requiring an Internet-Based Self-
Service Tool and Machine-Readable Files
in Lieu of an API
The Departments considered whether
to require group health plans and health
insurance issuers to make the informa-
tion required by the final rules available
through a standards-based API, instead
of through the proposed internet-based
self-service tool and machine-read-
able files. Access to pricing information
through an API could have a number of
benefits for consumers, providers, and the
public at large. This information could
ensure the public has access to the most
up-to-date rate information. Providing
real-time access to pricing information
through a standards-based API could al-
low third-party innovators to incorporate
the information into applications used by
consumers or combined with electronic
medical records for point-of-care deci-
sion-making and referral opportunities by
clinicians for their patients. Additionally,
being able to access this data through a
standards-based API would allow con-
sumers to use the application of their
choice to obtain personalized, actionable
health care price estimates, rather than be-
ing required to use one developed by their
plan or issuer (or a service provider), al-
though those consumers may be required
to pay for access to those applications.
While there are many benefits to a stan-
dards-based API, it is the Departments’
view that both an internet-based tool and
machine-readable files are the first itera-
tive steps towards developing price trans-
parency standards-based APIs. It is the
Departments’ view that standards-based
API would be a natural next technological
step. The Departments also recognize that
the majority of issuers have an existing in-
ternet-based tool that could be enhanced
to meet the disclosure requirements in the
final rules. The burden associated with up-
dating existing tools to standardize data
attributes is going to be less than build-
ing a standards-based API. Looking at the
average cost over a 3-year period for the
API for all 1,959 issuers and TPAs, the
Departments estimate an average annual
cost that would significantly exceed the
estimated annual cost of implementing
the internet-based self-service tool and
machine-readable files. The Departments
recognize that the development of an API
may be streamlined by leveraging exist-
ing APIs currently used by plans, issuers,
or TPAs for their own applications. Ad-
ditionally, any requirements for an API
would build on the requirements finalized
in CMS’s Interoperability & Patient Ac-
cess final rule
283
requiring certain entities,
such as Federally-facilitated Exchange
QHP issuers and companies that partici-
pate in both Medicare and the individual
or group market, to provide certain data
through a standards-based API. Building
on the Interoperability & Patient Access
final rule could result in significantly low-
er costs for issuers and TPAs as it relates
to the development and implementation
of a standards-based API. Nonetheless,
while the Interoperability & Patient Ac-
cess final rule focuses on the disclosure of
information regarding post care and clin-
ical data, the rules finalized here require
plans and issuers to provide information
related to a participant’s, beneficiary’s,
or enrollee’s individual’s cost-sharing,
allowed amounts for covered items and
services from out-of-network providers,
and negotiated rates and historical net
prices for each prescription drug prior to
seeking or obtaining care. The Depart-
ments are therefore of the view that plans,
issuers, and TPAs would incur significant
and distinct costs if required to us a stan-
dards-based API to comply with the final
rules.
Although not estimated here, the De-
partments expect any associated mainte-
nance costs would also decline in succeed-
ing years as plans, issuers, and TPAs gain
additional efficiencies or undertake similar
procedures to maintain any currently used
internal APIs. Nonetheless, weighing the
costs of providing the required informa-
tion using an internet-based self-service
tool and machine-readable files against the
potential costs of using a standards-based
API, particularly given the timeframes re-
quired by the final rules, the Departments
are of the view that, at least in the short-
term, requiring an internet-based self-ser-
vice tool and machine-readable files is the
more sensible approach.
Even though the Departments are of
the view that an internet-based self-ser-
vice tool and machine-readable files are
appropriate in the short-term, as discussed
earlier in this preamble, the Departments
recognize that a standards-based API for-
mat in the long-term may be more ben-
eficial to the public, as it would provide
283
85 FR 25510 (May 1, 2020).

November 30, 2020 1358 Bulletin No. 2020–49
access to the most up-to-date rate infor-
mation; would allow health care consum-
ers to use the application of their choice
to obtain personalized, actionable health
care service price estimates; and would
allow third-party developers to use the
collected data to develop internet-based
self-service tools. Therefore, the Depart-
ments are considering future rulemaking
to further expand access to pricing in-
formation through standards-based APIs,
including individuals’ access to estimates
about their own cost-sharing liability and
information about in-network rates, his-
torical payment data for out-of-network
allowed amounts, and negotiated rates and
historical net prices for prescription drugs.
VI. Collection of Information
Requirements.
The final rules contain ICRs that are
subject to review by OMB. A description
of these provisions is given in the follow-
ing paragraphs with an estimate of the an-
nual burden, summarized in Table 24.
To fairly evaluate whether an infor-
mation collection should be approved by
OMB, section 3506(c)(2)(A) of the PRA
requires that the Departments solicit com-
ment on the following issues:
• the need for the information collec-
tion and its usefulness in carrying out the
proper functions of each of the Depart-
ments.
• the accuracy of the Departments’ esti-
mate of the information collection burden.
• the quality, utility, and clarity of the
information to be collected.
• recommendations to minimize the in-
formation collection burden on the affect-
ed public, including automated collection
techniques.
The Departments solicited comment on
each of the required issues under section
3506(c)(2)(A) of the PRA for the follow-
ing information collection requirements.
A. Wage Estimates
To derive wage estimates, the Depart-
ments generally use data from the BLS
to derive average labor costs (including
a 100 percent increase for fringe benefits
and overhead) for estimating the burden
associated with ICRs.
284
One comment-
er noted that the markup rates for labor,
fringe benefits, and overhead are under-
estimated at 100 percent, while the con-
ventional standard is 200 percent to 300
percent. The commenter further stated
that if the Departments were to update the
burden estimates with the conventional
standard for overhead markup, the total of
annual quantified costs would increase to
over $500 million per year.
The Departments acknowledge that
there are various methodologies used to
determine and estimate fringe benefits and
other overhead costs; however, the com-
menter did not provide any source recog-
nizing or supporting their assertion that
the conventional standard is to use 200
percent to 300 percent increases. The De-
partments agree that if a higher percentage
were used to estimate hourly wages and
overhead, then the estimated costs for the
final rules could potentially be significant-
ly higher. However, the Departments note
that the use of 100 percent is necessarily
a rough adjustment, both because fringe
benefits and overhead costs vary signifi-
cantly across employers, and because
methods of estimating these costs vary
widely across studies. The Departments
are of the view that doubling the hourly
wage to estimate total cost is a reasonably
acceptable estimation method.
The Departments recognize that the
maturity of technology will vary from
organization to organization. An indepen-
dent study by Bates White Economic Con-
sulting (Bates White), commissioned by
one commenter, developed an assessment
of the costs of the proposed rules by inter-
viewing a mix of 18 large and small health
insurance issuers covering about 78 mil-
lion lives. They reported various degrees
of existing tools’ compliance with the re-
quirements of the proposed rules. The De-
partments reevaluated its initial burden es-
timates developed for the proposed rules
based on feedback from commenters and
the Bates Whites study. Because the De-
partments could not make an estimate for
any specific issuer, an independent gov-
ernment cost estimate (IGCE) was con-
ducted for each of the machine-readable
files and the internet-based self-service
tool to aid the Departments in conducting
the burden and cost estimates for the final
rules. The goals of an IGCE are to aid the
government acquisition process in deter-
mining a project’s cost estimates based
on project requirements or objectives that
are typically found in a performance work
statement or statement of work. IGCEs
are developed by the government with-
out contractor influence and are based on
market research. The estimated skill sets
required to build both the internet based
self-service tool and machine-readable
files can be found in TABLE 3 below. The
Departments based the IGCE cost esti-
mates on the rule’s requirements and each
IGCE has baseline assumptions that are
built into the final estimate.
The IGCE assumptions for the inter-
net-based self-service tool included things
such as research, engineering develop-
ment, and design and were not based on
any existing tools. There was an assump-
tion that product development would be
done in the cloud to take advantage of
economies of scale or with on-premise
infrastructure that allows for the devel-
opment of “infrastructure as code.” The
IGCE assumptions for the machine-read-
able files included that all items and ser-
vices for a specific plan have a negotiated
price, that all price numbers are digitized,
that pricing information is stored in many
locations (not in a single database), that
pricing information is accessible through
internal systems, that building the first
machine-readable file will facilitate auto-
mation for building future machine-read-
able files, and that there is an ability to run
queries against claims data.
Based on comments discussed later
sections VI.A.1-2, the Departments have
chosen to use the Contract Awarded La-
bor Category (CALC)
285
database tool,
managed by the General Services Ad-
ministration (GSA), to derive the hourly
rates for the burden and cost estimates in
284
May 2018 Bureau of Labor Statistics, Occupational Employment Statistics, National Occupational Employment and Wage Estimates. Available at: https://www.bls.gov/oes/current/
oes_stru.htm.
285
CALC information and wage rates are available at: https://calc.gsa.gov/about/.

Bulletin No. 2020–49 1359 November 30, 2020
the final rules. The CALC tool was built
to assist acquisition professionals with
market research and price analysis for la-
bor categories on multiple U.S. GSA &
Veterans Administration (VA) contracts.
Wages obtained from the CALC database
are fully burdened to account for fringe
benefits and overhead costs. The Depart-
ments chose to use wages derived from
the CALC database because, even though
the BLS data set is valuable to econo-
mists, researchers, and others that would
be interested in larger, more macro-trends
in parts of the economy, the CALC data
set is meant to help market research based
on existing government contracts in de-
termining how much a project/product
will cost based on the required skill sets
needed. The CALC data set also factors in
the fully-burdened hourly rates (base pay
+ benefits) into wages whereas BLS rates
do not. CALC occupations and wages pro-
vide the Departments with data that aligns
more with, and provides more detail re-
lated to, the occupations required for the
implementation of the requirements in the
final rules. As discussed earlier, after con-
sideration and discussion of comments,
the Departments chose to further reeval-
uate the cost and burden estimates. Based
on the Departments consultation with in-
ternal and external IT professionals and
additional research, the Departments have
chosen to increase our overall costs and
burden estimates to account for our updat-
ed understanding of the burdens associat-
ed with the final rules and the additional
requirements included in the final rules.
The Departments further discuss changes
to the final cost and burden estimates in
the corresponding ICR sections.
While the following estimates for the
internet-based self-service tool assume
that entities are either iterating on an exist-
ing tool or building a brand new tool from
the ground up, the Departments are of the
view that it is highly likely that third-par-
ty developers will take this opportunity to
build white-label products that meet the
requirements of the final rules and that
they will reduce costs through economies
of scale by doing so. As such, the Depart-
ments’ cost estimates may have some ten-
dency towards over-estimation.
TABLE 3: Hourly Wages Used in Burden Estimates.
CALC Occupation Title
Mean Hourly Wage
($/hour)
Project Manager/Team Lead$153.00
Scrum Master$105.00
Technical Architect/Sr. Developer$149.00
Application Developer, Senior$143.00
Business Analyst$120.00
UX Researcher/Service Designer$154.00
Designer$116.00
DevOps Engineer$181.00
Customer Service Representative$40.00
Web Database/Application Developer IV$152.00
Service Designer/Researcher$114.00
1. ICR Regarding Requirements for
Disclosures to Participants, Beneficiaries,
or Enrollees (26 CFR 54.9815-2715A2,
29 CFR 2590.715-2715A2, and 45 CFR
147.211)
The Departments add 26 CFR 54.9815-
2715A2(b), 29 CFR 2590.715-2715A2(b),
and 45 CFR 147.211(b), requiring group
health plans and health insurance issuers
of individual and group health insurance
coverage to disclose, upon request, to a
participant, beneficiary, or enrollee, such
individual’s cost-sharing information for
items; negotiated rates and underlying fee
schedule rates for in-network providers;
and allowed amounts for covered items
and services from out-of-network pro-
viders. As discussed previously in section
II.B.1 of this preamble, in paragraphs 26
CFR 54.9815-2715A2(b)(1)(i), 29 CFR
2590.715-2715A2(b)(1)(i), and 45 CFR
147.211 (b)(1)(i) through (vii) the final
rules require plans and issuers to make
this information available through an in-
ternet-based self-service tool on an in-
ternet website and, if requested, in paper
form or other format agreed upon between
the plan, issuer, or TPA and participant,
beneficiary, or enrollee.
The final rules require plans and is-
suers to disclose, upon request, certain
information relevant to a determination
of a participant’s, beneficiary’s, or enroll-
ee’s cost-sharing liability for a particular
health care item or service from a partic-
ular provider, to the extent relevant to the
individual’s cost-sharing liability for the
item or service, in accordance with seven
content elements: the individual-specific
estimated cost-sharing liability; the in-
dividual-specific accumulated amounts;
the in-network rate; the out-of-network
allowed amount for a covered item or ser-
vice, if applicable; the items and services
content list when the information is for
items and services subject to a bundled
payment arrangement; a notice of prereq-
uisites to coverage (such as prior authori-
zation); and a disclosure notice. However,
as discussed earlier in this section II.B.1

November 30, 2020 1360 Bulletin No. 2020–49
of this preamble, in instances where items
or services, generally considered preven-
tive, are furnished as non-preventive items
or services, the participant, beneficiary, or
enrollee may be subject to the cost-shar-
ing terms of his or her plan. If a plan or is-
suer cannot determine whether the request
is for a preventive item or service, the
plan or issuer must display the non-pre-
ventive cost-sharing liability, along with
a note that the item or service may not be
subject to cost-sharing if it is billed as a
preventive service. The final rules also re-
quire the disclosure notice to include sev-
eral statements, written in plain language,
which include disclaimers relevant to the
limitations of the cost-sharing informa-
tion disclosed, including: a statement that
out-of-network providers may balance bill
participants, beneficiaries, or enrollees, a
statement that the actual charges may dif-
fer from those for which a cost-sharing
liability estimate is given, and a statement
that the estimated cost-sharing liability
for a covered item is not a guarantee that
coverage will be provided for those items
and services. In addition, plans and issuers
will be permitted to add other disclaimers
they determine appropriate so long as
such information is not in conflict with
the disclosure requirements of the final
rules. The Departments have developed
model language that plans and issuers will
be able to use to satisfy the requirement
to provide the notice statements described
earlier in section II.B.1 of this preamble.
As discussed in section II.B.1 of this
preamble, the final rules require plans and
issuers to make available the information
described in 26 CFR 54.9815-2715A2(b),
29 CFR 2590.715-2715A2(b), and 45
CFR 147.211(b) of the final rules through
an internet-based self-service tool. The
information is required to be provided in
plain-language through real-time respons-
es. Plans and issuers will be required to
allow participants, beneficiaries, or enroll-
ees to search for cost-sharing information
for covered items and services by billing
code, or by descriptive term, per the us-
er’s request, in connection with a specific
in-network provider, or for all in-network
providers. In addition, the internet-based
self-service tool must allow users to input
information necessary to determine the
out-of-network allowed amount for a cov-
ered item or service provided by an out-
of-network provider (such as zip code).
The internet-based self-service tool is re-
quired to have the capability to refine and
reorder results by the geographic proxim-
ity of in-network providers, and the esti-
mated amount of cost-sharing liability to
the beneficiary, participant, or enrollee.
As discussed in sections II.B.1 and 2
earlier in this preamble, the final rules
require plans and issuers to furnish upon
request, in paper form, the informa-
tion required to be disclosed under 26
CFR 54.9815-2715A2(b)(1), 29 CFR
2590.715-2715A2(b)(1), and 45 CFR
147.211(b)(1) of the final rules to a par-
ticipant, beneficiary, or enrollee. As dis-
cussed in sections II.B.1 and 2 in this pre-
amble, a paper disclosure is required to be
furnished according to the consumer’s fil-
tering and sorting preferences and mailed
to the participant, beneficiary, or enrollee
within two business days of receiving the
request. Plans or issuers may, upon re-
quest, provide the required information
through other methods, such as over the
phone, through face-to-face encounters,
by facsimile, or by email.
The Departments assume fully-insured
group health plans will rely on issuers to
develop and maintain the internet-based
self-service tool and provide any request-
ed disclosures in paper form. While the
Departments recognize that some self-in-
sured plans might independently develop
and maintain the internet-based self-ser-
vice tool, at this time the Departments as-
sume that self-insured plans will rely on
TPAs (including issuers providing admin-
istrative services and non-issuer TPAs)
to develop the required internet-based
self-service tool. The Departments make
this assumption because the Departments
understand that most self-insured group
health plans rely on TPAs for performing
most administrative duties, such as en-
rollment and claims processing. For those
self-insured plans that choose to devel-
op their own internet-based self-service
tools, the Departments assume that they
will incur a similar cost and burden as es-
timated for issuers and TPAs, as discussed
in section VI.A.1 later in this preamble.
In addition, 26 CFR 54.9815-2715A2(b)
(3), 29 CFR 2590.715-2715A2(b)(3), and
45 CFR 147.211(b)(3) of the final rules
provide for a special rule to prevent un-
necessary duplication of the disclosures
with respect to health insurance coverage,
which provides that a plan may satisfy the
disclosure requirements if the issuer offer-
ing the coverage is required to provide the
information pursuant to a written agree-
ment between the plan and issuer. Thus,
the Departments have used issuers and
TPAs as the unit of analysis for the pur-
poses of estimating required changes to IT
infrastructure and administrative costs and
burdens. The Departments estimate ap-
proximately 1,754 issuers and 205 TPAs
will be affected by the final rules.
The Departments acknowledge that the
costs described in these ICRs may vary
depending on the number of lives cov-
ered, the number of providers and items
and services for which cost-sharing in-
formation must be disclosed, and the fact
that some plans and issuers already have
robust tools that can be easily adapted to
meet the requirements of the final rules.
In addition, plans and issuers may be able
to license existing cost estimator tools
offered by third-party vendors, obviating
the need to establish and maintain their
own internet-based self- service tools.
The Departments assume that any related
vendor licensing fees would be dependent
upon complexity, volume, and frequency
of use, but assume that such fees would
be lower than an overall initial build and
associated maintenance costs. Nonethe-
less, for purposes of the estimates in these
ICRs, the Departments assume all 1,959
issuers and TPAs will be affected by the fi-
nal rules. The Departments also developed
the following estimates based on the mean
average size, by covered lives, of issuers
or TPAs. As noted later in this section,
the Departments sought comment on the
inputs and assumptions that were used to
develop these cost and burden estimates,
particularly regarding existing efficiencies
that would reduce the cost and burden es-
timates.
High range estimate for Internet-
based self-service tool from start-up to
operational functionality.
The Departments estimate that the
one-time costs and burden each issuer
or TPA will incur to complete the one-
time technical build; including activities
such as planning, assessment, budgeting,
contracting, building and systems test-

Bulletin No. 2020–49 1361 November 30, 2020
ing, incorporating any necessary security
measures, incorporating disclaimer and
model notice language, or development
of the model and disclaimer notice mate-
rials for those that choose to make alter-
ations. The Departments assume that this
one-time cost and burden will be incurred
in 2022 to develop and build the inter-
net-based self-service tool and provide in-
formation for the 500 required items and
services, and additional one-time costs
will be incurred in 2023 in order to fully
meet the requirements of the final rules.
As mentioned earlier in section V.A.2 of
this preamble, the Departments acknowl-
edge that a number of issuers and TPAs
have previously developed some level of
internet-based self-service tool similar to,
and containing some functionality relat-
ed to, the requirements in the final rules.
The Departments thus seek to estimate a
burden and cost range (high-end and low-
end) associated with the final rules for
those issuers and TPAs. In order to devel-
op the high-end hourly burden and cost
estimates, the Departments assume that
all issuers and TPAs will need to develop
and build their internet-based self-service
tool from start-up to operational function-
ality. The Departments estimate that for
each issuer or TPA it will take a Project
Manager/Team Lead 4,160 hours (at $153
per hour), a Scrum Master 4,160 hours
(at $105 per hour), a Technical Architect/
Sr. Developer 4,160 hours (at $149 per
hour), an Application Developer, Senior
4,160 hours (at $143 per hour), a Business
Analyst 4,160 hours (at $120 per hour),
a UX Researcher/Service Designer 4,160
hours (at $154 per hour), a Designer 4,160
hours (at $116 per hour), a DevOps En-
gineer 4,160 hours (at $181 per hour),
and a Web Database/Application De-
veloper IV 4,160 hours to complete this
task. The Departments estimate the total
burden per issuer or TPA will be approx-
imately 37,440 hours, with an equivalent
cost of approximately $5,295,680. For all
1,959 issuers and TPAs, the total first year
one-time total burden is estimated to be
73,344,960 hours, with an equivalent total
cost of approximately $10,374,237,120.
The Departments’ estimates are high-
er-bound estimates that do not consider
potential cost savings that could be real-
ized should issuers and TPAs buy or lease
an internet-based self-service tool from a
third-party vendor or other issuer. Howev-
er, the Departments are of the view that
issuers or TPAs that choose to buy or rent
an internet-based self-service tool from
another entity could incur significantly
less costs and burdens.
TABLE 4A: Total High-End First Year Estimated One-time Cost and Hour Burden for Internet-based Self-service Tool for
Each Issuer or TPA.
CALC Occupation
Burden Hours per
Respondent
Labor Cost per
HourTotal Cost per Respondent
Project Manager/Team Lead4,160$153.00$636,480.00
Scrum Master4,160$105.00$436,800.00
Technical Architect/Sr. Developer4,160$149.00$619,840.00
Application Developer, Senior4,160$143.00$594,880.00
Business Analyst4,160$120.00$499,200.00
UX Researcher/Service Designer4,160$154.00$640,640.00
Designer4,160$116.00$482,560.00
DevOps Engineer4,160$181.00$752,960.00
Web Database/Application Developer IV4,160$152.00$632,320.00
Total per respondent37,440$5,295,680.00

TABLE 4B: Total High-End First Year Estimated One-time Cost and Hour Burden for Internet-based Self-service Tool for
All Issuers and TPAs.
Number of
Respondents
Number of
Responses
Burden Hours
Per Respondent
Total Burden
Hours
Total Cost
1,9591,95937,440.073,344,960$10,374,237,120
Several commenters stated that the
Departments grossly underestimated the
cost burden of implementation on plans
and issuers. One commenter stated that
surveyed issuers estimated an average
cost of $6.2 million to build, develop or
modify, implement, test, and launch an
internet-based self-service tool. This is
28 times greater than the Departments’
proposed estimate for an issuer that
needs to build a new tool and 112 times
greater than the Departments’ estimate
for an issuer that has an existing tool.
Furthermore, this commenter noted that
surveyed issuers estimated average annu-

November 30, 2020 1362 Bulletin No. 2020–49
al maintenance costs of $1.4 million per
issuer—over 100 times greater than those
anticipated by the Departments. Sur-
veyed issuers also estimated set-up costs
that averaged about $5.53 million (rang-
ing from $1,000,000 to $15,000,000)
compared to the Departments’ proposed
estimate of $221,029. This is more than
25 times what the Departments estimat-
ed as the cost for a full build of the in-
ternet-based self-service tool. Although
most of the issuers surveyed had an ex-
isting internet-based self-service tool
meeting many of the required elements of
the final rules, several issuers expressed
significant concern about the cost and
feasibility of complying with the require-
ments of the proposed rules. Specifically,
the issuers surveyed expressed concerns
noting that the requirements may neces-
sitate a complete rebuild of their con-
sumer tool. The surveyed issuers further
indicated that the proposed rules would
be costlier than implementing real-time
claims adjudication, in which the claim
for the medical service is adjudicated at
the time the service is provided. They
stated that they would need to effective-
ly adjudicate the claim before it actu-
ally happens – to provide estimates for
every conceivable type of medical item
or service while integrating this informa-
tion with various benefits. The surveyed
issuers also noted that condensing all of
the detail required in the final rules into
a user-friendly format for use by enroll-
ees would be a considerable and possibly
even infeasible challenge. They further
stated that the Departments’ assump-
tion that issuers with an existing inter-
net-based self-service tool would face a
lower hour burdens and costs to comply
with the proposed rules was incorrect.
The Departments have considered the
comments submitted in response to the
cost and burden estimates related to the in-
ternet-based self-service tool. In response,
the Departments have adjusted the costs
and burden estimates to better reflect and
align with the values submitted by com-
menters. In addition, the Departments
have developed the estimates above, and
in other ICR sections, using CALC wage
rates as discussed in section VI.A of this
preamble.
Low range estimate for internet-based
self-service tool requiring partial build.
The Departments recognize that a
significant number of issuers and TPAs
may already have some form of inter-
net-based self-service tool that allows
for comparison shopping of different
plans and that a large number of issuers
and TPAs may currently provide partic-
ipants, beneficiaries, or enrollees with
the ability to obtain some estimated out-
of-pocket costs.
286
For those issuers and
TPAs that currently have some level of
functional internet-based self-service
tool that would meet some (or all) of the
requirements of the final rules, the De-
partments recognize that these entities
may incur lower burdens and costs over-
all, as the Departments are of the view
that these entities may require an overall
lower level of effort and capital expen-
diture to meet the requirements of the
final rules. Thus, the Departments have
estimated a low-end burden and cost to
comply with the final rules. Assuming
that over 90 percent of issuers and TPAs
currently provide an internet-based
self-service tool and will only be re-
quired to make changes to their current
system in order to meet the requirements
in the final rules, the Departments esti-
mate that 175 issuers and 21 TPAs will
be required to develop an internet-based
self-service tool from start-up to oper-
ational functionality. The Departments
also estimate that each of those 196 en-
tities will incur a first-year one-time cost
and burden of approximately 37,440
hours, with an equivalent cost of approx-
imately $5,295,680 (as discussed previ-
ously in this ICR). For those 196 enti-
ties, the total first year one-time burden
is estimated to be 7,334,496 hours with
an equivalent total cost of approximately
$1,037,423,712.
TABLE 5A: Low-Range First Year One-time Cost and Hour Burden for Internet-based Self-service Tool for Issuers and
TPAs Requiring a Complete Build.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
19619637,4407,334,496$1,037,423,712.00
The Departments estimate that those is-
suers and TPAs that will only be required
to make changes to their existing systems
will already have operational capabilities
that meet approximately 70 percent of the
requirements in the final rules and will only
incur costs and burdens related to changes
needed to fully meet the requirements of
the final rules. Based on this assumption,
the Departments estimate that 1,579 issu-
ers and 184 TPAs will incur a first-year
one-time hour burden of 11,232 hours,
with an associated cost of $1,588,704.00
to fully satisfy the initial requirements
of the final rules. For all 1,763 issuers
and TPAs, the Departments estimates the
total first year one-time burden will be
19,803,139 hours, with an equivalent total
cost of approximately $2,801,044,022.40.
The Departments recognize that issuers
and TPAs may currently have some form
of internet-based self-service tool that
may provide greater functionality that
could meet a greater proportion of the
requirements in the final rules. In those
cases, issuers and TPAs could see lower
costs and burdens. The Departments also
286
See AHIP release dated August 2, 2019. “AHIP Issues Statement on Proposed Rule Requiring Disclosure of Negotiated Prices.” America’s Health Insurance Providers. August 2, 2019.
Available at: https://www.ahip.org/ahip-issues-statement-on-proposed-rule-requiring-disclosure-of-negotiated-prices/; see also Higgins, A., Brainard, N., and Veselovskiy, G. “Characteriz-
ing Health Plan Price Estimator Tools: Findings from a National Survey.” 22 Am. J. Managed Care 126. 2016. Available at: https://ajmc.s3.amazonaws.com/_media/_pdf/AJMC_02_2016_
Higgins%20(final).pdf.

Bulletin No. 2020–49 1363 November 30, 2020
recognize that there are likely a number
of issuers and TPAs that currently provide
some form of internet-based self-service
tool that would require more development
to meet the requirements of the final rules.
In those instances, those issuers and TPAs
could incur greater costs and burdens.
The Departments’ estimates are high-
er-bound estimates that do not consider
potential cost savings that could be real-
ized should issuers and TPAs buy or lease
an internet-based self-service tool from a
third-party vendor or other issuer. Howev-
er, the Departments are of the view that
issuers or TPAs that choose to buy or rent
an internet-based self-service tool from
another entity could incur significantly
less costs and burdens.
TABLE 5B: Low-End First Year One-time Cost and Hour Burden for Internet-based Self-service Tool for Issuers and TPAs
Requiring Only a Partial Build.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,7631,76311,23219,803,139$2,801,044,022.40

TABLE 5C: Total Low-End First Year One-time Cost and Hour Burden for Internet-based Self-service Tool for all Issuers
and TPAs.
Number of
Respondents
Number of
Responses
Burden Hours
Per Respondent
Total Burden
Hours
Total Cost
1,9591,95913,85327,137,635$3,838,467,734.40
In addition to the range of year one
one-time costs and burdens estimated
in Tables 4B, 5B, and 5C, issuers and
TPAs will incur additional costs in the
second year of implementation in or-
der to include all items and services in
their internet-based self-service tools and
fully meet the requirements of the final
rules. The Departments estimate that for
each issuer and TPA it will take a Proj-
ect Manager/Team Lead 3,120 hours (at
$153 per hour), a Scrum Master 3,120
hours (at $105 per hour), a Technical
Architect/Sr. Developer 3,120 hours (at
$149 per hour), an Application Develop-
er, Senior 4,160 hours (at $143 per hour),
a Business Analyst 2,080 hours (at $120
per hour), a UX Researcher/Service De-
signer 2,080 hours (at $154 per hour), a
Designer 1,560 hours (at $116 per hour),
a Web Database/Application Developer
IV (at $154.00 per hour) 3,120 hours (at
$152.00 per hour), and a DevOps Engi-
neer 2,080 hours (at $181 per hour) to
perform these tasks. The total second
year burden for each issuer or TPA will
be 24,440 hours, with an equivalent cost
of approximately $3,466,320. For all
1,959 issuers and TPAs, the total sec-
ond year implementation burden is es-
timated to be 47,877,960 hours with an
equivalent total cost of approximately
$6,611,791,831 The Departments con-
sider this to be an upper-bound estimate
and expect maintenance costs to decline
in succeeding years as issuers and TPAs
gain efficiencies and experience in up-
dating and managing their internet-based
self-service tools.
TABLE 6A: Estimated Year Two Implementation Cost and Hour Burden for Internet-based Self-service Tool for Each
Issuer or TPA.
Occupation
Burden Hours per
Respondent
Labor Cost
per Hour
Total Cost per
Respondent
Project Manager/Team Lead3,120$153.00$477,360.00
Scrum Master3,120$105.00$327,600.00
Technical Architect/Sr. Developer3,120$149.00$464,880.00
Application Developer, Senior4,160$143.00$594,880.00
Business Analyst2,080$120.00$249,600.00
UX Researcher/Service Designer2,080$154.00$320,320.00
Designer1,560$116.00$180,960.00
DevOps Engineer2,080$181.00$376,480.00
Web Database/Application Developer IV3,120$152.00
Total per Respondent24,440$3,466,320.00

November 30, 2020 1364 Bulletin No. 2020–49
TABLE 6B: Estimated Year Two Implementation Cost and Hour Burden for Internet-based Self-service Tool for All Issuers
and TPAs.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,9591,95924,440.047,877,960$6,611,791,830.97
In addition to the range of one-time
costs and burdens estimated in Tables
4B, 5B, 5C, 6A, and 6B, issuers and
TPAs will incur annual costs such as
those related to ensuring cost estimation
accuracy, providing quality assurance,
conducting website maintenance and
making updates, and enhancing or updat-
ing any needed security measures. The
Departments estimate that for each issuer
and TPA, it will take a Project Manag-
er/Team Lead 1,040 hours (at $153 per
hour), a Scrum Master 1,300 hours (at
$105 per hour), an Application Develop-
er, Senior 1,560 hours (at $143 per hour),
a Business Analyst (at $120.00 per hour)
520 hours, a Designer (at $116.00 per
hour) 1,040 hours, a DevOps Engineer
(at $181.00 per hour) 520 hours, a Web
Database/Application Developer IV (at
$152.00 per hour) 1,560 hours, and a UX
Researcher/Service Designer 520 hours
(at $154 per hour) to perform these tasks.
The total annual burden for each issuer or
TPA will be 8,060 hours, with an equiv-
alent cost of approximately $1,113,060.
For all 1,959 issuers and TPAs, the total
annual maintenance burden is estimated
to be 15,789,540 hours, with an equiva-
lent associated total cost of approximate-
ly $2,180,484,540.00. The Departments
recognize that issuers and TPAs will
likely have varying levels of IT capabil-
ities and experience in maintaining and
internet-based tool and could incur high-
er or lower costs and burdens depending
on those capabilities. The Departments
expect maintenance costs to decline in
succeeding years as issuers and TPAs
gain efficiencies and experience in up-
dating and managing their internet-based
self-service tool.
TABLE 7A: Estimated Annual Cost and Hour Burden for Maintenance of Internet-based Self-service Tool for Each Issuer
or TPA.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead1,040$153.00$159,120.00
Scrum Master1,300$105.00$136,500.00
Application Developer, Senior1,560$143.00$223,080.00
Business Analyst520$120.00$62,400.00
Designer1,040$116.00$120,640.00
DevOps Engineer520$181.00$94,120.00
Web Database/Application Developer IV1,560$152.00$237,120.00
UX Researcher/Service Designer520$154.00$80,080.00
Total per Respondent8,060$1,113,060.00

TABLE 7B: Estimated Annual Cost and Hour Burden for Maintenance of Internet-based Self-service Tool for All Issuers
and TPAs
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,9591,9598,060.015,789,540$2,180,484,540.00
As noted previously in this ICR sec-
tion, commenters stated that the Depart-
ments grossly underestimated the cost
burden of implementation on plans and
issuers. Additionally, commenters stated
that the Departments had underestimated
the maintenance costs associated with the
internet-based self-service tool. Issuers
estimated the annual maintenance costs
to be on average, about $3.78 million per
issuer or TPA (ranging from $375,000 to
$10,000,000). As noted previously in this
ICR section, based on comments received,
the Departments have adjusted the costs
and burden estimates to better reflect and
align with the values submitted by com-
menters. The Departments estimate the
high-end three-year average total hour
burden, for all issuers and TPAs to devel-
op, build, and maintain an internet-based
self-service tool will be 45,670,820 hours

Bulletin No. 2020–49 1365 November 30, 2020
annually, with an average annual total
equivalent cost of $6,388,837,830.
The Departments acknowledge that
the costs described earlier in this section
may vary depending on the number of
covered lives and the number of providers
and items and services incorporated into
the internet-based self-service tool. Rec-
ognizing that many issuers and TPAs cur-
rently have some form of internet-based
self-service tool in operation that meets
some aspects of the requirements of the
final rules, the Departments estimate the
low-end average three-year annual total
burden, for all issuers and TPAs to devel-
op, build, and maintain an internet-based
self-service tool will be 30,268,378 hours
annually, with an average annual total
equivalent cost of $4,210,248,035. The
Departments recognize that plans, issuers,
and TPAs may be able to license existing
internet-based self-service tools offered
by vendors, obviating the need to estab-
lish, upgrade, and maintain their own in-
ternet-based self-service tools, and that
vendor licensing fees, dependent upon
complexity, volume, and frequency of use,
could be lower than the burden and costs
estimated here.
TABLE 8: Estimated High-End Three Year Average Annual Hour Burden and Costs for All Issuers and TPAs to Develop
and Maintain the Internet-based Self-service Tool.
Year
Estimated
Number of Health
Insurance Issuers
and TPAs
ResponsesBurden per
Respondent
(hours)
Total Annual
Burden (hours)
Total Estimated
Labor Cost
20221,9591,95937,440.073,344,960$10,374,237,120
20231,9591,95924,440.047,877,960$6,611,791,830.97
20241,9591,9598,060.015,789,540$2,180,484,540.00
3 year Average1,9591,95923,31345,670,820$6,388,837,830.32

TABLE 9: Estimated Low-End Three Year Average Annual Hour Burden and Costs for All Issuers and TPAs to Develop
and Maintain the Internet-based Self-service Tool.
Year
Estimated
Number of Health
Insurance Issuers
and TPAs
ResponsesBurden per
Respondent
(hours)
Total Annual
Burden (hours)Total Estimated
Labor Cost
20221,9591,95913,85327,137,635$3,838,467,734.40
20231,9591,95924,44047,877,960$6,611,791,830.97
20241,9591,9598,06015,789,540$2,180,484,540.00
3 year Average1,9591,95915,45130,268,378$4,210,248,035.12
In addition to the one-time and annu-
al maintenance costs estimated in Table
8 and Table 9, issuers and TPAs will also
incur an annual burden and costs associ-
ated with customer service representative
training, consumer assistance and educa-
tion, and administrative and distribution
costs related to the disclosures required in
the final rules. The Departments estimate
that, to understand and navigate the inter-
net-based self-service tool and provide
the appropriate assistance to consumers,
each customer service representative will
require approximately two hours (at $40
per hour) of annual consumer assistance
training at an associated cost of $80 per
hour. The Departments estimate that each
issuer and TPA will train, on average, 10
customer service representatives annu-
ally, resulting in a total annual burden of
20 hours, with an associated total cost
of $800. For all 1,959 issuers and TPAs,
the total annual burden is estimated to be
39,180 hours, with an equivalent total an-
nual cost of approximately $1,567,200.
The Departments recognize that some
issuers or TPAs may require varying lev-
els of training to acquaint their customer
service representatives with the function-
alities of their internet-based self-service
tool depending on the degree of changes
required to comply with the final rules, in
which case some issuers could incur high-
er costs and burdens to appropriately train
personnel.

November 30, 2020 1366 Bulletin No. 2020–49
TABLE 10A: Estimated Annual Cost and Hour Burden per Issuer or TPA to Train Customer Service Representatives to
Provide Assistance to Consumers Related to the Internet-based Self-service Tool.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Customer Service Representatives2$40.00$80.00
Total per Respondent2$80.00

TABLE 10B: Estimated Annual Cost and Hour Burden for All Issuers and TPAs to Train Customer Service Representatives
to Provide Assistance to Consumers Related to the Internet-based Self-service Tool.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden HoursTotal Cost
1,9591,9592039,180$1,567,200.00
The Departments assume that the
greatest proportion of beneficiaries, par-
ticipants, or enrollees that will request
disclosure of cost-sharing information in
paper form will do so because they do
not have access to the internet. However,
the Departments acknowledge that some
consumers with access to the internet will
contact a plan or issuer for assistance with
using the internet-based self-service tool
and may request to receive cost-sharing
information in paper form.
Recent studies have found that ap-
proximately 20 million households do not
have an internet subscription.
287
Further,
approximately 19 million Americans (6
percent of the population) lack access to
fixed broadband services that meet thresh-
old levels.
288
Additionally, a recent Pew
Research Center analysis found that 10
percent of U.S. adults do not use the in-
ternet, citing the following major factors:
difficulty of use, age, cost of internet ser-
vices, and lack of computer ownership.
289

Additional research indicates that an in-
creasing number, 17 percent, of individ-
uals and households are now considered
“smartphone only” and that 37 percent of
U.S. adults mostly use smartphones to ac-
cess the internet and that many adults are
forgoing the use of traditional broadband
services.
290
Further research indicates
that younger individuals and households,
including approximately 93 percent of
households with householders aged 15 to
34, are more likely to have smartphones
compared to those aged over 65.
291
The
Departments are of the view that the
population most likely to use the inter-
net-based self-service tool would general-
ly consist of younger individuals, who are
more comfortable using technology and
are more likely to have internet access via
broadband or smartphone technologies.
The Departments note that there are
212.3 million beneficiaries, participants,
or enrollees enrolled in group health plans
or with health insurance issuers required
to comply with the requirements of the fi-
nal rules for at least part of the year.
292
On
average, it is estimated that each issuer or
TPA would annually administer the bene-
fits for 108,379 beneficiaries, participants,
or enrollees.
A recent study noted that only one to
12 percent of consumers that have been
offered internet-based or mobile applica-
tion-based price transparency tools use
them.
293
Taking that into account, and
assuming that six percent of covered in-
dividuals lack access to fixed broadband
services, the Departments estimate that
on average six percent of participants,
beneficiaries, or enrollees will seek cus-
tomer support (a mid-range percentage
of individuals that currently use available
cost estimator tools) and that an estimated
one percent of those participants, benefi-
ciaries, or enrollees will request any per-
tinent information be disclosed to them
in in a non-internet manner – resulting in
an estimated 0.06 percent of participants,
beneficiaries, or enrollees requesting in-
formation. As discussed in section V.D.1
of this preamble, the Departments have
adjusted the estimates related to custom-
er service and mailed requests in order
to account for more recent data related to
287
“2017 American Community Survey Single-Year Estimates.” United States Census Bureau. September 13, 2018. Available at: https://www.census.gov/newsroom/press-kits/2018/acs-
1year.html.
288
“Eight Broadband Progress Report.” United States Federal Communications Commission. December 14, 2018. Available at: https://www.fcc.gov/reports-research/reports/broad-
band-progress-reports/eighth-broadband-progress-report. In addition to the estimated 19 million Americans that lack access, they further estimate that “in areas where broadband is available,
approximately 100 million Americans still do not subscribe.”
289
Anderson, M. et al. “10% of Americans don’t use the internet. Who are they?” Pew Research Center. April 22, 2019. Available at: https://www.pewresearch.org/fact-tank/2019/04/22/
some-americans-dont-use-the-internet-who-are-they/.
290
Anderson, M. “Mobile Technology and Home Broadband 2019.” Pew Research Center. June 13, 2019. Available at: https://www.pewinternet.org/2019/06/13/mobile-technolo-
gy-and-home-broadband-2019/ (finding that overall 17 percent of Americans are now “smartphone only” internet users, up from 8 percent in 2013. They study also shows that 45 percent of
non-broadband users cite their smartphones as a reason for not subscribing to high-speed internet).
291
Ryan, C. “Computer and Internet Use in the United States: 2016.” American Community Survey Reports: United States Census Bureau. August 2018. Available at: https://www.census.
gov/content/dam/Census/library/publications/2018/acs/ACS-39.pdf.
292
Id. at 283.
293
Mehrotra, A., Chernew, M., and Sinaiko, A. “Health Policy Report: Promises and Reality of Price Transparency.” April 5, 2018. 14 N. Eng. J. Med. 378. Available at: https://www.nejm.
org/doi/full/10.1056/NEJMhpr1715229.

Bulletin No. 2020–49 1367 November 30, 2020
the number of participants, beneficiaries,
and enrollees. The Departments estimate
that each issuer or TPA, on average, will
require a customer service representative
to interact with a beneficiary, participant,
or enrollee approximately 65 times per
year on matters related to cost-sharing
information disclosures required by the
final rules. The Departments estimate that
each customer service representative will
spend, on average, 15 minutes (at $40 per
hour) for each interaction, resulting in a
cost of approximately $10 per interaction.
The Departments estimate that each issuer
or TPA will incur an annual burden of 16
hours, with an associated equivalent cost
of approximately $650; resulting in a total
annual burden of 31,847 hours, with an as-
sociated cost of approximately $1,273,884
for all issuers and TPAs.
The Departments assume that all ben-
eficiaries, participants, or enrollees that
contact a customer service representative
will request non-internet disclosure of the
internet-based self-service tool informa-
tion. Of these, the Departments estimate
that 54 percent of the requested informa-
tion would be transmitted via email or
facsimile at negligible cost to the issuer or
TPA and that 46 percent will request the
information be provided by mail. The De-
partments estimate that, on average, each
issuer or TPA will send approximately 30
disclosures by mail annually. Based on
these assumptions, the Departments esti-
mate that the total number of annual dis-
closures sent by mail for all issuers and
TPAs will be 58,599. The Departments
recognize that the numbers of per issuer
and TPA mailings may represent a low-
end estimate and the number of requests
may vary amongst each issuer or TPA de-
pending on the demographics of their ben-
eficiaries, participants, or enrollees. The
Departments are of the view that although
more individuals will contact custom-
er support for cost information the vast
majority of those individuals will likely
obtain this information over the phone or
have it emailed rather than have it mailed
to them.
The Departments assume, on average,
the length of the printed disclosure will be
approximately nine single-sided pages in
length, assuming two pages of informa-
tion (similar to that provided in an EOB)
for three providers (for a total of six pages)
and an additional three pages related to the
required notice statements, with a printing
cost of $0.05 per page. Therefore, includ-
ing postage costs of $0.55 per mailing,
the Departments estimate that each issuer
or TPA will incur a material and printing
costs of approximately $1.00 ($0.45 print-
ing plus $0.55 postage costs) per mailed
request. Based on these assumptions, the
Departments estimate that each issuer
or TPA will incur an annual printing and
mailing cost of approximately $30, result-
ing in a total annual printing and mailing
cost of approximately $58,599 for all issu-
ers and TPAs.
TABLE 11A: Estimated Annual Cost and Hour Burden per Response per Issuer or TPA to Accept and Fulfill Requests for a
Mailed Disclosures.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Customer Service Representatives0.25$40.00$10
Total per Respondent0.25$10

TABLE 11B: Estimated Annual Cost and Hour Burden for All Issuers and TPAs to Accept and Fulfill Requests for Mailed
Disclosures.
Number of
Respondents
Number of
Responses
Burden
Hours Per
Respondent
Total Burden
Hours
Total Labor
Cost of
Reporting
Printing and
Materials Cost
Total Cost
1,9591132,5091631,847$1,273,884.00$58,598.66$1,332,482.66
The Departments solicited comment
on the overall estimated costs and bur-
dens related to this collection of infor-
mation request. The Departments also
sought comment on the technical and
labor requirements or costs that may be
required to meet the requirements of the
proposed rules: for example, what costs
may be associated with any potential con-
solidation of information needed for the
internet-based self-service tool function-
ality. The Departments sought comment
on the estimated number of issuers and
TPAs currently in the group and individu-
al markets and the number of self-insured
group health plans that might seek to in-
dependently develop an internet-based
self-service tool, the percentage of con-
sumers who might use the internet-based
self-service tool, and the percentage of
consumers who might contact their plan,
issuer, or TPA requesting information via
a non-internet disclosure method. The De-
partments sought comment on any other
existing efficiencies that could be lev-
eraged to minimize the burden on plans,
issuers, and TPAs, as well as how many
or what percentage of plans, issuers, and
TPAs might leverage such efficiencies.
The Departments sought comment on the
proposed model notice and any addition-
al information that stakeholders thought
should be included, removed, or expanded
upon and its overall adaptability.
All comments received with regard
the topics above have been noted and ad-

November 30, 2020 1368 Bulletin No. 2020–49
dressed in their corresponding ICR sec-
tions.
In conjunction with the final rules,
CMS is seeking approval for this infor-
mation collection (OMB control number:
0938-1372 (Transparency in Coverage
(CMS-10715)). CMS is requiring the fol-
lowing information collections to include
the following burden. DOL and the De-
partment of the Treasury will submit their
burden estimates upon approval.
2. ICRs Regarding Requirements for
Public Disclosure of In-network Rates,
Historical Allowed Amount Data for
Covered Items and Services from Out-
of-Network Providers and Prescription
Drug Pricing Information under 26 CFR
54.9815-2715A3, 29 CFR 2590.715-
2715A3, and 45 CFR 147.212.
The Departments are adding 26 CFR
54.9815-2715A3(b), 29 CFR 2590.715-
2715A3(b), and 45 CFR 147.212(b) to the
final rules requiring group health plans
and health insurance issuers to make pub-
lic in-network rates for covered items and
services, out-of-network allowed amounts
for covered items or services, and negoti-
ated rates and historical net prices for each
prescription drug NDC through three ma-
chine-readable files that must conform to
guidance issued by the Departments. The
list of required data elements that must
be included for each file for each covered
item or service are discussed in section
II.C previously in this preamble and enu-
merated under paragraph (b)(1)(i) for the
In-network Rate File, paragraph (b)(1)(ii)
for the Allowed Amount File, and para-
graph (b)(1)(iii) for the Prescription Drug
File of the final rules. Under paragraphs
(b)(2) and (3) of the final rules, the ma-
chine-readable files must be posted on a
public internet site accessible to any per-
son free of charge and without conditions
and must be updated monthly.
For the In-network Rate File, the final
rules require the negotiated rates, under-
lying fee schedules, or derived amounts
under a plan or coverage regarding each
covered item or service be furnished for
in-network providers. As discussed in
section II.C earlier in this preamble, the
Departments expect plans and issuers
to make public the negotiated rate, fee
schedule, or derived amount that is used
to adjudicate claims for the purpose of
reconciling a provider’s payment to de-
termine a participant’s, beneficiary’s, or
enrollee’s cost-sharing liability. As dis-
cussed in the previous ICR section, the
Departments assume fully-insured group
health plans will rely on issuers and most
self-insured group health plans will rely
on issuers or TPAs to develop and update
the machine-readable files. The Depart-
ments recognize that there may be some
self-insured plans that wish to individu-
ally comply with the final rules and will
thus incur a similar burden and cost as de-
scribed in the following paragraphs.
Many commenters stated the costs
associated with the technical build and
maintenance of the machine-readable files
will be significant, and many comment-
ers strongly suggested that the costs and
burden of implementing the files would be
significantly higher than those estimated
in the proposed rules. Some commenters
stated that the final rules would unreason-
ably burden issuers with administrative
costs and could be especially burdensome
for small issuers and self-insured plans.
One commenter noted that a significant
amount of burden would be placed on
out-of-network providers to provide in-
formation regarding costs to plans and
issuers. Another commenter, a hospital
association, stated that the proposed rules
would be an administrative burden for
hospitals as they would require a massive
investment by hospitals to provide data to
comply and that these resources would be
diverted from patient care support.
The Departments recognize that the
requirements in the final rules could re-
sult in instances where small issuers and
self-insured plans face a disproportionate
burden due to their size; however, as noted
earlier in this preamble, the Departments
expect that small issuers, plans, and TPAs
will combine their efforts and seek to take
advantage of any resulting economies of
scale.
An independent study by Bates White
Economic Consulting (Bates White),
commissioned by one commenter, devel-
oped an assessment of the costs of the
proposed rules by interviewing a mix of
18 large and small health insurance issu-
ers covering about 78 million lives; Bates
White assessed the average issuer cost to
implement the In-network Rate File as
$2,139,167 with a range from $85,000 to
$10,000,000. Bates White reported that
commercial issuers estimated an average
cost of $2.1 million per issuer to develop
and implement the In-network Rates File.
Per the study, issuers view the In-net-
work Rate File as about 20 times costlier
to implement than the Departments’ pro-
posed estimate. In addition, Bates White
assessed the average annual issuer cost to
maintain the In-network Rate Files would
be $467,000 with a range from $15,000
to $1,000,000. Another commenter noted
that commercial issuers estimated annual
costs of $600,000 per issuer to maintain
the In-network Rate File. Issuers viewed
the In-network Rate File as about 13 times
costlier to maintain than the Departments’
proposed estimate.
In another attempt to quantify this bur-
den, one commenter emphasized that the
potential universe of prices that would
need to be disclosed on the files is enor-
mous and could be in the hundreds of bil-
lions (more than 94,000 codes multiplied
by the number of unique practitioners,
which in the large issuer’s system alone
could exceed 2 million).
One commenter noted that the effort
to comply would involve an immense
amount of data aggregation, de-identi-
fication, and application development
work, and these tasks would be especial-
ly difficult for small issuers and self-in-
sured plans who are more likely to rely on
“rented” networks. The commenter stated
that to comply with the final rules, issu-
ers would need a team with data expertise
and knowledge of plan design and medi-
cal service billing to aggregate data, build
re-pricing engines, and assure accuracy.
Due to the belief that the burden es-
timate in the proposed rules and related
PRA grossly underestimated the burden of
implementation on plans and issuers, one
commenter suggested the Departments
should retract the PRA and work with
stakeholders to develop a less burdensome
transparency solution. Other commenters
stated the burden estimates included in the
proposed rules violate the spirit and ex-
press provision of the PRA.
The Departments recognize the con-
cerns and issues noted by commenters.
As noted in section VI.A in this pream-
ble, the Departments have reviewed com-
ments related to the costs and burdens

Bulletin No. 2020–49 1369 November 30, 2020
associated with the requirements of the
final rules and devised updated estimates
using CALC derived wage rates. The De-
partments note that the conclusions of the
Bates White study referenced earlier in
this preamble were based on interviews
with issuers in which issuers described the
steps they viewed as necessary to estab-
lish the required internet-based self-ser-
vice tool and the machine-readable files,
and provided related costs estimates as-
sociated with the estimated initial set-up
of the internet-based self-service tool and
machine-readable files. These estimates,
however, did not provide the level of de-
tail necessary for the Departments to as-
sess how those initial cost estimates differ
from the Departments’ estimates.
The Bates White study also recognized
the difficulty associated with assessing is-
suer estimates reported from issuer study
participants. The study recognized that
issuers interviewed varied widely in size,
had different levels of experience, and
had engaged in different levels of anal-
ysis of the impacts in the proposed rules.
The study further noted the differences in
the extent to which issuers evaluated the
costs and feasibility of complying with the
proposed rules. The study also recognized
that issuers interviewed made different as-
sumptions about the degree of support from
vendors or trade associations that may have
affected issuers’ perception of the admin-
istrative and operational costs of imple-
mentation, and that issuers did not provide
details of the varied operational and imple-
mentation costs and activities underlying
their stated estimates for complying with
the proposed rules. Specifically, the study
provided no insight regarding the labor cat-
egories, wages, or hourly burdens that were
considered to produce these cost estimates.
Accordingly, the Bates White study did not
provide details sufficient to allow those es-
timates to be compared to the Departments’
estimates in the proposed rules.
Given the limited utility of information
offered by the Bates White study, the De-
partments took additional steps to ensure
the reasonableness and accuracy of the
cost estimates associated with compli-
ance with the final rules. In developing the
updated estimates, the Departments took
into account the potential aggregation of
data and the potential likelihood that the
data required to meet the requirements of
the final rules would need to be obtained
from multiple sources. The Departments
recognize that the size and complexity
of the machine-readable files will result
in data files that are large. However, the
Departments do not anticipate that data
storage would impose a significant burden
for issuers or TPAs due to the relatively
inexpensive costs associated with storage
methods such as cloud storage.
The Departments estimate a one-time
first year burden and cost to issuers and
TPAs to make appropriate changes to IT
systems and processes, to develop, imple-
ment and operate the In-network Rate File
in order to meet the requirements of the
final rules. The Departments estimate that
each health or TPA will require a Project
Manager/Team Lead 364 hours (at $153
per hour), a Scrum Master 1,404 hours
(at $105 per hour), a Technical Architect/
Sr. Developer 2,080 hours (at $149 per
hour), an Application Developer, Senior
1,716 hours (at $143 per hour), a Business
Analyst 1,404 hours (at $120 per hour), a
Service Designer/Researcher 520 hours
(at $114 per hour) and a DevOps Engineer
260 hours (at $181 per hour) to complete
this task. The total one-time first year
burden for each issuer or TPA is estimat-
ed to be approximately 7,748 hours, with
an equivalent associated cost of approxi-
mately $1,033,240. For all 1,959 issuers
and TPAs, the Departments estimate the
total one-time first year burden will be
15,178,332 hours with an associated cost
of approximately $2,024,117,160. The
Departments emphasize that these are up-
per bound estimates that are meant to be
sufficient to cover substantial, complex
activities that may be necessary for some
plans, issuers, or TPAs to comply with
the final rules due to the manner in which
their current systems are designed. Such
activities may include such significant ac-
tivities as the design and implementation
of databases that will support the produc-
tion of the In-network Rate Files.
TABLE 12A: Estimated One-Time Year One Cost and Hour Burden per Issuer or TPA for the In-network Rate File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead364$153.00 $55,692.00
Scrum Master1,404$105.00 $147,420.00
Technical Architect/Sr. Developer2,080$149.00 $309,920.00
Application Developer, Senior1,716$143.00 $245,388.00
Business Analyst1,404$120.00 $168,480.00
Service Designer/Researcher520$114.00 $59,280.00
DevOps Engineer260$181.00 $47,060.00
Total per Respondent7,748$1,033,240.00
TABLE 12B: Estimated One-Time Year One Cost and Hour Burden for All Issuers and TPAs for the In-network Rate File.
Number of
Respondents
Number of ResponsesBurden Hours Per
Respondent
Total Burden HoursTotal Cost
1,9591,9597,74815,178,332$2,024,117,160.00

November 30, 2020 1370 Bulletin No. 2020–49
In addition to the one-time year one
costs estimated in Tables 12A and 12B, is-
suers or TPAs will incur an additional year
two burden and cost to update the In-net-
work Rate File monthly as required in the
final rules. The Departments estimate that
for each month each issuer or TPA it will
require a Project Manager/Team Lead 22
hours (at $153 per hour), a Scrum Master
22 hours (at $105 per hour), a Technical
Architect/Sr. Developer 22 hours (at $149
per hour), an Application Developer, Se-
nior 22 hours (at $143 per hour), a Busi-
ness Analyst 13 hours (at $120 per hour)
and a DevOps Engineer 22 hours (at $181
per hour) to make the required updates
and needed adjustments to the In-network
Rate File. The Departments estimate that
each issuer or TPA will incur a monthly
year two burden of 123 hours, with an as-
sociated monthly cost of approximately
$17,642 to adjust and update the In-net-
work Rate File. Each issuer or TPA will
need to update the In-network Rate File
12 times during a given year, resulting in
a year two burden of 1,476 hours, with
an associated equivalent cost of approx-
imately $211,704. The Departments es-
timate the total year two burden for all
1,959 issuers and TPAs will be 2,891,484
hours, with an associated equivalent cost
of approximately $414,728,136. The De-
partments consider this estimate to be an
upper-bound estimate and expect ongo-
ing update costs to decline in succeeding
years as issuers and TPAs gain efficiencies
and experience in updating and managing
the In-network Rate File.
TABLE 13A: Estimated Monthly Year Two Cost and Hour Burden per Issuer or TPA for the In-network Rate File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead22$153.00$3,366.00
Scrum Master22$105.00$2,310.00
Technical Architect/Sr. Developer22$149.00$3,278.00
Application Developer, Senior22$143.00$3,146.00
Business Analyst13$120.00$1,560.00
DevOps Engineer22$181.00$3,982.00
Total per Respondent123$17,642.00

TABLE 13B: Estimated Year Two Cost and Hour Burden for All Issuers and TPAs for the In-network Rate File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,5081,4762,891,484$414,728,136.00
In addition to the one-time year one
and monthly year two costs estimated Ta-
bles 12A, 12B, 13A, and 13B, in subse-
quent years, issuers and TPAs will incur
an ongoing monthly burden and cost to
update and maintain the In-network Rate
File on a monthly basis as required by
the final rules. The Departments estimate
that for each issuer or TPA it will require
a Project Manager/Team Lead 9 hours (at
$153 per hour) and an Application Devel-
oper, Senior 22 hours (at $143 per hour) to
make the required updates to the In-net-
work Rate File. The Departments estimate
that each issuer or TPA will incur a month-
ly burden of 31 hours, with an associated
cost of approximately $4,523 to update the
In-network Rate File. Each issuer or TPA
will need to update the In-network Rate
File 12 times during a given year, resulting
in an ongoing annual hour burden of 372
hours, with an associated equivalent cost
of approximately $54,276. The Depart-
ments estimate the total annual burden for
all 1,959 issuers and TPAs will be 728,748
hours, with an associated equivalent cost
of approximately $106,326,684. The De-
partments consider this estimate to be an
upper-bound estimate and expect ongo-
ing update costs to decline in succeeding
years as issuers and TPAs gain efficiencies
and experience in updating and managing
the In-network Rate File.
TABLE 14A: Estimated Monthly Ongoing Cost and Hour Burden per Issuer or TPA for the In-network Rate File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead9$153.00$1,377.00
Application Developer, Senior22$143.00$3,146.00
Total per Respondent31$4,523.00

Bulletin No. 2020–49 1371 November 30, 2020
TABLE 14B-: Estimated Annual Ongoing Cost and Hour Burden for All Issuers and TPAs for the In-network Rate File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,508372728,748$106,326,684.00
The Departments estimate the total one-
time year one burden for all issuers and
TPAs will be 15,178,332 hours, with an as-
sociated equivalent cost of approximately
$2,024,117,160 to develop and build the
In-network Rate File in a machine-read-
able format. In year two, the Departments
estimate the burden and costs to update
and maintain the In-network Rate file for
all issuers and TPAs will be 2,891,484
hours, with an associated equivalent cost
of approximately $414,728,136. In subse-
quent years, the Departments estimate the
total annual burden to maintain and update
the In-network Rate File will be 728,748
hours, with an annual associated equiva-
lent cost of approximately $106,326,684.
The Departments estimate the three-year
average annual total burden, for all issuers
and TPAs, will be 6,266,188 hours, with
an average annual associated equivalent
total cost of $848,390,660.
TABLE 15: Estimated Three Year Average Annual Hour Burden and Costs for All Issuers and TPAs to Develop and
Maintain the In-network Rate File.
Year
Estimated
Number of Health
Insurance Issuers
and TPAs
ResponsesBurden per
Respondent
(hours)
Total Annual
Burden (hours)Total Estimated
Labor Cost
20211,9591,9597,74815,178,332$2,024,117,160.00
20221,95923,5081,4762,891,484$414,728,136.00
20231,95923,508372728,748$106,326,684.00
3 year Average1,95916,3253,1996,266,188$848,390,660.00
As mentioned in sections V.B in this
preamble, the Departments understand
that plans and issuers may include gag
clauses in their provider contracting
agreements, which prevent disclosure of
in-network rates. The Departments sought
comment on whether such agreements
would need to be renegotiated to remove
such clauses, and, if so, sought comment
regarding any costs and burden associated
with this action.
One commenter stated the Departments
have not sufficiently accounted for costs
associated with updating legal agreements
(with physicians, hospitals, drug manu-
facturers, and device manufacturers, for
example), updating and integrating data
from multiple systems, and establishing
processes for making updates to files in
the ordinary course of business. Anoth-
er commenter observed the Departments
have not adequately accounted for the
time, resources, and cost burdens of rene-
gotiating contracts to remove gag clauses
or confidentiality clauses, which prevent
disclosure of in-network rates. One com-
menter provided examples of these costs:
printing and paper, mailing, attorney
drafting initial amendments and review of
non-standard language requests, costs for
employees charged with negotiation and
administration, and costs paid to vendors.
Due to the potential complexities and
time involved in contract negotiations,
the Departments recognize that should
contracts require renegotiation, all associ-
ated parties will face additional costs and
burdens. However, the Departments do
not have insight into these complexities
or knowledge of how these contracts are
structured, and they are thus not able to
quantify the costs and burdens associated
with these tasks. Also, as addressed earlier
in this preamble, it is not uncommon for
new or modified regulatory requirements
or new statutory provisions to alter private
contract arrangements. The Departments
note that the possibility of new or modi-
fied regulatory requirements or new stat-
utory provisions altering such contracts
often is contemplated in the contracts
themselves; for example, drafters may
include contract language indicating that
terms may be altered by changes in law or
regulation. Such language would obviate
the need for updates outsides of the regu-
lar contracting schedule and any associat-
ed costs and burden.
For the Allowed Amount File, the final
rules require plans and issuers to make
available a machine-readable file show-
ing the unique out-of-network allowed
amounts and billed charges for covered
items or services furnished by out-of-net-
work providers during the 90-day time pe-
riod that begins 180 days before the publi-
cation date of the file. As discussed earlier
in this preamble, to the extent that a group
health plan or health insurance issuer has
paid multiple bills for an item or service
to a particular out-of-network provider at
the same allowed amount, the final rules
will only require a plan or issuer to list the
allowed amount once. Additionally, if the
plan or issuer would only display allowed
amounts in connection with 20 or fewer
claims for a covered item or service for
payment to a provider during any relevant

November 30, 2020 1372 Bulletin No. 2020–49
90-day period, the plan or issuer will not
be required to report those unique allowed
amounts.
As previously noted, an independent
study by Bates White, commissioned
by one commenter, assessed the average
issuer cost to implement the Allowed
Amount File as $1,071,167 with a range
from $42,000 to $5,000,000 and estimat-
ed the cost to implement the Allowed
Amount File as about 9 times costlier to
implement than the Departments’ pro-
posed estimate. This commenter also ar-
gued that the average annual issuer cost
to maintain the Allowed Amount File
would be $643,000 with a range from
$12,000 to $1,500,000. Another com-
menter argued that the cost to maintain
the Allowed Amount File would be about
44 times costlier than the Departments’
proposed estimate.
As noted above regarding the In-net-
work Rate File cost and burdens, the
Departments have devised updated esti-
mates for the Allowed Amounts File using
CALC derived wage rates. In developing
the updated estimates, the Departments
took into account the potential aggrega-
tion of data and the potential likelihood
that the data required to meet the require-
ments of the final rules would need to be
obtained from multiple sources.
The Departments estimate a one-time
year one burden and cost to issuers and
TPAs to make appropriate changes to IT
systems and processes, to develop, imple-
ment, and operate the Allowed Amount
File in order to meet the requirements
of the final rules. The Departments esti-
mate that each issuer or TPA will require
a Scrum Master 520 hours (at $105 per
hour), a Technical Architect/Sr. Developer
780 hours (at $149 per hour), an Appli-
cation Developer, Senior 2,080 hours (at
$143 per hour), a Business Analyst 520
hours (at $120 per hour), and a DevOps
Engineer 260 hours (at $181 per hour) to
complete this task. The Departments esti-
mate the total one-time first year burden
for each issuer or TPA will be approxi-
mately 4,160 hours, with an equivalent as-
sociated cost of approximately $577,720.
For all 1,959 issuers and TPAs, the De-
partments estimate the total one-time year
one burden will be 8,149,440 hours, with
an equivalent associated cost of approxi-
mately $1,131,753,480.
TABLE 16A: Estimated One-Time Year One Cost and Hour Burden per Issuer or TPA for the Allowed Amount File
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Scrum Master520$105.00$54,600.00
Technical Architect/Sr. Developer780$149.00 $116,220.00
Application Developer, Senior2,080$143.00 $297,440.00
Business Analyst520$120.00 $62,400.00
DevOps Engineer260$181.00 $47,060.00
Total per Respondent4,160$577,720.00

TABLE 16B: Estimated One-Time Year One Cost and Hour Burden for All Issuers and TPAs for the Allowed Amount File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,9591,9594,1608,149,440$1,131,753,480.00
In addition to the one-time year one
costs estimated in Tables 16A and 16B,
issuers and TPAs will incur additional
monthly burdens and costs in year two to
update the Allowed Amount File. The De-
partments estimate that, in year two, each
issuer or TPA will require a Scrum Master
9 hours (at $105 per hour), an Application
Developer, Senior 22 hours (at $143 per
hour), and a DevOps Engineer 22 hour
(at $181) to make the required monthly
Allowed Amount File updates. The De-
partments estimate that each issuer or TPA
will incur a monthly burden of 53 hours,
with an equivalent associated cost of ap-
proximately $8,073 to update the Allowed
Amount File. The Departments estimate
that each issuer or TPA will need to update
the Allowed Amount File 12 times during
a given year, resulting in a year two annual
burden of approximately 636 hours, with an
equivalent associated cost of approximate-
ly $96,876. The Departments estimate the
total year two burden for all 1,959 issuers
and TPAs will be 1,245,924 hours, with an
equivalent associated cost of approximate-
ly $189,780,084. The Departments consid-
er this estimate to be an upper-bound esti-
mate and expect ongoing Allowed Amount
File update costs to decline in succeeding
years as issuers and TPAs gain efficiencies
and experience in updating and managing
the Allowed Amount File.

Bulletin No. 2020–49 1373 November 30, 2020
TABLE 17A: Estimated Year Two Monthly Cost and Hour Burden per Issuer or TPA for the Allowed Amount File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Scrum Master9$105.00$945.00
Application Developer, Senior22$143.00$3,146.00
DevOps Engineer22$181.00$3,982.00
Total per Respondent53$8,073.00

TABLE 17B: Estimated Year Two Cost and Hour Burden for All Issuers and TPAs for the Allowed Amount File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,5086361,245,924$189,780,084.00
In addition to the one-time year one,
monthly and total year two costs estimat-
ed in Tables 16A, 16B, 17A and 17B, in
subsequent years, issuers and TPAs will
incur additional ongoing monthly burdens
and costs to update the required Allowed
Amount File. The Departments estimate
that for each issuer or TPA it will require a
Scrum Master 4 hours (at $105 per hour),
and an Application Developer, Senior 9
hours (at $143 per hour) to make the re-
quired monthly Allowed Amount File up-
dates. The Departments estimate that each
issuer or TPA will incur a monthly burden
of 13 hours, with an equivalent associated
cost of approximately $1,707 to update the
Allowed Amount File. The Departments
estimate that each issuer or TPA will need to
update the Allowed Amount File 12 times
during a given year, resulting in an ongoing
annual burden of approximately 156 hours,
with an equivalent associated cost of ap-
proximately $20,484. The Departments es-
timate the total burden for all 1,959 issuers
and TPAs will be 305,604 hours, with an
equivalent associated cost of approximate-
ly $40,128,156. The Departments consider
this estimate to be an upper-bound estimate
and expect ongoing Allowed Amount File
update costs to decline in succeeding years
as issuers and TPAs gain efficiencies and
experience in updating and managing the
Allowed Amount File.
TABLE 18A: Estimated Monthly Ongoing Cost and Hour Burden per Issuer or TPA for the Allowed Amount File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Scrum Master4$105.00$420.00
Application Developer, Senior9$143.00$1,287.00
Total per Respondent13$1,707.00

TABLE 18B: Estimated Annual Ongoing Cost and Hour Burden for All Issuers and TPAs for the Allowed Amount File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,508156305,604$40,128,156.00
The Departments estimate the one-
time year one burden for all issuers and
TPAs will be 8,149,440 hours, with an
equivalent associated cost of approxi-
mately $1,131,753,480 to develop and
build the Allowed Amount File to meet
the requirements of the final rules. In
year two, the Departments estimate the
total annual burden of 1,245,924 hours to
maintain and update the Allowed Amount
File, with an equivalent associated cost
of approximately $189,780,084. In sub-
sequent years, the Departments estimate
the total annual burden to maintain and
update the Allowed Amount File will be
305,604 hours, with an annual equiv-
alent associated cost of approximately
$40,128,156. The Departments esti-
mate the three-year average annual total
burden for all issuers and TPAs will be
3,233,656 hours, with an average annu-
al total equivalent associated cost of ap-
proximately $453,887,240.

November 30, 2020 1374 Bulletin No. 2020–49
TABLE 19: Estimated Three Year Average Annual Hour Burden and Costs for All Issuers and TPAs to Develop and
Maintain the Allowed Amount File.
Year
Estimated
Number of Issuers
and TPAs
Responses
Burden per
Respondent
(hours)
Total Annual
Burden (hours)
Total Estimated
Labor Cost
20211,9591,9594,1608,149,440$1,131,753,480.00
20221,95923,5086361,245,924$189,780,084.00
20231,95923,508156305,604$40,128,156.00
3 year Average1,95916,3251,6513,233,656$453,887,240.00
The Departments sought comment for
this collection of information request relat-
ed to all aspects of the estimated burdens
and costs. Specifically, the Departments
sought comments related to any technical
or operational difficulties associated with
maintaining current and up-to-date provid-
er network information or any out-of-net-
work allowed amounts for covered items
and services. The Departments also sought
comments related to the technical and labor
requirements or costs that may be required
to meet the requirements in the final rules;
specifically, any factors that could mini-
mize the frequency of updates that issuers
or TPAs would be required to make to the
Allowed Amount File.
The Departments also solicited com-
ments for this collection of information
request related to all aspects of the esti-
mated burdens and costs. Specifically, the
Departments sought comments related
to any technical or operational difficul-
ties associated with collecting data and
maintaining any out-of-network allowed
amounts for covered items and services,
including, any difficulties associated
with the adjudication of paid claims and
incorporating covered items or services
furnished by a particular out-of-network
provider during the 90-day time period
that begins 180 days prior to the publica-
tion date of the Allowed Amount File. The
Departments also sought comments relat-
ed to the technical and labor requirements
or costs that may be required to meet the
requirements in the proposed rules: specif-
ically, any factors that could minimize the
burdens and costs associated with updates
that issuers or TPAs would be required to
make to the Allowed Amount File.
As addressed in section II.C in this
preamble, the use of a HIPAA-compli-
ant clearinghouse is permitted, but not
required, in order to make the required
information public. Plans and issuers are
permitted to use HIPAA-compliant clear-
inghouses to meet the disclosure require-
ments and the Departments anticipate they
may do so if this method is more efficient
and cost-effective.
The Departments acknowledge that as
many as 95 percent of group health plans
and health insurance issuers may already
contract with claims clearinghouses that
currently collect some or all of the infor-
mation required to be disclosed under the
final rules and might be able to meet the
requirements in the final rules easily, poten-
tially obviating the need for the plan, issuer,
or TPA to invest in IT system development.
The Departments assume that these plans,
issuers, and TPAs will still incur burdens
and costs, albeit reduced, related to over-
sight and quality assurance regarding any
associated clearinghouse activities. The
Departments sought comments on existing
efficiencies, such as the use of clearing-
houses that could be leveraged by plans, is-
suers, and TPAs related to the development
and updating of the required machine-read-
able files and how many issuers, TPAs, or
self-insured plans may already contract
with clearinghouses that collect the infor-
mation required. Comments received are
discussed earlier in the Use of Third Parties
to Satisfy Public Disclosure Requirements
section of this preamble.
For the Prescription Drug File, the
Departments estimate one-time first-year
burdens and costs to issuers and TPAs to
make appropriate changes to IT systems
and processes to develop, implement, and
operate the Prescription Drug File in order
to meet the requirements in the final rules.
The Departments estimate that each issu-
er or TPA will require a Project Manager/
Team Lead 260 hours (at $153 per hour),
a Scrum Master 260 hours (at $105 per
hour), an Application Developer, Senior
520 hours (at $143 per hour), a Business
Analyst 520 hours (at $120 per hour), and
a DevOps Engineer 260 hours (at $181
per hour) to complete this task. The total
one-time first year burden for each issuer
or TPA is estimated to be approximately
1,820 hours, with an equivalent associated
cost of approximately $250,900. For all
1,959 issuers and TPAs, the Departments
estimate the total one-time first year bur-
den will be 3,565,380 hours, with an as-
sociated estimated cost of approximately
$491,513,100. The Departments empha-
size that these are upper bound estimates
that are meant to be sufficient to cover
substantial, complex activities that may
be necessary for some plans and issuers
to comply with the final rules due to the
manner in which their current systems
are designed. Such activities may include
such significant activity as the design and
implementation of databases that will sup-
port the production of the Prescription
Drug File.

Bulletin No. 2020–49 1375 November 30, 2020
TABLE 20A: Estimated One-Time Year One Cost and Hour Burden per Issuer or TPA for the Prescription Drug File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead260$153.00 $39,780.00
Scrum Master260$105.00 $27,300.00
Application Developer, Senior520$143.00 $74,360.00
Business Analyst520$120.00 $62,400.00
DevOps Engineer260$181.00 $47,060.00
Total per Respondent1,820$250,900.00

TABLE 20B: Estimated One-Time Year One Cost and Hour Burden for All Issuers and TPAs for the Prescription Drug File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,9591,9591,8203,565,380$491,513,100.00
In addition to the one-time year one
costs estimated in Tables 20A and 20B,
issuers and TPAs will incur additional
year two burdens and costs to update the
required Prescription Drug File monthly.
The Departments estimate that for each
month, each issuer or TPA will require a
Project Manager/Team Lead 22 hours (at
$153 per hour), an Application Develop-
er, Senior 22 hours (at $143 per hour),
a Business Analyst 9 hours (at $120 per
hour) and a DevOps Engineer 22 hours
(at $181 per hour) to make the required
updates and needed adjustments to the
Prescription Drug File. The Departments
estimate that each issuer or TPA will in-
cur a monthly, year two, burden of 75
hours, with an associated monthly cost of
approximately $11,574 to update the Pre-
scription Drug File. Each issuer or TPA
will need to update the Prescription Drug
File 12 times during a given year, result-
ing in a year two burden of 900 hours,
with an associated equivalent cost of ap-
proximately $138,888. The Departments
estimate the total year two burden for all
1,959 issuers and TPAs will be 1,763,100
hours, with an associated equivalent cost
of approximately $272,081,592. The De-
partments consider this estimate to be an
upper-bound estimate and expect ongo-
ing update costs to decline in succeeding
years as issuers and TPAs gain efficiencies
and experience in updating and managing
the Prescription Drug File.
TABLE 21A: Estimated Monthly Year Two Cost and Hour Burden per Issuer or TPA for the Prescription Drug File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Project Manager/Team Lead22$153.00$3,366.00
Application Developer, Senior22$143.00$3,146.00
Business Analyst9$120.00$1,080.00
DevOps Engineer22$181.00$3,982.00
Total per Respondent75$11,574.00

TABLE 21B: Estimated Year Two Cost and Hour Burden for All Issuers and TPAs for the Prescription Drug File.
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,5089001,763,100$272,081,592.00

November 30, 2020 1376 Bulletin No. 2020–49
In addition to the one-time year one
and monthly year two costs estimated in
Tables 20A, 20B, 21A and 21B, in sub-
sequent years, issuers and TPAs will in-
cur ongoing monthly burdens and costs
to update and maintain the Prescription
Drug File on a monthly basis. The De-
partments estimate that each issuer or
TPA will require a Scrum Master 9 hours
(at $153 per hour) and an Application
Developer, Senior 22 hours (at $143 per
hour) to make the required updates to
the Prescription Drug File. The Depart-
ments estimate that each issuer or TPA
will incur a monthly burden of 31 hours,
with an associated cost of approximate-
ly $4,523, to update the Prescription
Drug File. An issuer or TPA will need
to update the Prescription Drug File 12
times during a given year, resulting in
an ongoing annual burden of 372 hours,
with an associated equivalent cost of ap-
proximately $54,276. The Departments
estimate the total annual burden for all
1,959 issuers and TPAs will be 728,748
hours, with an associated equivalent cost
of approximately $106,326,680. The De-
partments consider this estimate to be an
upper-bound estimate and expect ongo-
ing update costs to decline in succeeding
years as issuers and TPAs gain efficien-
cies and experience in updating and man-
aging Prescription Drug File.
TABLE 22A: Estimated Monthly Ongoing Cost and Hour Burden per Issuer or TPA for the Prescription Drug File.
Occupation
Burden Hours per
Respondent
Labor Cost per
Hour
Total Cost per
Respondent
Scrum Master9$153.00$1,377.00
Application Developer, Senior22$143.00$3,146.00
Total per Respondent31$4,523.00

TABLE 22B: Estimated Annual Ongoing Cost and Hour Burden for All Issuers and TPAs for the Prescription Drug File
Number of
Respondents
Number of
Responses
Burden Hours Per
Respondent
Total Burden
Hours
Total Cost
1,95923,508372728,748$106,326,684.00
The Departments estimate the total
one-time year one burden for all issu-
ers and TPAs will be 3,565,380 hours,
with an associated equivalent cost of
approximately $491,513,100 to develop
and build the Prescription Drug File in
a machine-readable format. In year two,
the Departments estimate the burden and
costs to update and maintain the Pre-
scription Drug File, on a monthly basis,
for all issuers and TPAs to be 1,763,100
hours, with an associated equivalent
cost of approximately $272,081,592. In
subsequent years, the Departments esti-
mate the total annual burden of 728,748
hours to maintain and update the Pre-
scription Drug File, with an annual
associated equivalent cost of approxi-
mately $106,326,684. The Departments
estimate the three-year average annual
total burden, for all issuers and TPAs,
will be 2,019,076 hours with an average
annual associated equivalent total cost of
$289,973,792.
TABLE 23: Estimated Three Year Average Annual Hour Burden and Costs for All Issuers and TPAs to Develop and
Maintain the Prescription Drug File.
Year
Estimated
Number of Issuers
and TPAs
Responses
Burden per
Respondent
(hours)
Total Annual
Burden (hours)
Total Estimated
Labor Cost
20211,9591,9591,8203,565,380$491,513,100.00
20221,95923,5089001,763,100$272,081,592.00
20231,95923,508372728,748$106,326,684.00
3 year Average1,95916,3251,0312,019,076$289,973,792.00
Due to comments received in response
to the proposed rules, the Departments
have made changes to the final rules and
the ICR sections discussed above. The
Departments seek comment regarding the
changes associated with these ICR sec-
tions. The Departments also seek com-
ment on the use of the CALC database, as
discussed in section VI.A, to determine
occupational descriptions and hourly
wage rates. The Departments seek com-
ment on the revised costs and burdens
discussed in section VI.A.1 as they relate
to the required internet-based self-service
tool. The Departments also seek com-

Bulletin No. 2020–49 1377 November 30, 2020
ment on model language developed by
the Departments, as discussed in section
II.B.1.g of this preamble, to meet the re-
quirements of the final rule. The Depart-
ments also seek comment on the revised
costs and burdens, as discussed in section
VI.A.2, related to the requirements for
the public disclosure of In-network Rate,
Allowed Amount, and Prescription Drug
Files. Additionally, the Departments seek
comment on the data element changes
associated with those collection instru-
ments. For the In-network Rate File, the
Departments seek comment regarding
the data elements added to the collec-
tion instrument; specifically, addition of
data elements including the TIN, Place of
service code, derived amount, underly-
ing fee schedule rates, payment arrange-
ment indicator, the use of base negotiated
rates (for certain reimbursement mod-
els), and other data elements discussed
in section C.1.c of this preamble. The
Departments also seek comment on the
Allowed Amount File regarding the addi-
tion of data elements including the TIN,
NPI, and billed charges associated with
allowed amounts. The Departments seek
comment on all data elements discussed
in section C.1.c of this preamble as they
relate to the Prescription Drug File, as
well as the estimated costs and burdens
estimated above.
In association with amendments made
to the final rules, CMS is seeking OMB
approval for the information collection re-
quirements associated with OMB control
number 0938-1372 (CMS-10715 – Trans-
parency in Coverage). Comments will be
solicited through a 60-day Federal Reg-
ister notice, in accordance with Section
3506(c)(2)(A) of the Paperwork Reduction
Act. Data collection requirements associ-
ated with the internet-based self-service
tool, In-network Rate, Allowed Amount,
and Prescription Drug Files will not be ef-
fective until OMB approval is sought. The
Department of Labor and the Department
of the Treasury will submit their burden
estimates upon approval.
2. ICRs Regarding Medical Loss Ratio
(45 CFR 158.221)
HHS is finalizing its proposal to amend
45 CFR 158.221(b) to allow health insur-
ance issuers offering group or individual
health insurance coverage to include in
the MLR numerator “shared savings”
payments made to enrollees as a result of
the enrollee choosing to obtain health care
from a lower-cost, higher-value provider.
HHS does not anticipate that implement-
ing this provision will require significant
changes to the MLR Annual Reporting
Form or will significantly change the as-
sociated burden. The burden related to
this collection is currently approved under
OMB Control Number 0938-1164 (Exp.
10/31/2020); Medical Loss Ratio Annual
Reports, MLR Notices, and Recordkeep-
ing Requirements (CMS-10418).
3. Summary of Annual Burden Estimates for Requirements
TABLE 24: Estimated Three Year Average Proposed Annual Recordkeeping and Reporting Requirements.
Regulation
Section(s)
OMB
control
numberNumber of
Respondents
Number
of
Responses
Burden
per
Response
(hours)
Total
Annual
Burden
(hours)
Labor
Cost of
Reporting
($)
Mailing
Cost
($)Total Cost
($)
§§ 54.9815-
2715A2(b)(2)
(i); 2590.715-
2715A2(b)(2)(i);
and 147.211(b)
(2)(i)
0938-
1372*
1,9591,95923,31345,670,820$6,388,837,830.32$0$6,388,837,830.32
§§ 54.9815-
2715A2(b)(2)
(ii); 2590.715-
2715A2(b)(2)(ii);
and 147.211(b)(2)
(ii)
0938-
1372
1,30684,9261121,231$849,256.00$39,065.78$888,321.78
§§ 54.9815-
2715A3(b)
(i); 2590.715-
2715A3(b)(i); and
147.212(b)(1)(i)
0938-
1372
1,95916,3253,1996,266,188$848,390,660.00$0$848,390,660.00
§§54.9815-
2715A3(b)(1)
(ii); 2590.715-
2715A3(b)(1)(ii);
and 147.212(b)(1)
(ii)
0938-
1372
1,95916,3251,6513,233,656$453,887,240.00$0$453,887,240.00

November 30, 2020 1378 Bulletin No. 2020–49
Regulation
Section(s)
OMB
control
numberNumber of
Respondents
Number
of
Responses
Burden
per
Response
(hours)
Total
Annual
Burden
(hours)
Labor
Cost of
Reporting
($)
Mailing
Cost
($)Total Cost
($)
§§54.9815-
2715A3(b)(1)
(iii); 2590.715-
2715A3(b)(1)(iii);
and 147.212(b)(1)
(iii)
0938-
1372
1,95916,3251,0312,019,076$289,973,792.00$0$289,973,792.00
Total
135,86029,20457,210,971$7,981,938,778.32$39,065.78$7,981,977,844.10
* High-end three year estimated values are represented in the table and used to determine the overall estimated 3-year average.
For PRA purposes, the Departments
are splitting the burden: CMS will account
for 50 percent of the associated costs and
burdens and the Departments of Labor
and the Department of the Treasury will
each account for 25 percent of the asso-
ciated costs and burdens. The burden for
CMS will be 28,605,486 hours, with an
equivalent associated cost of approxi-
mately $3,990,969,389 and a cost burden
of $19,533. For the Departments of Labor
and the Treasury, each Department will
account for a burden of 14,302,743 hours
with an equivalent associated cost of ap-
proximately $1,995,484,695 and a cost
burden of $9,766.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act, (5
U.S.C. 601, et seq.), requires agencies to
prepare a final regulatory flexibility anal-
ysis to describe the impact of proposed
rules on small entities, unless the head of
the agency can certify that the rule would
not have a significant economic impact on
a substantial number of small entities. The
RFA generally defines a “small entity”
as (1) a proprietary firm meeting the size
standards of the Small Business Adminis-
tration (SBA), (2) a not-for-profit organi-
zation that is not dominant in its field, or
(3) a small government jurisdiction with a
population of less than 50,000. States and
individuals are not included in the defini-
tion of “small entity.”
HHS uses a change in revenues of more
than three to five percent as its measure of
significant economic impact on a substan-
tial number of small entities.
The final rules require that group
health plans and health insurance issuers
disclose to a participant, beneficiary, or
enrollee such individual’s cost-sharing
information for covered items or services
from a particular provider or providers;
to make public in-network rates, includ-
ing amounts in underlying fee schedules,
negotiated rates, and derived amounts for
in-network providers; historical allowed
amounts paid to out-of-network provid-
ers and billed charges for all covered
items and services; and negotiated rates
and historical net prices for prescription
drugs. The Departments are of the view
issuers generally exceed the size thresh-
olds for “small entities” established by
the SBA, so the Departments are not of
the view that an initial regulatory flexi-
bility analysis is required for such firms.
ERISA-covered plans are often small en-
tities, however. While the Departments
are of the view that these plans would rely
on the larger issuers or TPAs to comply
with the final rules, they would still expe-
rience increased costs because the costs of
complying with these requirements will
likely be passed on to them. However, as
discussed in more detail later in this sec-
tion of this preamble, the Departments are
not of the view that the additional costs
meet the significant impact requirement.
In addition, while the requirements of the
final rules do not apply to providers, pro-
viders may experience a loss in revenue as
a result of the demands of price sensitive
consumers and plans, and because smaller
issuers may be unwilling to continue pay-
ing higher rates than larger issuers for the
same items and services.
The Departments are of the view that
issuers would be classified under the North
American Industry Classification System
code 524114 (Direct Health and Medical
Insurance Carriers). According to SBA
size standards, entities with average annu-
al receipts of $41.5 million or less would
be considered small entities under North
American Industry Classification System
codes. Issuers could possibly be classified
under code 621491 (HMO Medical Cen-
ters) and, if this is the case, the SBA size
standard would be $35 million or less.
294

The Departments are of the view that few,
if any, insurance companies underwriting
comprehensive health insurance policies
(in contrast, for example, to travel insur-
ance policies or dental discount policies)
fall below these size thresholds. Based
on data from MLR annual report submis-
sions for the 2017 MLR reporting year,
approximately 90 out of 500 issuers of
health insurance coverage nationwide had
total premium revenue of $41.5 million
or less.
295
This estimate likely overstates
the actual number of small health insur-
ance issuers that may be affected, since
over 72 percent of these small issuers be-
long to larger holding groups, and most,
if not all, of these small issuers are likely
to have non-health lines of business that
will result in their revenues exceeding
$41.5 million. The Departments are of
the view that these same assumptions also
294
“Table of Small Business Size Standards Matched to North American Industry Classification System Codes.” United States Small Business Administration. Available at: https://www.sba.
gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf.
295
“Medical Loss Ratio Data and System Resources.” CCIIO. Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.

Bulletin No. 2020–49 1379 November 30, 2020
apply to the TPAs that would be affected
by the final rules. The Departments do not
expect any of these 90 potentially small
entities to experience a change in rebates
under the amendments to the MLR pro-
visions of the final rules in 45 CFR part
158. The Departments acknowledge that it
may be likely that a number of small en-
tities might enter into contracts with other
entities in order to meet the requirements
in the final rules, perhaps allowing for the
development of economies of scale. Due
to the lack of knowledge regarding what
small entities may decide to do in order
to meet these requirements and any costs
they might incur related to contracts, the
Departments sought comment on ways
that the final rules will impose addition-
al costs and burdens on small entities and
how many would be likely to engage in
contracts to meet the requirements.
The Departments received a number
of comments related to the potential ad-
ditional costs, burdens, and other effects
the final rules could have on small entities.
These comments have been noted and ad-
dressed in the RIA and ICR sections titled
Regarding Requirements for Public Dis-
closure of In-network Rates, Historical
Allowed Amount Data for Covered Items
and Services from Out-of-Network Pro-
viders and Prescription Drug Pricing In-
formation; Requirements for Disclosing
Cost-sharing information to Participant,
Beneficiaries, or Enrollees; and the Appli-
cability Date section of this preamble.
For purposes of the RFA, the DOL
continues to consider a small entity to be
an employee benefit plan with fewer than
100 participants.
296
Furthermore, while
some large employers may have small
plans, most small plans are maintained by
small employers.
Thus, the Departments are of the view
that assessing the impact of the final rules
on small plans is an appropriate substitute
for evaluating the effect on small entities.
The definition of small entity considered
appropriate for this purpose differs, how-
ever, from a definition of small business
that is based on size standards promulgat-
ed by the SBA (13 CFR 121.201) pursu-
ant to the Small Business Act (15 U.S.C.
631, et seq.). Therefore, EBSA request-
ed comments on the appropriateness of
the size standard used in evaluating the
impact of the final rules on small enti-
ties. Using the DOL definition of small,
about 2,160,743 of the approximately
2,327,339 plans are small entities. Using
a threshold approach, if the total costs of
the final rules are spread evenly across all
1,754 issuers, 205 TPAs, and 2,327,339
ERISA health plans, without considering
size, using the three-year average costs,
the per-entity costs could be $3,426.77
($7,981,977,844.10/2,329,298). If those
costs are spread evenly across the esti-
mated 212.3 million beneficiaries, par-
ticipants, or enrollees
297
enrolled in plans
or issuers required to comply with the
requirements then the average cost per
covered individual would be $37.60
($7,981,977,844.102/212.3 million). Nei-
ther the cost per entity nor the cost per
covered individual is a significant impact.
Further, the costs estimated in section VI
in this preamble may be overstated as it
is assumed that all of issuers and TPAs
will build the internet-based self-service
tool and the machine-readable files, com-
pile the appropriate data, and perform the
required updates themselves rather than
using common third parties such as clear-
inghouses, as discussed in section II.C in
this preamble. If private health insurance
transactions are processed through clear-
inghouses, with at least the fields required
in the machine-readable files, there could
be an unaccounted for source of savings,
as clearinghouses may already process
much of the data that issuers and TPAs
would be required to collect under the fi-
nal rules.
In addition, section 1102(b) of the SSA
(42 U.S.C. 1302) requires the Depart-
ments to prepare a regulatory impact anal-
ysis if a rule may have a significant impact
on the operations of a substantial number
of small rural hospitals. This analysis
must conform to the provisions of section
604 of the RFA. For purposes of section
1102(b) of the SSA, the Departments de-
fine a small rural hospital as a hospital that
is located outside of a metropolitan statis-
tical area and has fewer than 100 beds.
As noted and addressed in section
II.B.2.C in this preamble, commenters ex-
pressed concerns that exposure of in-net-
work rates could have various unintended
consequences on the health care industry,
group health plans and health insurance is-
suers, and providers. Also as discussed in
the sections VI.A.2, one commenter stated
that the proposed rules would create ad-
ministrative burdens for hospitals as hos-
pitals would be required to make massive
investments to provide the data required
under the final rules. The Departments
note that the final rules do not explicitly
apply to hospitals and do not agree that
hospitals will require massive investments
to comply with the final rules, as opposed
to the potential costs they could incur in
order to comply with the Hospital Price
Transparency final rule. Furthermore, the
Departments recognize that while the re-
quirements of the final rules do not apply
to providers, including hospitals, some
providers may experience a loss in rev-
enue as a result of the demands of price
sensitive consumers. The Departments
also recognize that while the requirements
in the final rules may result in instances
where small rural hospitals face additional
costs and burdens due to their size and the
market dynamics in their areas, the gen-
erally reduced competition amongst rural
hospitals, due to the overall lower number
of hospitals in these areas, will provide
them more leverage when negotiating
with issuers. Nonetheless, some rural hos-
pitals may see their costs increase if the
lack of competition results in these hos-
pitals being unable to negotiate more fa-
vorable terms with plans and issuers. This
dynamic could result in some small rural
hospitals seeing their revenue decrease
as reimbursement rates decline and over-
all costs increase, though rural hospitals
could also see reduced costs and burdens
if they are able to successfully negotiate
more favorable network contracts. Due to
a lack of information and overall knowl-
edge, the Departments are not able to con-
fidently estimate the effects the final rules
will have on small rural hospitals; howev-
er, the Departments are of the view that
the final rules will not have a significant
296
The basis for this definition is found in section 104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe simplified annual reports for pension plans that cover fewer than
100 participants.
297
Id. at 272.

November 30, 2020 1380 Bulletin No. 2020–49
impact on the operations of a substantial
number of small rural hospitals.
Impact of Regulations on Small Business
– Department of the Treasury
Pursuant to section 7805(f) of the Code,
the proposed rules that preceded the final
rules were submitted to the Chief Counsel
for Advocacy of the SBA for comment on
their impact on small businesses, and no
comments were received.
C. Unfunded Mandates
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain actions before is-
suing a final rule that includes any federal
mandate that may result in expenditures
in any one year by a state, local, or tribal
governments, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
In 2020, that threshold is approximately
$156 million.
State, local, or tribal governments may
incur costs to enforce some of the require-
ments of the final rules. The final rules
include instructions for disclosures that
would affect private sector firms (for ex-
ample, issuers offering health insurance
coverage in the individual and group mar-
kets, and TPAs providing administrative
services to group health plans). The De-
partments acknowledge that state govern-
ments could incur costs associated with
enforcement of sections within the final
rules and, although the Departments have
not been able to quantify all costs, the De-
partments expect the combined impact on
state, local, and tribal governments to be
below the threshold. The costs incurred
by the private sector have been previous-
ly discussed in Collection of Information
Requirements sections.
One commenter contended that due to
the requirement to make the machine-read-
able files publicly available, issuers would
also be required to post files with complete
negotiated payment amount information,
and that these files would be very com-
plex, with thousands of procedure codes
and many different plans and networks
offered by issuers. The commenter further
contended that due to the complexity and
size of the files significant state resources
would be required to review these files in
order to ensure their accuracy, complete-
ness, and timeliness. They contended that
without funding states will be challenged
in maintaining effective enforcement and
urged the Departments to consider provid-
ing grants to states to cover the cost of en-
forcing any final rules.
The Departments recognize that due to
size and complexity of the machine-read-
able files required some states will incur
increased burdens and costs to review and
ensure compliance with the requirements
in the final rules. However, at this time,
the Departments do not have available
funding to provide grants to assist states
in their efforts. The Departments will take
it under consideration and evaluate the po-
tential necessity to provide grants to assist
states in their efforts should a significant
need arise. The Departments expect that a
number of states with the requisite author-
ity to enforce the provisions of the final
rules may defer enforcement to federal
regulators because of lack of funds.
D. Federalism
Executive Order 13132 establishes
certain requirements that an agency must
meet when it issues a final rule that im-
poses substantial direct costs on state and
local governments, preempts state law,
or otherwise has federalism implications.
Federal agencies promulgating regula-
tions that have federalism implications
must consult with state and local officials
and describe the extent of their consulta-
tion and the nature of the concerns of state
and local officials in this preamble to the
regulation.
In the Departments’ view, the final
rules may have federalism implications,
because they would have direct effects
on the states, the relationship between na-
tional governments and states, and on the
distribution of power and responsibilities
among various levels of government relat-
ing to the disclosure of health insurance
coverage information to the public.
Under the final rules, all group health
plans and health insurance issuers, includ-
ing self-insured, non-federal governmen-
tal group health plans as defined in section
2791 of the PHS Act, will be required to
develop an internet-based self-service
tool to disclose to a participant, benefi-
ciary, or enrollee, the consumer-specific
estimated cost-sharing liability for cov-
ered items or services from a particular
provider and also to provide this informa-
tion by mail upon request. The final rules
also require plans and issuers to disclose
provider in-network rates, historical data
on out-of-network allowed amounts, and
negotiated rates and historical net prices
for prescription drugs through digital files
in a machine-readable format posted pub-
licly on an internet website. Such federal
standards developed under section 2715A
of the PHS Act preempt any related state
standards that require pricing information
to be disclosed to the participant, benefi-
ciary, or enrollee, or otherwise publicly
disclosed, to the extent the state disclosure
requirements would provide less informa-
tion to the consumer or the public than
what is required under the final rules.
The Departments are of the view that
the final rules may have federalism impli-
cations based on the required disclosure of
pricing information, as the Departments
are aware of at least 28 states that have
passed some form of price-transparency
legislation, such as all-payer claims data-
bases, consumer-facing price comparison
tools, and the right to shop programs.
298

Under these state provisions, state re-
quirements vary broadly in terms of the
level of disclosure required.
299
Some states
list the price for each individual service,
whereas some states list the aggregate
costs across providers and over time to
measure the price associated with an ep-
isode of illness. States also differ in terms
of the dissemination of the information.
For example, California mandates that un-
insured patients receive estimated prices
298
“Transparency of Health Costs; State Actions.” National Conference of State Legislatures. March 2017. Available at: https://www.ncsl.org/research/health/transparency-and-disclo-
sure-health-costs.aspx.
299
Mehrotra, A., Chernew, M., and Sinaiko, A. “Promise and Reality of Price Transparency.” 14 N. Engl. J. Med. 378. April 5, 2018. Available at: https://www.nejm.org/doi/full/10.1056/
NEJMhpr1715229.

Bulletin No. 2020–49 1381 November 30, 2020
upon request. In contrast, other states use
websites or software applications that al-
low consumers to compare prices across
providers. Only seven states have pub-
lished the pricing information of issuers
on consumer-facing public websites.
300

Therefore, the final rules may require a
higher level of disclosure by plans and is-
suers than some state laws.
One commenter asked that the Depart-
ments clarify their intentions regarding
federal preemption with respect to state
laws that conflict with the final rules.
Congress passed PPACA to improve the
health insurance markets on a nationwide
basis. King. v. Burwell, 135 S. Ct. 2480,
2496 (2015). Under section 1321(d) of
PPACA and section 2724(a) of the PHS
Act, nothing in these regulations would
preempt state law unless such state law
prevents the application of the applica-
ble federal requirement. Based on this
legal context, the Departments intend
the implementation of the rules to pre-
empt state law to the extent enforcement
of state law would prevent the applica-
tion of PPACA.
301
To the extent the final
rules preempt state law, they do so under
well-settled law.
In general, through section 514, ER-
ISA supersedes state laws to the extent
that they relate to any covered employ-
ee benefit plan, and preserves state laws
that regulate insurance, banking, or se-
curities. Furthermore, the preemption
provisions of section 731 of ERISA and
section 2724 of the PHS Act (implement-
ed in 29 CFR 2590.731(a) and 45 CFR
146.143(a)) apply so that the HIPAA re-
quirements (including those of PPACA)
are not to be “construed to supersede any
provision of state law which establishes,
implements, or continues in effect any
standard or requirement solely relating to
issuers in connection with group health
insurance coverage except to the extent
that such standard or requirement pre-
vents the application of a ‘requirement’
of a federal standard.” The conference
report accompanying HIPAA indicates
that this preemption is intended to be the
“narrowest” preemption of states laws
(See House Conf. Rep. No. 104– 736, at
205, reprinted in 1996 U.S. Code Cong.
& Admin. News 2018). States may there-
fore continue to apply state law require-
ments to issuers except to the extent that
such requirements prevent the applica-
tion of PPACA requirements that are the
subject of this rulemaking. Accordingly,
states have significant latitude to impose
requirements on issuers that are more re-
strictive than the federal law.
In compliance with the requirement
of Executive Order 13132 that agencies
examine closely any policies that may
have federalism implications or limit the
policy making discretion of the states, the
Departments have engaged in efforts to
consult with and work cooperatively with
affected states, including participating in
conference calls with and attending con-
ferences of NAIC, and consulting with
state insurance officials on an individual
basis. The Departments intend to act in a
similar fashion in enforcing PPACA, in-
cluding the provisions of section 2715A
of the PHS Act. While developing the
final rules, the Departments attempted to
balance the states’ interests in regulating
issuers with Congress’ intent to provide
an improved level of price transparency
to the public in every state. By doing so,
it is the Departments’ view that they have
complied with the requirements of Execu-
tive Order 13132.
Pursuant to the requirements set forth
in section 8(a) of Executive Order 13132,
and by the signatures affixed to the final
rules, the Departments certify that the De-
partment of the Treasury, Employee Bene-
fits Security Administration, and the CMS
have complied with the requirements of
Executive Order 13132 for the final rules
in a meaningful and timely manner.
E. Congressional Review Act
The final rules are subject to the Con-
gressional Review Act provisions of the
Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801, et
seq.), which specifies that before a rule
can take effect, the federal agency pro-
mulgating the rule shall submit to each
House of the Congress and to the Comp-
troller General a report containing a copy
of the rule along with other specified in-
formation. Therefore, the final rules have
been transmitted to the Congress and the
Comptroller General. Pursuant to the
Congressional Review Act, the Office of
Information and Regulatory Affairs des-
ignated the final rules as “major rules” as
that term is defined in 5 U.S.C. 804(2),
because it is likely to result in an annual
effect on the economy of $100 million or
more. In accordance with the provisions
of Executive Order 12866, this regulation
was reviewed by the Office of Manage-
ment and Budget.
F. Reducing Regulation and Controlling
Regulatory Costs
Executive Order 13771, titled Reduc-
ing Regulation and Controlling Regu-
latory Costs, was issued on January 30,
2017. Section 2(a) of Executive Order
13771 requires an agency, unless pro-
hibited by law, to identify at least two
existing regulations to be repealed when
the agency publicly proposes for notice
and comment, or otherwise issues, a new
regulation. In furtherance of this require-
ment, section 2(c) of Executive Order
13771 requires that the new incremental
costs associated with new regulations
shall, to the extent permitted by law, be
offset by the elimination of existing costs
associated with at least two prior regu-
lations.
The final rules are considered an Ex-
ecutive Order 13771 regulatory action.
The Departments estimate that these rules
will generate $3,489.71 million in costs
in 2021, $10,761.15 million in 2022,
$6,569 million in 2023, and annual costs
of approximately $2,330 million there-
after. Discounted at 7 percent relative to
year 2016, over a perpetual time horizon
the annualized value of these costs is
$2,413.54 million. Details on the estimat-
ed costs of the final rules can be found in
the preceding analyses.
300
Evans, M. “One State’s Effort to Publicize Hospital Prices Brings Mixed Results.” Wall Street Journal. June 26, 2019. Available at: https://www.wsj.com/articles/one-states-effort-to-pub-
licize-hospital-prices-brings-mixed-results-11561555562.
301
See section 1321(d) of PPACA (“Nothing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title.)

November 30, 2020 1382 Bulletin No. 2020–49
VII. Statutory Authority
The Department of the Treasury regu-
lations are adopted pursuant to the author-
ity contained in sections 7805 and 9833 of
the Code.
The Department of Labor regulations
are adopted pursuant to the authority
contained in 29 U.S.C. 1135, 1185d, and
1191c; and Secretary of Labor’s Order
1-2011, 77 FR 1088 (Jan. 9, 2012).
The Department of Health and Human
Services regulations are adopted pursuant
to the authority contained in sections 1311
of PPACA, 2701 through 2763, 2791,
2792, and 2794 of the PHS Act (42 U.S.C.
300gg through 300gg-63, 300gg-91,
300gg-92, and 300gg-94), as amended.
Sunita Lough
Deputy Commissioner for Services
and Enforcement,
Internal Revenue Service.
Approved: October 28, 2020
David J. Kautter
Assistant Secretary of the Treasury
(Tax Policy).
Signed at Washington DC, this 30
th
day
of October, 2020
Jeanne Klinefelter Wilson,
Acting Assistant Secretary,
Employee Benefits Security
Administration,
Department of Labor
Dated: October 8, 2020.
Seema Verma,
Administrator,
Centers for Medicare & Medicaid
Services.
Dated: October 20, 2020.
Alex M. Azar II,
Secretary,
Department of Health and Human
Services.
List of Subjects
26 CFR part 54
Excise taxes, Health care, Health in-
surance, Pensions, Reporting and record-
keeping requirements.
29 CFR part 2590
Continuation coverage, Disclosure,
Employee benefit plans, Group health
plans, Health care, Health insurance,
Medical child support, Reporting and re-
cordkeeping requirements.
45 CFR part 147
Health care, Health insurance, Report-
ing and recordkeeping requirements, State
regulation of health insurance.
45 CFR part 158
Administrative practice and procedure,
Claims, Health care, Health insurance,
Penalties, Reporting and recordkeeping
requirements.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Amendments to the Regulations
For the reasons set forth in this pre-
amble, the Department of the Treasury
amends 26 CFR part 54 as set forth below:
PART 54—PENSION EXCISE TAXES
Par. 1. The authority citation for part
54 is amended by adding an entry for §
54.9815-2715A in numerical order to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9815-2715A1, 54.9815-
2715A2, 54.9815-2715A3 are also issued
under 26 U.S.C. 9833;
* * * * *
Par. 2. Sections 54.9815-2715A1,
54.9815-2715A2, 54.9815-2715A3 are
added to read as follows:
§ 54.9815-2715A1 Transparency in
coverage- Definitions.
(a) Scope and definitions (1) Scope.
This section sets forth definitions for the
price transparency requirements for group
health plans and health insurance issuers
offering group health insurance coverage
established in this section and §§ 54.9815-
2715A2, 54.9815-2715A3.
(2) Definitions. For purposes of this
section and §§ 54.9815-2715A2, 54.9815-
2715A3, the following definitions apply:
(i) Accumulated amounts means:
(A) The amount of financial responsi-
bility a participant or beneficiary has in-
curred at the time a request for cost-shar-
ing information is made, with respect to a
deductible or out-of- pocket limit. If an in-
dividual is enrolled in other than self-on-
ly coverage, these accumulated amounts
shall include the financial responsibility
a participant or beneficiary has incurred
toward meeting his or her individual de-
ductible or out-of-pocket limit, as well as
the amount of financial responsibility that
all the individuals enrolled under the plan
or coverage have incurred, in aggregate,
toward meeting the other than self-only
deductible or out-of-pocket limit, as appli-
cable. Accumulated amounts include any
expense that counts toward a deductible or
out-of-pocket limit (such as a copayment
or coinsurance), but exclude any expense
that does not count toward a deductible or
out-of-pocket limit (such as any premium
payment, out-of-pocket expense for out-
of-network services, or amount for items
or services not covered under the group
health plan or health insurance coverage);
and
(B) To the extent a group health plan
or health insurance issuer imposes a cu-
mulative treatment limitation on a par-
ticular covered item or service (such as a
limit on the number of items, days, units,
visits, or hours covered in a defined time
period) independent of individual medical
necessity determinations, the amount that
has accrued toward the limit on the item
or service (such as the number of items,
days, units, visits, or hours the participant
or beneficiary, has used within that time
period).
(ii) Beneficiary has the meaning given
the term under section 3(8) of the Em-

Bulletin No. 2020–49 1383 November 30, 2020
ployee Retirement Income Security Act of
1974 (ERISA).
(iii) Billed charge means the total
charges for an item or service billed to a
group health plan or health insurance issu-
er by a provider.
(iv) Billing code means the code used
by a group health plan or health insurance
issuer or provider to identify health care
items or services for purposes of billing,
adjudicating, and paying claims for a cov-
ered item or service, including the Cur-
rent Procedural Terminology (CPT) code,
Healthcare Common Procedure Coding
System (HCPCS) code, Diagnosis-Re-
lated Group (DRG) code, National Drug
Code (NDC), or other common payer
identifier.
(v) Bundled payment arrangement
means a payment model under which a
provider is paid a single payment for all
covered items and services provided to
a participant or beneficiary for a specific
treatment or procedure.
(vi) Copayment assistance means the
financial assistance a participant or bene-
ficiary receives from a prescription drug
or medical supply manufacturer towards
the purchase of a covered item or service.
(vii) Cost-sharing liability means the
amount a participant or beneficiary is re-
sponsible for paying for a covered item
or service under the terms of the group
health plan or health insurance coverage.
Cost-sharing liability generally includes
deductibles, coinsurance, and copay-
ments, but does not include premiums,
balance billing amounts by out-of-net-
work providers, or the cost of items or ser-
vices that are not covered under a group
health plan or health insurance coverage.
(viii) Cost-sharing information means
information related to any expenditure
required by or on behalf of a participant
or beneficiary with respect to health care
benefits that are relevant to a determina-
tion of the participant’s or beneficiary’s
cost-sharing liability for a particular cov-
ered item or service.
(ix) Covered items or services means
those items or services, including pre-
scription drugs, the costs for which are
payable, in whole or in part, under the
terms of a group health plan or health in-
surance coverage.
(x) Derived amount means the price
that a group health plan or health insur-
ance issuer assigns to an item or service
for the purpose of internal accounting,
reconciliation with providers, or submit-
ting data in accordance with the require-
ments of 45 CFR 153.710(c).
(xi) Historical net price means the ret-
rospective average amount a group health
plan or health insurance issuer paid for a
prescription drug, inclusive of any reason-
ably allocated rebates, discounts, charge-
backs, fees, and any additional price con-
cessions received by the plan or issuer
with respect to the prescription drug. The
allocation shall be determined by dollar
value for non-product specific and prod-
uct-specific rebates, discounts, charge-
backs, fees, and other price concessions to
the extent that the total amount of any such
price concession is known to the group
health plan or health insurance issuer at
the time of publication of the historical net
price in a machine-readable file in accor-
dance with § 54.9815-2715A3. However,
to the extent that the total amount of any
non-product specific and product-specific
rebates, discounts, chargebacks, fees, or
other price concessions is not known to
the group health plan or health insurance
issuer at the time of file publication, then
the plan or issuer shall allocate such re-
bates, discounts, chargebacks, fees, and
other price concessions by using a good
faith, reasonable estimate of the average
price concessions based on the rebates,
discounts, chargebacks, fees, and other
price concessions received over a time
period prior to the current reporting pe-
riod and of equal duration to the current
reporting period, as determined under §
54.9815-2715A3 (b)(1)(iii)(D)(3).
(xii) In-network provider means any
provider of any item or service with which
a group health plan or health insurance is-
suer, or a third party for the plan or issu-
er, has a contract setting forth the terms
and conditions on which a relevant item
or service is provided to a participant or
beneficiary.
(xiii) Items or services means all en-
counters, procedures, medical tests, sup-
plies, prescription drugs, durable medical
equipment, and fees (including facility
fees), provided or assessed in connection
with the provision of health care.
(xiv) Machine-readable file means a
digital representation of data or informa-
tion in a file that can be imported or read
by a computer system for further process-
ing without human intervention, while en-
suring no semantic meaning is lost.
(xv) National Drug Code means the
unique 10- or 11-digit 3-segment num-
ber assigned by the Food and Drug Ad-
ministration, which provides a universal
product identifier for drugs in the United
States.
(xvi) Negotiated rate means the amount
a group health plan or health insurance
issuer has contractually agreed to pay an
in-network provider, including an in-net-
work pharmacy or other prescription drug
dispenser, for covered items and services,
whether directly or indirectly, including
through a third-party administrator or
pharmacy benefit manager.
(xvii) Out-of-network allowed amount
means the maximum amount a group
health plan or health insurance issuer will
pay for a covered item or service furnished
by an out-of-network provider.
(xviii) Out-of-network provider means
a provider of any item or service that does
not have a contract under a participant’s or
beneficiary’s group health plan or health
insurance coverage to provide items or
services.
(xix) Out-of-pocket limit means the
maximum amount that a participant or
beneficiary is required to pay during a
coverage period for his or her share of the
costs of covered items and services under
his or her group health plan or health in-
surance coverage, including for self-only
and other than self-only coverage, as ap-
plicable.
(xx) Plain language means written and
presented in a manner calculated to be
understood by the average participant or
beneficiary.
(xxi) Prerequisite means concurrent re-
view, prior authorization, and step-thera-
py or fail-first protocols related to covered
items and services that must be satisfied
before a group health plan or health insur-
ance issuer will cover the item or service.
The term prerequisite does not include
medical necessity determinations general-
ly or other forms of medical management
techniques.
(xxii) Underlying fee schedule rate
means the rate for a covered item or ser-
vice from a particular in-network provid-
er, or providers that a group health plan or
health insurance issuer uses to determine a

November 30, 2020 1384 Bulletin No. 2020–49
participant’s or beneficiary’s cost-sharing
liability for the item or service, when that
rate is different from the negotiated rate or
derived amount.
(b) [Reserved]
§ 54.9815-2715A2 Transparency in
coverage - Required disclosures to
participants and beneficiaries.
(a) Scope and definitions. (1) Scope.
This section establishes price transparen-
cy requirements for group health plans and
health insurance issuers offering group
health insurance coverage for the timely
disclosure of information about costs re-
lated to covered items and services under
a group plan or health insurance coverage.
(2) Definitions. For purposes of this
section, the definitions in § 54.9815-
2715A1 apply.
(b) Required disclosures to partici-
pants and beneficiaries. At the request of a
participant or beneficiary who is enrolled
in a group health plan, the plan must pro-
vide to the participant or beneficiary the
information required under paragraph (b)
(1) of this section, in accordance with the
method and format requirements set forth
in paragraph (b)(2) of this section.
(1) Required cost-sharing information.
The information required under this para-
graph (b)(1) is the following cost-sharing
information, which is accurate at the time
the request is made, with respect to a par-
ticipant’s or beneficiary’s cost-sharing lia-
bility for covered items and services:
(i) An estimate of the participant’s or
beneficiary’s cost-sharing liability for a
requested covered item or service fur-
nished by a provider or providers that is
calculated based on the information de-
scribed in paragraphs (b)(1)(ii) through
(iv) of this section.
(A) If the request for cost-sharing in-
formation relates to items and services that
are provided within a bundled payment ar-
rangement, and the bundled payment ar-
rangement includes items or services that
have a separate cost-sharing liability, the
group health plan or health insurance issu-
er must provide estimates of the cost-shar-
ing liability for the requested covered item
or service, as well as an estimate of the
cost-sharing liability for each of the items
and services in the bundled payment ar-
rangement that have separate cost-sharing
liabilities. While group health plans and
health insurance issuers are not required to
provide estimates of cost-sharing liability
for a bundled payment arrangement where
the cost-sharing is imposed separately
for each item and service included in the
bundled payment arrangement, nothing
prohibits plans or issuers from providing
estimates for multiple items and services
in situations where such estimates could
be relevant to participants or beneficiaries,
as long as the plan or issuer also disclos-
es information about the relevant items or
services individually, as required in para-
graph (b)(1)(v) of this section.
(B) For requested items and services
that are recommended preventive services
under section 2713 of the Public Health
Service Act (PHS Act), if the group health
plan or health insurance issuer cannot de-
termine whether the request is for preven-
tive or non-preventive purposes, the plan
or issuer must display the cost-sharing
liability that applies for non-preventive
purposes. As an alternative, a group health
plan or health insurance issuer may al-
low a participant or beneficiary to request
cost-sharing information for the specific
preventive or non-preventive item or ser-
vice by including terms such as “preven-
tive”, “non-preventive” or “diagnostic”
as a means to request the most accurate
cost-sharing information.
(ii) Accumulated amounts;
(iii) In-network rate, comprised of the
following elements, as applicable to the
group health plan’s or health insurance is-
suer’s payment model:
(A) Negotiated rate, reflected as a dol-
lar amount, for an in-network provider or
providers for the requested covered item
or service; this rate must be disclosed even
if it is not the rate the plan or issuer uses to
calculate cost-sharing liability; and
(B) Underlying fee schedule rate, re-
flected as a dollar amount, for the request-
ed covered item or service, to the extent
that it is different from the negotiated rate;
(iv) Out-of-network allowed amount or
any other rate that provides a more accu-
rate estimate of an amount a group health
plan or health insurance issuer will pay for
the requested covered item or service, re-
flected as a dollar amount, if the request
for cost-sharing information is for a cov-
ered item or service furnished by an out-
of-network provider; provided, however,
that in circumstances in which a plan or
issuer reimburses an out-of-network pro-
vider a percentage of the billed charge for
a covered item or service, the out-of-net-
work allowed amount will be that percent-
age.
(v) If a participant or beneficiary re-
quests information for an item or service
subject to a bundled payment arrange-
ment, a list of the items and services in-
cluded in the bundled payment arrange-
ment for which cost-sharing information
is being disclosed.
(vi) If applicable, notification that cov-
erage of a specific item or service is sub-
ject to a prerequisite; and,
(vii) A notice that includes the follow-
ing information in plain language:
(A) A statement that out-of-network
providers may bill participants or benefi-
ciaries for the difference between a pro-
vider’s billed charges and the sum of the
amount collected from the group health
plan or health insurance issuer and from
the participant or beneficiary in the form
of a copayment or coinsurance amount
(the difference referred to as balance bill-
ing), and that the cost-sharing information
provided pursuant to this paragraph (b)
(1)(i) does not account for these potential
additional amounts. This statement is only
required if balance billing is permitted un-
der state law;
(B) A statement that the actual charges
for a participant’s or beneficiary’s covered
item or service may be different from an
estimate of cost-sharing liability provid-
ed pursuant to paragraph (b)(1)(i) of this
section, depending on the actual items or
services the participant or beneficiary re-
ceives at the point of care;
(C) A statement that the estimate of
cost-sharing liability for a covered item or
service is not a guarantee that benefits will
be provided for that item or service;
(D) A statement disclosing whether the
plan counts copayment assistance and oth-
er third-party payments in the calculation
of the participant’s or beneficiary’s de-
ductible and out-of-pocket maximum;
(E) For items and services that are rec-
ommended preventive services under sec-
tion 2713 of the PHS Act, a statement that
an in-network item or service may not be
subject to cost-sharing if it is billed as a
preventive service if the group health plan
or health insurance issuer cannot deter-

Bulletin No. 2020–49 1385 November 30, 2020
mine whether the request is for a preven-
tive or non-preventive item or service; and
(F) Any additional information, in-
cluding other disclaimers, that the group
health plan or health insurance issuer de-
termines is appropriate, provided the ad-
ditional information does not conflict with
the information required to be provided by
this paragraph (b)(1).
(2) Required methods and formats for
disclosing information to participants and
beneficiaries. The methods and formats
for the disclosure required under this para-
graph (b) are as follows:
(i) Internet-based self-service tool. In-
formation provided under this paragraph
(b) must be made available in plain lan-
guage, without subscription or other fee,
through a self-service tool on an internet
website that provides real-time responses
based on cost-sharing information that is
accurate at the time of the request. Group
health plans and health insurance issuers
must ensure that the self-service tool al-
lows users to:
(A) Search for cost-sharing informa-
tion for a covered item or service provided
by a specific in-network provider or by all
in-network providers by inputting:
(1) A billing code (such as CPT code
87804) or a descriptive term (such as “rap-
id flu test”), at the option of the user;
(2) The name of the in-network provid-
er, if the user seeks cost-sharing informa-
tion with respect to a specific in-network
provider; and
(3) Other factors utilized by the plan or
issuer that are relevant for determining the
applicable cost-sharing information (such
as location of service, facility name, or
dosage).
(B) Search for an out-of-network
allowed amount, percentage of billed
charges, or other rate that provides a rea-
sonably accurate estimate of the amount a
group health plan or health insurance is-
suer will pay for a covered item or service
provided by out-of-network providers by
inputting:
(1) A billing code or descriptive term,
at the option of the user; and
(2) Other factors utilized by the plan
or issuer that are relevant for determin-
ing the applicable out-of-network allowed
amount or other rate (such as the location
in which the covered item or service will
be sought or provided).
(C) Refine and reorder search re-
sults based on geographic proximity of
in-network providers, and the amount of
the participant’s or beneficiary’s estimat-
ed cost-sharing liability for the covered
item or service, to the extent the search
for cost-sharing information for covered
items or services returns multiple results.
(ii) Paper method. Information provid-
ed under this paragraph (b) must be made
available in plain language, without a fee,
in paper form at the request of the partici-
pant or beneficiary. In responding to such
a request, the group health plan or health
insurance issuer may limit the number of
providers with respect to which cost-shar-
ing information for covered items and ser-
vices is provided to no fewer than 20 pro-
viders per request. The group health plan
or health insurance issuer is required to:
(A) Disclose the applicable provid-
er-per-request limit to the participant or
beneficiary;
(B) Provide the cost-sharing informa-
tion in paper form pursuant to the indi-
vidual’s request, in accordance with the
requirements in paragraphs (b)(2)(i)(A)
through (C) of this section; and
(C) Mail the cost-sharing information
in paper form no later than 2 business days
after an individual’s request is received.
(D) To the extent participants or bene-
ficiaries request disclosure other than by
paper (for example, by phone or e-mail),
plans and issuers may provide the disclo-
sure through another means, provided the
participant or beneficiary agrees that dis-
closure through such means is sufficient to
satisfy the request and the request is ful-
filled at least as rapidly as required for the
paper method.
(3) Special rule to prevent unnecessary
duplication.
(i) Special rule for insured group
health plans. To the extent coverage un-
der a group health plan consists of group
health insurance coverage, the plan satis-
fies the requirements of this paragraph (b)
if the plan requires the health insurance
issuer offering the coverage to provide the
information required by this paragraph (b)
in compliance with this section pursuant
to a written agreement. Accordingly, if a
health insurance issuer and a plan spon-
sor enter into a written agreement under
which the issuer agrees to provide the in-
formation required under this paragraph
(b) in compliance with this section, and
the issuer fails to do so, then the issuer, but
not the plan, violates the transparency dis-
closure requirements of this paragraph (b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements under
this paragraph (b) by entering into a writ-
ten agreement under which another party
(such as a pharmacy benefit manager or
other third-party) provides the informa-
tion required by this paragraph (b) in com-
pliance with this section. Notwithstanding
the preceding sentence, if a group health
plan or health insurance issuer chooses to
enter into such an agreement and the party
with which it contracts fails to provide the
information in compliance with this para-
graph (b), the plan or issuer violates the
transparency disclosure requirements of
this paragraph (b).
(c) Applicability. (1) The provisions of
this section apply for plan years beginning
on or after January 1, 2023 with respect
to the 500 items and services to be posted
on a publicly available website, and with
respect to all covered items and services,
for plan years beginning on or after Janu-
ary 1, 2024.
(2) As provided under § 54.9815-1251,
this section does not apply to grandfa-
thered health plans. This section also does
not apply to health reimbursement ar-
rangements or other account-based group
health plans as defined in § 54.9815-
2711(d)(6) or short-term, limited-duration
insurance as defined in § 54.9801-2.
(3) Nothing in this section alters or
otherwise affects a group health plan’s or
health insurance issuer’s duty to comply
with requirements under other applicable
state or federal laws, including those gov-
erning the accessibility, privacy, or securi-
ty of information required to be disclosed
under this section, or those governing the
ability of properly authorized representa-
tives to access participant or beneficiary
information held by plans and issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.

November 30, 2020 1386 Bulletin No. 2020–49
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision
to persons not similarly situated or to dis-
similar circumstances.
§ 54.9815-2715A3 Transparency in
coverage - Requirements for public
disclosure.
(a) Scope and definitions—(1) Scope.
This section establishes price transparen-
cy requirements for group health plans and
health insurance issuers offering group
health insurance coverage for the timely
disclosure of information about costs re-
lated to covered items and services under
a group plan or health insurance coverage.
(2) Definitions. For purposes of this
section, the definitions in § 54.9815-
2715A1 apply.
(b) Requirements for public disclosure
of in-network provider rates for covered
items and services, out-of-network al-
lowed amounts and billed charges for
covered items and services, and negotiat-
ed rates and historical net prices for cov-
ered prescription drugs. A group health
plan or health insurance issuer must make
available on an internet website the infor-
mation required under paragraph (b)(1)
of this section in three machine-readable
files, in accordance with the method and
format requirements described in para-
graph (b)(2) of this section, and that are
updated as required under paragraph (b)
(3) of this section.
(1) Required information. Ma-
chine-readable files required under this
paragraph (b) that are made available to
the public by a group health plan or health
insurance issuer must include:
(i) An in-network rate machine-read-
able file that includes the required infor-
mation under this paragraph (b)(1)(i) for
all covered items and services, except for
prescription drugs that are subject to a fee-
for-service reimbursement arrangement,
which must be reported in the prescrip-
tion drug machine-readable file pursuant
to paragraph (b)(1)(iii) of this section.
The in-network rate machine-readable file
must include:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit Health
Insurance Oversight System (HIOS) iden-
tifier, or, if the 14-digit HIOS identifier is
not available, the 5-digit HIOS identifier,
or if no HIOS identifier is available, the
Employer Identification Number (EIN);
(B) A billing code, which in the case of
prescription drugs must be an NDC, and a
plain language description for each billing
code for each covered item or service un-
der each coverage option offered by a plan
or issuer; and
(C) All applicable rates, which may in-
clude one or more of the following: nego-
tiated rates, underlying fee schedule rates,
or derived amounts. If a group health plan
or health insurance issuer does not use
negotiated rates for provider reimburse-
ment, then the plan or issuer should dis-
close derived amounts to the extent these
amounts are already calculated in the nor-
mal course of business. If the group health
plan or health insurance issuer uses un-
derlying fee schedule rates for calculating
cost sharing, then the plan or issuer should
include the underlying fee schedule rates
in addition to the negotiated rate or de-
rived amount. Applicable rates, including
for both individual items and services and
items and services in a bundled payment
arrangement, must be:
(1) Reflected as dollar amounts, with
respect to each covered item or service
that is furnished by an in-network pro-
vider. If the negotiated rate is subject to
change based upon participant or benefi-
ciary-specific characteristics, these dollar
amounts should be reflected as the base
negotiated rate applicable to the item or
service prior to adjustments for partici-
pant or beneficiary-specific characteris-
tics;
(2) Associated with the National Pro-
vider Identifier (NPI), Tax Identification
Number (TIN), and Place of Service Code
for each in-network provider;
(3) Associated with the last date of the
contract term or expiration date for each
provider-specific applicable rate that ap-
plies to each covered item or service; and
(4) Indicated with a notation where a
reimbursement arrangement other than a
standard fee-for-service model (such as
capitation or a bundled payment arrange-
ment) applies.
(ii) An out-of-network allowed amount
machine-readable file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) A billing code, which in the case of
prescription drugs must be an NDC, and
a plain language description for each bill-
ing code for each covered item or service
under each coverage option offered by a
plan or issuer;
(C) Unique out-of-network allowed
amounts and billed charges with respect
to covered items or services, furnished
by out-of-network providers during the
90-day time period that begins 180 days
prior to the publication date of the ma-
chine-readable file (except that a group
health plan or health insurance issuer
must omit such data in relation to a par-
ticular item or service and provider when
compliance with this paragraph (b)(1)(ii)
(C) would require the plan or issuer to re-
port payment of out-of-network allowed
amounts in connection with fewer than
20 different claims for payments under a
single plan or coverage). Consistent with
paragraph (c)(3) of this section, nothing
in this paragraph (b)(1)(ii)(C) requires
the disclosure of information that would
violate any applicable health information
privacy law. Each unique out-of-network
allowed amount must be:
(1) Reflected as a dollar amount, with
respect to each covered item or service

Bulletin No. 2020–49 1387 November 30, 2020
that is furnished by an out-of-network
provider; and
(2) Associated with the NPI, TIN, and
Place of Service Code for each out-of-net-
work provider.
(iii) A prescription drug machine-read-
able file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) The NDC and the proprietary and
nonproprietary name assigned to the NDC
by the Food and Drug Administration
(FDA) for each covered item or service
that is a prescription drug under each cov-
erage option offered by a plan or issuer;
(C) The negotiated rates which must
be:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-
macy or other prescription drug dispenser;
and
(3) Associated with the last date of the
contract term for each provider-specific
negotiated rate that applies to each NDC;
and
(D) Historical net prices that are:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-
macy or other prescription drug dispenser;
and
(3) Associated with the 90-day time
period that begins 180 days prior to the
publication date of the machine-readable
file for each provider-specific historical
net price that applies to each NDC (ex-
cept that a group health plan or health
insurance issuer must omit such data in
relation to a particular NDC and provider
when compliance with this paragraph (b)
(1)(iii)(D) would require the plan or issuer
to report payment of historical net pric-
es calculated using fewer than 20 differ-
ent claims for payment). Consistent with
paragraph (c)(3) of this section, nothing
in this paragraph (b)(1)(iii)(D) requires
the disclosure of information that would
violate any applicable health information
privacy law.
(2) Required method and format for
disclosing information to the public. The
machine-readable files described in this
paragraph (b) must be available in a form
and manner as specified in guidance is-
sued by the Department of the Treasury,
the Department of Labor, and the Depart-
ment of Health and Human Services. The
machine-readable files must be publicly
available and accessible to any person free
of charge and without conditions, such
as establishment of a user account, pass-
word, or other credentials, or submission
of personally identifiable information to
access the file.
(3) Timing. A group health plan or
health insurance issuer must update the
machine-readable files and information
required by this paragraph (b) monthly.
The group health plan or health insurance
issuer must clearly indicate the date that
the files were most recently updated.
(4) Special rules to prevent unneces-
sary duplication—
(i) Special rule for insured group
health plans. To the extent coverage un-
der a group health plan consists of group
health insurance coverage, the plan satis-
fies the requirements of this paragraph (b)
if the plan requires the health insurance
issuer offering the coverage to provide the
information pursuant to a written agree-
ment. Accordingly, if a health insurance
issuer and a group health plan sponsor en-
ter into a written agreement under which
the issuer agrees to provide the informa-
tion required under this paragraph (b) in
compliance with this section, and the issu-
er fails to do so, then the issuer, but not the
plan, violates the transparency disclosure
requirements of this paragraph (b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements un-
der this paragraph (b) by entering into a
written agreement under which another
party (such as a third-party administra-
tor or health care claims clearinghouse)
will provide the information required by
this paragraph (b) in compliance with this
section. Notwithstanding the preceding
sentence, if a group health plan or health
insurance issuer chooses to enter into such
an agreement and the party with which it
contracts fails to provide the information
in compliance with this paragraph (b), the
plan or issuer violates the transparency
disclosure requirements of this paragraph
(b).
(iii) Aggregation permitted for out-
of-network allowed amounts. Nothing in
this section prohibits a group health plan
or health insurance issuer from satisfying
the disclosure requirement described in
paragraph (b)(1)(ii) of this section by dis-
closing out-of-network allowed amounts
made available by, or otherwise obtained
from, an issuer, a service provider, or other
party with which the plan or issuer has en-
tered into a written agreement to provide
the information, provided the minimum
claim threshold described in paragraph (b)
(1)(ii)(C) of this section is independently
met for each item or service and for each
plan or coverage included in an aggre-
gated Allowed Amount File. Under such
circumstances, health insurance issuers,
service providers, or other parties with
which the group health plan or issuer has
contracted may aggregate out-of-network
allowed amounts for more than one plan
or insurance policy or contract. Addition-
ally, nothing in this section prevents the
Allowed Amount File from being hosted
on a third-party website or prevents a plan
administrator or issuer from contracting
with a third party to post the file. Howev-
er, if a plan or issuer chooses not to also
host the file separately on its own website,
it must provide a link on its own public
website to the location where the file is
made publicly available.
(c) Applicability. (1) The provisions of
this section apply for plan years beginning
on or after January 1, 2022.
(2) As provided under § 54.9815-1251,
this section does not apply to grandfa-
thered health plans. This section also does
not apply to health reimbursement ar-
rangements or other account-based group
health plans as defined in § 54.9815-
2711(d)(6) or short term limited duration
insurance as defined in § 54.9801-2.
(3) Nothing in this section alters or
otherwise affects a group health plan’s or
health insurance issuer’s duty to comply

November 30, 2020 1388 Bulletin No. 2020–49
with requirements under other applicable
state or federal laws, including those gov-
erning the accessibility, privacy, or securi-
ty of information required to be disclosed
under this section, or those governing the
ability of properly authorized representa-
tives to access participant, or beneficiary
information held by plans and issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision
to persons not similarly situated or to dis-
similar circumstances.
DEPARTMENT OF LABOR
For the reasons set forth in this pream-
ble, the Department of Labor amends 29
CFR 2590 as set forth below:
PART 2590—RULES AND
REGULATIONS FOR GROUP
HEALTH PLANS
3. The authority citation for part 2590
continues to read as follows:
Authority: 29 U.S.C. 1027, 1059,
1135, 1161-1168, 1169, 1181-1183, 1181
note, 1185, 1185a, 1185b, 1191, 1191a,
1191b, and 1191c; sec. 101(g), Pub. L.
104-191, 110 Stat. 1936; sec. 401(b), Pub.
L. 105-200, 112 Stat. 645 (42 U.S.C. 651
note); sec. 512(d), Pub. L. 110-343, 122
Stat. 3881; sec. 1001, 1201, and 1562(e),
124 Stat. 119, as amended by Pub. L. 111-
152, 124 Stat. 1029; Secretary of Labor’s
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
4. Sections 2590.715-2715A1,
2590.715-2715A2, and 2590.715-2715A3
are added to read as follows:
§ 2590.715-2715A1 Transparency in
coverage- Definitions.
(a) Scope and definitions (1) Scope.
This section sets forth definitions for
the price transparency requirements for
group health plans and health insurance
issuers offering group health insurance
coverage established in this section and
§§ 2590.715-2715A2, and 2590.715-
2715A3.
(2) Definitions. For purposes of this
section and §§ 2590.715-2715A2, and
2590.715-2715A3, the following defini-
tions apply:
(i) Accumulated amounts means:
(A) The amount of financial responsibil-
ity a participant or beneficiary has incurred
at the time a request for cost-sharing infor-
mation is made, with respect to a deduct-
ible or out-of- pocket limit. If an individual
is enrolled in other than self-only coverage,
these accumulated amounts shall include
the financial responsibility a participant or
beneficiary has incurred toward meeting
his or her individual deductible or out-of-
pocket limit, as well as the amount of finan-
cial responsibility that all the individuals
enrolled under the plan or coverage have
incurred, in aggregate, toward meeting the
other than self-only deductible or out-of-
pocket limit, as applicable. Accumulated
amounts include any expense that counts
toward a deductible or out-of-pocket lim-
it (such as a copayment or coinsurance),
but exclude any expense that does not
count toward a deductible or out-of-pock-
et limit (such as any premium payment,
out-of-pocket expense for out-of-network
services, or amount for items or services
not covered under the group health plan or
health insurance coverage); and
(B) To the extent a group health plan
or health insurance issuer imposes a cu-
mulative treatment limitation on a par-
ticular covered item or service (such as a
limit on the number of items, days, units,
visits, or hours covered in a defined time
period) independent of individual medical
necessity determinations, the amount that
has accrued toward the limit on the item
or service (such as the number of items,
days, units, visits, or hours the participant
or beneficiary, has used within that time
period).
(ii) Billed charge means the total
charges for an item or service billed to a
group health plan or health insurance issu-
er by a provider.
(iii) Billing code means the code used
by a group health plan or health insurance
issuer or provider to identify health care
items or services for purposes of billing,
adjudicating, and paying claims for a cov-
ered item or service, including the Cur-
rent Procedural Terminology (CPT) code,
Healthcare Common Procedure Coding
System (HCPCS) code, Diagnosis-Re-
lated Group (DRG) code, National Drug
Code (NDC), or other common payer
identifier.
(iv) Bundled payment arrangement
means a payment model under which a
provider is paid a single payment for all
covered items and services provided to
a participant or beneficiary for a specific
treatment or procedure.
(v) Copayment assistance means the
financial assistance a participant or bene-
ficiary receives from a prescription drug
or medical supply manufacturer towards
the purchase of a covered item or service.
(vi) Cost-sharing liability means the
amount a participant or beneficiary is re-
sponsible for paying for a covered item
or service under the terms of the group
health plan or health insurance coverage.
Cost-sharing liability generally includes
deductibles, coinsurance, and copay-
ments, but does not include premiums,
balance billing amounts by out-of-net-
work providers, or the cost of items or ser-
vices that are not covered under a group
health plan or health insurance coverage.
(vii) Cost-sharing information means
information related to any expenditure
required by or on behalf of a participant
or beneficiary with respect to health care
benefits that are relevant to a determina-

Bulletin No. 2020–49 1389 November 30, 2020
tion of the participant’s or beneficiary’s
cost-sharing liability for a particular cov-
ered item or service.
(viii) Covered items or services means
those items or services, including pre-
scription drugs, the costs for which are
payable, in whole or in part, under the
terms of a group health plan or health in-
surance coverage.
(ix) Derived amount means the price
that a group health plan or health insur-
ance issuer assigns to an item or service
for the purpose of internal accounting,
reconciliation with providers, or submit-
ting data in accordance with the require-
ments of 45 CFR 153.710(c).
(x) Historical net price means the ret-
rospective average amount a group health
plan or health insurance issuer paid for a
prescription drug, inclusive of any reason-
ably allocated rebates, discounts, charge-
backs, fees, and any additional price con-
cessions received by the plan or issuer with
respect to the prescription drug. The allo-
cation shall be determined by dollar value
for non-product specific and product-spe-
cific rebates, discounts, chargebacks, fees,
and other price concessions to the extent
that the total amount of any such price
concession is known to the group health
plan or health insurance issuer at the time
of publication of the historical net price
in a machine-readable file in accordance
with § 2590.715-2715A3. However, to
the extent that the total amount of any
non-product specific and product-specific
rebates, discounts, chargebacks, fees, or
other price concessions is not known to
the group health plan or health insurance
issuer at the time of file publication, then
the plan or issuer shall allocate such re-
bates, discounts, chargebacks, fees, and
other price concessions by using a good
faith, reasonable estimate of the average
price concessions based on the rebates,
discounts, chargebacks, fees, and other
price concessions received over a time
period prior to the current reporting pe-
riod and of equal duration to the current
reporting period, as determined under §
2590.715-2715A3 (b)(1)(iii)(D)(3).
(xi) In-network provider means any
provider of any item or service with which
a group health plan or health insurance is-
suer, or a third party for the plan or issu-
er, has a contract setting forth the terms
and conditions on which a relevant item
or service is provided to a participant or
beneficiary.
(xii) Items or services means all en-
counters, procedures, medical tests, sup-
plies, prescription drugs, durable medical
equipment, and fees (including facility
fees), provided or assessed in connection
with the provision of health care.
(xiii) Machine-readable file means a
digital representation of data or informa-
tion in a file that can be imported or read
by a computer system for further process-
ing without human intervention, while en-
suring no semantic meaning is lost.
(xiv) National Drug Code means the
unique 10- or 11-digit 3-segment num-
ber assigned by the Food and Drug Ad-
ministration, which provides a universal
product identifier for drugs in the United
States.
(xv) Negotiated rate means the amount
a group health plan or health insurance
issuer has contractually agreed to pay an
in-network provider, including an in-net-
work pharmacy or other prescription drug
dispenser, for covered items and services,
whether directly or indirectly, including
through a third-party administrator or
pharmacy benefit manager.
(xvi) Out-of-network allowed amount
means the maximum amount a group
health plan or health insurance issuer will
pay for a covered item or service furnished
by an out-of-network provider.
(xvii) Out-of-network provider means a
provider of any item or service that does
not have a contract under a participant’s or
beneficiary’s group health plan or health
insurance coverage to provide items or
services.
(xviii) Out-of-pocket limit means the
maximum amount that a participant or
beneficiary is required to pay during a
coverage period for his or her share of the
costs of covered items and services under
his or her group health plan or health in-
surance coverage, including for self-only
and other than self-only coverage, as ap-
plicable.
(xix) Plain language means written
and presented in a manner calculated to be
understood by the average participant or
beneficiary.
(xx) Prerequisite means concurrent re-
view, prior authorization, and step-thera-
py or fail-first protocols related to covered
items and services that must be satisfied
before a group health plan or health insur-
ance issuer will cover the item or service.
The term prerequisite does not include
medical necessity determinations general-
ly or other forms of medical management
techniques.
(xxi) Underlying fee schedule rate
means the rate for a covered item or ser-
vice from a particular in-network provid-
er, or providers that a group health plan or
health insurance issuer uses to determine a
participant’s or beneficiary’s cost-sharing
liability for the item or service, when that
rate is different from the negotiated rate or
derived amount.
(b) [Reserved]
§ 2590.715-2715A2 Transparency in
coverage - Required disclosures to
participants and beneficiaries.
(a) Scope and definitions. (1) Scope.
This section establishes price transparen-
cy requirements for group health plans and
health insurance issuers offering group
health insurance coverage for the timely
disclosure of information about costs re-
lated to covered items and services under
a group plan or health insurance coverage.
(2) Definitions. For purposes of this
section, the definitions in § 2590.715-
2715A1 apply.
(b) Required disclosures to partici-
pants and beneficiaries. At the request of a
participant or beneficiary who is enrolled
in a group health plan, the plan must pro-
vide to the participant or beneficiary the
information required under paragraph (b)
(1) of this section, in accordance with the
method and format requirements set forth
in paragraph (b)(2) of this section.
(1) Required cost-sharing information.
The information required under this para-
graph (b)(1) is the following cost-sharing
information, which is accurate at the time
the request is made, with respect to a par-
ticipant’s or beneficiary’s cost-sharing lia-
bility for covered items and services:
(i) An estimate of the participant’s or
beneficiary’s cost-sharing liability for a
requested covered item or service fur-
nished by a provider or providers that is
calculated based on the information de-
scribed in paragraphs (b)(1)(ii) through
(iv) of this section.
(A) If the request for cost-sharing in-
formation relates to items and services that

November 30, 2020 1390 Bulletin No. 2020–49
are provided within a bundled payment ar-
rangement, and the bundled payment ar-
rangement includes items or services that
have a separate cost-sharing liability, the
group health plan or health insurance issu-
er must provide estimates of the cost-shar-
ing liability for the requested covered item
or service, as well as an estimate of the
cost-sharing liability for each of the items
and services in the bundled payment ar-
rangement that have separate cost-sharing
liabilities. While group health plans and
health insurance issuers are not required to
provide estimates of cost-sharing liability
for a bundled payment arrangement where
the cost-sharing is imposed separately
for each item and service included in the
bundled payment arrangement, nothing
prohibits plans or issuers from providing
estimates for multiple items and services
in situations where such estimates could
be relevant to participants or beneficiaries,
as long as the plan or issuer also disclos-
es information about the relevant items or
services individually, as required in para-
graph (b)(1)(v) of this section.
(B) For requested items and services
that are recommended preventive services
under section 2713 of the Public Health
Service Act (PHS Act), if the group health
plan or health insurance issuer cannot de-
termine whether the request is for preven-
tive or non-preventive purposes, the plan
or issuer must display the cost-sharing
liability that applies for non-preventive
purposes. As an alternative, a group health
plan or health insurance issuer may al-
low a participant or beneficiary to request
cost-sharing information for the specific
preventive or non-preventive item or ser-
vice by including terms such as “preven-
tive”, “non-preventive” or “diagnostic”
as a means to request the most accurate
cost-sharing information.
(ii) Accumulated amounts;
(iii) In-network rate, comprised of the
following elements, as applicable to the
group health plan’s or health insurance is-
suer’s payment model:
(A) Negotiated rate, reflected as a dol-
lar amount, for an in-network provider or
providers for the requested covered item
or service; this rate must be disclosed even
if it is not the rate the plan or issuer uses to
calculate cost-sharing liability; and
(B) Underlying fee schedule rate,
reflected as a dollar amount, for the re-
quested covered item or service, to the
extent that it is different from the nego-
tiated rate;
(iv) Out-of-network allowed amount or
any other rate that provides a more accu-
rate estimate of an amount a group health
plan or health insurance issuer will pay for
the requested covered item or service, re-
flected as a dollar amount, if the request
for cost-sharing information is for a cov-
ered item or service furnished by an out-
of-network provider; provided, however,
that in circumstances in which a plan or
issuer reimburses an out-of-network pro-
vider a percentage of the billed charge for
a covered item or service, the out-of-net-
work allowed amount will be that percent-
age.
(v) If a participant or beneficiary re-
quests information for an item or service
subject to a bundled payment arrange-
ment, a list of the items and services in-
cluded in the bundled payment arrange-
ment for which cost-sharing information
is being disclosed.
(vi) If applicable, notification that cov-
erage of a specific item or service is sub-
ject to a prerequisite; and,
(vii) A notice that includes the follow-
ing information in plain language:
(A) A statement that out-of-network
providers may bill participants or benefi-
ciaries for the difference between a pro-
vider’s billed charges and the sum of the
amount collected from the group health
plan or health insurance issuer and from
the participant or beneficiary in the form
of a copayment or coinsurance amount
(the difference referred to as balance bill-
ing), and that the cost-sharing information
provided pursuant to this paragraph (b)
(1)(i) does not account for these potential
additional amounts. This statement is only
required if balance billing is permitted un-
der state law;
(B) A statement that the actual charges
for a participant’s or beneficiary’s covered
item or service may be different from an
estimate of cost-sharing liability provid-
ed pursuant to paragraph (b)(1)(i) of this
section, depending on the actual items or
services the participant or beneficiary re-
ceives at the point of care;
(C) A statement that the estimate of
cost-sharing liability for a covered item or
service is not a guarantee that benefits will
be provided for that item or service;
(D) A statement disclosing whether the
plan counts copayment assistance and oth-
er third-party payments in the calculation
of the participant’s or beneficiary’s de-
ductible and out-of-pocket maximum;
(E) For items and services that are rec-
ommended preventive services under sec-
tion 2713 of the PHS Act, a statement that
an in-network item or service may not be
subject to cost-sharing if it is billed as a
preventive service if the group health plan
or health insurance issuer cannot deter-
mine whether the request is for a preven-
tive or non-preventive item or service; and
(F) Any additional information, in-
cluding other disclaimers, that the group
health plan or health insurance issuer de-
termines is appropriate, provided the ad-
ditional information does not conflict with
the information required to be provided by
this paragraph (b)(1).
(2) Required methods and formats for
disclosing information to participants and
beneficiaries. The methods and formats
for the disclosure required under this para-
graph (b) are as follows:
(i) Internet-based self-service tool. In-
formation provided under this paragraph
(b) must be made available in plain lan-
guage, without subscription or other fee,
through a self-service tool on an internet
website that provides real-time responses
based on cost-sharing information that is
accurate at the time of the request. Group
health plans and health insurance issuers
must ensure that the self-service tool al-
lows users to:
(A) Search for cost-sharing informa-
tion for a covered item or service provided
by a specific in-network provider or by all
in-network providers by inputting:
(1) A billing code (such as CPT code
87804) or a descriptive term (such as “rap-
id flu test”), at the option of the user;
(2) The name of the in-network provid-
er, if the user seeks cost-sharing informa-
tion with respect to a specific in-network
provider; and
(3) Other factors utilized by the plan or
issuer that are relevant for determining the
applicable cost-sharing information (such
as location of service, facility name, or
dosage).
(B) Search for an out-of-network
allowed amount, percentage of billed
charges, or other rate that provides a rea-
sonably accurate estimate of the amount a

Bulletin No. 2020–49 1391 November 30, 2020
group health plan or health insurance is-
suer will pay for a covered item or service
provided by out-of-network providers by
inputting:
(1) A billing code or descriptive term,
at the option of the user; and
(2) Other factors utilized by the plan
or issuer that are relevant for determin-
ing the applicable out-of-network allowed
amount or other rate (such as the location
in which the covered item or service will
be sought or provided).
(C) Refine and reorder search re-
sults based on geographic proximity of
in-network providers, and the amount of
the participant’s or beneficiary’s estimat-
ed cost-sharing liability for the covered
item or service, to the extent the search
for cost-sharing information for covered
items or services returns multiple results.
(ii) Paper method. Information provid-
ed under this paragraph (b) must be made
available in plain language, without a fee,
in paper form at the request of the partici-
pant or beneficiary. In responding to such
a request, the group health plan or health
insurance issuer may limit the number of
providers with respect to which cost-shar-
ing information for covered items and ser-
vices is provided to no fewer than 20 pro-
viders per request. The group health plan
or health insurance issuer is required to:
(A) Disclose the applicable provid-
er-per-request limit to the participant or
beneficiary;
(B) Provide the cost-sharing informa-
tion in paper form pursuant to the indi-
vidual’s request, in accordance with the
requirements in paragraphs (b)(2)(i)(A)
through (C) of this section; and
(C) Mail the cost-sharing information
in paper form no later than 2 business days
after an individual’s request is received.
(D) To the extent participants or bene-
ficiaries request disclosure other than by
paper (for example, by phone or e-mail),
plans and issuers may provide the disclo-
sure through another means, provided the
participant or beneficiary agrees that dis-
closure through such means is sufficient to
satisfy the request and the request is ful-
filled at least as rapidly as required for the
paper method.
(3) Special rule to prevent unnecessary
duplication.
(i) Special rule for insured group
health plans. To the extent coverage un-
der a group health plan consists of group
health insurance coverage, the plan satis-
fies the requirements of this paragraph (b)
if the plan requires the health insurance
issuer offering the coverage to provide the
information required by this paragraph (b)
in compliance with this section pursuant
to a written agreement. Accordingly, if a
health insurance issuer and a plan spon-
sor enter into a written agreement under
which the issuer agrees to provide the in-
formation required under this paragraph
(b) in compliance with this section, and
the issuer fails to do so, then the issuer, but
not the plan, violates the transparency dis-
closure requirements of this paragraph (b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements under
this paragraph (b) by entering into a writ-
ten agreement under which another party
(such as a pharmacy benefit manager or
other third-party) provides the informa-
tion required by this paragraph (b) in com-
pliance with this section. Notwithstanding
the preceding sentence, if a group health
plan or health insurance issuer chooses to
enter into such an agreement and the party
with which it contracts fails to provide the
information in compliance with this para-
graph (b), the plan or issuer violates the
transparency disclosure requirements of
this paragraph (b).
(c) Applicability. (1) The provisions of
this section apply for plan years beginning
on or after January 1, 2023 with respect
to the 500 items and services to be posted
on a publicly available website, and with
respect to all covered items and services,
for plan years beginning on or after Janu-
ary 1, 2024.
(2) As provided under § 2590.715-
1251, this section does not apply to grand-
fathered health plans. This section also
does not apply to health reimbursement ar-
rangements or other account-based group
health plans as defined in § 2590.715-
2711(d)(6) or short term limited duration
insurance as defined in § 2590.701-2.
(3) Nothing in this section alters or
otherwise affects a group health plan’s or
health insurance issuer’s duty to comply
with requirements under other applicable
state or federal laws, including those gov-
erning the accessibility, privacy, or securi-
ty of information required to be disclosed
under this section, or those governing the
ability of properly authorized representa-
tives to access participant or beneficiary
information held by plans and issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision
to persons not similarly situated or to dis-
similar circumstances.
§ 2590.715-2715A3 Transparency in
coverage- Requirements for public
disclosure.
(a) Scope and definitions (1) Scope.
This section establishes price transparen-
cy requirements for group health plans and
health insurance issuers offering group
health insurance coverage for the timely
disclosure of information about costs re-
lated to covered items and services under
a group plan or health insurance coverage.
(2) Definitions. For purposes of this
section, the definitions in § 2590.715-
2715A1 apply.
(b) Requirements for public disclosure
of in-network provider rates for covered

November 30, 2020 1392 Bulletin No. 2020–49
items and services, out-of-network al-
lowed amounts and billed charges for
covered items and services, and negotiat-
ed rates and historical net prices for cov-
ered prescription drugs. A group health
plan or health insurance issuer must make
available on an internet website the infor-
mation required under paragraph (b)(1)
of this section in three machine-readable
files, in accordance with the method and
format requirements described in para-
graph (b)(2) of this section, and that are
updated as required under paragraph (b)
(3) of this section.
(1) Required information. Ma-
chine-readable files required under this
paragraph (b) that are made available to
the public by a group health plan or health
insurance issuer must include:
(i) An in-network rate machine-read-
able file that includes the required infor-
mation under this paragraph (b)(1)(i) for
all covered items and services, except for
prescription drugs that are subject to a fee-
for-service reimbursement arrangement,
which must be reported in the prescrip-
tion drug machine-readable file pursuant
to paragraph (b)(1)(iii) of this section.
The in-network rate machine-readable file
must include:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit Health
Insurance Oversight System (HIOS) iden-
tifier, or, if the 14-digit HIOS identifier is
not available, the 5-digit HIOS identifier,
or if no HIOS identifier is available, the
Employer Identification Number (EIN);
(B) A billing code, which in the case of
prescription drugs must be an NDC, and a
plain language description for each billing
code for each covered item or service un-
der each coverage option offered by a plan
or issuer; and
(C) All applicable rates, which may in-
clude one or more of the following: nego-
tiated rates, underlying fee schedule rates,
or derived amounts. If a group health plan
or health insurance issuer does not use
negotiated rates for provider reimburse-
ment, then the plan or issuer should dis-
close derived amounts to the extent these
amounts are already calculated in the nor-
mal course of business. If the group health
plan or health insurance issuer uses un-
derlying fee schedule rates for calculating
cost sharing, then the plan or issuer should
include the underlying fee schedule rates
in addition to the negotiated rate or de-
rived amount. Applicable rates, including
for both individual items and services and
items and services in a bundled payment
arrangement, must be:
(1) Reflected as dollar amounts, with
respect to each covered item or service
that is furnished by an in-network pro-
vider. If the negotiated rate is subject to
change based upon participant or benefi-
ciary-specific characteristics, these dollar
amounts should be reflected as the base
negotiated rate applicable to the item or
service prior to adjustments for partici-
pant or beneficiary-specific characteris-
tics;
(2) Associated with the National Pro-
vider Identifier (NPI), Tax Identification
Number (TIN), and Place of Service Code
for each in-network provider;
(3) Associated with the last date of the
contract term or expiration date for each
provider-specific applicable rate that ap-
plies to each covered item or service; and
(4) Indicated with a notation where a
reimbursement arrangement other than a
standard fee-for-service model (such as
capitation or a bundled payment arrange-
ment) applies.
(ii) An out-of-network allowed amount
machine-readable file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) A billing code, which in the case of
prescription drugs must be an NDC, and
a plain language description for each bill-
ing code for each covered item or service
under each coverage option offered by a
plan or issuer;
(C) Unique out-of-network allowed
amounts and billed charges with respect
to covered items or services furnished
by out-of-network providers during the
90-day time period that begins 180 days
prior to the publication date of the ma-
chine-readable file (except that a group
health plan or health insurance issuer
must omit such data in relation to a par-
ticular item or service and provider when
compliance with this paragraph (b)(1)(ii)
(C) would require the plan or issuer to re-
port payment of out-of-network allowed
amounts in connection with fewer than
20 different claims for payments under a
single plan or coverage). Consistent with
paragraph (c)(3) of this section, nothing
in this paragraph (b)(1)(ii)(C) requires
the disclosure of information that would
violate any applicable health information
privacy law. Each unique out-of-network
allowed amount must be:
(1) Reflected as a dollar amount, with
respect to each covered item or service
that is furnished by an out-of-network
provider; and
(2) Associated with the NPI, TIN, and
Place of Service Code for each out-of-net-
work provider.
(iii) A prescription drug machine-read-
able file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) The NDC, and the proprietary and
nonproprietary name assigned to the NDC
by the Food and Drug Administration
(FDA), for each covered item or service
under each coverage option offered by a
plan or issuer that is a prescription drug;
(C) The negotiated rates which must
be:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-
macy or other prescription drug dispenser;
and
(3) Associated with the last date of the
contract term for each provider-specific
negotiated rate that applies to each NDC;
and
(D) Historical net prices that are:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-

Bulletin No. 2020–49 1393 November 30, 2020
macy or other prescription drug dispenser;
and
(3) Associated with the 90-day time
period that begins 180 days prior to the
publication date of the machine-readable
file for each provider-specific historical
net price that applies to each NDC (ex-
cept that a group health plan or health
insurance issuer must omit such data in
relation to a particular NDC and provider
when compliance with this paragraph (b)
(1)(iii)(D) would require the plan or issuer
to report payment of historical net pric-
es calculated using fewer than 20 differ-
ent claims for payment). Consistent with
paragraph (c)(3) of this section, nothing
in this paragraph (b)(1)(iii)(D) requires
the disclosure of information that would
violate any applicable health information
privacy law.
(2) Required method and format for
disclosing information to the public. The
machine-readable files described in this
paragraph (b) must be available in a form
and manner as specified in guidance is-
sued by the Department of the Treasury,
the Department of Labor, and the Depart-
ment of Health and Human Services. The
machine-readable files must be publicly
available and accessible to any person free
of charge and without conditions, such
as establishment of a user account, pass-
word, or other credentials, or submission
of personally identifiable information to
access the file.
(3) Timing. A group health plan or
health insurance issuer must update the
machine-readable files and information
required by this paragraph (b) monthly.
The group health plan or health insurance
issuer must clearly indicate the date that
the files were most recently updated.
(4) Special rules to prevent unneces-
sary duplication—
(i) Special rule for insured group
health plans. To the extent coverage un-
der a group health plan consists of group
health insurance coverage, the plan sat-
isfies the requirements of this paragraph
(b) if the plan requires the health insur-
ance issuer offering the coverage to pro-
vide the information pursuant to a written
agreement. Accordingly, if a health insur-
ance issuer and a group health plan spon-
sor enter into a written agreement under
which the issuer agrees to provide the in-
formation required under this paragraph
(b) in compliance with this section, and
the issuer fails to do so, then the issuer,
but not the plan, violates the transparency
disclosure requirements of this paragraph
(b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements un-
der this paragraph (b) by entering into a
written agreement under which another
party (such as a third-party administra-
tor or health care claims clearinghouse)
will provide the information required by
this paragraph (b) in compliance with this
section. Notwithstanding the preceding
sentence, if a group health plan or health
insurance issuer chooses to enter into such
an agreement and the party with which it
contracts fails to provide the information
in compliance with this paragraph (b), the
plan or issuer violates the transparency
disclosure requirements of this paragraph
(b).
(iii) Aggregation permitted for out-
of-network allowed amounts. Nothing in
this section prohibits a group health plan
or health insurance issuer from satisfying
the disclosure requirement described in
paragraph (b)(1)(ii) of this section by dis-
closing out-of-network allowed amounts
made available by, or otherwise obtained
from, an issuer, a service provider, or
other party with which the plan or issu-
er has entered into a written agreement
to provide the information, provided the
minimum claim threshold described in
paragraph (b)(1)(ii)(C) of this section is
independently met for each item or ser-
vice and for each plan or coverage in-
cluded in an aggregated Allowed Amount
File. Under such circumstances, health
insurance issuers, service providers, or
other parties with which the group health
plan or issuer has contracted may aggre-
gate out-of-network allowed amounts for
more than one plan or insurance policy
or contract. Additionally, nothing in this
section prevents the Allowed Amount
File from being hosted on a third-party
website or prevents a plan administrator
or issuer from contracting with a third
party to post the file. However, if a plan
or issuer chooses not to also host the file
separately on its own website, it must
provide a link on its own public website
to the location where the file is made
publicly available.
(c) Applicability. (1) The provisions of
this section apply for plan years beginning
on or after January 1, 2022.
(2) As provided under § 2590.715-
1251, this section does not apply to grand-
fathered health plans. This section also
does not apply to health reimbursement ar-
rangements or other account-based group
health plans as defined in § 2590.715-
2711(d)(6) or short term limited duration
insurance as defined in § 2590.701-2.
(3) Nothing in this section alters or
otherwise affects a group health plan’s
or health insurance issuer’s duty to com-
ply with requirements under other ap-
plicable state or federal laws, including
those governing the accessibility, priva-
cy, or security of information required to
be disclosed under this section, or those
governing the ability of properly autho-
rized representatives to access partici-
pant, or beneficiary information held by
plans and issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision

November 30, 2020 1394 Bulletin No. 2020–49
to persons not similarly situated or to dis-
similar circumstances.
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
For the reasons set forth in this pream-
ble, the Department of Health and Human
Services proposes to amend 45 CFR parts
147 and 158 as set forth below:
PART 147—HEALTH INSURANCE
REFORM REQUIREMENTS FOR
THE GROUP AND INDIVIDUAL
HEALTH INSURANCE MARKETS
5. The authority citation for part 147
continues to read as follows:
Authority: 42 U.S.C. 300gg through
300gg-63, 300gg-91, and 300gg-92, as
amended.
6. Sections 147.210, 147.211 and
147.212 are added to read as follows:
§ 147.210 Transparency in coverage -
Definitions.
(a) Scope and definitions—(1) Scope.
This section sets forth definitions for the
price transparency requirements for group
health plans and health insurance issuers
in the individual and group markets estab-
lished in this section and §§ 147.211, and
147.212.
(2) Definitions. For purposes of this
section and §§ 147.211 and 147.212, the
following definitions apply:
(i) Accumulated amounts means:
(A) The amount of financial responsi-
bility a participant, beneficiary, or enroll-
ee has incurred at the time a request for
cost-sharing information is made, with
respect to a deductible or out-of-pocket
limit. If an individual is enrolled in other
than self-only coverage, these accumu-
lated amounts shall include the financial
responsibility a participant, beneficiary,
or enrollee has incurred toward meeting
his or her individual deductible or out-
of-pocket limit, as well as the amount of
financial responsibility that all the indi-
viduals enrolled under the plan or cover-
age have incurred, in aggregate, toward
meeting the other than self-only deduct-
ible or out-of-pocket limit, as applicable.
Accumulated amounts include any ex-
pense that counts toward a deductible or
out-of-pocket limit (such as a copayment
or coinsurance), but exclude any expense
that does not count toward a deductible or
out-of-pocket limit (such as any premium
payment, out-of-pocket expense for out-
of-network services, or amount for items
or services not covered under the group
health plan or health insurance coverage);
and
(B) To the extent a group health plan
or health insurance issuer imposes a cu-
mulative treatment limitation on a par-
ticular covered item or service (such as a
limit on the number of items, days, units,
visits, or hours covered in a defined time
period) independent of individual medical
necessity determinations, the amount that
has accrued toward the limit on the item
or service (such as the number of items,
days, units, visits, or hours the participant,
beneficiary, or enrollee has used within
that time period).
(ii) Billed charge means the total
charges for an item or service billed to a
group health plan or health insurance issu-
er by a provider.
(iii) Billing code means the code used
by a group health plan or health insurance
issuer or provider to identify health care
items or services for purposes of billing,
adjudicating, and paying claims for a cov-
ered item or service, including the Cur-
rent Procedural Terminology (CPT) code,
Healthcare Common Procedure Coding
System (HCPCS) code, Diagnosis-Re-
lated Group (DRG) code, National Drug
Code (NDC), or other common payer
identifier.
(iv) Bundled payment arrangement
means a payment model under which a
provider is paid a single payment for all
covered items and services provided to a
participant, beneficiary, or enrollee for a
specific treatment or procedure.
(v) Copayment assistance means the
financial assistance a participant, benefi-
ciary, or enrollee receives from a prescrip-
tion drug or medical supply manufacturer
towards the purchase of a covered item or
service.
(vi) Cost-sharing liability means the
amount a participant, beneficiary, or en-
rollee is responsible for paying for a cov-
ered item or service under the terms of
the group health plan or health insurance
coverage. Cost-sharing liability generally
includes deductibles, coinsurance, and co-
payments, but does not include premiums,
balance billing amounts by out-of-net-
work providers, or the cost of items or ser-
vices that are not covered under a group
health plan or health insurance coverage.
(vii) Cost-sharing information means
information related to any expenditure
required by or on behalf of a participant,
beneficiary, or enrollee with respect to
health care benefits that are relevant to a
determination of the participant’s, benefi-
ciary’s, or enrollee’s cost-sharing liability
for a particular covered item or service.
(viii) Covered items or services means
those items or services, including pre-
scription drugs, the costs for which are
payable, in whole or in part, under the
terms of a group health plan or health in-
surance coverage.
(ix) Derived amount means the price
that a group health plan or health insur-
ance issuer assigns to an item or service
for the purpose of internal accounting,
reconciliation with providers or submit-
ting data in accordance with the require-
ments of §153.710(c) of this subchapter.
(x) Enrollee means an individual who
is covered under an individual health in-
surance policy as defined under section
2791(b)(5) of the Public Health Service
(PHS) Act.
(xi) Historical net price means the
retrospective average amount a group
health plan or health insurance issuer paid
for a prescription drug, inclusive of any
reasonably allocated rebates, discounts,
chargebacks, fees, and any additional
price concessions received by the plan
or issuer with respect to the prescription
drug. The allocation shall be determined
by dollar value for non-product specific
and product-specific rebates, discounts,
chargebacks, fees, and other price conces-
sions to the extent that the total amount
of any such price concession is known to
the group health plan or health insurance
issuer at the time of publication of the his-
torical net price in a machine-readable file
in accordance with § 147.212. However,
to the extent that the total amount of any
non-product specific and product-specific
rebates, discounts, chargebacks, fees, or
other price concessions is not known to
the group health plan or health insurance
issuer at the time of file publication, then
the plan or issuer shall allocate such re-
bates, discounts, chargebacks, fees, and

Bulletin No. 2020–49 1395 November 30, 2020
other price concessions by using a good
faith, reasonable estimate of the average
price concessions based on the rebates,
discounts, chargebacks, fees, and other
price concessions received over a time
period prior to the current reporting pe-
riod and of equal duration to the current
reporting period, as determined under §
147.212(b)(1)(iii)(D)(3).
(xii) In-network provider means any
provider of any item or service with which
a group health plan or health insurance is-
suer, or a third party for the plan or issuer,
has a contract setting forth the terms and
conditions on which a relevant item or ser-
vice is provided to a participant, beneficia-
ry, or enrollee.
(xiii) Items or services means all en-
counters, procedures, medical tests, sup-
plies, prescription drugs, durable medical
equipment, and fees (including facility
fees), provided or assessed in connection
with the provision of health care.
(xiv) Machine-readable file means a
digital representation of data or informa-
tion in a file that can be imported or read
by a computer system for further process-
ing without human intervention, while en-
suring no semantic meaning is lost.
(xv) National Drug Code means the
unique 10- or 11-digit 3-segment num-
ber assigned by the Food and Drug Ad-
ministration, which provides a universal
product identifier for drugs in the United
States.
(xvi) Negotiated rate means the amount
a group health plan or health insurance
issuer has contractually agreed to pay an
in-network provider, including an in-net-
work pharmacy or other prescription drug
dispenser, for covered items and services,
whether directly or indirectly, including
through a third-party administrator or
pharmacy benefit manager.
(xvii) Out-of-network allowed amount
means the maximum amount a group
health plan or health insurance issuer will
pay for a covered item or service furnished
by an out-of-network provider.
(xviii) Out-of-network provider means
a provider of any item or service that does
not have a contract under a participant’s,
beneficiary’s, or enrollee’s group health
plan or health insurance coverage to pro-
vide items or services.
(xix) Out-of-pocket limit means the
maximum amount that a participant, ben-
eficiary, or enrollee is required to pay
during a coverage period for his or her
share of the costs of covered items and
services under his or her group health plan
or health insurance coverage, including
for self-only and other than self-only cov-
erage, as applicable.
(xx) Plain language means written and
presented in a manner calculated to be un-
derstood by the average participant, bene-
ficiary, or enrollee.
(xxi) Prerequisite means concurrent re-
view, prior authorization, and step-thera-
py or fail-first protocols related to covered
items and services that must be satisfied
before a group health plan or health insur-
ance issuer will cover the item or service.
The term prerequisite does not include
medical necessity determinations general-
ly or other forms of medical management
techniques.
(xxii) Underlying fee schedule rate
means the rate for a covered item or ser-
vice from a particular in-network provid-
er, or providers that a group health plan or
health insurance issuer uses to determine
a participant’s, beneficiary’s, or enrollee’s
cost-sharing liability for the item or ser-
vice, when that rate is different from the
negotiated rate or derived amount.
(b) [Reserved]
§ 147.211 Transparency in coverage -
Required disclosures to participants,
beneficiaries, or enrollees.
(a) Scope and definitions. (1) Scope.
This section establishes price trans-
parency requirements for group health
plans and health insurance issuers in
the individual and group markets for the
timely disclosure of information about
costs related to covered items and ser-
vices under a plan or health insurance
coverage.
(2) Definitions. For purposes of this
section, the definitions in § 147.210 apply.
(b) Required disclosures to partici-
pants, beneficiaries, or enrollees. At the
request of a participant, beneficiary, or
enrollee who is enrolled in a group health
plan or health insurance issuer offering
group or individual health insurance cov-
erage, the plan or issuer must provide to
the participant, beneficiary, or enrollee the
information required under paragraph (b)
(1) of this section, in accordance with the
method and format requirements set forth
in paragraph (b)(2) of this section.
(1) Required cost-sharing information.
The information required under this para-
graph (b)(1) is the following cost-shar-
ing information, which is accurate at the
time the request is made, with respect to
a participant’s, beneficiary’s, or enrollee’s
cost-sharing liability for covered items
and services:
(i) An estimate of the participant’s,
beneficiary’s, or enrollee’s cost-sharing
liability for a requested covered item or
service furnished by a provider or provid-
ers, which must reflect any cost-sharing
reductions the enrollee would receive,
that is calculated based on the information
described in paragraphs (b)(1)(ii) through
(iv) of this section.
(A) If the request for cost-sharing in-
formation relates to items and services that
are provided within a bundled payment ar-
rangement, and the bundled payment ar-
rangement includes items or services that
have a separate cost-sharing liability, the
group health plan or health insurance issu-
er must provide estimates of the cost-shar-
ing liability for the requested covered item
or service, as well as an estimate of the
cost-sharing liability for each of the items
and services in the bundled payment ar-
rangement that have separate cost-sharing
liabilities. While group health plans and
health insurance issuers are not required to
provide estimates of cost-sharing liability
for a bundled payment arrangement where
the cost-sharing is imposed separately
for each item and service included in the
bundled payment arrangement, nothing
prohibits plans or issuers from providing
estimates for multiple items and services
in situations where such estimates could
be relevant to participants or beneficiaries,
as long as the plan or issuer also disclos-
es information about the relevant items or
services individually, as required in para-
graph (b)(1)(v) of this section.
(B) For requested items and services
that are recommended preventive services
under section 2713 of the Public Health
Service Act (PHS Act), if the group health
plan or health insurance issuer cannot
determine whether the request is for pre-
ventive or non-preventive purposes, the
plan or issuer must display the cost-shar-
ing liability that applies for non-preven-
tive purposes. As an alternative, a group

November 30, 2020 1396 Bulletin No. 2020–49
health plan or health insurance issuer may
allow a participant, beneficiary, or enroll-
ee to request cost-sharing information for
the specific preventive or non-preventive
item or service by including terms such
as “preventive”, “non-preventive” or “di-
agnostic” as a means to request the most
accurate cost-sharing information.
(ii) Accumulated amounts;
(iii) In-network rate, comprised of the
following elements, as applicable to the
group health plan’s or health insurance is-
suer’s payment model:
(A) Negotiated rate, reflected as a dol-
lar amount, for an in-network provider or
providers for the requested covered item
or service; this rate must be disclosed even
if it is not the rate the plan or issuer uses to
calculate cost-sharing liability; and
(B) Underlying fee schedule rate, re-
flected as a dollar amount, for the request-
ed covered item or service, to the extent
that it is different from the negotiated rate;
(iv) Out-of-network allowed amount or
any other rate that provides a more accu-
rate estimate of an amount a group health
plan or health insurance issuer will pay for
the requested covered item or service, re-
flected as a dollar amount, if the request
for cost-sharing information is for a cov-
ered item or service furnished by an out-
of-network provider; provided, however,
that in circumstances in which a plan or
issuer reimburses an out-of-network pro-
vider a percentage of the billed charge for
a covered item or service, the out-of-net-
work allowed amount will be that percent-
age.
(v) If a participant, beneficiary, or en-
rollee requests information for an item or
service subject to a bundled payment ar-
rangement, a list of the items and services
included in the bundled payment arrange-
ment for which cost-sharing information
is being disclosed.
(vi) If applicable, notification that cov-
erage of a specific item or service is sub-
ject to a prerequisite; and,
(vii) A notice that includes the follow-
ing information in plain language:
(A) A statement that out-of-network
providers may bill participants, benefi-
ciaries, or enrollees for the difference
between a provider’s billed charges and
the sum of the amount collected from the
group health plan or health insurance is-
suer and from the participant, beneficiary,
or enrollee in the form of a copayment
or coinsurance amount (the difference
referred to as balance billing), and that
the cost-sharing information provided
pursuant to this paragraph (b)(1)(i) does
not account for these potential additional
amounts. This statement is only required
if balance billing is permitted under state
law;
(B) A statement that the actual charges
for a participant’s, beneficiary’s, or enroll-
ee’s covered item or service may be differ-
ent from an estimate of cost-sharing liabil-
ity provided pursuant to paragraph (b)(1)
(i) of this section, depending on the actual
items or services the participant, benefi-
ciary, or enrollee receives at the point of
care;
(C) A statement that the estimate of
cost-sharing liability for a covered item or
service is not a guarantee that benefits will
be provided for that item or service;
(D) A statement disclosing whether
the plan counts copayment assistance and
other third-party payments in the calcula-
tion of the participant’s, beneficiary’s, or
enrollee’s deductible and out-of-pocket
maximum;
(E) For items and services that are rec-
ommended preventive services under sec-
tion 2713 of the PHS Act, a statement that
an in-network item or service may not be
subject to cost-sharing if it is billed as a
preventive service if the group health plan
or health insurance issuer cannot deter-
mine whether the request is for a preven-
tive or non-preventive item or service; and
(F) Any additional information, in-
cluding other disclaimers, that the group
health plan or health insurance issuer de-
termines is appropriate, provided the ad-
ditional information does not conflict with
the information required to be provided by
this paragraph (b)(1).
(2) Required methods and formats for
disclosing information to participants,
beneficiaries, or enrollees. The methods
and formats for the disclosure required
under this paragraph (b) are as follows:
(i) Internet-based self-service tool. In-
formation provided under this paragraph
(b) must be made available in plain lan-
guage, without subscription or other fee,
through a self-service tool on an internet
website that provides real-time responses
based on cost-sharing information that is
accurate at the time of the request. Group
health plans and health insurance issuers
must ensure that the self-service tool al-
lows users to:
(A) Search for cost-sharing informa-
tion for a covered item or service provided
by a specific in-network provider or by all
in-network providers by inputting:
(1) A billing code (such as CPT code
87804) or a descriptive term (such as “rap-
id flu test”), at the option of the user;
(2) The name of the in-network provid-
er, if the user seeks cost-sharing informa-
tion with respect to a specific in-network
provider; and
(3) Other factors utilized by the plan or
issuer that are relevant for determining the
applicable cost-sharing information (such
as location of service, facility name, or
dosage).
(B) Search for an out-of-network
allowed amount, percentage of billed
charges, or other rate that provides a rea-
sonably accurate estimate of the amount a
group health plan or health insurance is-
suer will pay for a covered item or service
provided by out-of-network providers by
inputting:
(1) A billing code or descriptive term,
at the option of the user; and
(2) Other factors utilized by the plan
or issuer that are relevant for determin-
ing the applicable out-of-network allowed
amount or other rate (such as the location
in which the covered item or service will
be sought or provided).
(C) Refine and reorder search results
based on geographic proximity of in-net-
work providers, and the amount of the
participant’s, beneficiary’s, or enrollee’s
estimated cost-sharing liability for the
covered item or service, to the extent the
search for cost-sharing information for
covered items or services returns multiple
results.
(ii) Paper method. Information provid-
ed under this paragraph (b) must be made
available in plain language, without a fee,
in paper form at the request of the partici-
pant, beneficiary, or enrollee. In respond-
ing to such a request, the group health
plan or health insurance issuer may limit
the number of providers with respect to
which cost-sharing information for cov-
ered items and services is provided to no
fewer than 20 providers per request. The
group health plan or health insurance issu-
er is required to:

Bulletin No. 2020–49 1397 November 30, 2020
(A) Disclose the applicable provid-
er-per-request limit to the participant, ben-
eficiary, or enrollee;
(B) Provide the cost-sharing informa-
tion in paper form pursuant to the indi-
vidual’s request, in accordance with the
requirements in paragraphs (b)(2)(i)(A)
through (C) of this section; and
(C) Mail the cost-sharing information
in paper form no later than 2 business days
after an individual’s request is received.
(D) To the extent participants, benefi-
ciaries, and enrollees request disclosure
other than by paper (for example, by
phone or e-mail), plans and issuers may
provide the disclosure through another
means, provided the participant, benefi-
ciary, or enrollee agrees that disclosure
through such means is sufficient to satisfy
the request and the request is fulfilled at
least as rapidly as required for the paper
method.
(3) Special rule to prevent unnecessary
duplication. (i) Special rule for insured
group health plans. To the extent cover-
age under a group health plan consists of
group health insurance coverage, the plan
satisfies the requirements of this para-
graph (b) if the plan requires the health
insurance issuer offering the coverage to
provide the information required by this
paragraph (b) in compliance with this
section pursuant to a written agreement.
Accordingly, if a health insurance issuer
and a plan sponsor enter into a written
agreement under which the issuer agrees
to provide the information required under
this paragraph (b) in compliance with this
section, and the issuer fails to do so, then
the issuer, but not the plan, violates the
transparency disclosure requirements of
this paragraph (b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements under
this paragraph (b) by entering into a writ-
ten agreement under which another party
(such as a pharmacy benefit manager or
other third-party) provides the informa-
tion required by this paragraph (b) in com-
pliance with this section. Notwithstanding
the preceding sentence, if a group health
plan or health insurance issuer chooses to
enter into such an agreement and the party
with which it contracts fails to provide the
information in compliance with this para-
graph (b), the plan or issuer violates the
transparency disclosure requirements of
this paragraph (b).
(c) Applicability. (1) The provisions of
this section apply for plan years (in the
individual market, for policy years) be-
ginning on or after January 1, 2023 with
respect to the 500 items and services to
be posted on a publicly available website,
and with respect to all covered items and
services, for plan years (in the individual
market, for policy years) beginning on or
after January 1, 2024.
(2) As provided under §147.140, this
section does not apply to grandfathered
health plans. This section also does not ap-
ply to health reimbursement arrangements
or other account-based group health plans
as defined in § 147.126(d)(6) or short term
limited duration insurance as defined in 45
CFR 144.103.
(3) Nothing in this section alters or
otherwise affects a group health plan’s or
health insurance issuer’s duty to comply
with requirements under other applicable
state or federal laws, including those gov-
erning the accessibility, privacy, or securi-
ty of information required to be disclosed
under this section, or those governing the
ability of properly authorized represen-
tatives to access participant, beneficiary,
or enrollee information held by plans and
issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision
to persons not similarly situated or to dis-
similar circumstances.
§ 147.212 Transparency in coverage-
Requirements for public disclosure.
(a) Scope and definitions—(1) Scope.
This section establishes price transparen-
cy requirements for group health plans
and health insurance issuers in the indi-
vidual and group markets for the timely
disclosure of information about costs re-
lated to covered items and services under
a plan or health insurance coverage.
(2) Definitions. For purposes of this
section, the definitions in § 147.210 apply.
(b) Requirements for public disclosure
of in-network provider rates for covered
items and services, out-of-network al-
lowed amounts and billed charges for
covered items and services, and negotiat-
ed rates and historical net prices for cov-
ered prescription drugs. A group health
plan or health insurance issuer must make
available on an internet website the infor-
mation required under paragraph (b)(1)
of this section in three machine-readable
files, in accordance with the method and
format requirements described in para-
graph (b)(2) of this section, and that are
updated as required under paragraph (b)
(3) of this section.
(1) Required information. Ma-
chine-readable files required under this
paragraph (b) that are made available to
the public by a group health plan or health
insurance issuer must include:
(i) An in-network rate machine-read-
able file that includes the required infor-
mation under this paragraph (b)(1)(i) for
all covered items and services, except for
prescription drugs that are subject to a fee-
for-service reimbursement arrangement,
which must be reported in the prescrip-
tion drug machine-readable file pursuant
to paragraph (b)(1)(iii) of this section.
The in-network rate machine-readable file
must include:

November 30, 2020 1398 Bulletin No. 2020–49
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit Health
Insurance Oversight System (HIOS) iden-
tifier, or, if the 14-digit HIOS identifier is
not available, the 5-digit HIOS identifier,
or if no HIOS identifier is available, the
Employer Identification Number (EIN);
(B) A billing code, which in the case of
prescription drugs must be an NDC, and a
plain language description for each billing
code for each covered item or service un-
der each coverage option offered by a plan
or issuer; and
(C) All applicable rates, which may in-
clude one or more of the following: nego-
tiated rates, underlying fee schedule rates,
or derived amounts. If a group health plan
or health insurance issuer does not use
negotiated rates for provider reimburse-
ment, then the plan or issuer should dis-
close derived amounts to the extent these
amounts are already calculated in the nor-
mal course of business. If the group health
plan or health insurance issuer uses un-
derlying fee schedule rates for calculating
cost sharing, then the plan or issuer should
include the underlying fee schedule rates
in addition to the negotiated rate or de-
rived amount. Applicable rates, including
for both individual items and services and
items and services in a bundled payment
arrangement, must be:
(1) Reflected as dollar amounts, with
respect to each covered item or service
that is furnished by an in-network pro-
vider. If the negotiated rate is subject to
change based upon participant, benefi-
ciary, or enrollee-specific characteristics,
these dollar amounts should be reflected
as the base negotiated rate applicable to
the item or service prior to adjustments for
participant, beneficiary, or enrollee-spe-
cific characteristics;
(2) Associated with the National Pro-
vider Identifier (NPI), Tax Identification
Number (TIN), and Place of Service Code
for each in-network provider;
(3) Associated with the last date of the
contract term or expiration date for each
provider-specific applicable rate that ap-
plies to each covered item or service; and
(4) Indicated with a notation where a
reimbursement arrangement other than a
standard fee-for-service model (such as
capitation or a bundled payment arrange-
ment) applies.
(ii) An out-of-network allowed amount
machine-readable file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) A billing code, which in the case of
prescription drugs must be an NDC, and
a plain language description for each bill-
ing code for each covered item or service
under each coverage option offered by a
plan or issuer;
(C) Unique out-of-network allowed
amounts and billed charges with respect
to covered items or services furnished
by out-of-network providers during the
90-day time period that begins 180 days
prior to the publication date of the ma-
chine-readable file (except that a group
health plan or health insurance issuer
must omit such data in relation to a par-
ticular item or service and provider when
compliance with this paragraph (b)(1)(ii)
(C) would require the plan or issuer to re-
port payment of out-of-network allowed
amounts in connection with fewer than
20 different claims for payments under a
single plan or coverage). Consistent with
paragraph (c)(3) of this section, nothing
in this paragraph (b)(1)(ii)(C) requires
the disclosure of information that would
violate any applicable health information
privacy law. Each unique out-of-network
allowed amount must be:
(1) Reflected as a dollar amount, with
respect to each covered item or service
that is furnished by an out-of-network
provider; and
(2) Associated with the NPI, TIN, and
Place of Service Code for each out-of-net-
work provider.
(iii) A prescription drug machine-read-
able file, including:
(A) For each coverage option offered
by a group health plan or health insurance
issuer, the name and the 14-digit HIOS
identifier, or, if the 14-digit HIOS identifi-
er is not available, the 5-digit HIOS iden-
tifier, or, if no HIOS identifier is available,
the EIN;
(B) The NDC, and the proprietary and
nonproprietary name assigned to the NDC
by the Food and Drug Administration
(FDA), for each covered item or service
that is a prescription drug under each cov-
erage option offered by a plan or issuer;
(C) The negotiated rates which must
be:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-
macy or other prescription drug dispenser;
and
(3) Associated with the last date of the
contract term for each provider-specific
negotiated rate that applies to each NDC;
and
(D) Historical net prices that are:
(1) Reflected as a dollar amount, with
respect to each NDC that is furnished
by an in-network provider, including an
in-network pharmacy or other prescription
drug dispenser;
(2) Associated with the NPI, TIN, and
Place of Service Code for each in-network
provider, including each in-network phar-
macy or other prescription drug dispenser;
and
(3) Associated with the 90-day time
period that begins 180 days prior to the
publication date of the machine-readable
file for each provider-specific historical
net price that applies to each NDC (ex-
cept that a group health plan or health
insurance issuer must omit such data in
relation to a particular NDC and provider
when compliance with this paragraph (b)
(1)(iii)(D) would require the plan or issuer
to report payment of historical net pric-
es calculated using fewer than 20 differ-
ent claims for payment). Consistent with
paragraph (b)(3) of this section, nothing
in this paragraph (b)(1)(iii)(D) requires
the disclosure of information that would
violate any applicable health information
privacy law.
(2) Required method and format for
disclosing information to the public. The
machine-readable files described in this
paragraph (b) must be available in a form
and manner as specified in guidance is-
sued by the Department of the Treasury,
the Department of Labor, and the Depart-
ment of Health and Human Services. The
machine-readable files must be publicly
available and accessible to any person free

Bulletin No. 2020–49 1399 November 30, 2020
of charge and without conditions, such
as establishment of a user account, pass-
word, or other credentials, or submission
of personally identifiable information to
access the file.
(3) Timing. A group health plan or
health insurance issuer must update the
machine-readable files and information
required by this paragraph (b) monthly.
The group health plan or health insurance
issuer must clearly indicate the date that
the files were most recently updated.
(4) Special rules to prevent unnec-
essary duplication—(i) Special rule for
insured group health plans. To the ex-
tent coverage under a group health plan
consists of group health insurance cov-
erage, the plan satisfies the requirements
of this paragraph (b) if the plan requires
the health insurance issuer offering the
coverage to provide the information pur-
suant to a written agreement. Accordingly,
if a health insurance issuer and a group
health plan sponsor enter into a written
agreement under which the issuer agrees
to provide the information required under
this paragraph (b) in compliance with this
section, and the issuer fails to do so, then
the issuer, but not the plan, violates the
transparency disclosure requirements of
this paragraph (b).
(ii) Other contractual arrangements.
A group health plan or health insurance
issuer may satisfy the requirements un-
der this paragraph (b) by entering into a
written agreement under which another
party (such as a third-party administra-
tor or health care claims clearinghouse)
will provide the information required by
this paragraph (b) in compliance with this
section. Notwithstanding the preceding
sentence, if a group health plan or health
insurance issuer chooses to enter into such
an agreement and the party with which it
contracts fails to provide the information
in compliance with this paragraph (b), the
plan or issuer violates the transparency
disclosure requirements of this paragraph
(b).
(iii) Aggregation permitted for out-
of-network allowed amounts. Nothing in
this section prohibits a group health plan
or health insurance issuer from satisfying
the disclosure requirement described in
paragraph (b)(1)(ii) of this section by dis-
closing out-of-network allowed amounts
made available by, or otherwise obtained
from, an issuer, a service provider, or other
party with which the plan or issuer has en-
tered into a written agreement to provide
the information, provided the minimum
claim threshold described in paragraph (b)
(1)(ii)(C) of this section is independently
met for each item or service and for each
plan or coverage included in an aggre-
gated Allowed Amount File. Under such
circumstances , health insurance issuers,
service providers, or other parties with
which the group health plan or issuer has
contracted may aggregate out-of-network
allowed amounts for more than one plan
or insurance policy or contract. Addition-
ally, nothing in this section prevents the
Allowed Amount File from being hosted
on a third-party website or prevents a plan
administrator or issuer from contracting
with a third party to post the file. Howev-
er, if a plan or issuer chooses not to also
host the file separately on its own website,
it must provide a link on its own public
website to the location where the file is
made publicly available.
(c) Applicability. (1) The provisions of
this section apply for plan years (in the in-
dividual market, for policy years) begin-
ning on or after January 1, 2022.
(2) As provided under § 147.140, this
section does not apply to grandfathered
health plans. This section also does not ap-
ply to health reimbursement arrangements
or other account-based group health plans
as defined in § 147.126(d)(6) or short term
limited duration insurance as defined in §
144.103.
(3) Nothing in this section alters or
otherwise affects a group health plan’s or
health insurance issuer’s duty to comply
with requirements under other applicable
state or federal laws, including those gov-
erning the accessibility, privacy, or securi-
ty of information required to be disclosed
under this section, or those governing the
ability of properly authorized representa-
tives to access participant, or beneficiary
information held by plans and issuers.
(4) A group health plan or health insur-
ance issuer will not fail to comply with
this section solely because it, acting in
good faith and with reasonable diligence,
makes an error or omission in a disclo-
sure required under paragraph (b) of this
section, provided that the plan or issuer
corrects the information as soon as prac-
ticable.
(5) A group health plan or health in-
surance issuer will not fail to comply
with this section solely because, despite
acting in good faith and with reasonable
diligence, its internet website is temporar-
ily inaccessible, provided that the plan or
issuer makes the information available as
soon as practicable.
(6) To the extent compliance with this
section requires a group health plan or
health insurance issuer to obtain infor-
mation from any other entity, the plan or
issuer will not fail to comply with this
section because it relied in good faith on
information from the other entity, unless
the plan or issuer knows, or reasonably
should have known, that the information
is incomplete or inaccurate.
(d) Severability. Any provision of this
section held to be invalid or unenforceable
by its terms, or as applied to any person
or circumstance, or stayed pending further
agency action, shall be severable from this
section and shall not affect the remainder
thereof or the application of the provision
to persons not similarly situated or to dis-
similar circumstances.
PART 158—ISSUER USE OF
PREMIUM REVENUE: REPORTING
AND REBATE REQUIREMENTS
7. The authority citation for part 158
continues to read as follows:
Authority: 42 U.S.C. 300gg-18.
8. Section 158.221 is amended by add-
ing paragraph (b)(9) to read as follows:
§158.221 Formula for calculating an
issuer’s medical loss ratio.
* * * * *
(b) * * *
(9) Beginning with the 2020 MLR re-
porting year, an issuer may include in the
numerator of the MLR any shared savings
payments the issuer has made to an enroll-
ee as a result of the enrollee choosing to
obtain health care from a lower-cost, high-
er-value provider.
* * * * *
(Filed by the Office of the Federal Register on No-
vember 3, 2020, 4:15 p.m., and published in the issue
of the Federal Register for November 12, 2020, 85
F.R. 72158)

November 30, 2020 1400 Bulletin No. 2020–49
26 CFR 1.401(a)(9)-9
T.D. 9930
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Updated Life Expectancy
and Distribution Period
Tables Used for Purposes
of Determining Minimum
Required Distributions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document sets forth
final regulations providing guidance re-
lating to the life expectancy and distribu-
tion period tables that are used to calcu-
late required minimum distributions from
qualified retirement plans, individual re-
tirement accounts and annuities, and cer-
tain other tax-favored employer-provided
retirement arrangements. These regula-
tions affect participants, beneficiaries, and
plan administrators of these qualified re-
tirement plans and other tax-favored em-
ployer-provided retirement arrangements,
as well as owners, beneficiaries, trustees
and custodians of individual retirement
accounts and annuities.
DATES: Effective Date: The final regula-
tions contained in this document are effec-
tive on November 12, 2020.
Applicability Date: The final regulations
in this document apply to distribution cal-
endar years (as defined in §1.401(a)(9)-5,
Q&A-1(b)), beginning on or after January
1, 2022.
FOR FURTHER INFORMATION CON-
TACT: Arslan Malik or Linda S. F. Mar-
shall, (202) 317-6700.
SUPPLEMENTARY INFORMATION:
Background
This document includes amendments
to the Income Tax Regulations (26 CFR
part 1) under section 401(a)(9) of the In-
ternal Revenue Code (Code) regarding the
requirement to take required minimum
distributions from qualified trusts. These
regulations also apply with respect to the
corresponding requirements for individual
retirement accounts and annuities (IRAs)
described in section 408(a) and (b), and
eligible deferred compensation plans un-
der section 457, as well as section 403(a)
and 403(b) annuity contracts, custodial
accounts, and retirement income accounts.
I. Section 401(a)(9) and Related Statutory
Provisions
Section 401(a)(9) provides rules re-
garding minimum required distributions
from qualified retirement plans. These
rules ensure that the assets of a qualified
retirement plan, which are afforded fa-
vorable tax treatment, are used primarily
to provide retirement income to a par-
ticipant, while allowing distributions to
continue after the participant’s death over
the lifetime of the participant’s surviving
spouse or the life expectancy of certain
designated beneficiaries. Accordingly,
section 401(a)(9) provides that a qualified
retirement plan must commence benefits
to an employee no later than a specified
age (or within a specified number of years
after the employee’s death) and, under
the regulations, once benefits commence,
the pattern of payment must meet certain
standards to ensure that distributions are
not unduly deferred.
Section 401(a)(9)(A) provides rules
for distributions during the life of the
employee. Section 401(a)(9)(A)(ii) pro-
vides that the entire interest of an employ-
ee in a qualified retirement plan must be
distributed, beginning not later than the
employee’s required beginning date, in
accordance with regulations, over the life
of the employee or over the lives of the
employee and a designated beneficiary
(or over a period not extending beyond
the life expectancy of the employee and a
designated beneficiary).
Section 401(a)(9)(B) provides rules for
distributions that are made after the death
of the employee. Section 401(a)(9)(B)(i)
provides that, if the employee dies after
distributions have begun, the employee’s
interest must be distributed at least as rap-
idly as under the method used by the em-
ployee. Section 401(a)(9)(B)(ii) provides
a general rule that the employee’s interest
must be distributed within 5 years after
the death of the employee if the employee
dies before distributions have begun. Sec-
tion 401(a)(9)(B)(iii) provides an excep-
tion to this 5-year rule if the employee has
appointed a designated beneficiary. Under
this exception, the 5-year rule is treated
as satisfied if the employee’s interest is
distributed, in accordance with regula-
tions, over the life or life expectancy of
the designated beneficiary, provided that
the distributions generally begin no later
than 1 year after the date of the employ-
ee’s death.
1
In addition, under section
401(a)(9)(B)(iv), if the designated benefi-
ciary is the employee’s surviving spouse,
the beneficiary may wait until the date the
employee would have attained age 72 to
begin receiving required minimum distri-
butions.
Section 401(a)(9)(C) defines the term
required beginning date for employees
(other than 5-percent owners and IRA
owners) as April 1 of the calendar year
following the later of the calendar year in
which the employee attains age 72 or the
calendar year in which the employee re-
tires. For 5-percent owners and IRA own-
ers, the required beginning date is April 1
of the calendar year following the calen-
dar year in which the employee attains age
72, even if the employee has not retired.
Section 401(a)(9)(D) provides that, ex-
cept in the case of a life annuity, the life
expectancy of an employee and the em-
ployee’s spouse that is used to determine
the period over which payments must be
made may be re-determined, but not more
frequently than annually.
Section 401(a)(9)(E)(i) provides that
the term designated beneficiary means
1
However, section 401(a)(9)(H)(ii) provides that, with respect to an eligible retirement plan defined in section 402(c)(8)(B) other than a defined benefit plan, the section 401(a)(9)(B)(iii)
exception is only available in the case of an eligible designated beneficiary defined in section 401(a)(9)(E)(ii).

Bulletin No. 2020–49 1401 November 30, 2020
any individual designated as a beneficiary
by the employee. Section 401(a)(9)(E)(ii)
provides that the term eligible designated
beneficiary means any designated benefi-
ciary who is (1) the surviving spouse of
the employee; (2) a child of the employee
who has not reached the age of majority;
(3) disabled within the meaning of sec-
tion 72(m)(7); (4) an individual who is
disabled under section 7702B(c)(2) with
a disability of indefinite length which is
expected to be lengthy in nature; or (5) an
individual who is not more than 10 years
younger than the employee. For this pur-
pose, section 401(a)(9)(E)(ii) provides
that the determination of whether a des-
ignated beneficiary is an eligible designat-
ed beneficiary is made as the date of the
death of the employee.
Section 401(a)(9)(G) provides that
any distribution required to satisfy the
incidental death benefit requirement of
section 401(a) is a required minimum
distribution. The incidental death ben-
efit requirement, which is set forth in
§1.401-1(b)(1), provides that although a
qualified pension or profit-sharing plan
may provide for incidental death (or life
insurance) benefits, the plan must be es-
tablished and maintained primarily for the
purpose of providing retirement benefits
or deferred compensation.
Section 401(a)(9)(H) provides special
rules for an eligible retirement plan de-
scribed in section 402(c)(8)(B) that is not a
defined benefit plan. Section 401(a)(9)(H)
(i) provides that for such a plan, in the case
of a designated beneficiary, section 401(a)
(9)(B)(ii) is applied (1) by substituting 10
years for 5 years, and (2) without regard
to whether distributions have begun prior
to an employee’s death. Section 401(a)(9)
(H)(ii) provides that the section 401(a)(9)
(B)(iii) exception to section 401(a)(9)(B)
(ii), as modified, only applies in the case
of an eligible designated beneficiary. Sec-
tion 401(a)(9)(H)(iii) provides that if an
eligible designated beneficiary dies prior
to the distribution of the employee’s entire
interest, the remaining interest must be
distributed within 10 years after the death
of the eligible designated beneficiary.
Under sections 403(b)(10), 408(a)(6),
408(b), and 457(d)(2), requirements sim-
ilar to the requirements of section 401(a)
(9) apply to a number of types of retire-
ment arrangements other than qualified re-
tirement plans. However, pursuant to sec-
tions 408A(a) and (c)(5), those rules apply
to a Roth IRA only after the death of the
IRA owner.
2
Pursuant to sections 403(a)
(1) and 404(a)(2), qualified annuity plans
also must comply with the requirements
of section 401(a)(9).
II. Regulations under Section 401(a)(9)
Sections 1.401(a)(9)-1 through
1.401(a)(9)-8 provide rules regarding
the application of section 401(a)(9).
3
In
the case of a defined contribution plan,
§1.401(a)(9)-5 provides generally that
an individual’s required minimum dis-
tribution for a distribution calendar year
is determined by dividing the individu-
al’s account balance determined under
§1.401(a)(9)-5, Q&A-3, by the applica-
ble distribution period. Under §1.401(a)
(9)-5, Q&A-1(b), a distribution calendar
year is a calendar year for which a min-
imum distribution is required. For exam-
ple, if a 5-percent owner participating in
a qualified retirement plan will attain age
72 during August of 2023 (so that the in-
dividual’s required beginning date is April
1, 2024), then the individual’s first distri-
bution calendar year will be 2023, and the
required minimum distribution for that
year will be based on the applicable distri-
bution period for a 72-year-old individual
for 2023 (even though it is permitted to
be paid at any time from January 1, 2023,
through April 1, 2024).
Pursuant to §1.401(a)(9)-5, Q&A-
4(a), for required minimum distributions
during the employee’s lifetime (including
the year in which the employee dies), the
applicable distribution period for an em-
ployee is the distribution period for the
employee’s age under the Uniform Life-
time Table (which is equal to the joint
and last survivor life expectancy for the
employee and a hypothetical beneficiary
10 years younger). However, pursuant to
§1.401(a)(9)-5, Q&A-4(b), if an employ-
ee’s sole beneficiary is the employee’s
surviving spouse and the spouse is more
than 10 years younger than the employee,
then the applicable distribution period is
the joint and last survivor life expectan-
cy of the employee and spouse under the
Joint and Last Survivor Table (which is
longer than the distribution period that
would apply for the employee under the
Uniform Lifetime Table).
Pursuant to §1.401(a)(9)-5, Q&A-5,
for distribution calendar years after the
calendar year of the employee’s death, the
applicable distribution period generally is
the remaining life expectancy of the desig-
nated beneficiary, subject to certain excep-
tions.
4
Two of these exceptions, which ap-
ply if the employee dies after the required
beginning date, substitute the employee’s
remaining life expectancy for the benefi-
ciary’s remaining life expectancy. These
two exceptions apply to an employee who
does not have a designated beneficiary or
who is younger than the designated ben-
eficiary.
5
Section 1.401(a)(9)-5, Q&A-5(c)(1)
provides that the remaining life expec-
tancy of the designated beneficiary is cal-
culated as the life expectancy under the
Single Life Table for the designated bene-
ficiary’s age in the calendar year following
the calendar year of the employee’s death,
reduced by 1 for each subsequent year.
However, if one of the two exceptions
applies (so that the relevant life expectan-
cy is the remaining life expectancy of the
employee), then, pursuant to §1.401(a)
(9)-5, Q&A-5(c)(3), the remaining life ex-
pectancy of the employee is calculated as
the life expectancy under the Single Life
Table for the employee’s age in the calen-
dar year of the employee’s death, reduced
by 1 for each subsequent year.
A special rule applies to determine the
designated beneficiary’s remaining life
2
Note that section 401(a)(9)(H) does not apply to an eligible deferred compensation plan under section 457(b) maintained by an organization that is not an eligible employer described in
section 457(e)(1)(A) (because such a plan is not an eligible retirement plan described in section 402(c)(8)(B)).
3
Sections 1.401(a)(9)-1 through 1.401(a)(9)-8 reflect section 401(a)(9) as in effect in 2003 and have not been updated to reflect statutory changes in 2019 and 2020.
4
Section 1.401(a)(9)-5, Q&A-5 has not been updated to reflect the enactment of section 401(a)(9)(H) but nonetheless is relevant for the transition rule that is described in the Effective/
Applicability Date section of this preamble.
5
Under 401(a)(9)(B)(ii), another exception applies if the employee dies before the required beginning date and has no designated beneficiary. In that case, the employee’s entire interest must
be distributed by the end of the calendar year that includes the fifth anniversary of the date of the employee’s death.

November 30, 2020 1402 Bulletin No. 2020–49
expectancy if the employee’s sole benefi-
ciary is the employee’s surviving spouse.
In that case, pursuant to §1.401(a)(9)-5,
Q&A-5(c)(2), the surviving spouse’s re-
maining life expectancy is recalculated
each calendar year as the life expectancy
under the Single Life Table for the sur-
viving spouse’s age in that year. Under
§1.401(a)(9)-5, Q&A-5(c)(2), for calen-
dar years after the year of the spouse’s
death, the distribution period that applies
for the spouse’s beneficiary is the spouse’s
remaining life expectancy from the Single
Life Table for the spouse’s age for the cal-
endar year of the spouse’s death, reduced
by 1 for each subsequent year.
Consistent with the policy of section
401(a)(9) to limit deferral of retirement
income, §1.401(a)(9)-6, Q&A-1(a) pro-
vides that, except as otherwise provided in
§1.401(a)(9)-6, payments from a defined
benefit plan must be non-increasing in
order to satisfy section 401(a)(9).
6
Sec-
tion 1.401(a)(9)-6, Q&A-14(c) provides
that, in the case of annuity payments paid
from an annuity contract purchased from
an insurance company, certain types of
increasing payments will not cause an
annuity payment stream to fail to satisfy
this non-increasing payment requirement.
These exceptions apply only if the total fu-
ture expected payments under the annuity
contract (determined in accordance with
§1.401(a)(9)-6, Q&A-14(e)(3)), based on
the life expectancy tables of §1.401(a)(9)-
9, exceed the total value being annuitized
(determined in accordance with §1.401(a)
(9)-6, Q&A-14(e)(1)).
III. Life Expectancy and Distribution
Period Tables of §1.401(a)(9)-9
Section 1.401(a)(9)-9, as it appears
in 26 CFR part 1 (revised as of April 1,
2020), provides life expectancy and distri-
bution period tables that are used to apply
the rules of §1.401(a)(9)-5 and to make the
calculations in §1.401(a)(9)-6, Q&A-14.
That regulation, referred to in this pream-
ble as formerly applicable §1.401(a)(9)-9,
was issued in 2002 (67 FR 18988), and
the tables in formerly applicable §1.401(a)
(9)-9 were developed using mortality rates
for 2003. Those mortality rates were de-
rived by applying mortality improvement
through 2003 to the mortality rates from
the Annuity 2000 Basic Table (which was
the most recent individual annuity mor-
tality table available in 2002).
7
The rates
of mortality improvement used for this
purpose were the ones that were used in
developing the Annuity 2000 Basic Table.
The resulting separate mortality rates for
males and females were blended using a
fixed 50 percent male/50 percent female
blend.
The life expectancy tables and mortali-
ty rates are also relevant to the application
of section 72(t), which imposes an addi-
tional income tax on early distributions
from qualified retirement plans (including
plans qualified under section 401(a) or
section 403(a), annuity contracts and other
arrangements described in section 403(b),
and individual retirement arrangements
described in section 408(a) or section
408(b)). Section 72(t)(2)(A)(iv) provides
an exception from this additional income
tax that applies in the case of a series of
substantially equal periodic payments
made for the life (or life expectancy) of
the employee or the joint lives (or joint
life expectancies) of the employee and
the designated beneficiary. Revenue Rul-
ing 2002-62, 2002-2 C.B. 710, provides
that the life expectancy tables set forth in
§1.401(a)(9)-9 may be used for purpos-
es of determining payments that satisfy
the exception under section 72(t)(2)(A)
(iv). Rev. Rul. 2002-62 also sets forth a
fixed annuitization method of determin-
ing payments that satisfy this exception.
Under the fixed annuitization method, the
annual payment for each year (which is
determined only for the first year and not
reset for subsequent years) is determined
by dividing the account balance by an
annuity factor that is the present value of
an annuity of $1 per year beginning at the
taxpayer’s age when the payments com-
mence and continuing for the life of the
taxpayer (or the joint lives of the taxpayer
and his or her beneficiary). The annuity
factor is derived using the mortality table
used to develop the life expectancy tables
set forth in §1.401(a)(9)-9.
IV. Executive Order 13847 and Proposed
Regulations
Executive Order 13847, 83 FR 45321,
which was signed on August 31, 2018, di-
rects the Secretary of the Treasury to ex-
amine the life expectancy and distribution
period tables in the regulations on required
minimum distributions from retirement
plans and determine whether they should
be updated to reflect current mortality data
and whether such updates should be made
annually or on another periodic basis.
The purpose of any updates would be to
increase the effectiveness of tax-favored
retirement programs by allowing retirees
to retain sufficient retirement savings in
these programs for their later years.
On November 8, 2019, the Department
of the Treasury (Treasury Department)
and the IRS published proposed regula-
tions (REG-132210-18) under section
401(a)(9) in the Federal Register (84 FR
60812) (the proposed regulations) setting
out updated life expectancy and distribu-
tion tables. A public hearing on the pro-
posed regulations was held on January 13,
2020. Fifty-five written comments were
received, and two speakers provided oral
comments at the public hearing. After
consideration of the comments, the pro-
posed regulations are adopted as revised
by this Treasury decision.
Summary of Comments and
Explanation of Provisions
I. Overview
In accordance with Executive Order
13847, the Treasury Department and the
IRS have examined the life expectancy
and distribution period tables in formerly
applicable §1.401(a)(9)-9 and have re-
viewed currently available mortality data.
As a result of this review, the Treasury
Department and the IRS have determined
that those tables should be updated to re-
flect current life expectancies. According-
ly, these regulations update those tables.
The life expectancy tables and appli-
cable distribution period tables in these
regulations generally reflect longer life
6
Pursuant to §1.401(a)(9)-8, Q&A-2(a)(3), the rules of §1.401(a)(9)-6 also apply to an annuity contract purchased under a defined contribution plan.
7
The Annuity 2000 Basic Table was developed by projecting mortality rates from the 1983 Individual Annuity Mortality Basic Table.

Bulletin No. 2020–49 1403 November 30, 2020
expectancies than the tables in formerly
applicable §1.401(a)(9)-9. For example,
a 72-year-old IRA owner who applied the
Uniform Lifetime Table under formerly
applicable §1.401(a)(9)-9 to calculate re-
quired minimum distributions used a life
expectancy of 25.6 years. Applying the
Uniform Lifetime Table set forth in these
regulations, a 72-year-old IRA owner will
use a life expectancy of 27.4 years to cal-
culate required minimum distributions. As
another example, a 75-year-old surviving
spouse who is the employee’s sole benefi-
ciary and applied the Single Life Table un-
der formerly applicable §1.401(a)(9)-9 to
compute required minimum distributions
used a life expectancy of 13.4 years. Un-
der these regulations, a 75-year-old sur-
viving spouse will use a life expectancy of
14.8 years. The effect of these changes is
to reduce required minimum distributions
generally, which will allow participants to
retain larger amounts in their retirement
plans to account for the possibility they
may live longer.
II. Comments
The Treasury Department and the IRS
received a number of comments about the
updated life expectancy and distribution
period tables in the proposed regulations,
the effective date for the use of the tables,
and how often the tables should be updat-
ed. All of the comments received were in
favor of the updating of the previously ap-
plicable tables.
Two commenters observed that, at
some older ages, life expectancies in the
proposed regulations were shorter than
under formerly applicable §1.401(a)(9)-9.
The life expectancy and distribution peri-
od tables in the proposed regulations were
developed based on the mortality rates for
purchasers of individual annuities, which
are set forth in the experience tables used
to develop the 2012 Individual Annuity
Mortality Basic Table. These commenters
recommended that the final regulations
should instead provide life expectancy and
distribution period tables developed based
on the mortality rates set forth in the 2012
Individual Annuity Reserve Table. Those
mortality rates were developed based on
the same experience tables as the 2012
Individual Annuity Mortality Basic Table
but reflect an adjustment to the mortality
rates in the 2012 Individual Annuity Mor-
tality Basic Table to provide a margin for
conservatism for establishing life insur-
ance company reserves (and therefore the
use of those mortality rates would result
in longer life expectancies than the life ex-
pectancies in the proposed regulations).
8
The Treasury Department and the IRS
reviewed the underlying data and method-
ology used to develop the mortality tables
reflected in formerly applicable §1.401(a)
(9)-9, as well as the 2012 Individual Annu-
ity Mortality Basic Table and the 2012 In-
dividual Annuity Reserve Table. Based on
that review, the Treasury Department and
the IRS determined that the life expectan-
cies in formerly applicable §1.401(a)(9)-9
were based on an overestimate of the rate
of mortality improvement, especially for
individuals in their nineties. The Treasury
Department and IRS also concluded that
using a table based on the mortality expe-
rience of purchasers of individual annu-
ities for purposes of determining required
minimum distributions already applies
longer life expectancies than expected for
the general population,
9
so that reflecting
the extra conservatism added to the mor-
tality table that is used for purposes of
determining insurance company reserves
is not appropriate. Therefore, these regu-
lations use mortality rates that are derived
from the 2012 Individual Annuity Mortal-
ity Basic Table because those rates more
accurately reflect empirical life expectan-
cy data.
A number of commenters asked for
changes in the minimum distribution rules
that were not related to the life expectan-
cy and distribution period tables in the
proposed regulations, and many of these
changes would require legislation. For
example, some commenters asked for a
change in the tax treatment of minimum
distributions or for the elimination of the
application of the minimum distribution
requirements in certain circumstances.
These comments were not adopted either
because the Treasury Department and the
IRS do not have the authority to make
the changes in the absence of a statutory
change or because the changes are oth-
erwise beyond the scope of these regula-
tions.
After the proposed regulations were
published, the Setting Every Community
Up for Retirement Enhancement Act (SE-
CURE Act) was enacted as Division O of
the Further Consolidated Appropriations
Act, Pub. L. 116-94. The SECURE Act
made two significant changes to section
401(a)(9): (1) it changed the required be-
ginning date for an employee from April
1 of the year following the year the em-
ployee attains age 70½ to April 1 of the
year following the year the employee at-
tains age 72; and (2) it made adjustments
to the required minimum distribution rules
that apply after the death of the employee
in the case of an eligible retirement plan
described in section 402(c)(8)(B) that is
not a defined benefit plan. The Treasury
Department and the IRS expect to update
the regulations under section 401(a)(9) to
take into account the amendments to sec-
tion 401(a)(9) made by the SECURE Act
(including new section 401(a)(9)(H))
10

and in doing so will consider any com-
ments on the proposed regulations to the
extent that the comments, though beyond
the scope of these regulations, are relevant
in that context.
A number of commenters also re-
quested that the effective date of the final
regulations be delayed to 2022 (instead
of 2021). They noted that plan sponsors
and IRA providers are currently working
to update their systems for the SECURE
Act changes to section 401(a)(9) and rec-
ommended that the effective date of these
regulations be delayed in order to allow
administrators sufficient additional time
to update systems for these regulations.
8
The 2012 Individual Annuity Mortality Basic Table, the 2012 Individual Annuity Reserve Table, and methodology used to develop these tables can be found at https://www.actuary.org/sites/
default/files/files/publications/Payout_Annuity_Report_09-28-11.pdf
9
Using a table based on the mortality experience of purchasers of individual annuities generates longer life expectancies than expected for the general population because of anti-selection in
that purchasers of individual annuities have chosen to purchase a product that rewards long life (and therefore are expected to have greater longevity than the general population).
10
No interpretive inferences should be drawn from the references to section 401(a)(9)(H) included in this preamble and the regulations.

November 30, 2020 1404 Bulletin No. 2020–49
As described in the Effective/Applicabil-
ity Date section of this preamble, these
regulations will apply to distribution cal-
endar years beginning on or after January
1, 2022.
III. Updated Life Expectancy and
Distribution Period Tables
The life expectancy and distribution
period tables in these regulations have
been developed based on mortality rates
for 2022. These mortality rates were de-
rived by applying mortality improvement
through 2022 to the mortality rates from
the experience tables used to develop the
2012 Individual Annuity Mortality Basic
Tables (which are the most recent individ-
ual annuity mortality tables). As was the
case in the proposed regulations, the sepa-
rate mortality rates for males and females
in these experience tables, which were
based on the 2000-2004 Payout Annuity
Mortality Experience Study,
11
have been
projected from the central year of 2002 us-
ing the respective mortality improvement
rates from the Mortality Improvement
Scale MP-2018 for males and females.
12

The mortality table in these regulations
was developed by blending the resulting
separate mortality rates for males and fe-
males using a fixed 50 percent male/50
percent female blend.
The Single Life Table in these regula-
tions sets forth life expectancies for each
age, with the life expectancy for an age
calculated as the sum of the probabilities
of an individual at that age surviving to
each future year. The resulting life expec-
tancy is then increased by 11/24
13
to ap-
proximate the effect of monthly payments
and is subject to a floor of 1.0.
The Uniform Lifetime Table in these
regulations sets forth joint and last survi-
vor life expectancies for each age begin-
ning with age 72, based on a hypothetical
beneficiary.
14
Pursuant to §1.401(a)(9)-5,
Q&A-4(a), the Uniform Lifetime Table
is used for determining the distribution
period for lifetime distributions to an em-
ployee in situations in which the employ-
ee’s surviving spouse either is not the sole
designated beneficiary or is the sole des-
ignated beneficiary but is not more than
10 years younger than the employee. The
joint and last survivor life expectancy of
an employee is taken from the Joint and
Last Survivor Table using a hypothetical
beneficiary who is assumed to be 10 years
younger than the employee.
The Joint and Last Survivor Table sets
forth joint and last survivor life expectan-
cies of an employee and the employee’s
beneficiary for each combination of ages
of those individuals. The joint and last sur-
vivor life expectancy for an employee and
a beneficiary at a combination of ages is
calculated as the sum of the probabilities
of the employee surviving to each future
year, plus the sum of the probabilities of
the beneficiary surviving to each future
year, minus the sum of the probabilities of
both the employee and beneficiary surviv-
ing to each future year. The resulting joint
and last survivor life expectancy is then
increased by 11/24 to approximate the ef-
fect of monthly payments and is subject to
a floor of 1.0.
The life expectancy tables in formerly
applicable §1.401(a)(9)-9 are used in sev-
eral numerical examples in §1.401(a)(9)-
6, Q&A-14(f) that illustrate the availabili-
ty of the exception described in §1.401(a)
(9)-6, Q&A-14(c) (regarding certain in-
creasing payments under insurance com-
pany annuity contracts). These regulations
do not include revisions to these examples
to reflect the life expectancy tables in
these regulations. However, it is expected
that the examples will be updated as part
of the broader update of the regulations
under section 401(a)(9) to take into ac-
count the SECURE Act.
In the preamble to the proposed reg-
ulations, the Treasury Department and
the IRS asked for comments about how
frequently to update the life expectancy
and distribution period tables. A number
of commenters cited the need to strike an
appropriate balance between the benefit
of providing updated tables and the ad-
ministrative burden of frequent updates
and suggested that life expectancy and
distribution period tables not be updated
annually. The frequency of updates sug-
gested by commenters ranged from 4 to
10 years.
These regulations do not provide for
automatic updates to the life expectancy
and distribution period tables. The Trea-
sury Department and the IRS currently an-
ticipate that they will review the tables at
the earlier of: (1) 10 years or (2) whenever
a new study of individual annuity mortali-
ty experience is published.
IV. Effective/Applicability Date
The life expectancy tables and Uni-
form Lifetime Table under these regula-
tions apply for distribution calendar years
beginning on or after January 1, 2022.
Thus, for example, for an IRA owner who
attained age 70 ½ in February of 2020 (so
that the individual attains age 72 in Au-
gust of 2021 and the individual’s required
beginning date is April 1, 2022), these
regulations do not apply to the minimum
required distribution for the individual’s
2021 distribution calendar year (which is
due April 1, 2022) but will apply to the
minimum required distribution for the in-
dividual’s 2022 distribution calendar year
(which is due December 31, 2022).
These regulations include a transition
rule that applies if an employee died be-
fore January 1, 2022, and, under the rules
of §1.401(a)(9)-5, Q&A-5, the distribu-
tion period that applies for calendar years
following the calendar year of the employ-
ee’s death is equal to a single life expec-
tancy calculated as of the calendar year of
the employee’s death (or if applicable, the
year after the employee’s death), reduced
by 1 for each subsequent year. Under this
transition rule, the initial life expectancy
used to determine the distribution period
11
Information about the 2000-2004 Payout Annuity Mortality Experience Study and the experience tables, can be found at https://www.actuary.org/sites/default/files/files/publications/Pay-
out_Annuity_Report_09-28-11.pdf
12
The Mortality Improvement Scale MP-2018 can be found at https://www.soa.org/experience-studies/2018/mortality-improvement-scale-mp-2018/.
13
Assuming an equal distribution of deaths throughout the year, if a retiree is scheduled to receive monthly payments on the last day of each month then, in the year of death, on average, the
retiree would receive 11/24
th
of a full year’s worth of payments.
14
The proposed regulations included Uniform Lifetime Table entries beginning with age 70. These regulations do not include Uniform Lifetime Table entries for ages 70 and 71 because
section 114 of the SECURE Act changed the minimum age for receiving required minimum distributions from age 70½ to age 72.

Bulletin No. 2020–49 1405 November 30, 2020
is reset by using the new Single Life Table
for the age of the relevant individual in the
calendar year for which life expectancy
was set under §1.401(a)(9)-5, Q&A-5(c).
For distribution calendar years beginning
on or after January 1, 2022, the distribu-
tion period is determined by reducing that
initial life expectancy by 1 for each year
subsequent to the year for which it was
initially set, except as provided under sec-
tion 401(a)(9)(H).
This transition rule could apply in three
situations: (1) The employee died with a
non-spousal eligible designated benefi-
ciary (so that the applicable distribution
period under §1.401(a)(9)-5, Q&A-5(c)
(1), is determined based on the remaining
life expectancy of the eligible designated
beneficiary for the calendar year follow-
ing the calendar year of the employee’s
death); (2) the employee died after the
required beginning date without a desig-
nated beneficiary (so that the applicable
distribution period under §1.401(a)(9)-5,
Q&A-5(c)(3), is determined based on the
remaining life expectancy of the employ-
ee for the year of the employee’s death);
and (3) the employee, who is younger than
the designated beneficiary, died after the
required beginning date (so that the appli-
cable distribution period under §1.401(a)
(9)-5, Q&A-5(a)(1), is determined based
on the remaining life expectancy of the
employee for the year of the employee’s
death).
These regulations illustrate the ap-
plication of this transition rule with an
example involving an employee who
died at age 80 in 2019 with a designated
beneficiary (who was not the employee’s
spouse) who was age 75 in the year of
the employee’s death and who continues
to be alive until at least 2022. For 2020,
the distribution period that applies for
the beneficiary is 12.7 years (the period
applicable for a 76-year-old under the
Single Life Table in formerly applicable
§1.401(a)(9)-9), and for 2021, it is 11.7
years (the original distribution period, re-
duced by 1 year). For 2022, taking into
account the life expectancy tables under
these regulations and applying the transi-
tion rule, the applicable distribution pe-
riod would be 12.1 years (the 14.1-year
life expectancy for a 76-year-old under
the Single Life Table in these regulations,
reduced by 2 years).
A similar transition rule applies if an
employee’s sole beneficiary is the em-
ployee’s surviving spouse and the spouse
died before January 1, 2022. Under the
rules of §1.401(a)(9)-5, Q&A-5(c)(2),
the distribution period that applies for the
spouse’s beneficiary is equal to the single
life expectancy for the spouse calculat-
ed for the calendar year of the spouse’s
death, reduced by 1 for each subsequent
year. Under the transition rule, the initial
life expectancy used to determine the dis-
tribution period is reset by using the new
Single Life Table for the age of the spouse
in the calendar year of the spouse’s death.
For distribution calendar years beginning
on or after January 1, 2022, the distribu-
tion period is determined by reducing that
initial life expectancy by 1 for each year
subsequent to the year for which it was
initially set. However, this transition rule
only applies to the extent consistent with
section 401(a)(9)(H).
These transition rules, under which
there is a one-time reset for the relevant
life expectancy using the Single Life Ta-
ble under these regulations, are designed
to recognize that the general population
has longer life expectancies than the life
expectancies set forth in the formerly
applicable §1.401(a)(9)-9. However, be-
cause the reset life expectancy is based
on the age for which life expectancy
was originally determined (rather than
the relevant individual’s current age), it
is consistent with Congressional intent
to limit recalculation of life expectan-
cy to the employee and the employee’s
spouse.
V. Use of Revised Tables to Determine
Substantially Equal Periodic Payments
The Treasury Department and the IRS
anticipate issuing guidance that would
update Rev. Rul. 2002-62. This update
would apply the life expectancy, distri-
bution period, and mortality tables set
forth in these regulations for purposes of
determining substantially equal periodic
payments once these regulations become
effective.
Special Analyses
These regulations are not subject to re-
view under section 6(b) of Executive Or-
der 12866 pursuant to the Memorandum
of Agreement (April 11, 2018) between
the Treasury Department and the Office
of Management and Budget regarding re-
view of tax regulations.
It is hereby certified pursuant to the
Regulatory Flexibility Act (5 U.S.C.,
chapter 6) that these regulations will not
have a significant economic impact on
a substantial number of small entities.
These regulations apply to all employers
that sponsor defined contribution plans
regardless of size. Although data are not
available to estimate the number of small
entitles affected, the rule may affect a sub-
stantial number. This rule updates life ex-
pectancies that are required to be used by
statute.
Although the rule may affect a sub-
stantial number of small entities, the
economic impact of these regulations is
not likely to be significant. Small busi-
nesses generally comply with the min-
imum required distribution rules using
either third-party administrators or soft-
ware, creating economies of scale that
mitigate the cost of updating life expec-
tancy tables. That software is updated
periodically irrespective of a change in
life expectancies used to determine min-
imum required distributions. The por-
tion of the cost of a periodic update that
is attributable to the implementation of
the life expectancy and distribution pe-
riod tables in these regulations will be
spread over the client base of a service
provider that uses software developed
in-house and over the group of purchas-
ers of generally-available plan adminis-
tration software. Because, in either case,
the cost of changing software to imple-
ment the updated life expectancies is
spread over a large group of businesses
that maintain retirement plans, it is esti-
mated that the incremental cost for each
affected small businesses as a result of
the use of updated life expectancies is
not significant.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding this regulation was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small entities. No
comments were received from the Chief
Counsel for the Office of Advocacy of the
Small Business Administration.

November 30, 2020 1406 Bulletin No. 2020–49
Drafting Information
The principal authors of these regu-
lations are Arslan Malik and Linda S. F.
Marshall, of the Office of the Associate
Chief Counsel (Employee Benefits, Ex-
empt Organizations, and Employment
Taxes). However, other personnel from
the Treasury Department and the IRS par-
ticipated in the development of the pro-
posed regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1 – INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 401(m)(9) and 26
U.S.C. 7805.
* * * * *
§ 1.401(a)(9)-5 [Amended]
Par. 2. Section 1.401(a)(9)-5 is amend-
ed by:
1. Removing the language “A-1 of §
1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(b)” in its place.
2. Removing the language “A-2 of §
1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(c)” in its place.
3. Removing the language “A-3 of §
1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(d)” in its place.
§1.401(a)(9)-6 [Amended]
Par. 3. Section 1.401(a)(9)-6 is amend-
ed by:
1. Removing the language “A-1 of §
1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(b)” in its place.
2. Removing the language “A-2 of §
1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(c)” in its place.
3. Removing the language “A-3 of in
§ 1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(d)” in its place.
§1.401(a)(9)-8 [Amended]
Par. 4. Section 1.401(a)(9)-8 is amend-
ed by removing the language “A-2 of
§1.401(a)(9)-9” wherever it appears and
adding “§1.401(a)(9)-9(c)” in its place.
Par. 5. Section 1.401(a)(9)-9 is revised
to read as follows:
§1.401(a)(9)-9 Life expectancy and
distribution period tables.
(a) In general. This section specifies the
life expectancy and applicable distribution
period tables that apply for purposes of de-
termining required minimum distributions
under section 401(a)(9). Paragraphs (b),
(c), and (d) of this section set forth these
tables. Paragraph (e) of this section pro-
vides the mortality rates that are used to
develop these tables. Paragraph (f) of this
section provides applicability date rules.
(b) Single Life Table. The following ta-
ble, referred to as the Single Life Table,
sets forth the life expectancy of an indi-
vidual at each age.
Table 1 to Paragraph (b)
AgeLife expectancy
084.6
183.7
282.8
381.8
480.8
579.8
678.8
777.9
876.9
975.9
1074.9
1173.9
1272.9
1371.9
1470.9
1569.9
1669.0
1768.0

Bulletin No. 2020–49 1407 November 30, 2020
AgeLife expectancy
1867.0
1966.0
2065.0
2164.1
2263.1
2362.1
2461.1
2560.2
2659.2
2758.2
2857.3
2956.3
3055.3
3154.4
3253.4
3352.5
3451.5
3550.5
3649.6
3748.6
3847.7
3946.7
4045.7
4144.8
4243.8
4342.9
4441.9
4541.0
4640.0
4739.0
4838.1
4937.1
5036.2
5135.3
5234.3
5333.4
5432.5
5531.6
5630.6
5729.8
5828.9
5928.0
6027.1
6126.2

November 30, 2020 1408 Bulletin No. 2020–49
AgeLife expectancy
6225.4
6324.5
6423.7
6522.9
6622.0
6721.2
6820.4
6919.6
7018.8
7118.0
7217.2
7316.4
7415.6
7514.8
7614.1
7713.3
7812.6
7911.9
8011.2
8110.5
829.9
839.3
848.7
858.1
867.6
877.1
886.6
896.1
905.7
915.3
924.9
934.6
944.3
954.0
963.7
973.4
983.2
993.0
1002.8
1012.6
1022.5
1032.3
1042.2
1052.1

Bulletin No. 2020–49 1409 November 30, 2020
AgeLife expectancy
1062.1
1072.1
1082.0
1092.0
1102.0
1112.0
1122.0
1131.9
1141.9
1151.8
1161.8
1171.6
1181.4
1191.1
120 +1.0
(c) Uniform Lifetime Table. The fol-
lowing table, referred to as the Uniform
Lifetime Table, sets forth the distribution
period that applies for lifetime distribu-
tions to an employee in situations in which
the employee’s surviving spouse is not the
sole designated beneficiary. This table
is also used if the employee’s surviving
spouse is the sole designated beneficiary
but is not more than 10 years younger than
the employee.
Table 2 to Paragraph (c)
Age of employeeDistribution period
7227.4
7326.5
7425.5
7524.6
7623.7
7722.9
7822.0
7921.1
8020.2
8119.4
8218.5
8317.7
8416.8
8516.0
8615.2
8714.4
8813.7
8912.9
9012.2
9111.5
9210.8

November 30, 2020 1410 Bulletin No. 2020–49
Age of employeeDistribution period
9310.1
949.5
958.9
968.4
977.8
987.3
996.8
1006.4
1016.0
1025.6
1035.2
1044.9
1054.6
1064.3
1074.1
1083.9
1093.7
1103.5
1113.4
1123.3
1133.1
1143.0
1152.9
1162.8
1172.7
1182.5
1192.3
120 +2.0
(d) Joint and Last Survivor Table. The
following table, referred to as the Joint
and Last Survivor Table, is used for de-termining the joint and last survivor life
expectancy of two individuals.
Table 3 to Paragraph (d)
Ages012345678
091.991.491.090.590.189.789.489.088.7
191.490.990.490.089.589.188.888.488.1
291.090.489.989.489.088.588.187.887.4
390.590.089.488.988.488.087.687.186.8
490.189.589.088.487.987.487.086.686.2
589.789.188.688.087.486.986.586.085.6
689.488.888.187.687.086.585.985.585.0
789.088.487.887.186.686.085.584.984.5
888.788.187.486.886.285.685.084.583.9

Bulletin No. 2020–49 1411 November 30, 2020
988.487.887.186.485.885.284.684.083.5
1088.287.586.886.185.484.884.283.683.0
1187.987.286.585.885.184.483.883.282.6
1287.787.086.285.584.884.183.482.882.2
1387.586.786.085.284.583.883.182.481.8
1487.386.585.785.084.283.582.882.181.4
1587.186.385.584.784.083.282.581.881.1
1686.986.185.384.583.783.082.281.580.8
1786.886.085.184.383.582.782.081.280.5
1886.685.885.084.183.382.581.781.080.2
1986.585.784.884.083.182.381.580.780.0
2086.485.584.783.883.082.281.380.579.8
2186.285.484.583.782.882.081.280.379.5
2286.185.384.483.582.781.881.080.279.3
2386.085.284.383.482.581.780.880.079.2
2485.985.184.283.382.481.680.779.879.0
2585.985.084.183.282.381.480.679.778.8
2685.884.984.083.182.281.380.479.678.7
2785.784.883.983.082.181.280.379.478.6
2885.684.783.882.982.081.180.279.378.4
2985.684.783.882.881.981.080.179.278.3
3085.584.683.782.881.880.980.079.178.2
3185.484.683.682.781.880.979.979.078.1
3285.484.583.682.681.780.879.978.978.0
3385.384.583.582.681.680.779.878.977.9
3485.384.483.582.581.680.779.778.877.9
3585.384.483.482.581.580.679.778.777.8
3685.284.383.482.481.580.579.678.777.7
3785.284.383.382.481.480.579.578.677.7
3885.284.383.382.381.480.479.578.677.6
3985.184.283.382.381.480.479.578.577.6
4085.184.283.282.381.380.479.478.577.5
4185.184.283.282.281.380.379.478.477.5
4285.084.183.282.281.380.379.378.477.4
4385.084.183.182.281.280.379.378.377.4
4485.084.183.182.281.280.279.378.377.3
4585.084.183.182.181.280.279.278.377.3
4684.984.083.182.181.180.279.278.277.3
4784.984.083.182.181.180.279.278.277.3
4884.984.083.082.181.180.179.278.277.2
4984.984.083.082.181.180.179.178.277.2
5084.984.083.082.081.180.179.178.177.2
5184.884.083.082.081.080.179.178.177.2
5284.883.983.082.081.080.179.178.177.1
5384.883.983.082.081.080.079.178.177.1

November 30, 2020 1412 Bulletin No. 2020–49
5484.883.982.982.081.080.079.078.177.1
5584.883.982.982.081.080.079.078.177.1
5684.883.982.981.981.080.079.078.077.1
5784.883.982.981.981.080.079.078.077.0
5884.883.982.981.980.980.079.078.077.0
5984.783.982.981.980.980.079.078.077.0
6084.783.882.981.980.979.979.078.077.0
6184.783.882.981.980.979.979.078.077.0
6284.783.882.981.980.979.978.978.077.0
6384.783.882.981.980.979.978.978.077.0
6484.783.882.881.980.979.978.977.977.0
6584.783.882.881.980.979.978.977.977.0
6684.783.882.881.980.979.978.977.976.9
6784.783.882.881.980.979.978.977.976.9
6884.783.882.881.880.979.978.977.976.9
6984.783.882.881.880.979.978.977.976.9
7084.783.882.881.880.979.978.977.976.9
7184.783.882.881.880.979.978.977.976.9
7284.783.882.881.880.979.978.977.976.9
7384.683.882.881.880.879.978.977.976.9
7484.683.882.881.880.879.978.977.976.9
7584.683.882.881.880.879.978.977.976.9
7684.683.882.881.880.879.978.977.976.9
7784.683.882.881.880.879.878.977.976.9
7884.683.882.881.880.879.878.977.976.9
7984.683.882.881.880.879.878.977.976.9
8084.683.882.881.880.879.878.977.976.9
8184.683.882.881.880.879.878.977.976.9
8284.683.882.881.880.879.878.977.976.9
8384.683.782.881.880.879.878.977.976.9
8484.683.782.881.880.879.878.977.976.9
8584.683.782.881.880.879.878.877.976.9
8684.683.782.881.880.879.878.877.976.9
8784.683.782.881.880.879.878.877.976.9
8884.683.782.881.880.879.878.877.976.9
8984.683.782.881.880.879.878.877.976.9
9084.683.782.881.880.879.878.877.976.9
9184.683.782.881.880.879.878.877.976.9
9284.683.782.881.880.879.878.877.976.9
9384.683.782.881.880.879.878.877.976.9
9484.683.782.881.880.879.878.877.976.9
9584.683.782.881.880.879.878.877.976.9
9684.683.782.881.880.879.878.877.976.9
9784.683.782.881.880.879.878.877.976.9
9884.683.782.881.880.879.878.877.976.9

Bulletin No. 2020–49 1413 November 30, 2020
9984.683.782.881.880.879.878.877.976.9
10084.683.782.881.880.879.878.877.976.9
10184.683.782.881.880.879.878.877.976.9
10284.683.782.881.880.879.878.877.976.9
10384.683.782.881.880.879.878.877.976.9
10484.683.782.881.880.879.878.877.976.9
10584.683.782.881.880.879.878.877.976.9
10684.683.782.881.880.879.878.877.976.9
10784.683.782.881.880.879.878.877.976.9
10884.683.782.881.880.879.878.877.976.9
10984.683.782.881.880.879.878.877.976.9
11084.683.782.881.880.879.878.877.976.9
11184.683.782.881.880.879.878.877.976.9
11284.683.782.881.880.879.878.877.976.9
11384.683.782.881.880.879.878.877.976.9
11484.683.782.881.880.879.878.877.976.9
11584.683.782.881.880.879.878.877.976.9
11684.683.782.881.880.879.878.877.976.9
11784.683.782.881.880.879.878.877.976.9
11884.683.782.881.880.879.878.877.976.9
11984.683.782.881.880.879.878.877.976.9
120+84.683.782.881.880.879.878.877.976.9
Ages91011121314151617
088.488.287.987.787.587.387.186.986.8
187.887.587.287.086.786.586.386.186.0
287.186.886.586.286.085.785.585.385.1
386.486.185.885.585.285.084.784.584.3
485.885.485.184.884.584.284.083.783.5
585.284.884.484.183.883.583.283.082.7
684.684.283.883.483.182.882.582.282.0
784.083.683.282.882.482.181.881.581.2
883.583.082.682.281.881.481.180.880.5
982.982.582.081.681.280.880.480.179.8
1082.581.981.581.080.680.279.879.479.1
1182.081.580.980.580.079.679.278.878.4
1281.681.080.579.979.579.078.678.277.8
1381.280.680.079.579.078.578.077.677.2
1480.880.279.679.078.578.077.577.076.6
1580.479.879.278.678.077.577.076.576.0
1680.179.478.878.277.677.076.576.075.5
1779.879.178.477.877.276.676.075.575.0
1879.578.878.177.476.876.275.675.074.5
1979.278.577.877.176.475.875.274.674.0
2079.078.277.576.876.175.474.874.273.6
2178.878.077.276.575.875.174.473.873.2

November 30, 2020 1414 Bulletin No. 2020–49
2278.577.877.076.275.574.874.173.472.8
2378.377.576.876.075.274.573.873.172.5
2478.277.376.575.875.074.273.572.872.1
2578.077.276.475.674.874.073.372.571.8
2677.877.076.275.474.673.873.072.371.5
2777.776.876.075.274.473.672.872.071.3
2877.676.775.875.074.273.472.671.871.0
2977.476.675.774.974.073.272.471.670.8
3077.376.475.674.773.973.072.271.470.6
3177.276.375.574.673.772.972.071.270.4
3277.176.275.374.573.672.771.971.070.2
3377.076.175.274.373.572.671.770.970.0
3477.076.075.174.273.372.571.670.769.9
3576.976.075.074.173.272.471.570.669.7
3676.875.975.074.073.172.271.470.569.6
3776.775.874.974.073.172.171.370.469.5
3876.775.774.873.973.072.171.270.369.4
3976.675.774.773.872.972.071.170.269.3
4076.675.674.773.772.871.971.070.169.2
4176.575.674.673.772.871.870.970.069.1
4276.575.574.673.672.771.870.869.969.0
4376.475.574.573.672.671.770.869.868.9
4476.475.474.573.572.671.670.769.868.8
4576.475.474.473.572.571.670.669.768.8
4676.375.474.473.472.571.570.669.768.7
4776.375.374.473.472.471.570.569.668.7
4876.375.374.373.472.471.570.569.668.6
4976.275.374.373.372.471.470.569.568.6
5076.275.274.373.372.371.470.469.568.5
5176.275.274.273.372.371.370.469.468.5
5276.275.274.273.272.371.370.469.468.4
5376.175.274.273.272.371.370.369.468.4
5476.175.174.273.272.271.370.369.368.4
5576.175.174.273.272.271.270.369.368.3
5676.175.174.173.272.271.270.269.368.3
5776.175.174.173.172.271.270.269.368.3
5876.175.174.173.172.171.270.269.268.3
5976.075.174.173.172.171.270.269.268.2
6076.075.074.173.172.171.170.269.268.2
6176.075.074.173.172.171.170.169.268.2
6276.075.074.073.172.171.170.169.268.2
6376.075.074.073.072.171.170.169.168.2
6476.075.074.073.072.171.170.169.168.2
6576.075.074.073.072.071.170.169.168.1
6676.075.074.073.072.071.170.169.168.1

Bulletin No. 2020–49 1415 November 30, 2020
6776.075.074.073.072.071.070.169.168.1
6875.975.074.073.072.071.070.169.168.1
6975.975.074.073.072.071.070.069.168.1
7075.974.974.073.072.071.070.069.168.1
7175.974.974.073.072.071.070.069.068.1
7275.974.973.973.072.071.070.069.068.1
7375.974.973.973.072.071.070.069.068.1
7475.974.973.973.072.071.070.069.068.0
7575.974.973.972.972.071.070.069.068.0
7675.974.973.972.972.071.070.069.068.0
7775.974.973.972.972.071.070.069.068.0
7875.974.973.972.971.971.070.069.068.0
7975.974.973.972.971.971.070.069.068.0
8075.974.973.972.971.971.070.069.068.0
8175.974.973.972.971.971.070.069.068.0
8275.974.973.972.971.970.970.069.068.0
8375.974.973.972.971.970.970.069.068.0
8475.974.973.972.971.970.970.069.068.0
8575.974.973.972.971.970.970.069.068.0
8675.974.973.972.971.970.970.069.068.0
8775.974.973.972.971.970.970.069.068.0
8875.974.973.972.971.970.969.969.068.0
8975.974.973.972.971.970.969.969.068.0
9075.974.973.972.971.970.969.969.068.0
9175.974.973.972.971.970.969.969.068.0
9275.974.973.972.971.970.969.969.068.0
9375.974.973.972.971.970.969.969.068.0
9475.974.973.972.971.970.969.969.068.0
9575.974.973.972.971.970.969.969.068.0
9675.974.973.972.971.970.969.969.068.0
9775.974.973.972.971.970.969.969.068.0
9875.974.973.972.971.970.969.969.068.0
9975.974.973.972.971.970.969.969.068.0
10075.974.973.972.971.970.969.969.068.0
10175.974.973.972.971.970.969.969.068.0
10275.974.973.972.971.970.969.969.068.0
10375.974.973.972.971.970.969.969.068.0
10475.974.973.972.971.970.969.969.068.0
10575.974.973.972.971.970.969.969.068.0
10675.974.973.972.971.970.969.969.068.0
10775.974.973.972.971.970.969.969.068.0
10875.974.973.972.971.970.969.969.068.0
10975.974.973.972.971.970.969.969.068.0
11075.974.973.972.971.970.969.969.068.0
11175.974.973.972.971.970.969.969.068.0

November 30, 2020 1416 Bulletin No. 2020–49
11275.974.973.972.971.970.969.969.068.0
11375.974.973.972.971.970.969.969.068.0
11475.974.973.972.971.970.969.969.068.0
11575.974.973.972.971.970.969.969.068.0
11675.974.973.972.971.970.969.969.068.0
11775.974.973.972.971.970.969.969.068.0
11875.974.973.972.971.970.969.969.068.0
11975.974.973.972.971.970.969.969.068.0
120+75.974.973.972.971.970.969.969.068.0
Ages181920212223242526
086.686.586.486.286.186.085.985.985.8
185.885.785.585.485.385.285.185.084.9
285.084.884.784.584.484.384.284.184.0
384.184.083.883.783.583.483.383.283.1
483.383.183.082.882.782.582.482.382.2
582.582.382.282.081.881.781.681.481.3
681.781.581.381.281.080.880.780.680.4
781.080.780.580.380.280.079.879.779.6
880.280.079.879.579.379.279.078.878.7
979.579.279.078.878.578.378.278.077.8
1078.878.578.278.077.877.577.377.277.0
1178.177.877.577.277.076.876.576.476.2
1277.477.176.876.576.276.075.875.675.4
1376.876.476.175.875.575.275.074.874.6
1476.275.875.475.174.874.574.274.073.8
1575.675.274.874.474.173.873.573.373.0
1675.074.674.273.873.473.172.872.572.3
1774.574.073.673.272.872.572.171.871.5
1874.073.573.072.672.271.871.571.170.8
1973.573.072.572.071.671.270.870.570.1
2073.072.572.071.571.070.670.269.869.5
2172.672.071.571.070.570.069.669.268.8
2272.271.671.070.570.069.569.068.668.2
2371.871.270.670.069.569.068.568.067.6
2471.570.870.269.669.068.568.067.567.1
2571.170.569.869.268.668.067.567.066.5
2670.870.169.568.868.267.667.166.566.0
2770.569.869.168.567.867.266.666.165.5
2870.369.568.868.167.566.866.265.665.1
2970.069.368.567.867.166.565.865.264.6
3069.869.068.367.566.866.265.564.964.2
3169.668.868.067.366.665.865.264.563.9
3269.468.667.867.066.365.664.964.263.5
3369.268.467.666.866.065.364.663.963.2
3469.068.267.466.665.865.164.363.662.9

Bulletin No. 2020–49 1417 November 30, 2020
3568.968.067.266.465.664.864.163.362.6
3668.767.967.166.265.464.663.863.162.3
3768.667.766.966.165.264.463.662.862.1
3868.567.666.865.965.164.263.462.661.9
3968.467.566.665.864.964.163.362.461.6
4068.367.466.565.664.863.963.162.361.5
4168.267.366.465.564.663.862.962.161.3
4268.167.266.365.464.563.662.861.961.1
4368.067.166.265.364.463.562.761.861.0
4467.967.066.165.264.363.462.561.760.8
4567.966.966.065.164.263.362.461.560.7
4667.866.965.965.064.163.262.361.460.6
4767.766.865.965.064.063.162.261.360.5
4867.766.765.864.964.063.062.161.260.3
4967.666.765.764.863.963.062.161.260.3
5067.666.665.764.863.862.962.061.160.2
5167.566.665.664.763.862.861.961.060.1
5267.566.565.664.763.762.861.960.960.0
5367.466.565.564.663.762.761.860.959.9
5467.466.565.564.663.662.761.760.859.9
5567.466.465.564.563.662.661.760.859.8
5667.466.465.464.563.562.661.660.759.8
5767.366.465.464.563.562.561.660.759.7
5867.366.365.464.463.562.561.660.659.7
5967.366.365.464.463.462.561.560.659.6
6067.366.365.364.463.462.461.560.559.6
6167.266.365.364.363.462.461.560.559.6
6267.266.265.364.363.462.461.460.559.5
6367.266.265.364.363.362.461.460.559.5
6467.266.265.264.363.362.361.460.459.5
6567.266.265.264.363.362.361.460.459.5
6667.266.265.264.263.362.361.360.459.4
6767.166.265.264.263.362.361.360.459.4
6867.166.265.264.263.262.361.360.359.4
6967.166.165.264.263.262.361.360.359.4
7067.166.165.264.263.262.261.360.359.4
7167.166.165.164.263.262.261.360.359.3
7267.166.165.164.263.262.261.360.359.3
7367.166.165.164.263.262.261.260.359.3
7467.166.165.164.163.262.261.260.359.3
7567.166.165.164.163.262.261.260.359.3
7667.166.165.164.163.262.261.260.259.3
7767.066.165.164.163.162.261.260.259.3
7867.066.165.164.163.162.261.260.259.3
7967.066.165.164.163.162.261.260.259.3

November 30, 2020 1418 Bulletin No. 2020–49
8067.066.165.164.163.162.161.260.259.2
8167.066.065.164.163.162.161.260.259.2
8267.066.065.164.163.162.161.260.259.2
8367.066.065.164.163.162.161.260.259.2
8467.066.065.164.163.162.161.260.259.2
8567.066.065.164.163.162.161.260.259.2
8667.066.065.164.163.162.161.160.259.2
8767.066.065.064.163.162.161.160.259.2
8867.066.065.064.163.162.161.160.259.2
8967.066.065.064.163.162.161.160.259.2
9067.066.065.064.163.162.161.160.259.2
9167.066.065.064.163.162.161.160.259.2
9267.066.065.064.163.162.161.160.259.2
9367.066.065.064.163.162.161.160.259.2
9467.066.065.064.163.162.161.160.259.2
9567.066.065.064.163.162.161.160.259.2
9667.066.065.064.163.162.161.160.259.2
9767.066.065.064.163.162.161.160.259.2
9867.066.065.064.163.162.161.160.259.2
9967.066.065.064.163.162.161.160.259.2
10067.066.065.064.163.162.161.160.259.2
10167.066.065.064.163.162.161.160.259.2
10267.066.065.064.163.162.161.160.259.2
10367.066.065.064.163.162.161.160.259.2
10467.066.065.064.163.162.161.160.259.2
10567.066.065.064.163.162.161.160.259.2
10667.066.065.064.163.162.161.160.259.2
10767.066.065.064.163.162.161.160.259.2
10867.066.065.064.163.162.161.160.259.2
10967.066.065.064.163.162.161.160.259.2
11067.066.065.064.163.162.161.160.259.2
11167.066.065.064.163.162.161.160.259.2
11267.066.065.064.163.162.161.160.259.2
11367.066.065.064.163.162.161.160.259.2
11467.066.065.064.163.162.161.160.259.2
11567.066.065.064.163.162.161.160.259.2
11667.066.065.064.163.162.161.160.259.2
11767.066.065.064.163.162.161.160.259.2
11867.066.065.064.163.162.161.160.259.2
11967.066.065.064.163.162.161.160.259.2
120+67.066.065.064.163.162.161.160.259.2
Ages272829303132333435
085.785.685.685.585.485.485.385.385.3
184.884.784.784.684.684.584.584.484.4
283.983.883.883.783.683.683.583.583.4

Bulletin No. 2020–49 1419 November 30, 2020
383.082.982.882.882.782.682.682.582.5
482.182.081.981.881.881.781.681.681.5
581.281.181.080.980.980.880.780.780.6
680.380.280.180.079.979.979.879.779.7
779.479.379.279.179.078.978.978.878.7
878.678.478.378.278.178.077.977.977.8
977.777.677.477.377.277.177.077.076.9
1076.876.776.676.476.376.276.176.076.0
1176.075.875.775.675.575.375.275.175.0
1275.275.074.974.774.674.574.374.274.1
1374.474.274.073.973.773.673.573.373.2
1473.673.473.273.072.972.772.672.572.4
1572.872.672.472.272.071.971.771.671.5
1672.071.871.671.471.271.070.970.770.6
1771.371.070.870.670.470.270.069.969.7
1870.570.370.069.869.669.469.269.068.9
1969.869.569.369.068.868.668.468.268.0
2069.168.868.568.368.067.867.667.467.2
2168.568.167.867.567.367.066.866.666.4
2267.867.567.166.866.666.366.065.865.6
2367.266.866.566.265.865.665.365.164.8
2466.666.265.865.565.264.964.664.364.1
2566.165.665.264.964.564.263.963.663.3
2665.565.164.664.263.963.563.262.962.6
2765.064.564.163.763.262.962.562.261.9
2864.564.063.563.162.762.361.961.561.2
2964.163.563.062.662.161.761.360.960.5
3063.763.162.662.061.661.160.760.359.9
3163.262.762.161.661.160.660.159.759.3
3262.962.361.761.160.660.159.659.158.7
3362.561.961.360.760.159.659.158.658.1
3462.261.560.960.359.759.158.658.157.6
3561.961.260.559.959.358.758.157.657.1
3661.660.960.259.558.958.357.757.256.6
3761.360.659.959.258.657.957.356.756.2
3861.160.359.658.958.257.656.956.355.7
3960.960.159.458.657.957.256.655.955.3
4060.759.959.158.457.656.956.355.655.0
4160.559.758.958.157.456.756.055.354.6
4260.359.558.757.957.156.455.755.054.3
4360.159.358.557.756.956.255.454.754.0
4460.059.158.357.556.755.955.254.453.7
4559.859.058.157.356.555.754.954.253.4
4659.758.858.057.256.355.554.754.053.2
4759.658.757.957.056.255.454.553.753.0

November 30, 2020 1420 Bulletin No. 2020–49
4859.558.657.756.956.055.254.453.652.8
4959.458.557.656.755.955.054.253.452.6
5059.358.457.556.655.854.954.153.252.4
5159.258.357.456.555.654.853.953.152.2
5259.158.257.356.455.554.753.852.952.1
5359.058.157.256.355.454.653.752.852.0
5459.058.057.156.255.354.553.652.751.8
5558.958.057.156.255.354.453.552.651.7
5658.857.957.056.155.254.353.452.551.6
5758.857.956.956.055.154.253.352.451.5
5858.757.856.956.055.054.153.252.351.4
5958.757.856.855.955.054.153.252.251.3
6058.757.756.855.954.954.053.152.251.3
6158.657.756.755.854.954.053.052.151.2
6258.657.656.755.854.853.953.052.151.1
6358.657.656.755.754.853.952.952.051.1
6458.557.656.655.754.853.852.952.051.0
6558.557.556.655.754.753.852.851.951.0
6658.557.556.655.654.753.752.851.950.9
6758.557.556.555.654.753.752.851.850.9
6858.457.556.555.654.653.752.751.850.9
6958.457.556.555.654.653.752.751.850.8
7058.457.456.555.554.653.652.751.750.8
7158.457.456.555.554.653.652.751.750.8
7258.457.456.555.554.553.652.651.750.8
7358.457.456.455.554.553.652.651.750.7
7458.357.456.455.554.553.652.651.750.7
7558.357.456.455.554.553.552.651.650.7
7658.357.456.455.454.553.552.651.650.7
7758.357.356.455.454.553.552.651.650.7
7858.357.356.455.454.553.552.651.650.6
7958.357.356.455.454.553.552.551.650.6
8058.357.356.455.454.453.552.551.650.6
8158.357.356.455.454.453.552.551.650.6
8258.357.356.355.454.453.552.551.650.6
8358.357.356.355.454.453.552.551.650.6
8458.357.356.355.454.453.552.551.550.6
8558.357.356.355.454.453.552.551.550.6
8658.257.356.355.454.453.552.551.550.6
8758.257.356.355.454.453.452.551.550.6
8858.257.356.355.454.453.452.551.550.6
8958.257.356.355.454.453.452.551.550.6
9058.257.356.355.454.453.452.551.550.6
9158.257.356.355.354.453.452.551.550.6
9258.257.356.355.354.453.452.551.550.6

Bulletin No. 2020–49 1421 November 30, 2020
9358.257.356.355.354.453.452.551.550.6
9458.257.356.355.354.453.452.551.550.6
9558.257.356.355.354.453.452.551.550.6
9658.257.356.355.354.453.452.551.550.6
9758.257.356.355.354.453.452.551.550.6
9858.257.356.355.354.453.452.551.550.6
9958.257.356.355.354.453.452.551.550.6
10058.257.356.355.354.453.452.551.550.6
10158.257.356.355.354.453.452.551.550.6
10258.257.356.355.354.453.452.551.550.6
10358.257.356.355.354.453.452.551.550.5
10458.257.356.355.354.453.452.551.550.5
10558.257.356.355.354.453.452.551.550.5
10658.257.356.355.354.453.452.551.550.5
10758.257.356.355.354.453.452.551.550.5
10858.257.356.355.354.453.452.551.550.5
10958.257.356.355.354.453.452.551.550.5
11058.257.356.355.354.453.452.551.550.5
11158.257.356.355.354.453.452.551.550.5
11258.257.356.355.354.453.452.551.550.5
11358.257.356.355.354.453.452.551.550.5
11458.257.356.355.354.453.452.551.550.5
11558.257.356.355.354.453.452.551.550.5
11658.257.356.355.354.453.452.551.550.5
11758.257.356.355.354.453.452.551.550.5
11858.257.356.355.354.453.452.551.550.5
11958.257.356.355.354.453.452.551.550.5
120+58.257.356.355.354.453.452.551.550.5
Ages363738394041424344
085.285.285.285.185.185.185.085.085.0
184.384.384.384.284.284.284.184.184.1
283.483.383.383.383.283.283.283.183.1
382.482.482.382.382.382.282.282.282.2
481.581.481.481.481.381.381.381.281.2
580.580.580.480.480.480.380.380.380.2
679.679.579.579.579.479.479.379.379.3
778.778.678.678.578.578.478.478.378.3
877.777.777.677.677.577.577.477.477.3
976.876.776.776.676.676.576.576.476.4
1075.975.875.775.775.675.675.575.575.4
1175.074.974.874.774.774.674.674.574.5
1274.074.073.973.873.773.773.673.673.5
1373.173.173.072.972.872.872.772.672.6
1472.272.172.172.071.971.871.871.771.6
1571.471.371.271.171.070.970.870.870.7

November 30, 2020 1422 Bulletin No. 2020–49
1670.570.470.370.270.170.069.969.869.8
1769.669.569.469.369.269.169.068.968.8
1868.768.668.568.468.368.268.168.067.9
1967.967.767.667.567.467.367.267.167.0
2067.166.966.866.666.566.466.366.266.1
2166.266.165.965.865.665.565.465.365.2
2265.465.265.164.964.864.664.564.464.3
2364.664.464.264.163.963.863.663.563.4
2463.863.663.463.363.162.962.862.762.5
2563.162.862.662.462.362.161.961.861.7
2662.362.161.961.661.561.361.161.060.8
2761.661.361.160.960.760.560.360.160.0
2860.960.660.360.159.959.759.559.359.1
2960.259.959.659.459.158.958.758.558.3
3059.559.258.958.658.458.157.957.757.5
3158.958.658.257.957.657.457.156.956.7
3258.357.957.657.256.956.756.456.255.9
3357.757.356.956.656.356.055.755.455.2
3457.256.756.355.955.655.355.054.754.4
3556.656.255.755.355.054.654.354.053.7
3656.155.655.254.754.354.053.653.353.0
3755.655.154.654.253.853.453.052.652.3
3855.254.654.153.653.252.852.452.051.6
3954.754.253.653.152.752.251.851.451.0
4054.353.853.252.752.251.751.250.850.4
4154.053.452.852.251.751.250.750.249.8
4253.653.052.451.851.250.750.249.749.2
4353.352.652.051.450.850.249.749.248.7
4453.052.351.651.050.449.849.248.748.2
4552.752.051.350.750.049.448.848.347.7
4652.451.751.050.349.749.048.447.847.3
4752.251.550.750.049.348.748.047.446.8
4852.051.250.549.749.048.447.747.146.4
4951.851.050.249.548.848.147.446.746.1
5051.650.850.049.248.547.847.146.445.7
5151.450.649.849.048.347.546.846.145.4
5251.350.449.648.848.047.346.545.845.1
5351.150.349.548.647.847.146.345.644.8
5451.050.149.348.547.746.946.145.344.6
5550.950.049.148.347.546.745.945.144.3
5650.749.949.048.247.346.545.744.944.1
5750.649.848.948.047.246.345.544.743.9
5850.549.748.847.947.146.245.444.543.7
5950.549.648.747.846.946.145.244.443.6
6050.449.548.647.746.846.045.144.343.4

Bulletin No. 2020–49 1423 November 30, 2020
6150.349.448.547.646.745.845.044.143.3
6250.249.348.447.546.645.744.944.043.1
6350.249.348.347.446.545.744.843.943.0
6450.149.248.347.446.545.644.743.842.9
6550.149.148.247.346.445.544.643.742.8
6650.049.148.247.246.345.444.543.642.7
6750.049.048.147.246.345.444.443.542.6
6849.949.048.147.146.245.344.443.542.6
6949.949.048.047.146.245.244.343.442.5
7049.948.948.047.046.145.244.343.342.4
7149.848.947.947.046.145.144.243.342.4
7249.848.947.947.046.045.144.243.242.3
7349.848.847.946.946.045.144.143.242.3
7449.848.847.946.946.045.044.143.242.2
7549.748.847.846.945.945.044.143.142.2
7649.748.847.846.945.945.044.043.142.2
7749.748.847.846.945.945.044.043.142.1
7849.748.747.846.845.944.944.043.042.1
7949.748.747.846.845.944.944.043.042.1
8049.748.747.846.845.944.943.943.042.1
8149.748.747.746.845.844.943.943.042.0
8249.748.747.746.845.844.943.943.042.0
8349.648.747.746.845.844.943.943.042.0
8449.648.747.746.845.844.943.942.942.0
8549.648.747.746.845.844.843.942.942.0
8649.648.747.746.745.844.843.942.942.0
8749.648.747.746.745.844.843.942.942.0
8849.648.747.746.745.844.843.942.942.0
8949.648.747.746.745.844.843.942.941.9
9049.648.647.746.745.844.843.942.941.9
9149.648.647.746.745.844.843.942.941.9
9249.648.647.746.745.844.843.842.941.9
9349.648.647.746.745.844.843.842.941.9
9449.648.647.746.745.844.843.842.941.9
9549.648.647.746.745.844.843.842.941.9
9649.648.647.746.745.844.843.842.941.9
9749.648.647.746.745.844.843.842.941.9
9849.648.647.746.745.844.843.842.941.9
9949.648.647.746.745.844.843.842.941.9
10049.648.647.746.745.844.843.842.941.9
10149.648.647.746.745.844.843.842.941.9
10249.648.647.746.745.844.843.842.941.9
10349.648.647.746.745.844.843.842.941.9
10449.648.647.746.745.844.843.842.941.9
10549.648.647.746.745.744.843.842.941.9

November 30, 2020 1424 Bulletin No. 2020–49
10649.648.647.746.745.744.843.842.941.9
10749.648.647.746.745.744.843.842.941.9
10849.648.647.746.745.744.843.842.941.9
10949.648.647.746.745.744.843.842.941.9
11049.648.647.746.745.744.843.842.941.9
11149.648.647.746.745.744.843.842.941.9
11249.648.647.746.745.744.843.842.941.9
11349.648.647.746.745.744.843.842.941.9
11449.648.647.746.745.744.843.842.941.9
11549.648.647.746.745.744.843.842.941.9
11649.648.647.746.745.744.843.842.941.9
11749.648.647.746.745.744.843.842.941.9
11849.648.647.746.745.744.843.842.941.9
11949.648.647.746.745.744.843.842.941.9
120+49.648.647.746.745.744.843.842.941.9
Ages454647484950515253
085.084.984.984.984.984.984.884.884.8
184.184.084.084.084.084.084.083.983.9
283.183.183.183.083.083.083.083.083.0
382.182.182.182.182.182.082.082.082.0
481.281.181.181.181.181.181.081.081.0
580.280.280.280.180.180.180.180.180.0
679.279.279.279.279.179.179.179.179.1
778.378.278.278.278.278.178.178.178.1
877.377.377.377.277.277.277.277.177.1
976.476.376.376.376.276.276.276.276.1
1075.475.475.375.375.375.275.275.275.2
1174.474.474.474.374.374.374.274.274.2
1273.573.473.473.473.373.373.373.273.2
1372.572.572.472.472.472.372.372.372.3
1471.671.571.571.571.471.471.371.371.3
1570.670.670.570.570.570.470.470.470.3
1669.769.769.669.669.569.569.469.469.4
1768.868.768.768.668.668.568.568.468.4
1867.967.867.767.767.667.667.567.567.4
1966.966.966.866.766.766.666.666.566.5
2066.065.965.965.865.765.765.665.665.5
2165.165.065.064.964.864.864.764.764.6
2264.264.164.064.063.963.863.863.763.7
2363.363.263.163.063.062.962.862.862.7
2462.462.362.262.162.162.061.961.961.8
2561.561.461.361.261.261.161.060.960.9
2660.760.660.560.360.360.260.160.059.9
2759.859.759.659.559.459.359.259.159.0
2859.058.858.758.658.558.458.358.258.1

Bulletin No. 2020–49 1425 November 30, 2020
2958.158.057.957.757.657.557.457.357.2
3057.357.257.056.956.756.656.556.456.3
3156.556.356.256.055.955.855.655.555.4
3255.755.555.455.255.054.954.854.754.6
3354.954.754.554.454.254.153.953.853.7
3454.254.053.753.653.453.253.152.952.8
3553.453.253.052.852.652.452.252.152.0
3652.752.452.252.051.851.651.451.351.1
3752.051.751.551.251.050.850.650.450.3
3851.351.050.750.550.250.049.849.649.5
3950.750.350.049.749.549.249.048.848.6
4050.049.749.349.048.848.548.348.047.8
4149.449.048.748.448.147.847.547.347.1
4248.848.448.047.747.447.146.846.546.3
4348.347.847.447.146.746.446.145.845.6
4447.747.346.846.446.145.745.445.144.8
4547.246.746.345.945.545.144.744.444.1
4646.746.245.745.344.944.544.143.843.4
4746.345.745.244.844.343.943.543.142.8
4845.945.344.844.343.843.342.942.542.1
4945.544.944.343.843.342.842.341.941.5
5045.144.543.943.342.842.341.841.440.9
5144.744.143.542.942.341.841.340.840.4
5244.443.843.142.541.941.440.840.339.9
5344.143.442.842.141.540.940.439.939.4
5443.843.142.541.841.240.640.039.438.9
5543.642.942.241.540.840.239.639.038.4
5643.442.641.941.240.539.839.238.638.0
5743.142.441.640.940.239.538.938.237.6
5842.942.241.440.739.939.238.637.937.3
5942.842.041.240.439.739.038.337.636.9
6042.641.841.040.239.538.738.037.336.6
6142.441.640.840.039.238.537.737.036.3
6242.341.540.639.839.038.337.536.836.1
6342.241.340.539.738.938.137.336.635.8
6442.141.240.439.538.737.937.136.335.6
6541.941.140.239.438.637.736.936.235.4
6641.841.040.139.338.437.636.836.035.2
6741.840.940.039.138.337.536.635.835.0
6841.740.839.939.038.237.336.535.734.9
6941.640.739.838.938.137.236.435.534.7
7041.540.639.738.838.037.136.235.434.6
7141.540.639.738.837.937.036.135.334.5
7241.440.539.638.737.836.936.035.234.3
7341.440.439.538.637.736.836.035.134.2

November 30, 2020 1426 Bulletin No. 2020–49
7441.340.439.538.637.736.835.935.034.1
7541.340.339.438.537.636.735.834.934.1
7641.240.339.438.537.536.635.734.934.0
7741.240.339.338.437.536.635.734.833.9
7841.240.239.338.437.536.535.634.733.9
7941.140.239.338.337.436.535.634.733.8
8041.140.239.238.337.436.535.534.633.7
8141.140.139.238.337.336.435.534.633.7
8241.140.139.238.337.336.435.534.633.7
8341.140.139.238.237.336.435.434.533.6
8441.040.139.238.237.336.335.434.533.6
8541.040.139.138.237.336.335.434.533.6
8641.040.139.138.237.236.335.434.533.5
8741.040.139.138.237.236.335.434.433.5
8841.040.039.138.237.236.335.334.433.5
8941.040.039.138.137.236.335.334.433.5
9041.040.039.138.137.236.335.334.433.5
9141.040.039.138.137.236.235.334.433.5
9241.040.039.138.137.236.235.334.433.5
9341.040.039.138.137.236.235.334.433.4
9441.040.039.138.137.236.235.334.433.4
9541.040.039.138.137.236.235.334.433.4
9641.040.039.138.137.236.235.334.333.4
9741.040.039.138.137.236.235.334.333.4
9841.040.039.138.137.236.235.334.333.4
9941.040.039.138.137.236.235.334.333.4
10041.040.039.038.137.136.235.334.333.4
10141.040.039.038.137.136.235.334.333.4
10241.040.039.038.137.136.235.334.333.4
10341.040.039.038.137.136.235.334.333.4
10441.040.039.038.137.136.235.334.333.4
10541.040.039.038.137.136.235.334.333.4
10641.040.039.038.137.136.235.334.333.4
10741.040.039.038.137.136.235.334.333.4
10841.040.039.038.137.136.235.334.333.4
10941.040.039.038.137.136.235.334.333.4
11041.040.039.038.137.136.235.334.333.4
11141.040.039.038.137.136.235.334.333.4
11241.040.039.038.137.136.235.334.333.4
11341.040.039.038.137.136.235.334.333.4
11441.040.039.038.137.136.235.334.333.4
11541.040.039.038.137.136.235.334.333.4
11641.040.039.038.137.136.235.334.333.4
11741.040.039.038.137.136.235.334.333.4
11841.040.039.038.137.136.235.334.333.4

Bulletin No. 2020–49 1427 November 30, 2020
11941.040.039.038.137.136.235.334.333.4
120+41.040.039.038.137.136.235.334.333.4
Ages545556575859606162
084.884.884.884.884.884.784.784.784.7
183.983.983.983.983.983.983.883.883.8
282.982.982.982.982.982.982.982.982.9
382.082.081.981.981.981.981.981.981.9
481.081.081.081.080.980.980.980.980.9
580.080.080.080.080.080.079.979.979.9
679.079.079.079.079.079.079.079.078.9
778.178.178.078.078.078.078.078.078.0
877.177.177.177.077.077.077.077.077.0
976.176.176.176.176.176.076.076.076.0
1075.175.175.175.175.175.175.075.075.0
1174.274.274.174.174.174.174.174.174.0
1273.273.273.273.173.173.173.173.173.1
1372.272.272.272.272.172.172.172.172.1
1471.371.271.271.271.271.271.171.171.1
1570.370.370.270.270.270.270.270.170.1
1669.369.369.369.369.269.269.269.269.2
1768.468.368.368.368.368.268.268.268.2
1867.467.467.467.367.367.367.367.267.2
1966.566.466.466.466.366.366.366.366.2
2065.565.565.465.465.465.465.365.365.3
2164.664.564.564.564.464.464.464.364.3
2263.663.663.563.563.563.463.463.463.4
2362.762.662.662.562.562.562.462.462.4
2461.761.761.661.661.661.561.561.561.4
2560.860.860.760.760.660.660.560.560.5
2659.959.859.859.759.759.659.659.659.5
2759.058.958.858.858.758.758.758.658.6
2858.058.057.957.957.857.857.757.757.6
2957.157.157.056.956.956.856.856.756.7
3056.256.256.156.056.055.955.955.855.8
3155.355.355.255.155.055.054.954.954.8
3254.554.454.354.254.154.154.054.053.9
3353.653.553.453.353.253.253.153.053.0
3452.752.652.552.452.352.252.252.152.1
3551.851.751.651.551.451.351.351.251.1
3651.050.950.750.650.550.550.450.350.2
3750.150.049.949.849.749.649.549.449.3
3849.349.149.048.948.848.748.648.548.4
3948.548.348.248.047.947.847.747.647.5
4047.747.547.347.247.146.946.846.746.6
4146.946.746.546.346.246.146.045.845.7

November 30, 2020 1428 Bulletin No. 2020–49
4246.145.945.745.545.445.245.145.044.9
4345.345.144.944.744.544.444.344.144.0
4444.644.344.143.943.743.643.443.343.1
4543.843.643.443.142.942.842.642.442.3
4643.142.942.642.442.242.041.841.641.5
4742.542.241.941.641.441.241.040.840.6
4841.841.541.240.940.740.440.240.039.8
4941.240.840.540.239.939.739.539.239.0
5040.640.239.839.539.239.038.738.538.3
5140.039.639.238.938.638.338.037.737.5
5239.439.038.638.237.937.637.337.036.8
5338.938.438.037.637.336.936.636.336.1
5438.437.937.537.136.736.336.035.735.4
5537.937.436.936.536.135.735.335.034.7
5637.536.936.536.035.535.134.834.434.1
5737.136.536.035.535.034.634.233.833.4
5836.736.135.535.034.534.133.633.232.8
5936.335.735.134.634.133.633.132.732.3
6036.035.334.834.233.633.132.632.231.7
6135.735.034.433.833.232.732.231.731.2
6235.434.734.133.432.832.331.731.230.8
6335.134.433.833.132.531.931.330.830.3
6434.934.233.532.832.231.531.030.429.9
6534.633.933.232.531.931.230.630.029.5
6634.433.733.032.331.630.930.329.729.1
6734.233.532.732.031.330.630.029.428.7
6834.133.332.531.831.130.429.729.128.4
6933.933.132.331.630.930.129.428.828.1
7033.833.032.231.430.729.929.228.527.9
7133.632.832.031.230.529.729.028.327.6
7233.532.731.931.130.329.528.828.127.4
7333.432.631.730.930.129.428.627.927.2
7433.332.431.630.830.029.228.427.727.0
7533.232.431.530.729.929.128.327.526.8
7633.132.331.430.629.829.028.227.426.6
7733.032.231.330.529.728.828.027.326.5
7833.032.131.230.429.628.727.927.126.4
7932.932.031.230.329.528.727.827.026.2
8032.932.031.130.329.428.627.826.926.1
8132.831.931.130.229.328.527.726.926.0
8232.831.931.030.129.328.427.626.826.0
8332.731.831.030.129.228.427.526.725.9
8432.731.830.930.029.228.327.526.725.8
8532.731.830.930.029.128.327.426.625.8
8632.631.730.930.029.128.227.426.625.7

Bulletin No. 2020–49 1429 November 30, 2020
8732.631.730.829.929.128.227.426.525.7
8832.631.730.829.929.028.227.326.525.6
8932.631.730.829.929.028.227.326.425.6
9032.631.730.829.929.028.127.326.425.6
9132.531.630.729.929.028.127.326.425.6
9232.531.630.729.829.028.127.226.425.5
9332.531.630.729.829.028.127.226.425.5
9432.531.630.729.828.928.127.226.325.5
9532.531.630.729.828.928.127.226.325.5
9632.531.630.729.828.928.027.226.325.5
9732.531.630.729.828.928.027.226.325.5
9832.531.630.729.828.928.027.226.325.5
9932.531.630.729.828.928.027.226.325.4
10032.531.630.729.828.928.027.126.325.4
10132.531.630.729.828.928.027.126.325.4
10232.531.630.729.828.928.027.126.325.4
10332.531.630.729.828.928.027.126.325.4
10432.531.630.729.828.928.027.126.325.4
10532.531.630.729.828.928.027.126.325.4
10632.531.630.729.828.928.027.126.325.4
10732.531.630.729.828.928.027.126.325.4
10832.531.630.729.828.928.027.126.325.4
10932.531.630.729.828.928.027.126.325.4
11032.531.630.729.828.928.027.126.325.4
11132.531.630.729.828.928.027.126.325.4
11232.531.630.729.828.928.027.126.325.4
11332.531.630.729.828.928.027.126.325.4
11432.531.630.729.828.928.027.126.325.4
11532.531.630.729.828.928.027.126.325.4
11632.531.630.729.828.928.027.126.325.4
11732.531.630.729.828.928.027.126.325.4
11832.531.630.729.828.928.027.126.325.4
11932.531.630.729.828.928.027.126.225.4
120+32.531.630.629.828.928.027.126.225.4
Ages636465666768697071
084.784.784.784.784.784.784.784.784.7
183.883.883.883.883.883.883.883.883.8
282.982.882.882.882.882.882.882.882.8
381.981.981.981.981.981.881.881.881.8
480.980.980.980.980.980.980.980.980.9
579.979.979.979.979.979.979.979.979.9
678.978.978.978.978.978.978.978.978.9
778.077.977.977.977.977.977.977.977.9
877.077.077.076.976.976.976.976.976.9
976.076.076.076.076.075.975.975.975.9

November 30, 2020 1430 Bulletin No. 2020–49
1075.075.075.075.075.075.075.074.974.9
1174.074.074.074.074.074.074.074.074.0
1273.073.073.073.073.073.073.073.073.0
1372.172.172.072.072.072.072.072.072.0
1471.171.171.171.171.071.071.071.071.0
1570.170.170.170.170.170.170.070.070.0
1669.169.169.169.169.169.169.169.169.0
1768.268.268.168.168.168.168.168.168.1
1867.267.267.267.267.167.167.167.167.1
1966.266.266.266.266.266.266.166.166.1
2065.365.265.265.265.265.265.265.265.1
2164.364.364.364.264.264.264.264.264.2
2263.363.363.363.363.363.263.263.263.2
2362.462.362.362.362.362.362.362.262.2
2461.461.461.461.361.361.361.361.361.3
2560.560.460.460.460.460.360.360.360.3
2659.559.559.559.459.459.459.459.459.3
2758.658.558.558.558.558.458.458.458.4
2857.657.657.557.557.557.557.557.457.4
2956.756.656.656.656.556.556.556.556.5
3055.755.755.755.655.655.655.655.555.5
3154.854.854.754.754.754.654.654.654.6
3253.953.853.853.753.753.753.753.653.6
3352.952.952.852.852.852.752.752.752.7
3452.052.051.951.951.851.851.851.751.7
3551.151.051.050.950.950.950.850.850.8
3650.250.150.150.050.049.949.949.949.8
3749.349.249.149.149.049.049.048.948.9
3848.348.348.248.248.148.148.048.047.9
3947.447.447.347.247.247.147.147.047.0
4046.546.546.446.346.346.246.246.146.1
4145.745.645.545.445.445.345.245.245.1
4244.844.744.644.544.444.444.344.344.2
4343.943.843.743.643.543.543.443.343.3
4443.042.942.842.742.642.642.542.442.4
4542.242.141.941.841.841.741.641.541.5
4641.341.241.141.040.940.840.740.640.6
4740.540.440.240.140.039.939.839.739.7
4839.739.539.439.339.139.038.938.838.8
4938.938.738.638.438.338.238.138.037.9
5038.137.937.737.637.537.337.237.137.0
5137.337.136.936.836.636.536.436.236.1
5236.636.336.236.035.835.735.535.435.3
5335.835.635.435.235.034.934.734.634.5
5435.134.934.634.434.234.133.933.833.6

Bulletin No. 2020–49 1431 November 30, 2020
5534.434.233.933.733.533.333.133.032.8
5633.833.533.233.032.732.532.332.232.0
5733.132.832.532.332.031.831.631.431.2
5832.532.231.931.631.331.130.930.730.5
5931.931.531.230.930.630.430.129.929.7
6031.331.030.630.330.029.729.429.229.0
6130.830.430.029.729.429.128.828.528.3
6230.329.929.529.128.728.428.127.927.6
6329.829.428.928.528.227.827.527.226.9
6429.428.928.428.027.627.226.926.626.3
6528.928.428.027.527.126.726.326.025.7
6628.528.027.527.026.626.225.825.425.1
6728.227.627.126.626.125.725.324.924.5
6827.827.226.726.225.725.224.824.324.0
6927.526.926.325.825.324.824.323.923.4
7027.226.626.025.424.924.323.923.422.9
7126.926.325.725.124.524.023.422.922.5
7226.726.025.424.824.223.623.122.522.0
7326.525.825.124.523.923.322.722.221.6
7426.225.524.924.223.623.022.421.821.3
7526.125.324.624.023.322.722.121.520.9
7625.925.224.423.723.122.421.821.220.6
7725.725.024.323.522.922.221.520.920.3
7825.624.824.123.422.722.021.320.620.0
7925.524.723.923.222.521.821.120.419.8
8025.324.623.823.122.321.620.920.219.6
8125.224.523.722.922.221.520.720.019.4
8225.224.423.622.822.121.320.619.919.2
8325.124.323.522.722.021.220.519.719.0
8425.024.223.422.621.921.120.419.618.9
8525.024.123.322.621.821.020.319.518.8
8624.924.123.322.521.720.920.219.418.7
8724.924.023.222.421.620.920.119.318.6
8824.824.023.222.421.620.820.019.218.5
8924.824.023.122.321.520.720.019.218.4
9024.723.923.122.321.520.719.919.118.4
9124.723.923.122.321.520.719.919.118.3
9224.723.923.022.221.420.619.819.018.3
9324.723.823.022.221.420.619.819.018.2
9424.723.823.022.221.420.619.819.018.2
9524.623.823.022.221.420.619.718.918.2
9624.623.823.022.221.320.519.718.918.1
9724.623.823.022.121.320.519.718.918.1
9824.623.822.922.121.320.519.718.918.1
9924.623.822.922.121.320.519.718.918.1

November 30, 2020 1432 Bulletin No. 2020–49
10024.623.822.922.121.320.519.718.918.1
10124.623.822.922.121.320.519.718.918.1
10224.623.722.922.121.320.519.718.818.0
10324.623.722.922.121.320.519.618.818.0
10424.623.722.922.121.320.519.618.818.0
10524.623.722.922.121.320.519.618.818.0
10624.623.722.922.121.320.519.618.818.0
10724.623.722.922.121.320.519.618.818.0
10824.623.722.922.121.320.519.618.818.0
10924.623.722.922.121.320.419.618.818.0
11024.623.722.922.121.320.419.618.818.0
11124.623.722.922.121.320.419.618.818.0
11224.623.722.922.121.320.419.618.818.0
11324.623.722.922.121.320.419.618.818.0
11424.623.722.922.121.320.419.618.818.0
11524.623.722.922.121.320.419.618.818.0
11624.623.722.922.121.320.419.618.818.0
11724.623.722.922.121.220.419.618.818.0
11824.523.722.922.121.220.419.618.818.0
11924.523.722.922.121.220.419.618.818.0
120+24.523.722.922.021.220.419.618.818.0
Ages727374757677787980
084.784.684.684.684.684.684.684.684.6
183.883.883.883.883.883.883.883.883.8
282.882.882.882.882.882.882.882.882.8
381.881.881.881.881.881.881.881.881.8
480.980.880.880.880.880.880.880.880.8
579.979.979.979.979.979.879.879.879.8
678.978.978.978.978.978.978.978.978.9
777.977.977.977.977.977.977.977.977.9
876.976.976.976.976.976.976.976.976.9
975.975.975.975.975.975.975.975.975.9
1074.974.974.974.974.974.974.974.974.9
1173.973.973.973.973.973.973.973.973.9
1273.073.073.072.972.972.972.972.972.9
1372.072.072.072.072.072.071.971.971.9
1471.071.071.071.071.071.071.071.071.0
1570.070.070.070.070.070.070.070.070.0
1669.069.069.069.069.069.069.069.069.0
1768.168.168.068.068.068.068.068.068.0
1867.167.167.167.167.167.067.067.067.0
1966.166.166.166.166.166.166.166.166.1
2065.165.165.165.165.165.165.165.165.1
2164.264.264.164.164.164.164.164.164.1
2263.263.263.263.263.263.163.163.163.1

Bulletin No. 2020–49 1433 November 30, 2020
2362.262.262.262.262.262.262.262.262.1
2461.361.261.261.261.261.261.261.261.2
2560.360.360.360.360.260.260.260.260.2
2659.359.359.359.359.359.359.359.359.2
2758.458.458.358.358.358.358.358.358.3
2857.457.457.457.457.457.357.357.357.3
2956.556.456.456.456.456.456.456.456.4
3055.555.555.555.555.455.455.455.455.4
3154.554.554.554.554.554.554.554.554.4
3253.653.653.653.553.553.553.553.553.5
3352.652.652.652.652.652.652.652.552.5
3451.751.751.751.651.651.651.651.651.6
3550.850.750.750.750.750.750.650.650.6
3649.849.849.849.749.749.749.749.749.7
3748.948.848.848.848.848.848.748.748.7
3847.947.947.947.847.847.847.847.847.8
3947.046.946.946.946.946.946.846.846.8
4046.046.046.045.945.945.945.945.945.9
4145.145.145.045.045.045.044.944.944.9
4244.244.144.144.144.044.044.044.043.9
4343.243.243.243.143.143.143.043.043.0
4442.342.342.242.242.242.142.142.142.1
4541.441.441.341.341.241.241.241.141.1
4640.540.440.440.340.340.340.240.240.2
4739.639.539.539.439.439.339.339.339.2
4838.738.638.638.538.538.438.438.338.3
4937.837.737.737.637.537.537.537.437.4
5036.936.836.836.736.636.636.536.536.5
5136.036.035.935.835.735.735.635.635.5
5235.235.135.034.934.934.834.734.734.6
5334.334.234.134.134.033.933.933.833.7
5433.533.433.333.233.133.033.032.932.9
5532.732.632.432.432.332.232.132.032.0
5631.931.731.631.531.431.331.231.231.1
5731.130.930.830.730.630.530.430.330.3
5830.330.130.029.929.829.729.629.529.4
5929.529.429.229.129.028.828.728.728.6
6028.828.628.428.328.228.027.927.827.8
6128.127.927.727.527.427.327.127.026.9
6227.427.227.026.826.626.526.426.226.1
6326.726.526.226.125.925.725.625.525.3
6426.025.825.525.325.225.024.824.724.6
6525.425.124.924.624.424.324.123.923.8
6624.824.524.224.023.723.523.423.223.1
6724.223.923.623.323.122.922.722.522.3

November 30, 2020 1434 Bulletin No. 2020–49
6823.623.323.022.722.422.222.021.821.6
6923.122.722.422.121.821.521.321.120.9
7022.522.221.821.521.220.920.620.420.2
7122.021.621.320.920.620.320.019.819.6
7221.621.120.720.420.019.719.419.218.9
7321.120.720.319.919.519.118.818.618.3
7420.720.319.819.419.018.618.318.017.7
7520.419.919.418.918.518.117.817.417.1
7620.019.519.018.518.117.717.316.916.6
7719.719.118.618.117.717.216.816.416.1
7819.418.818.317.817.316.816.416.015.6
7919.218.618.017.416.916.416.015.615.2
8018.918.317.717.116.616.115.615.214.7
8118.718.117.416.916.315.815.314.814.4
8218.517.917.216.616.015.515.014.514.0
8318.317.717.016.415.815.214.714.213.7
8418.217.516.816.215.615.014.413.913.4
8518.117.416.716.015.414.814.213.613.1
8617.917.216.515.915.214.614.013.412.9
8717.817.116.415.715.114.413.813.212.7
8817.717.016.315.614.914.313.713.112.5
8917.716.916.215.514.814.213.512.912.3
9017.616.916.115.414.714.113.412.812.2
9117.516.816.115.314.614.013.312.712.1
9217.516.716.015.314.613.913.212.611.9
9317.416.715.915.214.513.813.112.511.9
9417.416.615.915.214.413.713.112.411.8
9517.416.615.915.114.413.713.012.311.7
9617.416.615.815.114.313.612.912.311.6
9717.316.615.815.014.313.612.912.211.6
9817.316.515.815.014.313.612.912.211.5
9917.316.515.715.014.313.512.812.211.5
10017.316.515.715.014.213.512.812.111.5
10117.316.515.715.014.213.512.812.111.4
10217.316.515.714.914.213.512.812.111.4
10317.316.515.714.914.213.512.812.111.4
10417.216.515.714.914.213.512.712.011.4
10517.216.515.714.914.213.412.712.011.4
10617.216.515.714.914.213.412.712.011.4
10717.216.515.714.914.213.412.712.011.4
10817.216.515.714.914.213.412.712.011.4
10917.216.415.714.914.213.412.712.011.3
11017.216.415.714.914.213.412.712.011.3
11117.216.415.714.914.213.412.712.011.3
11217.216.415.714.914.213.412.712.011.3

Bulletin No. 2020–49 1435 November 30, 2020
11317.216.415.714.914.213.412.712.011.3
11417.216.415.714.914.113.412.712.011.3
11517.216.415.714.914.113.412.712.011.3
11617.216.415.614.914.113.412.712.011.3
11717.216.415.614.914.113.412.712.011.3
11817.216.415.614.914.113.412.611.911.3
11917.216.415.614.814.113.412.611.911.2
120+17.216.415.614.814.113.312.611.911.2
Ages818283848586878889
084.684.684.684.684.684.684.684.684.6
183.883.883.783.783.783.783.783.783.7
282.882.882.882.882.882.882.882.882.8
381.881.881.881.881.881.881.881.881.8
480.880.880.880.880.880.880.880.880.8
579.879.879.879.879.879.879.879.879.8
678.978.978.978.978.878.878.878.878.8
777.977.977.977.977.977.977.977.977.9
876.976.976.976.976.976.976.976.976.9
975.975.975.975.975.975.975.975.975.9
1074.974.974.974.974.974.974.974.974.9
1173.973.973.973.973.973.973.973.973.9
1272.972.972.972.972.972.972.972.972.9
1371.971.971.971.971.971.971.971.971.9
1471.070.970.970.970.970.970.970.970.9
1570.070.070.070.070.070.070.069.969.9
1669.069.069.069.069.069.069.069.069.0
1768.068.068.068.068.068.068.068.068.0
1867.067.067.067.067.067.067.067.067.0
1966.066.066.066.066.066.066.066.066.0
2065.165.165.165.165.165.165.065.065.0
2164.164.164.164.164.164.164.164.164.1
2263.163.163.163.163.163.163.163.163.1
2362.162.162.162.162.162.162.162.162.1
2461.261.261.261.261.261.161.161.161.1
2560.260.260.260.260.260.260.260.260.2
2659.259.259.259.259.259.259.259.259.2
2758.358.358.358.358.358.258.258.258.2
2857.357.357.357.357.357.357.357.357.3
2956.456.356.356.356.356.356.356.356.3
3055.455.455.455.455.455.455.455.455.4
3154.454.454.454.454.454.454.454.454.4
3253.553.553.553.553.553.553.453.453.4
3352.552.552.552.552.552.552.552.552.5
3451.651.651.651.551.551.551.551.551.5
3550.650.650.650.650.650.650.650.650.6

November 30, 2020 1436 Bulletin No. 2020–49
3649.749.749.649.649.649.649.649.649.6
3748.748.748.748.748.748.748.748.748.7
3847.747.747.747.747.747.747.747.747.7
3946.846.846.846.846.846.746.746.746.7
4045.845.845.845.845.845.845.845.845.8
4144.944.944.944.944.844.844.844.844.8
4243.943.943.943.943.943.943.943.943.9
4343.043.043.042.942.942.942.942.942.9
4442.042.042.042.042.042.042.042.041.9
4541.141.141.141.041.041.041.041.041.0
4640.140.140.140.140.140.140.140.040.0
4739.239.239.239.239.139.139.139.139.1
4838.338.338.238.238.238.238.238.238.1
4937.337.337.337.337.337.237.237.237.2
5036.436.436.436.336.336.336.336.336.3
5135.535.535.435.435.435.435.435.335.3
5234.634.634.534.534.534.534.434.434.4
5333.733.733.633.633.633.533.533.533.5
5432.832.832.732.732.732.632.632.632.6
5531.931.931.831.831.831.731.731.731.7
5631.131.031.030.930.930.930.830.830.8
5730.230.130.130.030.030.029.929.929.9
5829.329.329.229.229.129.129.129.029.0
5928.528.428.428.328.328.228.228.228.2
6027.727.627.527.527.427.427.427.327.3
6126.926.826.726.726.626.626.526.526.4
6226.026.025.925.825.825.725.725.625.6
6325.225.225.125.025.024.924.924.824.8
6424.524.424.324.224.124.124.024.024.0
6523.723.623.523.423.323.323.223.223.1
6622.922.822.722.622.622.522.422.422.3
6722.222.122.021.921.821.721.621.621.5
6821.521.321.221.121.020.920.920.820.7
6920.720.620.520.420.320.220.120.020.0
7020.019.919.719.619.519.419.319.219.2
7119.419.219.018.918.818.718.618.518.4
7218.718.518.318.218.117.917.817.717.7
7318.117.917.717.517.417.217.117.016.9
7417.417.217.016.816.716.516.416.316.2
7516.916.616.416.216.015.915.715.615.5
7616.316.015.815.615.415.215.114.914.8
7715.815.515.215.014.814.614.414.314.2
7815.315.014.714.414.214.013.813.713.5
7914.814.514.213.913.613.413.213.112.9
8014.414.013.713.413.112.912.712.512.3

Bulletin No. 2020–49 1437 November 30, 2020
8114.013.613.212.912.612.412.212.011.8
8213.613.212.812.512.211.911.711.511.3
8313.212.812.412.111.811.511.211.010.8
8412.912.512.111.711.411.110.810.510.3
8512.612.211.811.411.010.710.410.19.9
8612.411.911.511.110.710.410.09.89.5
8712.211.711.210.810.410.09.79.49.1
8812.011.511.010.510.19.89.49.18.8
8911.811.310.810.39.99.59.18.88.5
9011.611.110.610.19.79.38.98.68.3
9111.510.910.49.99.59.18.78.38.0
9211.410.810.39.89.38.98.58.17.8
9311.310.710.19.69.28.78.37.97.6
9411.210.610.09.59.08.68.27.87.4
9511.110.59.99.48.98.58.07.67.3
9611.010.49.99.38.88.47.97.57.1
9711.010.49.89.28.78.37.87.47.0
9810.910.39.79.28.78.27.77.36.9
9910.910.29.79.18.68.17.67.26.8
10010.810.29.69.18.58.07.67.26.8
10110.810.29.69.08.58.07.57.16.7
10210.810.19.69.08.58.07.57.06.6
10310.710.19.59.08.47.97.47.06.6
10410.710.19.58.98.47.97.47.06.6
10510.710.19.58.98.47.97.46.96.5
10610.710.19.58.98.47.97.46.96.5
10710.710.19.58.98.47.97.46.96.5
10810.710.19.58.98.47.87.46.96.5
10910.710.19.58.98.47.87.46.96.5
11010.710.19.58.98.37.87.46.96.5
11110.710.19.58.98.37.87.36.96.5
11210.710.19.58.98.37.87.36.96.5
11310.710.09.48.98.37.87.36.96.4
11410.710.09.48.98.37.87.36.96.4
11510.710.09.48.88.37.87.36.86.4
11610.610.09.48.88.37.77.36.86.4
11710.610.09.48.88.27.77.26.86.3
11810.610.09.38.88.27.77.26.76.3
11910.69.99.38.78.27.67.16.66.2
120+10.59.99.38.78.17.67.16.66.1
Ages909192939495969798
084.684.684.684.684.684.684.684.684.6
183.783.783.783.783.783.783.783.783.7
282.882.882.882.882.882.882.882.882.8
381.881.881.881.881.881.881.881.881.8

November 30, 2020 1438 Bulletin No. 2020–49
480.880.880.880.880.880.880.880.880.8
579.879.879.879.879.879.879.879.879.8
678.878.878.878.878.878.878.878.878.8
777.977.977.977.977.977.977.977.977.9
876.976.976.976.976.976.976.976.976.9
975.975.975.975.975.975.975.975.975.9
1074.974.974.974.974.974.974.974.974.9
1173.973.973.973.973.973.973.973.973.9
1272.972.972.972.972.972.972.972.972.9
1371.971.971.971.971.971.971.971.971.9
1470.970.970.970.970.970.970.970.970.9
1569.969.969.969.969.969.969.969.969.9
1669.069.069.069.069.069.069.069.069.0
1768.068.068.068.068.068.068.068.068.0
1867.067.067.067.067.067.067.067.067.0
1966.066.066.066.066.066.066.066.066.0
2065.065.065.065.065.065.065.065.065.0
2164.164.164.164.164.164.164.164.164.1
2263.163.163.163.163.163.163.163.163.1
2362.162.162.162.162.162.162.162.162.1
2461.161.161.161.161.161.161.161.161.1
2560.260.260.260.260.260.260.260.260.2
2659.259.259.259.259.259.259.259.259.2
2758.258.258.258.258.258.258.258.258.2
2857.357.357.357.357.357.357.357.357.3
2956.356.356.356.356.356.356.356.356.3
3055.455.355.355.355.355.355.355.355.3
3154.454.454.454.454.454.454.454.454.4
3253.453.453.453.453.453.453.453.453.4
3352.552.552.552.552.552.552.552.552.5
3451.551.551.551.551.551.551.551.551.5
3550.650.650.650.650.650.650.650.650.6
3649.649.649.649.649.649.649.649.649.6
3748.648.648.648.648.648.648.648.648.6
3847.747.747.747.747.747.747.747.747.7
3946.746.746.746.746.746.746.746.746.7
4045.845.845.845.845.845.845.845.845.8
4144.844.844.844.844.844.844.844.844.8
4243.943.943.843.843.843.843.843.843.8
4342.942.942.942.942.942.942.942.942.9
4441.941.941.941.941.941.941.941.941.9
4541.041.041.041.041.041.041.041.041.0
4640.040.040.040.040.040.040.040.040.0
4739.139.139.139.139.139.139.139.139.1
4838.138.138.138.138.138.138.138.138.1

Bulletin No. 2020–49 1439 November 30, 2020
4937.237.237.237.237.237.237.237.237.2
5036.336.236.236.236.236.236.236.236.2
5135.335.335.335.335.335.335.335.335.3
5234.434.434.434.434.434.434.334.334.3
5333.533.533.533.433.433.433.433.433.4
5432.632.532.532.532.532.532.532.532.5
5531.731.631.631.631.631.631.631.631.6
5630.830.730.730.730.730.730.730.730.7
5729.929.929.829.829.829.829.829.829.8
5829.029.029.029.028.928.928.928.928.9
5928.128.128.128.128.128.128.028.028.0
6027.327.327.227.227.227.227.227.227.2
6126.426.426.426.426.326.326.326.326.3
6225.625.625.525.525.525.525.525.525.5
6324.724.724.724.724.724.624.624.624.6
6423.923.923.923.823.823.823.823.823.8
6523.123.123.023.023.023.023.023.022.9
6622.322.322.222.222.222.222.222.122.1
6721.521.521.421.421.421.421.321.321.3
6820.720.720.620.620.620.620.520.520.5
6919.919.919.819.819.819.719.719.719.7
7019.119.119.019.019.018.918.918.918.9
7118.418.318.318.218.218.218.118.118.1
7217.617.517.517.417.417.417.417.317.3
7316.916.816.716.716.616.616.616.616.5
7416.116.116.015.915.915.915.815.815.8
7515.415.315.315.215.215.115.115.015.0
7614.714.614.614.514.414.414.314.314.3
7714.114.013.913.813.713.713.613.613.6
7813.413.313.213.113.113.012.912.912.9
7912.812.712.612.512.412.312.312.212.2
8012.212.111.911.911.811.711.611.611.5
8111.611.511.411.311.211.111.011.010.9
8211.110.910.810.710.610.510.410.410.3
8310.610.410.310.110.09.99.99.89.7
8410.19.99.89.69.59.49.39.29.2
859.79.59.39.29.08.98.88.78.7
869.39.18.98.78.68.58.48.38.2
878.98.78.58.38.28.07.97.87.7
888.68.38.17.97.87.67.57.47.3
898.38.07.87.67.47.37.17.06.9
908.07.77.57.37.16.96.86.76.6
917.77.57.27.06.86.66.56.46.2
927.57.27.06.76.56.46.26.15.9
937.37.06.76.56.36.15.95.85.7

November 30, 2020 1440 Bulletin No. 2020–49
947.16.86.56.36.15.95.75.55.4
956.96.66.46.15.95.75.55.35.2
966.86.56.25.95.75.55.35.15.0
976.76.46.15.85.55.35.14.94.8
986.66.25.95.75.45.25.04.84.6
996.56.15.85.55.35.04.84.64.5
1006.46.05.75.45.24.94.74.54.3
1016.36.05.65.35.14.84.64.44.2
1026.35.95.65.35.04.74.54.34.1
1036.25.95.55.24.94.74.54.24.1
1046.25.85.55.24.94.64.44.24.0
1056.15.85.45.14.94.64.44.14.0
1066.15.85.45.14.84.64.34.13.9
1076.15.85.45.14.84.64.34.13.9
1086.15.75.45.14.84.54.34.13.9
1096.15.75.45.14.84.54.34.13.9
1106.15.75.45.14.84.54.34.13.9
1116.15.75.45.14.84.54.34.13.9
1126.15.75.45.14.84.54.34.03.8
1136.15.75.35.04.74.54.24.03.8
1146.05.75.35.04.74.44.24.03.8
1156.05.65.35.04.74.44.24.03.8
1166.05.65.24.94.64.44.13.93.7
1175.95.55.24.94.64.34.03.83.6
1185.85.55.14.84.54.23.93.73.5
1195.85.45.04.74.44.13.83.63.3
120+5.75.34.94.64.34.03.73.43.2
Ages99100101102103104105106107
084.684.684.684.684.684.684.684.684.6
183.783.783.783.783.783.783.783.783.7
282.882.882.882.882.882.882.882.882.8
381.881.881.881.881.881.881.881.881.8
480.880.880.880.880.880.880.880.880.8
579.879.879.879.879.879.879.879.879.8
678.878.878.878.878.878.878.878.878.8
777.977.977.977.977.977.977.977.977.9
876.976.976.976.976.976.976.976.976.9
975.975.975.975.975.975.975.975.975.9
1074.974.974.974.974.974.974.974.974.9
1173.973.973.973.973.973.973.973.973.9
1272.972.972.972.972.972.972.972.972.9
1371.971.971.971.971.971.971.971.971.9
1470.970.970.970.970.970.970.970.970.9
1569.969.969.969.969.969.969.969.969.9
1669.069.069.069.069.069.069.069.069.0

Bulletin No. 2020–49 1441 November 30, 2020
1768.068.068.068.068.068.068.068.068.0
1867.067.067.067.067.067.067.067.067.0
1966.066.066.066.066.066.066.066.066.0
2065.065.065.065.065.065.065.065.065.0
2164.164.164.164.164.164.164.164.164.1
2263.163.163.163.163.163.163.163.163.1
2362.162.162.162.162.162.162.162.162.1
2461.161.161.161.161.161.161.161.161.1
2560.260.260.260.260.260.260.260.260.2
2659.259.259.259.259.259.259.259.259.2
2758.258.258.258.258.258.258.258.258.2
2857.357.357.357.357.357.357.357.357.3
2956.356.356.356.356.356.356.356.356.3
3055.355.355.355.355.355.355.355.355.3
3154.454.454.454.454.454.454.454.454.4
3253.453.453.453.453.453.453.453.453.4
3352.552.552.552.552.552.552.552.552.5
3451.551.551.551.551.551.551.551.551.5
3550.650.650.650.650.550.550.550.550.5
3649.649.649.649.649.649.649.649.649.6
3748.648.648.648.648.648.648.648.648.6
3847.747.747.747.747.747.747.747.747.7
3946.746.746.746.746.746.746.746.746.7
4045.845.845.845.845.845.845.745.745.7
4144.844.844.844.844.844.844.844.844.8
4243.843.843.843.843.843.843.843.843.8
4342.942.942.942.942.942.942.942.942.9
4441.941.941.941.941.941.941.941.941.9
4541.041.041.041.041.041.041.041.041.0
4640.040.040.040.040.040.040.040.040.0
4739.139.039.039.039.039.039.039.039.0
4838.138.138.138.138.138.138.138.138.1
4937.237.137.137.137.137.137.137.137.1
5036.236.236.236.236.236.236.236.236.2
5135.335.335.335.335.335.335.335.335.3
5234.334.334.334.334.334.334.334.334.3
5333.433.433.433.433.433.433.433.433.4
5432.532.532.532.532.532.532.532.532.5
5531.631.631.631.631.631.631.631.631.6
5630.730.730.730.730.730.730.730.730.7
5729.829.829.829.829.829.829.829.829.8
5828.928.928.928.928.928.928.928.928.9
5928.028.028.028.028.028.028.028.028.0
6027.227.127.127.127.127.127.127.127.1
6126.326.326.326.326.326.326.326.326.3

November 30, 2020 1442 Bulletin No. 2020–49
6225.425.425.425.425.425.425.425.425.4
6324.624.624.624.624.624.624.624.624.6
6423.823.823.823.723.723.723.723.723.7
6522.922.922.922.922.922.922.922.922.9
6622.122.122.122.122.122.122.122.122.1
6721.321.321.321.321.321.321.321.321.3
6820.520.520.520.520.520.520.520.520.5
6919.719.719.719.719.619.619.619.619.6
7018.918.918.918.818.818.818.818.818.8
7118.118.118.118.018.018.018.018.018.0
7217.317.317.317.317.317.217.217.217.2
7316.516.516.516.516.516.516.516.516.5
7415.715.715.715.715.715.715.715.715.7
7515.015.015.014.914.914.914.914.914.9
7614.314.214.214.214.214.214.214.214.2
7713.513.513.513.513.513.513.413.413.4
7812.812.812.812.812.812.712.712.712.7
7912.212.112.112.112.112.012.012.012.0
8011.511.511.411.411.411.411.411.411.4
8110.910.810.810.810.710.710.710.710.7
8210.210.210.210.110.110.110.110.110.1
839.79.69.69.69.59.59.59.59.5
849.19.19.09.09.08.98.98.98.9
858.68.58.58.58.48.48.48.48.4
868.18.08.08.07.97.97.97.97.9
877.67.67.57.57.47.47.47.47.4
887.27.27.17.07.07.06.96.96.9
896.86.86.76.66.66.66.56.56.5
906.56.46.36.36.26.26.16.16.1
916.16.06.05.95.95.85.85.85.8
925.85.75.65.65.55.55.45.45.4
935.55.45.35.35.25.25.15.15.1
945.35.25.15.04.94.94.94.84.8
955.04.94.84.74.74.64.64.64.6
964.84.74.64.54.54.44.44.34.3
974.64.54.44.34.24.24.14.14.1
984.54.34.24.14.14.04.03.93.9
994.34.24.14.03.93.83.83.83.7
1004.24.13.93.83.73.73.63.63.6
1014.13.93.83.73.63.53.53.53.4
1024.03.83.73.63.53.43.43.33.3
1033.93.73.63.53.43.33.33.23.2
1043.83.73.53.43.33.33.23.23.2
1053.83.63.53.43.33.23.13.13.1
1063.83.63.53.33.23.23.13.13.1

Bulletin No. 2020–49 1443 November 30, 2020
1073.73.63.43.33.23.23.13.13.0
1083.73.63.43.33.23.13.13.03.0
1093.73.63.43.33.23.13.13.03.0
1103.73.53.43.33.23.13.13.03.0
1113.73.53.43.33.23.13.03.03.0
1123.73.53.43.33.23.13.03.03.0
1133.63.53.43.23.13.13.03.02.9
1143.63.53.33.23.13.03.02.92.9
1153.63.43.33.23.13.02.92.92.9
1163.53.33.23.13.02.92.82.82.8
1173.43.33.13.02.92.82.72.72.7
1183.33.13.02.82.72.62.62.52.5
1193.12.92.82.62.52.42.42.32.3
120+3.02.82.62.52.32.22.12.12.1
Ages108109110111112113114115116
084.684.684.684.684.684.684.684.684.6
183.783.783.783.783.783.783.783.783.7
282.882.882.882.882.882.882.882.882.8
381.881.881.881.881.881.881.881.881.8
480.880.880.880.880.880.880.880.880.8
579.879.879.879.879.879.879.879.879.8
678.878.878.878.878.878.878.878.878.8
777.977.977.977.977.977.977.977.977.9
876.976.976.976.976.976.976.976.976.9
975.975.975.975.975.975.975.975.975.9
1074.974.974.974.974.974.974.974.974.9
1173.973.973.973.973.973.973.973.973.9
1272.972.972.972.972.972.972.972.972.9
1371.971.971.971.971.971.971.971.971.9
1470.970.970.970.970.970.970.970.970.9
1569.969.969.969.969.969.969.969.969.9
1669.069.069.069.069.069.069.069.069.0
1768.068.068.068.068.068.068.068.068.0
1867.067.067.067.067.067.067.067.067.0
1966.066.066.066.066.066.066.066.066.0
2065.065.065.065.065.065.065.065.065.0
2164.164.164.164.164.164.164.164.164.1
2263.163.163.163.163.163.163.163.163.1
2362.162.162.162.162.162.162.162.162.1
2461.161.161.161.161.161.161.161.161.1
2560.260.260.260.260.260.260.260.260.2
2659.259.259.259.259.259.259.259.259.2
2758.258.258.258.258.258.258.258.258.2
2857.357.357.357.357.357.357.357.357.3
2956.356.356.356.356.356.356.356.356.3

November 30, 2020 1444 Bulletin No. 2020–49
3055.355.355.355.355.355.355.355.355.3
3154.454.454.454.454.454.454.454.454.4
3253.453.453.453.453.453.453.453.453.4
3352.552.552.552.552.552.552.552.552.5
3451.551.551.551.551.551.551.551.551.5
3550.550.550.550.550.550.550.550.550.5
3649.649.649.649.649.649.649.649.649.6
3748.648.648.648.648.648.648.648.648.6
3847.747.747.747.747.747.747.747.747.7
3946.746.746.746.746.746.746.746.746.7
4045.745.745.745.745.745.745.745.745.7
4144.844.844.844.844.844.844.844.844.8
4243.843.843.843.843.843.843.843.843.8
4342.942.942.942.942.942.942.942.942.9
4441.941.941.941.941.941.941.941.941.9
4541.041.041.041.041.041.041.041.041.0
4640.040.040.040.040.040.040.040.040.0
4739.039.039.039.039.039.039.039.039.0
4838.138.138.138.138.138.138.138.138.1
4937.137.137.137.137.137.137.137.137.1
5036.236.236.236.236.236.236.236.236.2
5135.335.335.335.335.335.335.335.335.3
5234.334.334.334.334.334.334.334.334.3
5333.433.433.433.433.433.433.433.433.4
5432.532.532.532.532.532.532.532.532.5
5531.631.631.631.631.631.631.631.631.6
5630.730.730.730.730.730.730.730.730.7
5729.829.829.829.829.829.829.829.829.8
5828.928.928.928.928.928.928.928.928.9
5928.028.028.028.028.028.028.028.028.0
6027.127.127.127.127.127.127.127.127.1
6126.326.326.326.326.326.326.326.326.3
6225.425.425.425.425.425.425.425.425.4
6324.624.624.624.624.624.624.624.624.6
6423.723.723.723.723.723.723.723.723.7
6522.922.922.922.922.922.922.922.922.9
6622.122.122.122.122.122.122.122.122.1
6721.321.321.321.321.321.321.321.321.3
6820.520.420.420.420.420.420.420.420.4
6919.619.619.619.619.619.619.619.619.6
7018.818.818.818.818.818.818.818.818.8
7118.018.018.018.018.018.018.018.018.0
7217.217.217.217.217.217.217.217.217.2
7316.516.416.416.416.416.416.416.416.4
7415.715.715.715.715.715.715.715.715.6

Bulletin No. 2020–49 1445 November 30, 2020
7514.914.914.914.914.914.914.914.914.9
7614.214.214.214.214.214.214.114.114.1
7713.413.413.413.413.413.413.413.413.4
7812.712.712.712.712.712.712.712.712.7
7912.012.012.012.012.012.012.012.012.0
8011.411.311.311.311.311.311.311.311.3
8110.710.710.710.710.710.710.710.710.6
8210.110.110.110.110.110.010.010.010.0
839.59.59.59.59.59.49.49.49.4
848.98.98.98.98.98.98.98.88.8
858.48.48.38.38.38.38.38.38.3
867.87.87.87.87.87.87.87.87.7
877.47.47.47.37.37.37.37.37.3
886.96.96.96.96.96.96.96.86.8
896.56.56.56.56.56.46.46.46.4
906.16.16.16.16.16.16.06.06.0
915.75.75.75.75.75.75.75.65.6
925.45.45.45.45.45.35.35.35.2
935.15.15.15.15.15.05.05.04.9
944.84.84.84.84.84.74.74.74.6
954.54.54.54.54.54.54.44.44.4
964.34.34.34.34.34.24.24.24.1
974.14.14.14.14.04.04.04.03.9
983.93.93.93.93.83.83.83.83.7
993.73.73.73.73.73.63.63.63.5
1003.63.63.53.53.53.53.53.43.3
1013.43.43.43.43.43.43.33.33.2
1023.33.33.33.33.33.23.23.23.1
1033.23.23.23.23.23.13.13.13.0
1043.13.13.13.13.13.13.03.02.9
1053.13.13.13.03.03.03.02.92.8
1063.03.03.03.03.03.02.92.92.8
1073.03.03.03.03.02.92.92.92.8
1083.03.03.03.02.92.92.92.82.8
1093.03.03.03.02.92.92.92.82.8
1103.03.03.02.92.92.92.92.82.7
1113.03.02.92.92.92.92.82.82.7
1122.92.92.92.92.92.92.82.82.7
1132.92.92.92.92.92.82.82.82.7
1142.92.92.92.82.82.82.82.72.6
1152.82.82.82.82.82.82.72.72.6
1162.82.82.72.72.72.72.62.62.5
1172.72.62.62.62.62.62.52.52.4
1182.52.52.52.42.42.42.42.32.2
1192.32.32.22.22.22.22.12.12.0

November 30, 2020 1446 Bulletin No. 2020–49
120+2.02.02.02.02.01.91.91.81.8
Ages117118119120+
084.684.684.684.6
183.783.783.783.7
282.882.882.882.8
381.881.881.881.8
480.880.880.880.8
579.879.879.879.8
678.878.878.878.8
777.977.977.977.9
876.976.976.976.9
975.975.975.975.9
1074.974.974.974.9
1173.973.973.973.9
1272.972.972.972.9
1371.971.971.971.9
1470.970.970.970.9
1569.969.969.969.9
1669.069.069.069.0
1768.068.068.068.0
1867.067.067.067.0
1966.066.066.066.0
2065.065.065.065.0
2164.164.164.164.1
2263.163.163.163.1
2362.162.162.162.1
2461.161.161.161.1
2560.260.260.260.2
2659.259.259.259.2
2758.258.258.258.2
2857.357.357.357.3
2956.356.356.356.3
3055.355.355.355.3
3154.454.454.454.4
3253.453.453.453.4
3352.552.552.552.5
3451.551.551.551.5
3550.550.550.550.5
3649.649.649.649.6
3748.648.648.648.6
3847.747.747.747.7
3946.746.746.746.7
4045.745.745.745.7
4144.844.844.844.8
4243.843.843.843.8

Bulletin No. 2020–49 1447 November 30, 2020
4342.942.942.942.9
4441.941.941.941.9
4541.041.041.041.0
4640.040.040.040.0
4739.039.039.039.0
4838.138.138.138.1
4937.137.137.137.1
5036.236.236.236.2
5135.335.335.335.3
5234.334.334.334.3
5333.433.433.433.4
5432.532.532.532.5
5531.631.631.631.6
5630.730.730.730.6
5729.829.829.829.8
5828.928.928.928.9
5928.028.028.028.0
6027.127.127.127.1
6126.326.326.226.2
6225.425.425.425.4
6324.624.524.524.5
6423.723.723.723.7
6522.922.922.922.9
6622.122.122.122.0
6721.221.221.221.2
6820.420.420.420.4
6919.619.619.619.6
7018.818.818.818.8
7118.018.018.018.0
7217.217.217.217.2
7316.416.416.416.4
7415.615.615.615.6
7514.914.914.814.8
7614.114.114.114.1
7713.413.413.413.3
7812.712.612.612.6
7912.011.911.911.9
8011.311.311.211.2
8110.610.610.610.5
8210.010.09.99.9
839.49.39.39.3
848.88.88.78.7
858.28.28.28.1
867.77.77.67.6
877.27.27.17.1

November 30, 2020 1448 Bulletin No. 2020–49
886.86.76.66.6
896.36.36.26.1
905.95.85.85.7
915.55.55.45.3
925.25.15.04.9
934.94.84.74.6
944.64.54.44.3
954.34.24.14.0
964.03.93.83.7
973.83.73.63.4
983.63.53.33.2
993.43.33.13.0
1003.33.12.92.8
1013.13.02.82.6
1023.02.82.62.5
1032.92.72.52.3
1042.82.62.42.2
1052.72.62.42.1
1062.72.52.32.1
1072.72.52.32.1
1082.72.52.32.0
1092.62.52.32.0
1102.62.52.22.0
1112.62.42.22.0
1122.62.42.22.0
1132.62.42.21.9
1142.52.42.11.9
1152.52.32.11.8
1162.42.22.01.8
1172.32.11.91.6
1182.11.91.71.4
1191.91.71.31.1
120+1.61.41.11.0
(e) Mortality rates. The following are
the mortality rates used to calculate the
tables set forth in paragraphs (b), (c), and
(d) of this section.
Table 4 to Paragraph (e)
AgeProbability of Death
00.001762
10.000441
20.000292
30.000232
40.000177

Bulletin No. 2020–49 1449 November 30, 2020
AgeProbability of Death
50.000161
60.000153
70.000145
80.000132
90.000127
100.000128
110.000135
120.000146
130.000164
140.000192
150.000223
160.000253
170.000276
180.000293
190.000304
200.000313
210.000343
220.000377
230.000421
240.000466
250.000520
260.000581
270.000630
280.000677
290.000720
300.000763
310.000799
320.000824
330.000833
340.000830
350.000823
360.000819
370.000824
380.000836
390.000853
400.000879
410.000909
420.000945
430.000980
440.001019
450.001065
460.001132
470.001225
480.001345

November 30, 2020 1450 Bulletin No. 2020–49
AgeProbability of Death
490.001485
500.001656
510.001874
520.002121
530.002397
540.002701
550.003032
560.003390
570.003774
580.004181
590.004613
600.005071
610.005554
620.006071
630.006624
640.007225
650.007884
660.008238
670.008659
680.009163
690.009767
700.010491
710.011358
720.012385
730.013598
740.015014
750.016670
760.018587
770.020815
780.023391
790.026387
800.029850
810.033883
820.038544
830.043880
840.049956
850.056799
860.064436
870.072882
880.082137
890.092172
900.102919
910.114344
920.126605

Bulletin No. 2020–49 1451 November 30, 2020
AgeProbability of Death
930.139936
940.154844
950.171902
960.187210
970.204659
980.222921
990.241884
1000.261476
1010.281536
1020.301847
1030.322371
1040.342940
1050.361261
1060.372886
1070.381098
1080.383358
1090.385709
1100.388092
1110.390353
1120.392822
1130.395188
1140.397567
1150.400000
1160.400000
1170.400000
1180.400000
1190.400000
1200.400000
(f) Applicability dates—(1) In general.
The life expectancy tables and Uniform
Lifetime Table set forth in this section
apply for distribution calendar years be-
ginning on or after January 1, 2022. For
life expectancy tables and the Uniform
Lifetime Table applicable for earlier dis-
tribution calendar years, see §1.401(a)(9)-
9, as set forth in 26 CFR part 1 revised
as of April 1, 2020 (formerly applicable
§1.401(a)(9)-9).
(2) Application to life expectancies
that may not be recalculated—(i) Rede-
termination of initial life expectancy using
current tables. If an employee died before
January 1, 2022, and, under the rules of
§1.401(a)(9)-5, the distribution period
that applies for a calendar year follow-
ing the calendar year of the employee’s
death is equal to a single life expectancy
calculated as of the calendar year of the
employee’s death (or, if applicable, the
following calendar year), reduced by 1 for
each subsequent year, then that life expec-
tancy is reset as provided in paragraph (f)
(2)(ii) of this section. Similarly, if an em-
ployee’s sole beneficiary is the employ-
ee’s surviving spouse, and the spouse dies
before January 1, 2022, then the spouse’s
life expectancy for the calendar year of the
spouse’s death (which is used to determine
the applicable distribution period for later
years) is reset as provided in paragraph (f)
(2)(ii) of this section.
(ii) Determination of applicable dis-
tribution period—(A) Distribution pe-
riod based on new life expectancy. With
respect to a life expectancy described
in paragraph (f)(2)(i) of this section, the
distribution period that applies for a dis-
tribution calendar year beginning on or
after January 1, 2022, is determined by
using the Single Life Table in paragraph
(b) of this section to determine the initial
life expectancy for the age of the relevant
individual in the relevant calendar year
and then reducing the resulting distribu-
tion period by 1 for each subsequent year.
However, see section 401(a)(9)(H)(ii) and
(iii) for rules limiting the availability of a
life expectancy distribution period.
(B) Example of redetermination. As-
sume that an employee died at age 80
in 2019 and the employee’s designated
beneficiary (who was not the employee’s
spouse) was age 75 in the year of the em-
ployee’s death. For 2020, the distribution

November 30, 2020 1452 Bulletin No. 2020–49
period that would have applied for the
beneficiary was 12.7 years (the period
applicable for a 76-year-old under the
Single Life Table in formerly applicable
§1.401(a)(9)-9), and for 2021, it would
have been 11.7 years (the original dis-
tribution period, reduced by 1 year). For
2022, if the designated beneficiary is still
alive, then the applicable distribution peri-
od would be 12.1 years (the 14.1-year life
expectancy for a 76-year-old under the
Single Life Table in paragraph (b) of this
section, reduced by 2 years). However, see
section 401(a)(9)(H)(iii) for rules regard-
ing how to apply the required distribution
rules to defined contribution plans if the
eligible designated beneficiary dies prior
to distribution of the employee’s entire
interest.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: October 19, 2020.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on No-
vember 5, 2020, 4:15 p.m., and published in the issue
of the Federal Register for November 12, 2020, 85
F.R. 72472)

Bulletin No. 2020–49 1453 November 30, 2020
Part III
Part III – Administrative, Procedural, and
Miscellaneous
Forthcoming Regulations
Regarding the
Deductibility of Payments
by Partnerships and
S Corporations for Certain
State and Local Income
Taxes
Notice 2020-75
SECTION 1. PURPOSE
This notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to issue proposed regulations
to clarify that State and local income taxes
imposed on and paid by a partnership or
an S corporation on its income are allowed
as a deduction by the partnership or S cor-
poration in computing its non-separately
stated taxable income or loss for the tax-
able year of payment.
SECTION 2. BACKGROUND
.01 Computing taxable income or loss
(1) Section 164(a) of the Internal Rev-
enue Code (Code) generally allows a de-
duction for certain taxes for the taxable
year within which paid or accrued, includ-
ing: (i) State and local, and foreign, real
property taxes; (ii) State and local person-
al property taxes; and (iii) State and local,
and foreign, income, war profits, and ex-
cess profits taxes. In addition, section 164
allows a deduction for State and local, and
foreign, taxes not described in the pre-
ceding sentence that are paid or accrued
within the taxable year in carrying on a
trade or business or an activity described
in section 212 of the Code. Section 164(b)
(2) provides that, for purposes of section
164, a “State or local tax” includes only a
tax imposed by a State, a possession of the
United States, (U.S. territory), or a politi-
cal subdivision of any of the foregoing, or
by the District of Columbia.
(2) Section 703(a) of the Code gener-
ally provides that the taxable income of a
partnership is computed in the same man-
ner as in the case of an individual except
that the items described in section 702(a)
of the Code must be separately stated and
certain enumerated deductions are not
allowed to the partnership. For example,
section 703(a)(2)(B) disallows the deduc-
tion for taxes provided in section 164(a)
with respect to taxes described in section
901 of the Code, which include not only
taxes paid or accrued to foreign countries
but also taxes paid or accrued to U.S. ter-
ritories (which are treated as State and
local taxes under section 164(b)(2)). Sec-
tion 1363(b)(1) and (2) of the Code gener-
ally provides the same with respect to an
S corporation.
(3) Section 702(a) provides that a part-
ner, in determining the partner’s income
tax, is required to take into account sep-
arately the partner’s distributive share of
certain partnership items of income, gain,
loss, deduction, or credit (tax items) that
are set forth in that section, as well as the
non-separately computed income and loss.
For example, section 702(a)(6) requires
that a partner take into account separately
the partner’s distributive share of taxes,
described in section 901, paid or accrued
to foreign countries and to U.S. territories.
(4) Section 1366(a)(1) of the Code
provides that, in determining the tax of a
shareholder of an S corporation, the share-
holder is required to take into account
separately the shareholder’s pro rata share
of the S corporation’s tax items, the sep-
arate treatment of which could affect the
liability for tax of any shareholder of the
S corporation, as well as the non-sepa-
rately computed income and loss. For this
purpose, section 1366(a)(1) requires, in
part, that a shareholder take into account
separately the shareholder’s pro rata share
of the S corporation’s taxes, described in
section 901, paid or accrued to foreign
countries and to U.S. territories.
(5) Revenue Ruling 58-25, 1958-1
C.B. 95, holds that a Cincinnati, Ohio tax
imposed upon and paid by a partnership
on the net profits of the partnership’s busi-
ness conducted in Cincinnati was deduct-
ible in computing the taxable income or
loss of the partnership. The ruling holds
that “any tax imposed upon and paid by
a partnership on the net profits of its busi-
ness conducted in Cincinnati is deduct-
ible in computing the taxable income of
the partnership and the partners are not
precluded from claiming the standard de-
duction.” Thus, the partners’ distributive
shares of the net profits tax were not sepa-
rately stated and the partners’ distributive
shares of the partnership’s non-separately
stated income or loss, which reflects a de-
duction for the tax paid by the partnership,
could be taken into account by the part-
ners in computing adjusted gross income
under section 62 of the Code, not as item-
ized deductions.
.02 State and local tax (SALT) deduc-
tion limitation
(1) Section 164(b)(6), as added by sec-
tion 11042(a) of Public Law 115-97, 131
Stat. 2054 (December 22, 2017), com-
monly referred to as the Tax Cuts and Jobs
Act, limits an individual’s deduction un-
der section 164(a) (SALT deduction lim-
itation) to $10,000 ($5,000 in the case of
a married individual filing a separate re-
turn) for the aggregate amount of the fol-
lowing State and local taxes paid during
the calendar year: (i) real property taxes;
(ii) personal property taxes; (iii) income,
war profits, and excess profits taxes; and
(iv) general sales taxes. This SALT de-
duction limitation applies to taxable years
beginning after December 31, 2017, and
before January 1, 2026, and does not ap-
ply to taxes described in section 164(a)(3)
that are imposed by a foreign country or
to any taxes described in section 164(a)(1)
and (2) that are paid and incurred in car-
rying on a trade or business or an activity
described in section 212.
(2) In enacting section 164(b)(6),
Congress provided that “taxes imposed
at the entity level, such as a business tax
imposed on pass-through entities, that
are reflected in a partner’s or S corpora-
tion shareholder’s distributive or pro-rata
share of income or loss on a Schedule K-1
(or similar form), will continue to reduce
such partner’s or shareholder’s distribu-
tive or pro-rata share of income as under
present law.” H.R. Rep. No. 115-466, at
260 n. 172 (2017).
(3) Certain jurisdictions described in
section 164(b)(2) have enacted, or are

November 30, 2020 1454 Bulletin No. 2020–49
contemplating the enactment of, tax laws
that impose either a mandatory or elective
entity-level income tax on partnerships
and S corporations that do business in the
jurisdiction or have income derived from
or connected with sources within the ju-
risdiction. In certain instances, the juris-
diction’s tax law provides a corresponding
or offsetting, owner-level tax benefit, such
as a full or partial credit, deduction, or
exclusion. The Treasury Department and
the IRS are aware that there is uncertainty
as to whether entity-level payments made
under these laws to jurisdictions described
in section 164(b)(2) other than U.S. terri-
tories must be taken into account in apply-
ing the SALT deduction limitation at the
owner level.
SECTION 3. FORTHCOMING
PROPOSED REGULATIONS
.01 Purpose and scope. The Treasury
Department and the IRS intend to issue
proposed regulations to provide certainty
to individual owners of partnerships and
S corporations in calculating their SALT
deduction limitations. Based on the stat-
utory and administrative authorities de-
scribed in section 2 of this notice, the
forthcoming proposed regulations will
clarify that Specified Income Tax Pay-
ments (as defined in section 3.02(1) of
this notice) are deductible by partnerships
and S corporations in computing their
non-separately stated income or loss.
.02 Forthcoming regulations. To
achieve the purpose described in section
3.01 of this notice, the Treasury Depart-
ment and the IRS expect to propose reg-
ulations consistent with the provisions set
forth in this section 3.02.
(1) Definition of Specified Income Tax
Payment. For purposes of section 3.02 of
this notice, the term “Specified Income
Tax Payment” means any amount paid
by a partnership or an S corporation to a
State, a political subdivision of a State, or
the District of Columbia (Domestic Juris-
diction) to satisfy its liability for income
taxes imposed by the Domestic Jurisdic-
tion on the partnership or the S corpo-
ration. This definition does not include
income taxes imposed by U.S. territories
or their political subdivisions. Thus, this
definition solely includes income taxes
described in section 164(b)(2) for which
a deduction by a partnership is not dis-
allowed under section 703(a)(2)(B), and
such income taxes for which a deduction
by an S corporation is not disallowed un-
der section 1363(b)(2). For this purpose,
a Specified Income Tax Payment includes
any amount paid by a partnership or an
S corporation to a Domestic Jurisdiction
pursuant to a direct imposition of income
tax by the Domestic Jurisdiction on the
partnership or S corporation, without re-
gard to whether the imposition of and li-
ability for the income tax is the result of
an election by the entity or whether the
partners or shareholders receive a partial
or full deduction, exclusion, credit, or oth-
er tax benefit that is based on their share
of the amount paid by the partnership or
S corporation to satisfy its income tax li-
ability under the Domestic Jurisdiction’s
tax law and which reduces the partners’ or
shareholders’ own individual income tax
liabilities under the Domestic Jurisdic-
tion’s tax law.
(2) Deductibility of Specified Income
Tax Payments. If a partnership or an
S corporation makes a Specified Income
Tax Payment during a taxable year, the
partnership or S corporation is allowed a
deduction for the Specified Income Tax
Payment in computing its taxable income
for the taxable year in which the payment
is made.
(3) Specified Income Tax Payments
not separately taken into account. Any
Specified Income Tax Payment made by
a partnership or an S corporation during
a taxable year does not constitute an item
of deduction that a partner or an S corpo-
ration shareholder takes into account sep-
arately under section 702 or section 1366
in determining the partner’s or S corpo-
ration shareholder’s own Federal income
tax liability for the taxable year. Instead,
Specified Income Tax Payments will be
reflected in a partner’s or an S corpora-
tion shareholder’s distributive or pro-rata
share of non-separately stated income or
loss reported on a Schedule K-1 (or sim-
ilar form).
(4) Specified Income Tax Payments
not taken into account for SALT deduc-
tion limitation. Any Specified Income
Tax Payment made by a partnership or an
S corporation is not taken into account in
applying the SALT deduction limitation
to any individual who is a partner in the
partnership or a shareholder of the S cor-
poration.
SECTION 4. APPLICABILITY DATE
The proposed regulations described in
this notice will apply to Specified Income
Tax Payments made on or after Novem-
ber 9, 2020. The proposed regulations
will also permit taxpayers described in
section 3.02 of this notice to apply the
rules described in this notice to Specified
Income Tax Payments made in a taxable
year of the partnership or S corporation
ending after December 31, 2017, and
made before November 9, 2020, provided
that the Specified Income Tax Payment is
made to satisfy the liability for income tax
imposed on the partnership or S corpora-
tion pursuant to a law enacted prior to No-
vember 9, 2020. Prior to the issuance of
the proposed regulations, taxpayers may
rely on the provisions of this notice with
respect to Specified Income Tax Payments
as described in this section 4.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice
is the Office of Associate Chief Coun-
sel (Passthroughs & Special Industries).
However, other personnel from the Trea-
sury Department and the IRS participated
in its development. For further informa-
tion regarding this notice, contact Kevin I.
Babitz or Robert D. Alinsky at (202) 317-
5279 (not a toll-free number).
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2020-81
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

Bulletin No. 2020–49 1455 November 30, 2020
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate under
§ 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the inter-
est rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present val-
ue is generally determined using three
24-month average interest rates (“segment
rates”), each of which applies to cash
flows during specified periods. To the ex-
tent provided under § 430(h)(2)(C)(iv),
these segment rates are adjusted by the ap-
plicable percentage of the 25-year average
segment rates for the period ending Sep-
tember 30 of the year preceding the cal-
endar year in which the plan year begins.
1

However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from October
2020 data is in Table 2020-10 at the end
of this notice. The spot first, second, and
third segment rates for the month of Octo-
ber 2020 are, respectively, 0.54, 2.38, and
3.28.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to
§ 430(h)(2)(C)(iv) to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates. For plan years beginning
before 2021, the applicable minimum per-
centage is 90% and the applicable maxi-
mum percentage is 110%. For plan years
beginning in 2021, the applicable mini-
mum percentage is 85% and the applica-
ble maximum percentage is 115%. The
25-year average segment rates for plan
years beginning in 2019, 2020, and 2021
were published in Notice 2018-73, 2018-
40 I.R.B. 526, Notice 2019-51, 2019-41
I.R.B. 866, and Notice 2020-72, 2020-40
I.R.B. 789, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for No-
vember 2020 without adjustment for the
25-year average segment rate limits are as
follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
November 2020 1.99 3.21 3.80
Based on § 430(h)(2)(C)(iv), the
24-month averages applicable for Novem-
ber 2020, adjusted to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning In
Applicable
Month
First
Segment
Second
Segment
Third
Segment
2019November 20203.745.356.11
2020November 20203.645.215.94
2021November 20203.324.795.47
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to multi-
employer plans pursuant to § 412. Section
431(c)(6)(B) specifies a minimum amount
for the full-funding limitation described in
§ 431(c)(6)(A), based on the plan’s current
liability. Section 431(c)(6)(E)(ii)(I) pro-
vides that the interest rate used to calculate
current liability for this purpose must be
no more than 5 percent above and no more
than 10 percent below the weighted aver-
age of the rates of interest on 30-year Trea-
sury securities during the four-year period
ending on the last day before the beginning
of the plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determining
the weighted average interest rate. The
rate of interest on 30-year Treasury securi-
ties for October 2020 is 1.57 percent. The
Service determined this rate as the average
of the daily determinations of yield on the
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)).

November 30, 2020 1456 Bulletin No. 2020–49
30-year Treasury bond maturing in August
2050. For plan years beginning in Novem-
ber 2020, the weighted average of the rates
of interest on 30-year Treasury securities
and the permissible range of rates used to
calculate current liability are as follows:
Treasury Weighted Average Rates
For Plan Years
Beginning In
30-Year Treasury
Weighted Average
Permissible Range
90% to 105%
November 20202.392.15 to 2.51
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 October 2020
are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
October 2020 0.54 2.38 3.28
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. 2020–49 1457 November 30, 2020
Table 2020-10
Monthly Yield Curve for October 2020
Derived from October 2020 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.50.1520.53.0740.53.3060.53.3980.53.44
1.00.2821.03.0841.03.3161.03.4081.03.44
1.50.3921.53.0941.53.3161.53.4081.53.44
2.00.4822.03.0942.03.3162.03.4082.03.44
2.50.5322.53.1042.53.3262.53.4082.53.44
3.00.5823.03.1143.03.3263.03.4083.03.44
3.50.6323.53.1243.53.3263.53.4083.53.44
4.00.6924.03.1344.03.3364.03.4084.03.44
4.50.7624.53.1344.53.3364.53.4084.53.45
5.00.8625.03.1445.03.3365.03.4185.03.45
5.50.9725.53.1545.53.3365.53.4185.53.45
6.01.0926.03.1646.03.3466.03.4186.03.45
6.51.2226.53.1646.53.3466.53.4186.53.45
7.01.3627.03.1747.03.3467.03.4187.03.45
7.51.5027.53.1847.53.3467.53.4187.53.45
8.01.6428.03.1848.03.3568.03.4188.03.45
8.51.7828.53.1948.53.3568.53.4188.53.45
9.01.9129.03.2049.03.3569.03.4289.03.45
9.52.0329.53.2049.53.3569.53.4289.53.45
10.02.1530.03.2150.03.3670.03.4290.03.45
10.52.2530.53.2250.53.3670.53.4290.53.45
11.02.3531.03.2251.03.3671.03.4291.03.45
11.52.4431.53.2351.53.3671.53.4291.53.45
12.02.5232.03.2352.03.3672.03.4292.03.46
12.52.5932.53.2452.53.3772.53.4292.53.46
13.02.6633.03.2453.03.3773.03.4293.03.46
13.52.7133.53.2553.53.3773.53.4393.53.46
14.02.7634.03.2554.03.3774.03.4394.03.46
14.52.8134.53.2654.53.3774.53.4394.53.46
15.02.8535.03.2655.03.3875.03.4395.03.46
15.52.8835.53.2755.53.3875.53.4395.53.46
16.02.9136.03.2756.03.3876.03.4396.03.46
16.52.9436.53.2756.53.3876.53.4396.53.46
17.02.9637.03.2857.03.3877.03.4397.03.46
17.52.9837.53.2857.53.3877.53.4397.53.46
18.03.0038.03.2958.03.3978.03.4398.03.46
18.53.0138.53.2958.53.3978.53.4498.53.46
19.03.0339.03.2959.03.3979.03.4499.03.46
19.53.0439.53.3059.53.3979.53.4499.53.46
20.03.0540.03.3060.03.3980.03.44100.03.47

November 30, 2020 1458 Bulletin No. 2020–49
Implementation of the
CARES Act Extended
January 1, 2021 Due Date
for Contributions to Defined
Benefit Plans
Notice 2020-82
Purpose
This notice provides that the IRS will
treat a contribution to a single-employer
defined benefit pension plan with an ex-
tended due date of January 1, 2021 pur-
suant to § 3608(a)(1) of the Coronavirus
Aid, Relief, and Economic Security Act
(CARES Act), Pub. L. No. 116-136, as
timely if it is made no later than January 4,
2021 (which is the first business day after
January 1, 2021).
Background
Section 412 of the Internal Revenue
Code (Code) provides that a sponsor of
a qualified defined benefit plan (other
than a multiemployer plan as defined in
§ 414(f) or a CSEC plan as defined in §
414(y)) must make contributions to or un-
der the plan for the plan year that, in the
aggregate, are not less than the minimum
required contribution determined under §
430 for the plan year. Section 430(j)(1)
provides that the due date for the payment
of any minimum required contribution for
a plan year is 8½ months after the close of
the plan year. Section 430(j)(3) provides
that if the plan had a funding shortfall (as
defined in § 430(c)(4)) for the preceding
plan year, then the plan sponsor must pay
four quarterly installments toward the re-
quired minimum contribution for the plan
year. The due dates for the installments are
April 15, July 15, and October 15 of the
plan year, and January 15 of the following
year (adjusted for a plan year that is not
a calendar year under § 1.430(j)-1(c)(6)).
Under § 430(f), the plan sponsor of a
defined benefit plan that is not a multiem-
ployer plan may elect to maintain a pre-
funding balance that may be used, at the
plan sponsor’s election, to offset the mini-
mum required contribution for a plan year.
Under § 430(f)(6)(B)(i), a plan sponsor
may elect to add contributions that exceed
the minimum required contribution for
a plan year (adjusted with interest using
the effective interest rate for the plan year
in accordance with § 430(f)(6)(B)(ii)) to
the plan’s prefunding balance. Section
1.430(f)-1(f)(1)(i) generally provides that
any election under § 430(f) by the plan
sponsor must be made by providing writ-
ten notification of the election to the plan’s
enrolled actuary and the plan administra-
tor. Section 1.430(f)-1(f)(2)(i) generally
provides that any election under § 430(f)
with respect to a plan year must be made
no later than the last date for making the
minimum required contribution for the
plan year as described in § 430(j)(1), or
such later date as prescribed in guidance
published in the Internal Revenue Bulle-
tin.
Section 3608(a)(1) of the CARES Act
provides that any minimum required con-
tribution that would otherwise be due un-
der § 430(j) of the Code (and § 303(j) of
the Employee Retirement Income Securi-
ty Act, Pub. L. 93-406, as amended (ERI-
SA)) during calendar year 2020 (including
quarterly installments under § 430(j)(3) of
the Code and § 303(j)(3) of ERISA) is
due on January 1, 2021. Notice 2020-61,
2020-35 I.R.B. 468, provides guidance
regarding the extension of time for sin-
gle-employer defined benefit plan contri-
butions under § 3608(a)(1) of the CARES
Act and related interest adjustments.
Under § 101 of Reorganization Plan
No. 4 of 1978 (43 FR 47713) and §
3002(c) of ERISA, the Secretary of the
Treasury has interpretive jurisdiction over
the subject matter addressed in this no-
tice for purposes of ERISA, as well as the
Code. Thus, the provisions of this notice
pertaining to § 430 of the Code also apply
for purposes of § 303 of ERISA.
Date for making contributions
The extension of the due date for con-
tributions covered by § 3608(a)(1) of the
CARES Act to January 1, 2021, is intend-
ed to allow employers sponsoring these
plans to defer these payment obligations
until calendar year 2021. Deferring these
payment obligations until calendar year
2021 helps employers to alleviate an
additional adverse impact on their busi-
nesses that were already harmed by the
COVID-19 pandemic. However, financial
institutions cannot transfer funds on the
January 1, 2021 due date. This effectively
requires many employers to make these
contributions prior to January 1, 2021,
which would be inconsistent with the leg-
islative intent to defer the payment obliga-
tion until calendar year 2021.
In order to achieve this deferral of
the payment obligation until calendar
year 2021 for all employers impacted by
§ 3608(a)(1) of the CARES Act, the IRS
will treat a contribution with an extended
due date of January 1, 2021 pursuant to
§ 3608(a)(1) of the CARES Act as timely
if it is made no later than January 4, 2021
(which is the first business day after Janu-
ary 1, 2021). However, for a contribution
that is made by January 4, 2021, and is
treated as timely pursuant to this notice,
the amount of the minimum required con-
tribution that is satisfied by the contribu-
tion (and the amount that may be added to
the plan’s prefunding balance on account
of any excess contribution) is determined
by computing the applicable interest ad-
justment using the actual contribution
date.
1
To conform the due date for relevant
elections related to a plan’s funding bal-
ances to the treatment provided by this
notice, if the plan year is a plan year for
which the extended due date for minimum
required contributions under § 3608(a) of
the CARES Act applies, then the deadline
for a plan sponsor’s election to add to a
prefunding balance or to use a prefunding
balance or a funding standard carryover
balance to offset the minimum required
contribution for that plan year is extended
to January 4, 2021.
2
This notice does not affect the treat-
ment of a contribution that is due on Jan-
uary 1, 2021, pursuant to § 3608(a)(1) of
the CARES Act, but that is not made by
January 4, 2021. Thus, the computations
in Example 1(b) of Q&A-6 of Notice
2020-61 (which illustrate a situation in
which required contributions due on Jan-
1
See Notice 2020-61 for guidance regarding the contributions to which § 3608(a)(1) of the CARES Act applies and the interest adjustments pursuant to § 3608(a)(2).
2
Q&A-10 of Notice 2020-61 extended the due date for these elections to January 1, 2021.

Bulletin No. 2020–49 1459 November 30, 2020
uary 1, 2021, pursuant to § 3608(a)(1) of
the CARES Act are made on February 15,
2021) are not affected by this notice.
Effect on other documents
Notice 2020-61 is modified.
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
or Linda Marshall at 202-317-6700 (not a
toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)
Rev. Proc. 2020-48
SECTION 1. PURPOSE
This revenue procedure prescribes dis-
count factors for the 2020 accident year
for use by insurance companies in com-
puting discounted unpaid losses under
§ 846 of the Internal Revenue Code and
discounted estimated salvage recoverable
under § 832. This revenue procedure also
provides, for convenience, discount fac-
tors for losses incurred in the 2019 acci-
dent year and earlier accident years for use
in taxable years beginning in 2020. The
discount factors for accident years before
2020 were prescribed in Rev. Proc. 2019-
31, 2019-33 I.R.B. 643. See Rev. Proc.
2019-31 and Rev. Proc. 2019-06, 2019-02
IRB 284, for background concerning the
loss payment patterns and application of
the discount factors.
SECTION 2. SCOPE
This revenue procedure applies to any
insurance company that is required to
discount unpaid losses under § 846 for a
line of business using the discount fac-
tors published by the Secretary, and also
applies to any insurance company that is
required to discount estimated salvage re-
coverable under § 832.
SECTION 3. DISCOUNT FACTORS
FOR THE 2020 ACCIDENT YEAR
.01 The tables in this section 3 pres-
ent separately for each line of business
the discount factors for losses incurred in
the 2020 accident year for use by insur-
ance companies in computing discounted
unpaid losses under § 846 and estimated
salvage recoverable under § 832. All of
the discount factors presented in these ta-
bles are determined by using the applica-
ble interest rate for 2020 under § 846(c),
which is 3.08 percent, compounded
semiannually, and the payment patterns
for the 2017 determination year deter-
mined by the Secretary under § 846(d).
All of the discount factors presented in
these tables are determined by assuming
all loss payments occur in the middle of
the calendar year.
.02 Section V of Notice 88-100, 1988-2
C.B. 439, sets forth a composite method
for computing discounted unpaid losses
for accident years that are not separately
reported on the annual statement. Tables 1
and 2 separately provide discount factors
for insurance companies that have elected
to use the composite method of Notice 88-
100. See Rev. Proc. 2002-74, 2002-2 C.B.
980. The discount factors computed using
the composite method are unrelated to the
composite discount factors referred to in
§ 1.846-1(b)(1)(ii) and (4) of the Income
Tax Regulations, which apply to lines of
business for which the Secretary has not
published discount factors. The compos-
ite discount factors for use with respect
to such lines of business are labelled
“Short-Tail Composite” (in Table 1, part
B) and “Long-Tail Composite” (in Table
2, part B). The “Miscellaneous Casualty”
discount factors referenced in § 1.846-
1(b)(2) are not set forth in tables, but are
equivalent to the “Short-Tail Composite”
discount factors.

November 30, 2020 1460 Bulletin No. 2020–49
Table 1 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business
Taxable Year
Beginning in
Auto Physical
DamageFidelity/Surety
Financial
Guaranty/
Mortgage
GuarantyInternationalOther*
202098.313995.805295.558296.131096.9677
202197.001097.001097.001097.001097.0010
Taxpayer Not Using Composite Method
Years after 202198.483498.483498.483498.483498.4834
Taxpayer Using the Composite Method
202298.483498.483498.483498.483498.4834
Years after 2022 Use composite discount factors published for the relevant accident year.**

* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount
factor for taxable year 2020 is 98.4834 percent. For later years, the discount factor for losses incurred in 2020 is the
discount factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with
the taxable year.
**The relevant accident year is the accident year that is two years prior to the specified taxable year.
Table 1 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business
Taxable
Year
Beginning
in
Reinsurance -
Nonproportional
Assumed
Financial Lines
Reinsurance -
Nonproportional
Assumed
Liability
Reinsurance -
Nonproportional
Assumed
Property
Special Property
(Fire, Allied Lines,
Inland Marine,
Earthquake,
Burglary & Theft)Warranty
Short-Tail
Composite
202095.403594.601696.112597.398598.110696.8566
202197.001097.001097.001097.001097.001097.0010
Taxpayer Not Using Composite Method
Years after
202198.483498.483498.483498.483498.483498.4834
Taxpayer Using the Composite Method
202298.483498.483498.483498.483498.483498.4834
Years after
2022 Use composite discount factors published for the relevant accident year.**
**The relevant accident year is the accident year that is two years prior to the specified taxable year.

Bulletin No. 2020–49 1461 November 30, 2020
Table 2 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business
Taxable Year
Beginning in
Commercial
Auto/Truck
Liability/Medical
Medical
Professional
Liability -
Claims-Made
Medical
Professional
Liability -
Occurrence
Multiple Peril
Lines
Other
Liability -
Claims-Made
Other
Liability -
Occurrence
202093.789491.288786.330295.097590.495888.9133
202194.525292.314888.473393.393991.331989.7843
202295.069492.542190.064193.700491.857790.3548
202395.109692.834691.458092.907591.900790.5269
202494.986192.981392.444591.031791.748890.2789
202594.826293.003493.215891.236092.275390.3502
202695.114093.982294.062290.932492.767190.3726
202794.751294.907194.771490.617593.559491.6265
202896.244495.832795.943593.227994.694792.2914
202998.281797.645797.687494.618796.534794.2474
Taxpayer Not Using Composite Method
203098.483498.483498.483496.014297.910295.6606
203198.483498.483498.483497.388698.483497.0886
Years after
203198.483498.483498.483498.483498.483498.4834
Taxpayer Using the Composite Method
203098.483498.483498.483496.781998.002396.5869
Years after
2030 Use composite discount factors published for the relevant accident year.*
*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

November 30, 2020 1462 Bulletin No. 2020–49
Table 2 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business
Taxable Year
Beginning in
Private
Passenger
Auto Liability/
Medical
Products
Liability -
Claims-Made
Products
Liability -
Occurrence
Workers'
Compensation
Long-Tail
Composite
202095.479685.316687.301387.555692.4450
202195.080585.794988.677285.996291.3753
202295.039187.648089.451284.865191.0823
202394.663583.131590.812583.318089.8805
202493.974484.459889.443082.738788.2753
202594.025585.839389.491782.189888.1551
202694.273087.278690.450282.564688.1342
202794.830088.561891.443483.440088.6931
202895.447289.870391.849184.070189.9615
202997.622591.204594.159686.022991.7954
Taxpayer Not Using Composite Method
203098.483492.564595.580087.281293.1592
203198.483493.950197.025388.564494.5437
203298.483495.359798.483489.873095.9411
203398.483496.787898.483491.207397.3233
203498.483498.206898.483492.567598.4834
203598.483498.483498.483493.953298.4834
203698.483498.483498.483495.363098.4834
203798.483498.483498.483496.791698.4834
203898.483498.483498.483498.211498.4834
Years after 203898.483498.483498.483498.483498.4834
Taxpayer Using the Composite Method
203098.483494.550796.545791.064194.9230
Years after 2030 Use composite discount factors published for the relevant accident year.*
*The relevant accident year is the accident year that is ten years prior to the specified taxable year.
SECTION 4. DISCOUNT FACTORS
FOR TAXABLE YEARS BEGINNING
IN 2020
.01 The tables in this section 4 pres-
ent separately for each line of business
discount factors for losses incurred in the
2020 accident year and earlier accident
years for use by insurance companies in
computing discounted unpaid losses under
§ 846 and estimated salvage recoverable
under § 832 in taxable years beginning in
2020. The discount factors for losses in-
curred in accident years 2019 and 2020
presented in these tables are determined
by using the applicable interest rate for
2019 (3.09 percent, compounded semi-
annually) and 2020 (3.08 percent, com-
pounded semiannually), respectively, un-
der § 846(c). All other discount factors
presented in these tables are determined
by using the applicable interest rate for
2018, which is 2.94 percent, compounded
semiannually. All of the discount factors
presented in these tables are determined
by using the payment patterns for the 2017
determination year determined by the Sec-
retary under § 846(d) and by assuming all
loss payments occur in the middle of the
calendar year. See Rev. Proc. 2019-31
(prescribing discount factors for the 2019
accident year and “Revised Discount Fac-
tors” for accident years beginning before
2019).
.02 Table 4 separately provides dis-
count factors for insurance companies that
have elected to use the composite method
of Notice 88-100. See Rev. Proc. 2002-
74. The discount factors computed using
the composite method are unrelated to the
composite discount factors referred to in
§ 1.846-1(b)(1)(ii) and (4), which apply

Bulletin No. 2020–49 1463 November 30, 2020
to lines of business for which the Secre-
tary has not published discount factors.
The composite discount factors for use
with respect to such lines of business are
labelled “Short-Tail Composite” (in Ta-
ble 3, part B) and “Long-Tail Composite”
(in Table 4, part B). The “Miscellaneous
Casualty” discount factors referenced in
§ 1.846-1(b)(2) are not set forth in tables,
but are equivalent to the “Short-Tail Com-
posite” discount factors.
Table 3 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Short-Tail Lines of Business
Accident
Year
Auto Physical
DamageFidelity/Surety
Financial
Guaranty/
Mortgage
GuarantyInternationalOther*
2020 98.3139 95.8052 95.5582 96.1310 96.9677
2019 96.9916 96.9916 96.9916 96.9916 96.9916
Years before 2019 98.5513 98.5513 98.5513 98.5513 98.5513
* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount
factor for taxable year 2020 is 98.4834 percent.
Table 3 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Short-Tail Lines of Business
Accident Year
Reinsurance -
Nonproportional
Assumed
Financial Lines
Reinsurance -
Nonproportional
Assumed
Liability
Reinsurance -
Nonproportional
Assumed
Property
Special Property
(Fire,
Allied Lines,
Inland Marine,
Earthquake,
Burglary & Theft)Warranty
Short-Tail
Composite
2020 95.4035 94.6016 96.1125 97.3985 98.1106 96.8566
2019 96.9916 96.9916 96.9916 96.9916 96.9916 96.9916
Years before 2019 98.5513 98.5513 98.5513 98.5513 98.5513 98.5513

November 30, 2020 1464 Bulletin No. 2020–49
Table 4 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Long-Tail Lines of Business
Accident Year
Commercial
Auto/Truck
Liability/
Medical
Medical
Professional
Liability -
Claims-Made
Medical
Professional
Liability -
Occurrence
Multiple Peril
Lines
Other
Liability -
Claims-Made
Other
Liability -
Occurrence
202093.789491.288786.330295.097590.495888.9133
201994.508492.291788.439293.374191.306189.7544
201895.281992.857690.481193.965192.199290.7535
201795.320493.138891.819493.204192.241590.9196
201695.202493.280592.766491.406492.097690.6836
201595.049893.303593.506991.603992.604090.7542
201495.326094.242394.318991.315493.077090.7788
201394.980495.129194.999391.017793.837891.9830
201296.410296.016096.122093.520094.926492.6228
201198.358597.750397.790294.853096.687694.4974
Taxpayer Not Using the Composite Method
201098.551398.551398.551396.189598.003395.8511
200998.551398.551398.551397.504598.551397.2176
Years before
200998.551398.551398.551398.551398.551398.5513
Taxpayer Using the Composite Method
Years before
201198.551398.551398.551396.918598.092096.7300

Bulletin No. 2020–49 1465 November 30, 2020
Table 4 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Long-Tail Lines of Business
Accident Year
Private
Passenger
Auto Liability/
Medical
Products
Liability -
Claims-Made
Products
Liability -
Occurrence
Workers'
Compensation
Long-Tail
Composite
2020 95.4796 85.3166 87.3013 87.5556 92.4450
2019 95.0654 85.7548 88.6442 85.9577 91.3501
2018 95.2520 88.1407 89.8860 85.4517 91.4469
2017 94.8920 83.8076 91.1924 83.9662 90.2933
2016 94.2325 85.0889 89.8810 83.4129 88.7546
2015 94.2824 86.4184 89.9309 82.8905 88.6421
2014 94.5205 87.8040 90.8527 83.2567 88.6258
2013 95.0550 89.0388 91.8072 84.1036 89.1661
2012 95.6473 90.2969 92.1992 84.7150 90.3858
2011 97.7282 91.5785 94.4133 86.5946 92.1457
Taxpayer Not Using the Composite Method
2010 98.5513 92.8838 95.7739 87.8065 93.4541
2009 98.5513 94.2124 97.1571 89.0414 94.7812
2008 98.5513 95.5629 98.5513 90.2995 96.1195
2007 98.5513 96.9299 98.5513 91.5813 97.4421
2006 98.5513 98.2868 98.5513 92.8867 98.5513
2005 98.5513 98.5513 98.5513 94.2154 98.5513
2004 98.5513 98.5513 98.5513 95.5661 98.5513
2003 98.5513 98.5513 98.5513 96.9334 98.5513
2002 98.5513 98.5513 98.5513 98.2913 98.5513
Years before 2002 98.5513 98.5513 98.5513 98.5513 98.5513
Taxpayer Using the Composite Method
Years before 201198.551394.728896.690391.257995.0968
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Megan McGuire of the Office
of Associate Chief Counsel (Financial In-
stitutions & Products). For further infor-
mation regarding this revenue procedure
contact Ms. McGuire at (202) 317-6995
(not a toll-free number).
Section 846.—Discounted Unpaid Losses
Defined.
26 C.F.R. 1.846-1: Application of discount factors.
Applicable unpaid loss discount factors for the 2020 acci-
dent year for purposes of section 846. See Rev. Proc. 2020-48,
page 1459.
Section 832.—Insurance company
taxable income.
26 C.F.R. 1.832-4: Gross income.
Applicable salvage discount factors for the 2020 accident
year, which must be used to compute discounted estimated sal-
vage recoverable under section 832. See Rev. Proc. 2020-48,
page 1459.

November 30, 2020 1466 Bulletin No. 2020–49
Part IV
26 CFR Part 1
Notice of Proposed
Rulemaking
Guidance Related to
the Foreign Tax Credit;
Clarification of Foreign-
Derived Intangible Income
REG-101657-20
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations relating to the for-
eign tax credit, including guidance on the
disallowance of a credit or deduction for
foreign income taxes with respect to div-
idends eligible for a dividends-received
deduction; the allocation and apportion-
ment of interest expense, foreign income
tax expense, and certain deductions of life
insurance companies; the definition of a
foreign income tax and a tax in lieu of an
income tax; transition rules relating to the
impact on loss accounts of net operating
loss carrybacks allowed by reason of the
Coronavirus Aid, Relief, and Econom-
ic Security Act; the definition of foreign
branch category and financial services in-
come; and the time at which foreign tax-
es accrue and can be claimed as a credit.
This document also contains proposed
regulations clarifying rules relating to
foreign-derived intangible income. The
proposed regulations affect taxpayers that
claim credits or deductions for foreign in-
come taxes, or that claim a deduction for
foreign-derived intangible income.
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 10, 2021.
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-101657-20) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The IRS expects to have lim-
ited personnel available to process pub-
lic comments that are submitted on pa-
per through mail. The Department of the
Treasury (the “Treasury Department”) and
the IRS will publish for public availabili-
ty any comment submitted electronically,
and to the extent practicable on paper, to
its public docket. Send paper submissions
to: CC:PA:LPD:PR (REG-101657-20),
Room 5203, Internal Revenue Service, PO
Box 7604, Ben Franklin Station, Washing-
ton, DC 20044.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regu-
lations under §§1.245A(d)-1, 1.336-2,
1.338-9, 1.861-3, 1.861-20, 1.904-6,
1.960-1, and 1.960-2, Suzanne M. Walsh,
(202) 317-4908; concerning §§1.250(b)-
1, 1.861-8, 1.861-9, and 1.861-14, Jeffrey
P. Cowan, (202) 317-4924; concerning
§1.250(b)-5, Brad McCormack, (202)
317-6911; concerning §§1.164-2, 1.901-
1, 1.901-2, 1.903-1, 1.905-1, and 1.905-
3, Tianlin (Laura) Shi, (202) 317-6987;
concerning §§1.367(b)-3, 1.367(b)-4, and
1.367(b)-10, Logan Kincheloe, (202) 317-
6075; concerning §§1.367(b)-7, 1.861-10,
1.904-2, 1.904-4, 1.904-5, and 1.904(f)-
12, Jeffrey L. Parry, (202) 317-4916;
concerning submissions of comments
and requests for a public hearing, Regi-
na Johnson, (202) 317-5177 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
On December 7, 2018, the Treasury
Department and the IRS published pro-
posed regulations (REG-105600-18) re-
lating to foreign tax credits in the Federal
Register (83 FR 63200) (the “2018 FTC
proposed regulations”). Those regulations
addressed several significant changes that
the Tax Cuts and Jobs Act (Pub. L. 115-
97, 131 Stat. 2054, 2208 (2017)) (the
“TCJA”) made with respect to the for-
eign tax credit rules and related rules for
allocating and apportioning deductions
in determining the foreign tax credit lim-
itation. On December 17, 2019, portions
of the 2018 FTC proposed regulations
were finalized in TD 9882, published
in the Federal Register (84 FR 69022)
(the “2019 FTC final regulations”). On
the same date, new proposed regulations
were issued addressing changes made by
the TCJA as well as other related foreign
tax credit rules (the “2019 FTC proposed
regulations”). Correcting amendments to
the 2019 FTC final regulations and the
2019 FTC proposed regulations were pub-
lished in the Federal Register on May 15,
2020, see 85 FR 29323 (2019 FTC final
regulations) and 85 FR 29368 (2019 FTC
proposed regulations). The 2019 FTC
proposed regulations are finalized in the
Rules and Regulations section of this is-
sue of the Federal Register (the “2020
FTC final regulations”).
On July 15, 2020, the Treasury Depart-
ment and the IRS finalized regulations
under section 250 (the “section 250 reg-
ulations”) in TD 9901, published in the
Federal Register (85 FR 43042).
This document contains proposed reg-
ulations (the “proposed regulations”) ad-
dressing: (1) the determination of foreign
income taxes subject to the credit and
deduction disallowance provision of sec-
tion 245A(d); (2) the determination of oil
and gas extraction income from domestic
and foreign sources and of electronically
supplied services under the section 250
regulations; (3) the impact of the repeal of
section 902 on certain regulations issued
under section 367(b); (4) the sourcing of
inclusions under sections 951, 951A, and
1293; (5) the allocation and apportion-
ment of interest deductions, including
rules for allocating interest expense of for-
eign bank branches and certain regulated
utility companies, an election to capitalize
research and experimental expenditures
and advertising expenses for purposes of
calculating tax basis, and a revision to the
controlled foreign corporation (“CFC”)
netting rule; (6) the allocation and appor-
tionment of section 818(f) expenses of life
insurance companies that are members
of consolidated groups; (7) the allocation
and apportionment of foreign income tax-

Bulletin No. 2020–49 1467 November 30, 2020
es, including taxes imposed with respect
to disregarded payments; (8) the defini-
tions of a foreign income tax and a tax in
lieu of an income tax, including the addi-
tion of a jurisdictional nexus requirement
and changes to the net gain requirement,
the treatment of certain tax credits, the
treatment of foreign tax law elections for
purposes of the noncompulsory payment
rules, and the substitution requirement un-
der section 903; (9) the allocation of the
liability for foreign income taxes in con-
nection with certain mid-year transfers or
reorganizations; (10) transition rules to
account for the effect on loss accounts of
net operating loss carrybacks to pre-2018
taxable years that are allowed under the
Coronavirus Aid, Relief, and Economic
Security Act, Pub. L. 116-136, 134 Stat.
281 (2020); (11) the foreign branch cat-
egory rules in §1.904-4(f) and the defi-
nition of a financial services entity for
purposes of section 904; and (12) the time
at which credits for foreign income taxes
can be claimed pursuant to sections 901(a)
and 905(a).
Explanation of Provisions
I. Foreign Income Taxes with Respect
to Dividends for Purposes of Section
245A(d)
Section 245A(d)(1) provides that no
credit is allowed under section 901 for any
taxes paid or accrued (or treated as paid or
accrued) with respect to any dividend for
which a deduction is allowed under that
section. Section 245A(d)(2) disallows a
deduction under chapter 1 for any tax for
which a credit is not allowable under sec-
tion 901 by reason of section 245A(d)(1).
Section 245A(e)(3) also provides that no
credit or deduction is allowed for foreign
income taxes paid or accrued with respect
to a hybrid dividend or a tiered hybrid div-
idend.
Proposed §1.245A(d)-1(a) generally
provides that neither a foreign tax credit
under section 901 nor a deduction is al-
lowed for foreign income taxes (as de-
fined in §1.901-2(a)) that are “attributable
to” certain amounts. For this purpose, the
proposed regulations rely on the rules in
§1.861-20, contained in the 2020 FTC fi-
nal regulations and proposed to be mod-
ified in these proposed regulations, that
allocate and apportion foreign income
taxes to income for purposes of various
operative sections, including sections 904,
960, and 965(g). Specifically, proposed
§1.245A(d)-1 provides that §1.861-20
(which includes portions contained in
these proposed regulations as well as in
the 2020 FTC final regulations) applies
for purposes of determining foreign in-
come taxes paid or accrued that are attrib-
utable to any dividend for which a deduc-
tion is allowed under section 245A(a), to
a hybrid dividend or tiered hybrid divi-
dend, or to previously taxed earnings and
profits that arose as a result of a sale or
exchange that by reason of section 964(e)
(4) or 1248 gave rise to a deduction under
section 245A(a) or as a result of a tiered
hybrid dividend that by reason of sec-
tion 245A(e)(2) gave rise to an inclusion
in the gross income of a United States
shareholder (collectively, such previously
taxed earnings and profits are referred to
as “section 245A(d) PTEP”).
In addition, the rules apply to foreign
income taxes that are imposed with re-
spect to certain foreign taxable events,
such as a deemed distribution under for-
eign law or an inclusion under a foreign
law CFC inclusion regime, even though
such event does not give rise to a distri-
bution or inclusion for Federal income tax
purposes. Proposed §1.245A(d)-1(a) pro-
vides that foreign income taxes that are at-
tributable to “specified earnings and prof-
its” are also subject to the disallowance
under section 245A(d). Under proposed
§1.245A(d)-1(b), §1.861-20 applies to
determine whether foreign income taxes
are attributable to specified earnings and
profits. Under §1.861-20, foreign income
taxes may be allocated and apportioned by
reference to specified earnings and profits,
even though the person paying or accru-
ing the foreign income tax does not have
a corresponding U.S. item in the form of
a distribution of, or income inclusion with
respect to, such earnings and profits. See,
for example, §1.861-20(d)(2)(ii)(B), (C),
or (D) (foreign law distribution or foreign
law disposition and certain foreign law
transfers between taxable units), (d)(3)(i)
(C) (income from a reverse hybrid), (d)
(3)(iii) (foreign law inclusion regime),
and proposed §1.861-20(d)(3)(v)(C)(1)
(i) (disregarded payment treated as a re-
mittance). Specified earnings and profits
means earnings and profits that would
give rise to a section 245A deduction
(without regard to the holding period re-
quirement under section 246 or the rules
under §1.245A-5 that disallow a deduc-
tion under section 245A(a) for certain
dividends), a hybrid dividend, or a tiered
hybrid dividend, or a distribution sourced
from section 245A(d) PTEP if an amount
of money equal to all of the foreign corpo-
ration’s earnings and profits were distrib-
uted. Therefore, for example, a credit or
deduction for foreign income taxes paid or
accrued by a domestic corporation that is
a United States shareholder (“U.S. share-
holder”) with respect to a distribution that
is not recognized for Federal income tax
purposes (for example, in the case of a
consent dividend under foreign tax law
that is not regarded for Federal income tax
purposes, or a distribution of stock that is
excluded from gross income under section
305(a) but is treated as a taxable dividend
under foreign tax law) is not allowed un-
der section 245A(d) to the extent those
foreign income taxes are attributable to
specified earnings and profits.
An anti-avoidance rule is included in
proposed §1.245A(d)-1 to address sit-
uations in which taxpayers engage in
transactions with a principal purpose of
avoiding the purposes of section 245A(d),
which is to disallow a foreign tax credit or
deduction with respect to foreign income
taxes imposed on income that is effective-
ly exempt from tax (due to the availabili-
ty of a deduction under section 245A(a))
or with respect to foreign income taxes
imposed on a hybrid dividend or tiered
hybrid dividend. Such transactions may
include transactions to separate foreign in-
come taxes from the income to which they
relate in situations that are not explicitly
covered under §1.861-20 (including, for
example, loss sharing transactions under
group relief regimes). Such transactions
may also include successive distributions
(under foreign law) out of earnings and
profits that, under the rules in §1.861-20,
are treated as distributed out of previous-
ly taxed earnings and profits (and there-
fore foreign income taxes attributable to
such amounts are not generally subject to
the disallowance under section 245A(d)),
when there is no reduction of such previ-
ously taxed earnings and profits due to the
absence of a distribution under Federal in-

November 30, 2020 1468 Bulletin No. 2020–49
come tax law. See proposed §1.245A(d)-
1(e)(4) (Example 3). The Treasury De-
partment and the IRS are concerned that
because the rules in §1.861-20(d) address-
ing foreign law distributions and disposi-
tions do not currently make adjustments
to a foreign corporation’s earnings and
profits to reflect distributions that are not
recognized for Federal income tax pur-
poses, such foreign law transactions could
be used to circumvent the purposes of
section 245A(d). Comments are request-
ed on potential revisions to §1.861-20(d)
that could address these concerns, includ-
ing the possibility of maintaining separate
earnings and profits accounts, character-
ized with reference to the relevant statuto-
ry and residual groupings, for each taxable
unit whereby the accounts would be ad-
justed annually to reflect transactions that
occurred under foreign law but not under
Federal income tax law.
II. Clarifications to Regulations Under
Section 250
A. Definition of domestic and foreign oil
and gas extraction income
Section 250 provides a domestic cor-
poration a deduction (“section 250 de-
duction”) for its foreign-derived intangi-
ble income (“FDII”) as well as its global
intangible low-taxed income (“GILTI”)
inclusion amount and the amount treat-
ed as a dividend under section 78 that is
attributable to its GILTI inclusion. The
section 250 deduction attributable to FDII
is calculated in part by determining the
foreign-derived portion of a corporation’s
deduction eligible income (“DEI”). DEI
is defined as the excess of gross DEI over
the deductions (including taxes) properly
allocable to such gross income. See sec-
tion 250(b)(3)(A) and §1.250(b)-1(c)(2).
Gross DEI is determined without regard
to domestic oil and gas extraction income
(“DOGEI”), which is defined as income
described in section 907(c)(1) determined
by substituting “within the United States”
for “without the United States.” See sec-
tion 250(b)(3)(B) and §1.250(b)-1(c)(7).
Similarly, foreign oil and gas extraction
income (“FOGEI”) as defined in section
907(c)(1) is excluded from the computa-
tion of gross tested income which is used
to determine a U.S. shareholder’s GILTI
inclusion amount. See §1.951A-2(c)(1)
(v).
The Treasury Department and the IRS
have determined that it would be inap-
propriate for taxpayers to use inconsis-
tent methods to determine the amounts of
DOGEI and FOGEI from the sale of oil or
gas that has been transported or processed.
Taxpayers with both types of income
may have an incentive to minimize their
DOGEI in order to maximize their poten-
tial section 250 deduction attributable to
FDII, while in contrast maximizing their
FOGEI in order to minimize their gross
tested income, even though this would
also decrease the amount of the section
250 deduction attributable to their GILTI
inclusion amount. Accordingly, the pro-
posed regulations provide that taxpayers
must use a consistent method for purposes
of determining both DOGEI and FOGEI.
See proposed §1.250(b)-1(c)(7). Similar-
ly, for purposes of allocating and appor-
tioning deductions, taxpayers are already
required under existing regulations to use
the same method of allocation and the
same principles of apportionment where
more than one operative section, for ex-
ample sections 250 and 904, apply. See
§1.861-8(f)(2)(i).
B. Definition of electronically supplied
service
Section 1.250(b)-5(c)(5) defines the
term “electronically supplied service”
to mean a general service (other than an
advertising service) that is delivered pri-
marily over the internet or an electronic
network, and provides that such services
include, by way of examples, cloud com-
puting and digital streaming services.
Since the publication of the section 250
regulations, the Treasury Department and
the IRS have determined that the defini-
tion of electronically supplied services
could be interpreted in a manner that in-
cludes services that were not primarily
electronic and automated in nature but
rather where the renderer applies human
effort or judgment, such as profession-
al services that are provided through the
internet or an electronic network. There-
fore, these proposed regulations clarify
that the value of the service to the end user
must be derived primarily from the ser-
vice’s automation or electronic delivery
in order to be an electronically supplied
service. The regulations further provide
that services that primarily involve the ap-
plication of human effort by the renderer
to provide the service (not including the
effort involved in developing or maintain-
ing the technology to enable the electron-
ic service) are not electronically supplied
services. For example, certain services for
which automation or electronic delivery
is not a primary driver of value, such as
legal, accounting, medical, or teaching
services delivered electronically and syn-
chronously, are not electronically supplied
services.
III. Carryover of Earnings and
Profits and Taxes When One Foreign
Corporation Acquires Assets of Another
Foreign Corporation in a Section 381
Transaction
Section 1.367(b)-7 provides rules re-
garding the manner and the extent to
which earnings and profits and foreign
income taxes of a foreign corporation
carry over when one foreign corporation
(“foreign acquiring corporation”) acquires
the assets of another foreign corporation
(“foreign target corporation”) in a trans-
action described in section 381 (the com-
bined corporation, the “foreign surviving
corporation”). See §1.367(b)-7(a). Before
the repeal of section 902 in the TCJA,
these rules were primarily relevant for
determining the foreign income taxes
of the foreign surviving corporation that
were considered deemed paid by its U.S.
shareholder with respect to a distribution
or inclusion under section 902 or 960, re-
spectively.
Section 1.367(b)-7 applies different-
ly with respect to “pooling corporations”
and “nonpooling corporations.” A pool-
ing corporation is a foreign corporation
with respect to which certain ownership
requirements were satisfied in pre-2018
taxable years and that, as a result, main-
tained “pools” of post-1986 undistributed
earnings and related post-1986 foreign in-
come taxes. See §1.367(b)-2(l)(9). In gen-
eral, if the foreign surviving corporation
was a pooling corporation, the post-1986
undistributed earnings and post-1986
foreign income taxes of the foreign ac-
quiring corporation and the foreign target
corporation were combined on a separate

Bulletin No. 2020–49 1469 November 30, 2020
category-by-separate category basis. See
§1.367(b)-7(d)(1). However, the regula-
tions required the foreign surviving cor-
poration to combine the taxes related to a
deficit in a separate category of post-1986
undistributed earnings of one or both of the
foreign acquiring corporation or foreign
target corporation (a “hovering deficit”)
with other post-1986 foreign income taxes
in that separate category only on a pro rata
basis as the hovering deficit was absorbed
by post-transaction earnings in the same
separate category. See §1.367(b)-7(d)(2)
(iii). Similarly, a hovering deficit in a sep-
arate category of post-1986 undistributed
earnings could offset only earnings and
profits accumulated by the foreign surviv-
ing corporation after the section 381 trans-
action. Under §1.367(b)-7(d)(2)(ii), the
reduction or offset was generally deemed
to occur as of the first day of the foreign
surviving corporation’s first taxable year
following the year in which the post-trans-
action earnings accumulated.
A nonpooling corporation is a foreign
corporation that is not a pooling corpo-
ration and, as a result, maintains “annual
layers” of pre-1987 accumulated profits
and pre-1987 foreign income taxes. See
§1.367(b)-2(l)(10). In general, a foreign
surviving corporation maintains the annu-
al layers of pre-1987 accumulated profits
and pre-1987 foreign income taxes, and
the taxes related to a deficit in an annual
layer cannot be associated with post-sec-
tion 381 transaction earnings of the for-
eign surviving corporation.
As a result of the repeal of section 902
in the TCJA, post-1986 foreign income
taxes and pre-1987 foreign income tax-
es of foreign corporations are generally
no longer relevant for taxable years be-
ginning on or after January 1, 2018. In
addition, consistent with the TCJA, the
Treasury Department and the IRS issued
regulations under section 960 clarifying
that only current year taxes are taken into
account in determining taxes deemed paid
under section 960. See §1.960-1(c)(2).
Current year tax means certain foreign in-
come tax paid or accrued by a controlled
foreign corporation in a current taxable
year. See §1.960-1(b)(4).
In light of the changes made by the
TCJA and subsequent implementing reg-
ulations, the proposed regulations provide
rules to clarify the treatment of foreign
income taxes of a foreign surviving cor-
poration in taxable years of foreign cor-
porations beginning on or after January
1, 2018, and for taxable years of U.S.
shareholders in which or with which such
taxable years of foreign corporations end
(“post-2017 taxable years”). The pro-
posed regulations provide that all foreign
target corporations, foreign acquiring cor-
porations, and foreign surviving corpora-
tions are treated as nonpooling corpora-
tions in post-2017 taxable years and that
any amounts remaining in the post-1986
undistributed earnings and post-1986 for-
eign income taxes of any such corporation
as of the end of the foreign corporation’s
last taxable year beginning before January
1, 2018, are treated as earnings and taxes
in a single pre-pooling annual layer in the
foreign corporation’s post-2017 taxable
years.
The proposed regulations also clarify
that foreign income taxes that are related
to non-previously taxed earnings of a for-
eign acquiring corporation and a foreign
target corporation that were accumulated
in taxable years before the current tax-
able year of the foreign corporation, or
in a foreign target corporation’s taxable
year that ends on the date of the section
381 transaction, are not treated as current
year taxes (as defined in §1.960-1(b)(4))
of a foreign surviving corporation in any
post-2017 taxable year. Furthermore, the
proposed regulations clarify that foreign
income taxes related to hovering deficits
are not current year taxes in the year that
the hovering deficit is absorbed, in part
because the hovering deficit is not con-
sidered to offset post-1986 undistrib-
uted earnings until the first day of the
foreign surviving corporation’s first tax-
able year following the year in which the
post-transaction earnings accumulated.
In addition, because such taxes were paid
or accrued by a foreign corporation in a
prior taxable year, they are not consid-
ered paid or accrued by the foreign cor-
poration in the current taxable year and
therefore are not current year taxes under
§1.960-1(b)(4). Finally, foreign income
taxes related to a hovering deficit in pre-
1987 accumulated profits generally will
not be reduced or deemed paid unless a
foreign tax refund restores a positive bal-
ance to the associated earnings pursuant
to section 905(c); therefore, such foreign
income taxes are never included in cur-
rent year taxes.
In addition to the proposed changes
to §1.367(b)-7, the proposed regulations
remove some references to section 902
in other regulations issued under section
367(b) that are no longer relevant as a re-
sult of the repeal of section 902. For ex-
ample, pursuant to §1.367(b)-4(b)(2), a
deemed dividend inclusion is required in
certain cases upon the receipt of preferred
stock by an exchanging shareholder, in
order to prevent the excessive potential
shifting of earnings and profits, notwith-
standing that the exchanging sharehold-
er’s status as a section 1248 shareholder
is preserved. One of the conditions for
application of the rule requires a domes-
tic corporation to meet the ownership
threshold of section 902(a) or (b) and,
thus, be eligible for a deemed paid credit
on distributions from the transferee for-
eign corporation. §1.367(b)-4(b)(2)(i)(B).
These proposed rules generally retain the
substantive ownership threshold of this
requirement, but without reference to sec-
tion 902 and by modifying the ownership
threshold requirement to consider not only
voting power but value as well. Specifi-
cally, §1.367(b)-4(b)(2)(i)(B) is revised to
require that a domestic corporation owns
at least 10 percent of the transferee foreign
corporation by vote or value.
Comments are requested as to wheth-
er further changes to §1.367(b)-4 or
1.367(b)-7, or any changes to other regula-
tions issued under section 367, are appro-
priate in order to clarify their application
after the repeal of section 902. In addition,
the Treasury Department and the IRS are
studying the interaction of §1.367(b)-4(b)
(2) with section 245A and other Code pro-
visions and considering whether addition-
al revisions to the regulation are appropri-
ate in light of TCJA generally. Comments
are specifically requested with respect to
the proposed revisions to §1.367(b)-4(b)
(2), including whether there is a continu-
ing need to prevent excessive potential
shifting of earnings and profits through
the use of preferred stock in light of the
TCJA generally. For example, the Trea-
sury Department and the IRS are consider-
ing, and request comments on, the extent
to which, in certain transactions described
in §1.367(b)-4(b)(2), (1) an exchanging
shareholder who would not qualify for a

November 30, 2020 1470 Bulletin No. 2020–49
deduction under section 245A could po-
tentially shift earnings and profits of a
foreign acquired corporation to a trans-
feree foreign corporation with a domestic
corporate shareholder that would qualify
for a deduction under section 245A, or (2)
a domestic corporate exchanging share-
holder of a foreign acquired corporation
with no earnings and profits could access
the earnings and profits of a transferee for-
eign corporation.
IV. Source of Inclusions under Sections
951, 951A, 1293, and Associated Section
78 Dividend
Sections 861(a) and 862(a) contain
rules to determine the source of certain
items of gross income. Section 863(a)
provides that the source of items of gross
income not specified in sections 861(a)
and 862(a) will be determined under reg-
ulations prescribed by the Secretary. As a
result of changes to section 960 made by
the TCJA, the Treasury Department and
the IRS revised the regulations under sec-
tion 960. As part of that revision, the Trea-
sury Department and the IRS removed
former §1.960-1(h)(1), which contained
a source rule for the amount included in
gross income under section 951 and the
associated section 78 dividend. Section
1.960-1(h)(1) provided that, for purpos-
es of section 904, the amount included in
gross income of a domestic corporation
under section 951 with respect to a foreign
corporation, plus any section 78 dividend
to which such section 951 inclusion gave
rise by reason of taxes deemed paid by
such domestic corporation, was derived
from sources within the foreign country or
possession of the United States under the
laws of which such foreign corporation, or
the first-tier corporation in the same chain
of ownership as such foreign corporation,
was created or organized.
Although section 904(h)(1) treats as
from sources within the United States
certain amounts included in gross income
under section 951(a) that otherwise would
be treated as derived from sources without
the United States, absent former §1.960-
1(h)(1), no rule specifies the source of
inclusions under section 951 before the
application of section 904(h)(1). In ad-
dition, the rule in former §1.960-1(h)(1)
only provided for the source of a domestic
corporation’s section 951 inclusions for
purposes of section 904. A similar lack of
guidance exists with respect to the source
of inclusions under section 951A. See sec-
tion 951A(f)(1)(A) (requiring the applica-
tion of section 904(h)(1) with respect to
amounts included in gross income under
section 951A(a) in the same manner as
amounts included under section 951(a)
(1)(A)). The removal of former §1.960-
1(h)(1) also left uncertain the source of
amounts included in gross income as a re-
sult of an election under section 1293(a),
because under section 1293(f)(1), such
amounts are treated for purposes of sec-
tion 960 as amounts included in gross in-
come under section 951(a).
To clarify the source of income inclu-
sions after the removal of former §1.960-
1(h)(1), the proposed regulations include
a new rule in §1.861-3(d), which provides
that for purposes of the sourcing provi-
sions an amount included in the gross in-
come of a United States person under sec-
tion 951 is treated as a dividend received
by the United States person directly from
the foreign corporation that generated the
inclusion.
This proposed rule differs from former
§1.960-1(h)(1) in two respects. First, for-
mer §1.960-1(h)(1) provided that if the
foreign corporation that generated the in-
come included under section 951 was held
indirectly through other foreign corpora-
tions, the amount included was treated as
if it had been paid through such intermedi-
ate corporations and as received from the
first-tier foreign corporation. The Treasury
Department and the IRS have determined
that, in light of the repeal of section 902,
and because a section 951 inclusion with
respect to a lower-tier CFC is not treat-
ed as a deemed distribution through the
first-tier CFC, the source of the inclusion
should be determined by reference to the
lower-tier CFC.
Second, former §1.960-1(h)(1) treat-
ed the entire amount of the inclusion un-
der section 951 as derived from sources
without the United States. However, the
Treasury Department and the IRS have
determined that because dividends and in-
clusions of the same earnings and profits
should be sourced in the same manner, the
general rule for inclusions under section
951 should be consistent with the rule
in section 861(a)(2)(B) and §1.861-3(a)
(3) that treats dividends as derived from
sources within the United States to the
extent that the dividend is from a foreign
corporation with significant income ef-
fectively connected with the conduct of a
trade or business in the United States. This
is particularly appropriate in circumstanc-
es in which effectively connected income
is not excluded from subpart F income un-
der section 952(b) (which could arise as a
result of a treaty obligation of the United
States precluding the effectively connect-
ed income from being taxed by the United
States in the hands of the CFC). In addi-
tion, the Treasury Department and the
IRS have determined that the source of a
taxpayer’s gross income from an inclusion
of CFC earnings that are subject to a high
rate of foreign tax should be the same, re-
gardless of whether the taxpayer includes
the income under subpart F or elects the
high-taxed exception of section 954(b)(4)
and repatriates the earnings as a dividend.
Therefore, the proposed regulations pro-
vide that the source of an inclusion under
section 951 is determined under the same
rules as those for dividends. However,
the resourcing rules in section 904(h) and
§1.904-5(m) independently operate to en-
sure that dividends and inclusions under
section 951(a) that are attributable to U.S.
source income of the CFC retain that U.S.
source in the hands of the United States
shareholder.
The proposed regulations also clarify
that the source of section 78 dividends as-
sociated with inclusions under section 951
follows the rules for sourcing dividends.
See also §1.78-1(a).
Finally, and consistent with sections
951A(f)(1)(A) and 1293(f)(1), the pro-
posed regulations apply the same rules
with respect to inclusions under sections
951A and 1293 and the associated section
78 dividend.
V. Allocation and Apportionment of
Expenses Under Section 861 Regulations
A. Election to capitalize R&E and
advertising expenditures
A taxpayer determines its foreign
tax credit limitation under section 904,
in part, based on the taxpayer’s taxable
income from sources without the Unit-
ed States. Taxable income from sources

Bulletin No. 2020–49 1471 November 30, 2020
without the United States is determined by
deducting from the items of gross income
from sources without the United States
the expenses, losses, and other deductions
properly allocated and apportioned to that
income, and a ratable part of any expens-
es, losses, or other deductions that cannot
definitely be allocated to some item or
class of gross income. See section 862(b).
Section 864(e)(2) generally requires tax-
payers to allocate and apportion interest
expense on the basis of assets, rather than
income. Under the asset method, a taxpay-
er apportions interest expense to the vari-
ous statutory or residual groupings based
on the average total value of assets within
each grouping for the taxable year as de-
termined under the asset valuation rules of
§1.861-9T(g).
The preamble to the 2019 FTC pro-
posed regulations stated that the Treasury
Department and the IRS continue to study
the rules for allocating and apportioning
interest deductions, and requested com-
ments on a potential proposal to provide
for the capitalization and amortization
of certain expenses solely for purposes
of §1.861-9 to better reflect asset values
under the tax book value method. One
comment supported the adoption of such
a rule.
The Treasury Department and the IRS
recognize that internally-developed intan-
gible assets (including intangible assets
such as goodwill that are created as a result
of advertising) that have no tax book value
because the costs of generating them have
been currently deducted may nevertheless
have continuing economic value, and that
debt financing may support the generation
and maintenance of that value. Accord-
ingly, proposed §1.861-9(k) provides an
election for taxpayers to capitalize and
amortize their research and experimental
(“R&E”) and advertising expenditures in-
curred in a taxable year. This election is
analogous to the election under §1.861-
9(i) to determine asset values based on the
alternative tax book value method, since
both elections allow taxpayers to deter-
mine the tax book value of an asset in a
manner that is different from the general
rules that apply under Federal income tax
law, but solely for purposes of allocating
and apportioning interest expense under
§1.861-9, and not for any other Federal
income tax purpose (such as determining
the amount of any deduction actually al-
lowed for depreciation or amortization).
Proposed §1.861-9(k)(1) and (2) gen-
erally provides that for purposes of allo-
cating and apportioning interest expense
under §1.861-9, an electing taxpayer
capitalizes and amortizes its R&E ex-
penditures under the rules in section 174
as contained in Pub. L. 115–97, title I,
§13206(a), which generally requires that
beginning in taxable years beginning in
2022, R&E expenditures must be capital-
ized and then amortized.
Similarly, proposed §1.861-9(k)(1) and
(3) generally requires an electing taxpayer
to capitalize and amortize its advertising
expenditures. The definition of advertising
expenditures and the method of cost re-
covery contained in proposed §1.861-9(k)
(3) is based on prior legislative proposals
(which have not been enacted) propos-
ing that certain advertising expenditures
be capitalized. See, for example, H.R.1,
113th Cong. Section 3110 (2014). Com-
ments are requested on whether a different
definition of advertising expenditures or a
different method of cost recovery should
be adopted for purposes of the election in
proposed §1.861-9(k).
B. Nonrecourse debt of certain utility
companies
Section 1.861-10T provides certain ex-
ceptions to the general asset-based appor-
tionment of interest expense requirement
under section 864(e)(2), including rules
that directly allocate interest expense to
the income generated by certain assets
that are subject to “qualified nonrecourse
indebtedness.” See §1.861-10T(b).
A comment to the 2019 FTC proposed
regulations asserted that interest expense
incurred on certain debt of regulated utili-
ty companies should be directly allocated
to income from assets of the utility busi-
ness because the debt must be approved
by a regulatory agency and relates direct-
ly to the underlying needs of the utility
business. The comment suggested that the
existing rules for qualified nonrecourse
indebtedness were insufficient because
utility indebtedness is often subject to
guarantees and cross collateralizations
that permit the lender to seek recovery be-
yond any identified property, and because
the cash flows of a regulated utility com-
pany used to support utility indebtedness
are broader than the permitted cash flows
described in §1.861-10T(b).
In response to this comment, the pro-
posed regulations provide that certain
interest expense of regulated utility com-
panies is directly allocated to assets of
the utility business. See proposed §1.861-
10(f). The type of utility companies that
qualify for the rule, and the rules for trac-
ing debt to assets, are modeled on simi-
lar rules provided in regulations under
section 163(j). See §§1.163(j)-1(b)(15)
and 1.163(j)-10(d)(2). Consistent with the
approach taken in §1.163(j)-10(d)(2), the
proposed regulations expand the scope of
permitted cash flows under §1.861-10T(b)
but do not modify the requirement that the
creditor look to particular assets as secu-
rity for payment on the loan because un-
secured debt generally is supported by all
of the assets of the borrower. See also Part
XI.L.2 of the Summary of Comments and
Explanation of Revisions to TD 9905 (85
FR 56686).
C. Revision to CFC netting rule relating
to CFC-to-CFC loans
Section 1.861-10(e)(8)(v) provides that
for purposes of applying the CFC netting
rule of §1.861-10(e), certain loans made
by one CFC to another CFC are treated
as loans made by a U.S. shareholder to
the borrower CFC, to the extent the U.S.
shareholder makes capital contributions
directly or indirectly to the lender CFC,
and are treated as related group indebt-
edness. No income derived from the U.S.
shareholder’s ownership of the lender
CFC stock is treated as interest income
derived from related group indebtedness,
including subpart F inclusions related to
the interest income earned by the lender
CFC. As a result, no interest expense is
generally allocated to income related to
the CFC-to-CFC debt, but the debt may
nevertheless increase the amount of al-
locable related group indebtedness for
which a reduction in assets is required un-
der §1.861-10(e)(7).
The Treasury Department and the IRS
have determined that the failure to ac-
count for income related to the CFC-to-
CFC debt can distort the general alloca-
tion and apportionment of other interest
expense under §1.861-9. Therefore, the

November 30, 2020 1472 Bulletin No. 2020–49
proposed regulations revise §1.861-10(e)
(8)(v) to provide that CFC-to-CFC debt is
not treated as related group indebtedness
for purposes of the CFC netting rule. Pro-
posed §1.861-10(e)(8)(v) also provides
that CFC-to-CFC debt is not treated as re-
lated group indebtedness for purposes of
determining the foreign base period ratio,
which is based on the average of related
group debt-to-asset ratios in the five pri-
or taxable years, even if the CFC-to-CFC
debt was otherwise properly treated as re-
lated group indebtedness in a prior year.
This is necessary to prevent distortions
that would otherwise arise in comparing
the ratio in a year in which CFC-to-CFC
debt was treated as related group indebt-
edness to the ratio in a year in which the
CFC-to-CFC debt is not treated as related
group indebtedness.
D. Direct allocation of interest expense
for foreign bank branches
Under §§1.861-8 through 1.861-13, the
combined interest expense of a domestic
corporation and its foreign branches is
allocated and apportioned to income cat-
egories on the basis of the tax book val-
ue of their combined assets. Comments
received with respect to the 2018 and
2019 FTC proposed regulations asserted
that special rules were needed for finan-
cial institutions for allocating and appor-
tioning interest expense to foreign branch
category income. The comments asserted
that the general approach under §§1.861-8
through 1.861-13 fails to take into account
the fact that foreign branches of financial
institutions have assets and liabilities that
reflect interest rates that differ from inter-
est rates related to assets and liabilities of
the home office held in the United States.
As a result, the general approach results
in over- or under- allocation of interest
expense to the foreign branch category
income.
In response to this comment, the pro-
posed regulations provide that interest
expense reflected on a foreign banking
branch’s books and records is directly
allocated against the foreign branch cate-
gory income of that foreign branch, to the
extent it has foreign branch category in-
come. The proposed regulations also pro-
vide for a corresponding reduction in the
value of the assets of the foreign branch
for purposes of allocating other interest
expense of the foreign branch owner. See
proposed §1.861-10(g).
Comments are requested as to wheth-
er additional rules are needed to account
for disregarded interest payments between
foreign branches and between a foreign
branch and a foreign branch owner. Com-
ments are also requested as to whether ad-
justments to the amount of foreign branch
liabilities subject to this rule are necessary
to account for differing asset-to-liability
ratios in a foreign branch and a foreign
branch owner.
E. Treatment of section 818(f) expenses
for consolidated groups
Section 818(f)(1) provides that a life
insurance company’s deduction for life
insurance reserves and certain other de-
ductions (“section 818(f) expenses”) are
treated as items which cannot definitely
be allocated to an item or class of gross in-
come. Proposed §1.861-14(h) in the 2019
FTC proposed regulations provided that
section 818(f) expenses are allocated and
apportioned on a separate company basis
instead of on a life subgroup basis. In the
2020 FTC final regulations, this rule was
withdrawn in response to comments. As
discussed in Part I.C of the Summary of
Comments and Explanation of Revisions
to the 2020 FTC final regulations, the
Treasury Department and the IRS have
determined that there are merits and draw-
backs to both the separate company and
the life subgroup approaches.
These proposed regulations provide
that section 818(f) expenses must be allo-
cated and apportioned on a life subgroup
basis, but that a one-time election is al-
lowed for consolidated groups to choose
instead to apply a separate company ap-
proach. A consolidated group’s use of the
separate entity method constitutes a bind-
ing choice to use the method chosen for
that year for all members of the group and
all taxable years thereafter.
F. Allocation and apportionment of
foreign income taxes
1. Background
These proposed regulations repropose
certain of the 2019 FTC proposed regu-
lations in order to provide more detailed
and comprehensive guidance regarding
the assignment of foreign gross income,
and the allocation and apportionment
of the associated foreign income tax
expense, to the statutory and residual
groupings in certain cases. Comments
to the 2019 FTC proposed regulations
had requested more detailed guidance
regarding the assignment to the statutory
and residual groupings of foreign gross
income arising from transactions that
are dispositions of stock under Feder-
al income tax law. In response to these
comments, the Treasury Department and
IRS have determined that it is appropri-
ate to propose a comprehensive set of
rules for dispositions of both stock and
partnership interests, as well as rules that,
similar to rules in the 2020 FTC final reg-
ulations for distributions with respect to
stock, provide detailed rules for transac-
tions that are distributions with respect to
a partnership interest under Federal in-
come tax law. The proposed regulations
also address comments requesting that
the rules for the assignment to the stat-
utory and residual groupings of foreign
gross income arising from disregarded
payments distinguish between disregard-
ed payments that would be deductible if
regarded under Federal income tax law
and disregarded payments that would,
if the payor (or recipient) were a corpo-
ration under Federal income tax law, be
distributions with respect to stock or con-
tributions to capital. See also Part IV.B of
the Summary of Comments and Explana-
tion of Revisions in the 2020 FTC final
regulations.
2. Dispositions of stock
Proposed §1.861-20(d)(3)(i)(D) con-
tains rules assigning to statutory and re-
sidual groupings the foreign gross income
and associated foreign tax that arise from
a transaction that is treated for Federal in-
come tax purposes as a sale or other dis-
position of stock. These rules assign the
foreign gross income first to the statutory
and residual groupings to which any U.S.
dividend amount, a term that applies in
the disposition context when there is an
amount of gain to which section 1248(a)
or 964(e) applies, is assigned, to the ex-
tent thereof. Foreign gross income is next

Bulletin No. 2020–49 1473 November 30, 2020
assigned to the grouping to which the U.S.
capital gain amount is assigned, to the ex-
tent thereof.
Any excess of the foreign gross in-
come recognized by reason of the trans-
action over the sum of the U.S. dividend
amount and the U.S. capital gain amount
is assigned to the statutory and residual
groupings in the same proportions as the
proportions in which the tax book value
of the stock is (or would be if the taxpayer
were a United States person) assigned to
the groupings under the rules of §1.861-
9(g) in the U.S. taxable year in which the
disposition occurs. This rule, which uses
the asset apportionment percentages of
the tax book value of the stock as a sur-
rogate for earnings of the corporation that
are not recognized for U.S. tax purposes,
associates foreign tax on a U.S. return of
capital amount (that is, foreign tax on for-
eign gain in excess of the amount of gain
recognized for U.S. tax purposes) with the
same groupings to which the tax would be
assigned under §1.861-20(d)(3)(i)(B)(2)
of the 2020 FTC final regulations if the
item of foreign gross income arose from
a distribution made by the corporation,
rather than a sale or other disposition of
the stock.
As discussed in Part III.B of the Sum-
mary of Comments and Explanation of
Revisions to the 2020 FTC final regula-
tions, the Treasury Department and the
IRS have determined that it is appropriate
to treat foreign tax on a U.S. return of cap-
ital amount resulting from a distribution
as a timing difference in the recognition
of corporate earnings. The proposed reg-
ulations adopt the same rule in the case
of a foreign tax on a U.S. return of cap-
ital amount resulting from a disposition
of stock. The Treasury Department and
the IRS have determined that this result
is appropriate because a foreign country
generally recognizes more gain on a dis-
position of stock than is recognized for
U.S. tax purposes when the shareholder’s
tax basis in the stock is greater for U.S.
tax purposes than for foreign tax pur-
poses, and this disparity typically occurs
when the shareholder’s U.S. tax basis in
the stock has been increased under section
961 to reflect subpart F or GILTI inclu-
sions of earnings attributable to the stock.
Comments are requested on whether other
situations more commonly result in this
disparity, such that different rules might
be appropriate for distributions and sales
in order to better match foreign tax on in-
come included in the foreign tax base with
income included in the U.S. tax base.
3. Partnership transactions
The proposed regulations contain new
rules on the treatment of distributions
from partnerships and sales of partner-
ship interests, including partnerships that
are treated as corporations for foreign law
purposes. In general, these rules follow
similar principles as the rules for distribu-
tions from corporations and sales of stock.
The rule in proposed §1.861-20(d)(3)
(ii)(B), like the rule for assigning foreign
tax on a return of capital with respect to
stock, uses the asset apportionment per-
centages of the tax book value of the part-
ner’s distributive share of the partnership’s
assets (or, in the case of a limited partner
with less than a 10 percent interest, the tax
book value of the partnership interest) as
a surrogate for the partner’s distributive
share of earnings of the partnership that
are not recognized in the year in which the
distribution is made for U.S. tax purposes.
Proposed §1.861-20(d)(3)(ii)(C) similar-
ly associates foreign tax on a U.S. return
of capital amount in connection with the
sale or other disposition of a partnership
interest with a hypothetical distributive
share. The Treasury Department and the
IRS have determined that this rule is ap-
propriate because foreign tax on a return
of capital distribution from a partnership
most commonly occurs in the case of hy-
brid partnerships (that is, entities that are
treated as partnerships for U.S. tax pur-
poses but as corporations for foreign tax
purposes). In this case, earnings that have
been recognized and capitalized into basis
by the partner for U.S. tax purposes as a
distributive share of income in prior years
are not subject to foreign tax until the earn-
ings are distributed. Similarly, the higher
U.S. tax basis in an interest in a hybrid
partnership accounts for the most com-
mon cases where the amount of foreign
gross income that results from a sale of a
partnership interest exceeds the amount of
taxable gain for U.S. tax purposes. Com-
ments are requested on whether a different
ordering rule or matching convention may
better match foreign tax on income in-
cluded in the foreign tax base with income
included in the U.S. tax base. Comments
are also requested on whether special
rules are needed to associate foreign gross
income and the associated foreign tax on
distributions from partnerships and sales
of partnership interests with items that are
subject to special treatment for U.S. tax
purposes (such as gain recharacterized as
ordinary income under section 751).
4. Disregarded payments
i. Background
The proposed regulations contain a
new comprehensive set of rules address-
ing the allocation and apportionment of
foreign income taxes relating to disre-
garded payments. In general, the 2019
FTC proposed regulations assigned for-
eign gross income included by reason of a
disregarded payment by a branch owner to
the residual grouping and assigned foreign
gross income included by reason of a dis-
regarded payment by a branch to its own-
er by reference to the asset apportionment
percentages of the tax book value of the
branch assets in the statutory and residual
groupings. Comments noted that this rule,
in the context of section 960, could lead
to the assignment of foreign income tax-
es to the residual grouping rather than a
grouping to which an inclusion under sec-
tion 951 or 951A is attributable, resulting
in the disallowance of foreign tax credits.
Comments requested that, for purposes of
assigning foreign gross income included
by reason of a disregarded payment to a
statutory or residual grouping, the rule
should identify disregarded payments that
should be treated as made out of current
earnings, and distinguish those payments
from other types of disregarded payments.
ii. Reattribution payments
Proposed §1.861-20(d)(3)(v) contains
new rules that generally assign foreign
gross income arising from the receipt of
disregarded payments and the associated
foreign tax to the recipient’s statutory and
residual groupings based on the current or
accumulated income of the payor (as com-
puted for U.S. tax purposes) out of which
the disregarded payment is considered to
be made. For this purpose, the regulations

November 30, 2020 1474 Bulletin No. 2020–49
refer to disregarded payments made to or
by a taxable unit. In the case of a taxpay-
er that is an individual or a domestic cor-
poration, a taxable unit means a foreign
branch, a foreign branch owner, or a non-
branch taxable unit, as defined in proposed
§1.904-4(f)(3). In the case of a taxpayer
that is a foreign corporation, a taxable unit
means a tested unit as such term is defined
in proposed §1.954-1(d)(2), as contained
in proposed regulations (REG-127732-
19) addressing the high-tax exception
under section 954(b)(4), published in the
Federal Register (85 FR 44650) on July
23, 2020 (the “2020 HTE proposed reg-
ulations”). See proposed §1.861-20(d)(3)
(v)(A) and (d)(3)(v)(E)(10).
Proposed §1.861-20(d)(3)(v)(B)(1)
addresses the assignment of foreign gross
income that arises from the portion of a
disregarded payment that results in a re-
attribution of U.S. gross income from the
payor taxable unit to the recipient tax-
able unit. Under proposed §1.861-20(d)
(3)(v)(B)(1), the foreign gross income
is assigned to the statutory and residual
groupings to which the amount of U.S.
gross income that is reattributed (a “re-
attribution amount”) is initially assigned
upon receipt of the disregarded payment
by a taxable unit, before taking into ac-
count reattribution payments made by the
recipient taxable unit. For this purpose,
under proposed §1.861-20(d)(3)(v)(B)(2),
in the case of a taxpayer that is an indi-
vidual or a domestic corporation, the at-
tribution rules in §1.904-4(f)(2) apply to
determine the section 904 separate catego-
ries of reattribution amounts received by
foreign branches, foreign branch owners,
and non-branch taxable units. In the case
of a taxpayer that is a foreign corporation,
the attribution rules in proposed §1.954-
1(d)(1)(iii) (as contained in the 2020 HTE
proposed regulations)
1
apply to determine
the reattribution amounts received by a
tested unit in the tested income and sub-
part F income groupings of its tested units
for purposes of the applying the high-tax
exception of section 954(b)(4). Under
proposed §1.861-20(d)(3)(v)(B)(2), the
rules in the 2020 HTE proposed regula-
tions for attributing U.S. gross income to
tested units also apply to attribute items
of foreign gross income to tested units
for purposes of allocating and apportion-
ing the associated foreign income taxes in
computing the amount of an inclusion and
deemed-paid taxes under sections 951,
951A, and 960.
For purposes of applying all other oper-
ative sections, the U.S. gross income that is
attributable to a taxable unit is determined
under the principles of the foreign branch
category rules (for U.S. taxpayers) or the
high-tax exception rules (for foreign cor-
porations). The foreign branch category
rules of §1.904-4(f)(2) generally attribute
U.S. gross income to taxable units on the
basis of books and records, as modified to
reflect Federal income tax principles, and
reattribute U.S. gross income between the
general category and the foreign branch
category by reason of certain disregarded
payments between a foreign branch and
its owner, or another foreign branch, that
would be deductible if regarded for Feder-
al income tax purposes. The reattribution
is made by reference to the statutory and
residual groupings of the payor to which
the disregarded payment would be allocat-
ed and apportioned if it were regarded for
Federal income tax purposes.
Proposed §1.954-1(d)(1)(iii), as con-
tained in the 2020 HTE proposed regu-
lations, generally adopts the principles of
§1.904-4(f)(2) for purposes of assigning
U.S. gross income to tested units of a con-
trolled foreign corporation for purposes of
the high-tax exception. However, although
§1.904-4(f)(2)(vi) does not treat disre-
garded interest payments as a disregarded
reallocation transaction, under proposed
§1.954-1(d)(1)(iii)(B) of the 2020 HTE
proposed regulations, disregarded inter-
est payments are treated as reattribution
payments to the extent they are deduct-
ible for foreign law purposes in the coun-
try where the payor taxable unit is a tax
resident. Proposed §1.954-1(d)(1)(iii)(B)
(4) provides that these disregarded inter-
est payments are treated as made ratably
out of the payor’s current year U.S. gross
income to the extent thereof, and provides
ordering rules when the same taxable unit
both makes and receives disregarded in-
terest payments. Comments are requested
on additional ordering rules that should be
included in the final regulations, includ-
ing rules that apply when multiple taxable
units both make and receive disregarded
payments, such as rules for determining
the starting point for assigning reattribu-
tion payments received by taxable units,
and the order in which particular types of
disregarded payments made by taxable
units are allocated and apportioned to U.S.
gross income (including income attribut-
able to reattribution payments received by
the payor taxable unit) of the payor tax-
able unit. In addition, because proposed
§1.861-20(d)(3)(v) more clearly coor-
dinates with the provisions in proposed
§1.954-1(d)(1), the proposed regulations
propose to update proposed §1.954-1(d)
(1)(iv)(A) (as contained in the 2020 HTE
proposed regulations) to clarify that the
rules in §1.861-20 (rather than the princi-
ples of §1.904-6(b)(2)) apply in the case of
disregarded payments. In order to achieve
consistency with the new tested unit rules
in proposed §1.954-1(d) and taxable unit
rules in §1.861-20(d)(3)(v), the proposed
regulations also contain a modification to
the high-tax kickout rules in §1.904-4(c)
(4) to provide that the grouping rules at
the CFC level are applied on a tested unit
(instead of foreign QBU) basis.
Proposed §1.861-20(d)(3)(v)(B)(3)
provides that the statutory or residual
grouping to which foreign gross income
of a taxable unit (including foreign gross
income that arises from the receipt of a
disregarded payment) is assigned is de-
termined without regard to reattribution
payments made by the taxable unit, and
that no item of foreign gross income is re-
assigned to another taxable unit by reason
of a reattribution payment that reattributes
U.S. gross income of the payor taxable
unit to another taxable unit by reason of
such reattribution payments. Under this
rule, if foreign gross income is associat-
ed under §1.861-20(d)(1) with a corre-
sponding U.S. item initially attributed to
a payor taxable unit, that foreign gross
income is always assigned to the grouping
that includes the U.S. gross income of that
payor taxable unit. The effect of this rule
and proposed §1.861-20(d)(3)(v)(B)(1) is
to allocate and apportion foreign tax im-
posed on foreign gross income that is as-
1
References to §1.954-1(d) in these proposed regulations are to proposed §1.954-1(d) as contained in the 2020 HTE proposed regulations.

Bulletin No. 2020–49 1475 November 30, 2020
sociated either with a corresponding U.S.
item that is initially attributed to a payor
taxable unit or with a reattribution amount
that is attributed to a recipient taxable unit
(before taking into account reattribution
payments made by the recipient taxable
unit) to the grouping that includes the U.S.
gross income of the taxable unit that paid
the foreign tax; no portion of the foreign
tax is associated with U.S. gross income
that is reattributed to another taxable unit
by reason of a reattribution payment.
In the case of foreign income tax im-
posed on the basis of foreign taxable in-
come for a taxable period (that is, net ba-
sis taxes), this rule will generally produce
appropriate results because foreign gross
income of a taxable unit will generally be
reduced by foreign law deductions for dis-
regarded payments made by that taxable
unit, so that the amount of the payor’s for-
eign taxable income will approximate the
amount of U.S. taxable income attributed
to the taxable unit after accounting for re-
attribution payments made and received
by that taxable unit. Foreign gross basis
taxes (such as withholding taxes) imposed
on foreign gross income of a taxable unit,
if not reassigned along with the associated
U.S. gross income that is reattributed to
another taxable unit as the result of a reat-
tribution payment, however, may in some
cases distort the effective foreign tax rate
of the payor taxable unit. The Treasury
Department and the IRS have determined
that rules reattributing foreign gross basis
taxes among taxable units by reason of re-
attribution payments would require com-
plex ordering rules that would be unduly
burdensome for taxpayers to apply and
for the IRS to administer. Comments are
requested on whether the final regulations
should include different rules, including
anti-abuse rules, to account for the assign-
ment of foreign gross basis taxes paid by
taxable units that make disregarded pay-
ments.
iii. Remittances and contributions
Similar to the rules in the 2019 FTC
proposed regulations, proposed §1.861-
20(d)(3)(v)(C)(1)(i) assigns foreign gross
income that arises from a disregarded pay-
ment that is treated as a remittance for U.S.
tax purposes by reference to the statutory
and residual groupings to which the assets
of the payor taxable unit are assigned (or
would be assigned if the taxable unit were
a United States person) under the rules
of §1.861-9 for purposes of apportioning
interest expense. This rule uses the pay-
or’s asset apportionment percentages as a
proxy for the accumulated earnings of the
payor taxable unit from which the remit-
tance is made. Proposed §1.861-20(d)(3)
(v)(C)(1)(ii) provides that for this purpose
the assets of the taxable unit making the
remittance are determined in accordance
with the rules of §1.987-6(b) that apply in
determining the source and separate cat-
egory of exchange gain or loss on a sec-
tion 987 remittance, as modified in two
respects.
First, for purposes of §1.860-20(d)(3)
(v)(C)(1)(i) the assets of the remitting
taxable unit include stock owned by the
taxable unit, even though for purposes of
section 987 such stock may be treated as
owned directly by the owner of the taxable
unit. This rule helps to ensure that foreign
tax on remittances are properly associated
with earnings of corporations that may be
distributed through the taxable unit.
Second, proposed §1.861-20(d)(3)(v)
(C)(1)(ii) modifies the determination of
assets under §1.987-6(b)(2) to provide
that the assets of a taxable unit that give
rise to U.S. gross income that is assigned
to another taxable unit by reason of a re-
attribution payment are treated as assets
of the recipient taxable unit. The Treasury
Department and the IRS have determined
that reassigning the tax book value of as-
sets among taxable units in proportion to
the U.S. gross income attributed to a tax-
able unit, after taking into account all reat-
tribution payments made and received by
the taxable unit, for purposes of determin-
ing the statutory and residual groupings
to which foreign tax on a remittance is
assigned is appropriate to properly match
the foreign tax with the accumulated earn-
ings out of which the remittance is made.
In addition, because it uses asset values
that are already required to be computed
and maintained for other Federal income
tax purposes, this reattribution rule is
less complicated to apply than a rule that
would treat disregarded assets and liabili-
ties as if they were regarded for U.S. tax
purposes in applying this rule.
However, the Treasury Department
and the IRS acknowledge that any asset
method for associating foreign gross in-
come included by the remittance recipient
with the payor’s accumulated earnings
may lead to inexact determinations of the
groupings of the accumulated earnings out
of which a remittance is paid, particularly
when a taxable unit makes a remittance in
conjunction with reattribution payments.
The potential for distortions exist to the
extent the tax book value of assets does not
reflect their income-producing value, as in
the case of self-developed intangibles the
costs of which are currently expensed, as
well as to the extent the characterization
of the tax book value of an asset based on
the income generated by the asset in the
current taxable year does not reflect the
characterization of the income generat-
ed by the asset over time. Comments are
requested on whether a different method
of determining the statutory and residual
groupings to which a remittance is as-
signed, such as the maintenance of histor-
ical accounts of accumulated earnings of
taxable units, including adjustments to re-
flect disregarded payments among taxable
units, could produce more accurate results
without unduly increasing administrative
burdens.
Similar to the rule in the 2019 FTC pro-
posed regulations, proposed §1.861-20(d)
(3)(v)(C)(2) provides that foreign gross
income and the associated foreign tax
that arise from the receipt of a contribu-
tion are assigned to the residual category,
except as provided under the rules for an
operative section (such as under proposed
§1.904-6(b)(2)(ii), which assigns foreign
tax on contributions to a foreign branch
to the foreign branch category). Proposed
§1.861-20(d)(3)(v)(E)(2) defines a contri-
bution as a disregarded transfer of prop-
erty that would be treated as a transaction
described in section 118 or 351 if the re-
cipient taxable unit were treated as a cor-
poration for Federal income tax purposes,
or the excess amount of a disregarded pay-
ment made to a taxable unit that the payor
unit owns over the amount that is treated
as a reattribution payment.
Foreign tax paid by a foreign corpo-
ration that is allocated and apportioned
to the residual category is not eligible to
be deemed paid under section 960. See
§1.960-1(e). However, because proposed
§1.861-20(d)(3)(v) treats most disregard-
ed payments as reattribution payments or

November 30, 2020 1476 Bulletin No. 2020–49
remittances, and contributions (as char-
acterized for corporate law purposes) are
rarely subject to foreign tax, the Treasury
Department and the IRS expect this rule
will have limited application.
Proposed §1.861-20(d)(3)(v)(C)(3)
provides an ordering rule attributing the
amount of foreign gross income that arises
from the receipt of a disregarded payment
that includes both a reattribution payment
and a remittance or contribution first to
the portion of the disregarded payment
that is a reattribution payment. Any ex-
cess amount of the foreign gross income
item is attributed to the portion of the dis-
regarded payment that is a remittance or
contribution.
In addition, proposed §1.861-20(d)(2)
(ii)(D) provides that if an item of foreign
gross income arises from an event that for
foreign law purposes is treated as a distri-
bution, contribution, accrual, or payment
between taxable units, but that is not treat-
ed as a disregarded payment for Federal
income tax purposes (for example, a con-
sent dividend from a disregarded entity),
the foreign gross income and associated
foreign tax are assigned in the same way
as if a transfer of property in the amount
of the foreign gross income item resulted
in a disregarded payment in the year the
foreign tax is paid or accrued.
Finally, in light of the heightened
importance of the rules in §1.904-4(f),
which are being applied in connection
with §1.861-20 as well as the high-tax
exception rules in §1.951A-2(c)(7), the
proposed regulations include some tech-
nical changes to the rules in §1.904-4(f)
that will facilitate this interaction. See Part
XI.A of this Explanation of Provisions.
iv. Disregarded payments with respect to
disregarded sales of property
Proposed §1.861-20(d)(3)(v)(D) clari-
fies that an item of foreign gross income
attributable to gain recognized under for-
eign law by reason of a disregarded pay-
ment received in exchange for property is
characterized and assigned under §1.861-
20(d)(2)(ii)(A) of the 2020 FTC final reg-
ulations, that is, as a timing difference in
the taxation of the property’s built-in gain.
Proposed §1.861-20(d)(3)(v)(D) further
provides that if a taxpayer recognizes U.S.
gross income as a result of a disposition of
property that was previously received in
exchange for a disregarded payment, any
item of foreign gross income that the tax-
payer recognizes as a result of that same
disposition is assigned to a statutory or
residual grouping under the U.S. corre-
sponding item rules in §1.861-20(d)(1) of
the 2020 FTC final regulations. Because
in this situation the seller’s basis in the
property initially acquired in a disregard-
ed sale is not adjusted for U.S. tax purpos-
es, but is assumed to reflect the purchase
price for foreign tax purposes, the assign-
ment of the foreign gross income resulting
from the regarded sale of the property is
made without regard to any reattribution
of the gain that is recognized for U.S. tax
purposes under §1.904-4(f)(2)(vi)(A) or
(D), which apply to attribute U.S. gross
income in the amount of the property’s
built-in gain at the time of the initial ac-
quisition to the foreign branch or foreign
branch owner that originally transferred
the property in the disregarded sale. The
same result obtains with respect to all tax-
able units under proposed §1.861-20(d)(3)
(v)(B)(3).
5. Group-relief regimes
The Treasury Department and the IRS
are concerned about the use of certain
foreign law group-relief regimes (that is,
regimes that allow for the sharing of loss-
es of one member of a group with another
member) to create a mismatch in how for-
eign income taxes are characterized under
§1.861-20 for purposes of various opera-
tive sections, including sections 245A(d),
904, and 960. Comments are requested on
the appropriate treatment of foreign in-
come taxes paid or accrued in connection
with the sharing of losses.
VI. Creditability of Foreign Taxes Under
Sections 901 and 903
A. Definition of foreign income tax
1. Background and overview
Section 901 allows a credit for foreign
income, war profits, and excess profits
taxes, and section 903 provides that such
taxes include a tax in lieu of a general-
ly-imposed foreign income, war profits, or
excess profits tax.
2
Section 1.901-2, which
was originally promulgated in 1983 in TD
7918 (the “1983 final regulations”), sets
forth conditions for determining when a
foreign levy is a foreign income, war prof-
its, and excess profits tax (collectively, an
“income tax”) that is creditable under sec-
tion 901. Under the existing regulations, a
foreign levy is an income tax if and only if
(1) it is a tax, and (2) the predominant char-
acter of that tax is that of an income tax in
the U.S. sense. See §1.901-2(a)(1). Under
§1.901-2(a)(3), the predominant character
of a foreign tax is that of an income tax
in the U.S. sense if it meets two require-
ments: (1) the foreign tax is likely to reach
net gain in the normal circumstances in
which it applies (the “net gain require-
ment”), and (2) it is not a “soak-up” tax.
To satisfy the net gain requirement, a tax
must meet the realization, gross receipts,
and net income requirements in §1.901-
2(b)(2), (3), and (4), respectively. Under
§1.901-2(a)(1), a foreign tax either is or
is not a foreign income tax, in its entirety,
for all persons subject to the foreign tax.
This all-or-nothing rule ensures consistent
outcomes for taxpayers and minimizes the
administrative burdens on the IRS that
would result if the creditability of a for-
eign tax instead varied depending on each
taxpayer’s particular facts.
The Treasury Department and the IRS
have determined that it is necessary and
appropriate to require that a foreign tax
conform to traditional international norms
of taxing jurisdiction as reflected in the In-
ternal Revenue Code in order to qualify as
an income tax in the U.S. sense, or as a tax
in lieu of an income tax. As discussed in
more detail in Part VI.A.2 of this Expla-
nation of Provisions, this requirement will
ensure that the foreign tax credit operates
in accordance with its purpose to mitigate
double taxation of income that is attribut-
able to a taxpayer’s activities or invest-
ment in a foreign country.
In addition, the Treasury Department
and the IRS have determined that it is nec-
essary and appropriate to revise the net
gain requirement in order to better align
the regulatory tests with norms reflected
2
Taxpayers may generally claim a deduction instead of a credit for these foreign taxes, as well as for certain other foreign taxes that do not qualify for the foreign tax credit. See section 164(a).

Bulletin No. 2020–49 1477 November 30, 2020
in the Internal Revenue Code that define
an income tax in the U.S. sense, as well as
to simplify and clarify the application of
the rules. In particular, the existing regula-
tions provide that the net gain requirement
is met if a foreign tax reaches net gain in
the “normal circumstances” in which it
applies. However, this rule leads to inap-
propriate results and presupposes an em-
pirical analysis requiring access to infor-
mation that is difficult for taxpayers and
the IRS to obtain. Therefore, the proposed
regulations narrow the situations in which
an empirical analysis is relevant in analyz-
ing the nature of a foreign tax. See Part
VI.A.3 of this Explanation of Provisions.
The proposed regulations make other
changes to improve or clarify the rules,
and to address issues that have arisen
since the 1983 final regulations were is-
sued. In particular, the proposed regula-
tions introduce the term “net income tax”
to describe foreign levies described in
section 901 and the term “foreign income
tax” to describe foreign levies described
in section 901 or 903. See also Part X.F of
this Explanation of Provisions (describing
conforming changes made to §§1.960-1
and 1.960-2). Conforming changes to the
terms and definitions cross-referenced in
other regulations will be made when the
proposed regulations are finalized.
The proposed regulations specifically
address the treatment of surtaxes and the
circumstances in which a source-based
withholding tax on cross-border income
can qualify as a foreign income tax. The
proposed regulations also reorganize the
existing regulations to address soak-up
taxes as part of the determination of the
amount of tax paid, rather than as part
of the definition of a foreign income tax,
and clarify the rules for determining when
a foreign tax is a separate levy. The pro-
posed regulations addressing the amount
of tax paid also modify the treatment of
refundable credits, clarify the interaction
between the rules addressing refundable
amounts and multiple levies, and clarify
the application of the noncompulsory pay-
ment rules with respect to foreign tax law
elections. Finally, the proposed regula-
tions revise the definition of a tax in lieu of
an income tax. These rules are described
in more detail in Parts VI.A.3.v, VI.A.4,
VI.A.5, VI.B, and VI.C of this Explana-
tion of Provisions.
The proposed regulations do not in-
clude proposed amendments to the rules
in §1.901-2A addressing dual capacity
taxpayers. However, certain proposed
changes to §§1.901-2 and 1.903-1 may
impact §1.901-2A. For example, when the
proposed regulations are finalized, certain
terms that are defined in §1.901-2 and
cross-referenced in §1.901-2A will need
to be updated. Comments are requested on
whether additional changes to §1.901-2A
are appropriate in light of the proposed re-
visions to §§1.901-2 and 1.903-1.
2. Jurisdictional nexus requirement
As a dollar-for-dollar credit against
U.S. income tax, the foreign tax credit is
intended to mitigate double taxation of
foreign source income. This fundamental
purpose is served most appropriately if
there is substantial conformity in the prin-
ciples used to calculate the base of the for-
eign tax and the base of the U.S. income
tax. This conformity extends not just to
ascertaining whether the foreign tax base
approximates U.S. taxable income deter-
mined on the basis of realized gross re-
ceipts reduced by allocable expenses, but
also to whether there is a sufficient nexus
between the income that is subject to tax
and the foreign jurisdiction imposing the
tax. Although prior regulations under sec-
tion 901 did contain jurisdictional limita-
tions on the definition of an income tax,
see §4.901-2(a)(1)(iii) (1980) (requiring
that a foreign tax follow “reasonable rules
regarding source of income, residence, or
other bases for taxing jurisdiction”), the
existing regulations do not contain such a
rule.
In recent years, several foreign coun-
tries have adopted or are considering
adopting a variety of novel extraterritorial
taxes that diverge in significant respects
from traditional norms of internation-
al taxing jurisdiction as reflected in the
Internal Revenue Code. In addition, the
Treasury Department and the IRS have
received requests for guidance on wheth-
er the definition of foreign income tax
includes a jurisdictional limitation, and
recommending that the regulations adopt
a rule requiring that income subject to for-
eign tax bear an appropriate connection
to a foreign country for a foreign tax to
be eligible for the foreign tax credit. In
light of these developments, the Treasury
Department and the IRS have determined
that it is appropriate to revisit the regula-
tory definition of a foreign income tax to
ensure that to be creditable, foreign taxes
in fact have a predominant character of
“an income tax in the U.S. sense.”
The Treasury Department and the IRS
have determined that in order to qualify
as a creditable income tax, the foreign
tax law must require a sufficient nexus
between the foreign country and the tax-
payer’s activities or investment of capital
or other assets that give rise to the income
being taxed. For example, a tax imposed
by a foreign country on a taxpayer’s in-
come that lacks a sufficient nexus to such
country (such as the lack of operations,
employees, factors of production, or man-
agement in that foreign country) is not an
income tax in the U.S. sense and should
not be eligible for a foreign tax credit if
paid or accrued by U.S. taxpayers. Such
a nexus is required in order for persons
and income to be subject to U.S. income
tax, and so a similar nexus reflecting the
foreign country’s exercise of taxing ju-
risdiction consistent with Federal income
tax principles should be required in order
for foreign taxes to be eligible for a dol-
lar-for-dollar credit against U.S. income
tax.
The proposed regulations therefore re-
quire that for a foreign tax to qualify as
an income tax, the tax must conform with
established international norms, reflected
in the Internal Revenue Code and related
guidance, for allocating profit between
associated enterprises, for allocating
business profits of nonresidents to a tax-
able presence in the foreign country, and
for taxing cross-border income based on
source or the situs of property (together,
the “jurisdictional nexus requirement”).
Proposed §1.901-2(c)(1)(i) generally pro-
vides that in the case of a foreign country
imposing tax on nonresidents, the foreign
tax law must determine the amount of
income subject to tax based on the non-
resident’s activities located in the foreign
country (including its functions, assets,
and risks located in the foreign country).
Thus, for example, rules that are consis-
tent with the rules under section 864(c)
for taxing income effectively connected
with a U.S. trade or business, or with Ar-
ticles 5 and 7 of the U.S. Model Income

November 30, 2020 1478 Bulletin No. 2020–49
Tax Convention for taxing profits attrib-
utable to a permanent establishment, will
meet this requirement. However, foreign
countries that, for example, impose tax by
using as a significant factor the location of
customers, users, or any other similar des-
tination-based criterion to allocate profit
(for example, by deeming a taxable pres-
ence based on the existence of customers)
will not satisfy the jurisdictional nexus
requirement.
If the foreign tax law imposes tax on
a nonresident’s income based on the in-
come arising from sources in the foreign
country (for example, tax imposed on
interest, rents, or royalties sourced in the
foreign country and paid to a nonresident),
proposed §1.901-2(c)(1)(ii) requires the
sourcing rules of the foreign tax law to be
reasonably similar to the sourcing rules
that apply for Federal income tax purpos-
es. For the avoidance of doubt, the pro-
posed regulations provide that in the case
of income from services, the income must
be sourced based on the place of perfor-
mance of the services, not the location of
the services recipient.
The jurisdictional nexus requirement
for taxing gains from sales or other dis-
positions of property is separately ad-
dressed in proposed §1.901-2(c)(1)(iii),
which provides that income from sales or
other dispositions of property by nonres-
idents that do not meet the activities re-
quirement in proposed §1.901-2(c)(1)(i)
satisfy the jurisdictional nexus require-
ment only with respect to gains on the
disposition of real property in the foreign
country or movable property forming
part of the business property of a taxable
presence in the foreign country (or from
interests in certain entities holding such
property). This rule is consistent with the
fact that Federal income tax law gener-
ally does not tax gains of nonresidents
that do not have a trade or business in the
United States. See, for example, section
865(a)(2) and (e)(2); §1.871-7(a)(1); see
also U.S. Model Income Tax Convention
(2016), Art. 13.
A similar rule applies under proposed
§1.901-2(c)(2) with respect to determin-
ing the income of a resident taxpayer in
cases where income of a related entity
may be allocated under transfer pricing
rules to the resident taxpayer. For the ju-
risdictional nexus requirement to be sat-
isfied in such a case, the foreign tax law’s
transfer pricing rules must be determined
under arm’s length principles. Thus, for
example, foreign tax laws that contain
transfer pricing rules that are consistent
with the arm’s length standard under
the section 482 regulations, or with the
arm’s length principle under the OECD
Transfer Pricing Guidelines for Multi-
national Enterprises and Tax Adminis-
trations, will satisfy this requirement.
However, foreign transfer pricing rules
that allocate profits by taking into ac-
count as a significant factor the location
of customers, users, or any other similar
destination-based criterion will not satis-
fy the jurisdictional nexus requirement.
Comments are requested on whether spe-
cial rules are needed to address foreign
transfer pricing rules that allocate profits
to a resident on a formulary basis (rather
than on the basis of arm’s length prices),
such as through the use of fixed margins
in a manner that is not consistent with
arm’s length principles. The jurisdic-
tional nexus requirement is not violated
when a foreign country imposes tax on
the worldwide income of a resident tax-
payer, including under controlled foreign
corporation regimes that deem income
to be included (or distributed) to a resi-
dent shareholder (as opposed to allocated
directly to the resident under a transfer
pricing adjustment). For this purpose, the
terms resident and nonresident are de-
fined in proposed §1.901-2(g)(6) and in
the case of an entity, the classification is
generally based on the entity’s place of
incorporation or management.
As part of its response to the extrater-
ritorial tax measures referred to in this
Part VI.A.2 of the Explanation of Provi-
sions, the Treasury Department has been
actively engaged in negotiations with
other countries, as part of the OECD/
G20 Inclusive Framework on BEPS, to
explore the possibility of a new interna-
tional framework for allocating taxing
rights.
3
If an agreement is reached that
includes the United States, the Treasury
Department recognizes that changes to
the foreign tax credit system may be re-
quired at that time.
No inference is intended as to the
application of existing §§1.901-2 and
1.903-1 to the treatment of novel extra-
territorial foreign taxes such as digital
services taxes, diverted profits taxes, or
equalization levies. In addition, the pro-
posed regulations, when finalized, would
not affect the application of existing in-
come tax treaties to which the United
States is a party with respect to covered
taxes (including any specifically identi-
fied taxes) that are creditable under the
treaty. Comments are requested on the
extent to which the new jurisdictional
nexus requirement may impact the treat-
ment of other types of foreign taxes, and
on alternative approaches the Treasury
Department and the IRS may consider to
modify the rules to achieve the policy ob-
jectives described in this Part VI.A.2 of
the Explanation of Provisions.
3. Net gain requirement
i. Use of empirical analysis
The existing regulations provide that
the net gain requirement is met if a for-
eign tax reaches net gain in the “normal
circumstances” in which it applies. See
§1.901-2(a)(1). As noted in the preamble
to the 1983 final regulations, this rule is
based on the standard set forth in Inland
Steel Company v. United States, 677 F.2d
72 (Ct. Cl. 1982), Bank of America Nat’l
Trust and Savings Ass’n v. United States,
459 F.2d 513 (Ct. Cl. 1972) (“Bank of
America I”), and Bank of America Nat’l
Trust and Savings Ass’n v. Comm’r, 61
T.C. 752 (1974), aff ’d, 538 F.2d 334 (9th
Cir.1976) (“Bank of America II”). See TD
7918, 48 FR 46272-01 (1983).
The Treasury Department and the IRS
have determined that, in some respects,
the empirical analysis contemplated by
the existing regulations is unnecessary to
identify the essential elements of an in-
come tax in the U.S. sense. In addition, in
the absence of specific rules and thresh-
3
See Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy (January 2020),
available at https://www.oecd.org/tax/beps/statement-by-the-oecd-g20-inclusive-framework-on-beps-january-2020.pdf.

Bulletin No. 2020–49 1479 November 30, 2020
olds in the regulations on how to eval-
uate empirical data (if even available),
both taxpayers and the IRS have had dif-
ficulties in applying the existing regula-
tions to foreign taxes in a consistent and
predictable manner. In some cases, the
reliance on empirical data to determine
whether the requirements of the existing
regulations are met creates uncertainty
and undue burdens for taxpayers and the
IRS, considering challenges in obtaining
the necessary information. Therefore, the
proposed regulations limit the relevance
of the “normal circumstances” in which
the tax applies, as well as the role of the
predominant character analysis, in deter-
mining whether a tax meets the various
components of the net gain requirement.
These changes will lead to more accurate
and consistent outcomes and reduce the
compliance and administrative burdens
of the existing law requirement that tax-
payers and the IRS obtain from the for-
eign government empirical information,
such as tax return information for per-
sons subject to the tax, to determine the
normal circumstances in which the tax
applies.
Instead, proposed §1.901-2(b)(1) gen-
erally provides that whether a tax is a for-
eign income tax is determined under the
terms of the foreign tax law, taking into
account statutes, regulations, case law,
and administrative rulings or other official
pronouncements, as modified by treaties.
Accordingly, whether a tax satisfies the
net gain requirement is generally based
on whether the terms of the foreign tax
law governing the computation of the tax
base meet the realization, gross receipts,
and cost recovery requirements that make
up the net gain requirement under §1.901-
2(a)(3). This approach will better allow
taxpayers and the IRS to evaluate the na-
ture of the foreign tax based on objective
and readily available information (that is,
based on the terms of the foreign tax law,
rather than how it is applied in practice),
to achieve more consistent and predict-
able outcomes. Evaluation of the normal
circumstances in which the tax applies is
still a factor in determining whether spe-
cific elements of the net gain requirement
are satisfied, but the proposed regulations
specifically identify the elements of the
requirement for which this type of empiri-
cal evidence is relevant.
ii. Realization requirement
Under the existing regulations, a for-
eign tax generally satisfies the realization
requirement if, judged on the basis of its
predominant character, it is imposed upon
or after the occurrence of events (“realiza-
tion events”) that would result in the re-
alization of income under the Code, or in
certain cases, it is imposed on the occur-
rence of a pre-realization event, such as in
the case of a foreign law mark-to-market
regime. See §1.901-2(b)(2)(i).
As discussed in Part VI.A.3.i of this
Explanation of Provisions, due to the bur-
dens resulting from the requirement to per-
form an empirical analysis to ascertain the
nature of a tax, the proposed regulations
provide more specific rules regarding the
elements of the requirement for which this
type of empirical evidence is relevant. In
particular, the Treasury Department and
the IRS have determined that the inclu-
sion in the foreign tax base of insignificant
amounts of gross receipts that do not meet
the realization requirement should not pre-
vent an otherwise-qualifying foreign tax
from qualifying as an income tax. Accord-
ingly, proposed §1.901-2(b)(2) provides
that if a foreign tax generally meets the
various realization requirements described
in proposed §1.901-2(b)(2)(i)(A) through
(C), except with respect to one or more
specific and defined classes of nonrealiza-
tion events, the tax may still be treated as
meeting the realization requirement if the
incidence and amounts of gross receipts
attributable to the nonrealization events
are minimal relative to the incidence and
amounts of gross receipts attributable
to events covered by the foreign tax that
do meet the realization requirement. This
determination is made based on the appli-
cation of the foreign tax to all taxpayers
subject to the foreign tax (rather than on
a taxpayer-by-taxpayer basis). Therefore,
for example, if a foreign tax contains all
of the same realization requirements as
the Code, but also imposes tax on imput-
ed rent with respect to owner-occupied
housing, the foreign tax may still quali-
fy as a foreign income tax if, relative to
all of the income of all taxpayers that are
subject to the tax, imputed rental income
comprises a relatively small amount (even
if for some taxpayers, all of their income
may constitute imputed rent). Comments
are requested on whether the regulations
could substitute a more objective standard
for identifying acceptable deviations from
the realization requirement that would
avoid the need for empirical analysis.
Proposed §1.901-2(b)(2)(i)(C) con-
solidates the rules relating to pre-reali-
zation timing differences, including the
rule currently in §1.901-2(b)(2)(ii) that
foreign taxes imposed on a shareholder on
deemed distributions or inclusions (such
as inclusions similar to those imposed by
U.S. law under subpart F) of income real-
ized by the distributing entity satisfy the
realization requirement, so long as a sec-
ond tax is not imposed on the shareholder
on the same income upon the occurrence
of a later event (such as an actual distri-
bution). Under proposed §1.901-2(b)(2)
(i)(C), because a shareholder-level tax on
a distribution from a corporation is im-
posed on a different taxpayer, the share-
holder-level tax is not treated as a second
tax on the corporation’s income (includ-
ing income arising from a pre-realization
event). For this purpose, proposed §1.901-
2(b)(2)(i)(C) provides that a disregarded
entity is treated as a taxpayer separate
from its owner. Comments are requested
on whether there are additional categories
of pre-realization timing differences that
should be included in the final regulations.
Finally, the Treasury Department and
the IRS expect to update the examples il-
lustrating the realization requirement that
are contained in §1.901-2(b)(2)(iv) and
include them in the regulations when pro-
posed §1.901-2(b)(2) is finalized.
iii. Gross receipts requirement
Under existing §1.901-2(b)(3), a for-
eign tax satisfies the gross receipts re-
quirement if, judged on the basis of its
predominant character, it is imposed on
the basis of (1) gross receipts; or (2) gross
receipts computed under a method that
is likely to produce an amount that is not
greater than the fair market value of actual
arm’s length gross receipts (“the alterna-
tive gross receipts test”). See §1.901-2(b)
(3)(ii) Examples 1 and 2.
The proposed regulations modify the
alternative gross receipts test to provide
that it is satisfied in the case of tax im-
posed on deemed gross receipts arising
from pre-realization timing difference

November 30, 2020 1480 Bulletin No. 2020–49
events described in proposed §1.901-2(b)
(2)(i)(C) (that is, a mark-to-market regime,
tax on the physical transfer, processing,
or export of readily marketable property,
or a deemed distribution or inclusion),
or on the basis of gross receipts from a
non-realization event that is insignificant
and therefore does not cause the foreign
tax to fail the realization requirement in
proposed §1.901-2(b)(2). Therefore, taxes
on insignificant non-realization events or
pre-realization timing difference events
that satisfy the realization requirement in
proposed §1.901-2(b)(2)(i)(C) also satisfy
the gross receipts test.
However, the proposed regulations
remove the provision referring to gross
receipts computed under a method that is
“likely” to produce an amount not great-
er than gross receipts. This rule purports
to allow for foreign taxes to be imposed
on an amount greater than the amount of
income actually realized, or the value of
the property being taxed, and the Treasury
Department and the IRS have determined
that such a tax should not be considered
to be a tax on income, since it can be
imposed on amounts in excess of actual
gross receipts. In addition, the Treasury
Department and the IRS have determined
that the test is vague, unduly burdensome,
and has given rise to controversies requir-
ing taxpayers and the IRS to conduct an
empirical evaluation to determine wheth-
er a nonconforming statutory method of
determining alternative gross receipts is
likely not to exceed the fair market value
of actual gross receipts. See, for example,
Phillips Petroleum v. Comm’r, 104 T.C.
256 (1995) (applying the former §1.901-
2T (1980) TD 7739). The Treasury De-
partment and the IRS have determined
that, other than in the case of insignificant
non-realization events, only a tax base de-
termined with reference to realized gross
receipts or, in the case of a pre-realiza-
tion timing difference event, the value or
amount of a deemed inclusion or accrual
(and not an approximation of gross re-
ceipts), should qualify as an income tax
in the U.S. sense. In contrast, a tax based
on alternative measurements of gross re-
ceipts, such as a foreign tax that requires
gross receipts to be calculated by applying
a markup to costs, fundamentally diverges
from the measurement of realized gross
receipts under the Internal Revenue Code,
and could result in a taxable base that ex-
ceeds the amount of income properly at-
tributable to the taxpayer’s activities or
investment in the foreign country. The
revised rule will also minimize the need
for empirical analyses, making it simpler
for both taxpayers and the IRS to deter-
mine whether a tax satisfies the net gain
requirement.
This rule is not intended to implicate
the allocation of gross income under
transfer pricing or branch profit attribution
rules, which are instead addressed under
proposed §1.901-2(c). Proposed §1.901-
2(b)(3)(i) provides that in determining a
taxpayer’s actual gross receipts, amounts
that are properly allocated to such taxpay-
er under the jurisdictional nexus rules in
proposed §1.901-2(c), such as pursuant
to transfer pricing rules that properly al-
locate income to a taxpayer on the basis of
costs incurred by that entity, are treated as
the taxpayer’s actual gross receipts.
iv. Cost recovery requirement
Under the net income requirement in
the existing regulations, foreign tax law
must permit the recovery of the signifi-
cant costs and expenses attributable, un-
der reasonable principles, to gross receipts
included in the taxable base. A foreign tax
law permits the recovery of significant
costs and expenses even if such costs and
expenses are recovered at a different time
than they would be under the Code, unless
the time of recovery is such that under the
circumstances there is effectively a denial
of recovery. Under the “nonconfiscatory
gross basis tax” rule in §1.901-2(b)(4) of
the existing regulations, which reflects the
standard described in Bank of America I,
a foreign tax whose base is gross receipts
or gross income does not satisfy the net
income requirement except in the “rare
situation” when the tax is almost certain to
reach some net gain in the normal circum-
stances in which it applies because costs
and expenses will almost never be so high
as to offset gross receipts or gross income,
respectively, and the rate of the tax is such
that after the tax is paid persons subject to
the tax are almost certain to have net gain.
Thus, a tax on the gross receipts or gross
income of businesses can satisfy the net
income requirement in the existing regu-
lations if businesses subject to the tax are
almost certain never to incur a loss (after
payment of the tax).
The Treasury Department and the IRS
have determined that to constitute an in-
come tax for U.S. tax purposes, that is,
a tax on net gain, the base of a foreign
tax should conform in essential respects
to the determination of taxable income
for Federal income tax purposes. See,
for example, Keasbey & Mattison Co. v.
Rothensies, 133 F.2d 894, 895 (3d Cir.
1943) (holding that the criteria prescribed
by U.S. revenue laws are determinative of
the meaning of the term “income taxes”
in applying the former version of section
901); and Comm’r v. American Metal Co.,
221 F.2d 134, 137 (2d Cir. 1955) (pro-
viding that “the determinative question is
‘whether the foreign tax is the substantial
equivalent of an ‘income tax’ as that term
is understood in the United States’”). The
Treasury Department and the IRS have
determined that any foreign tax imposed
on a gross basis is by definition not an in-
come tax in the U.S. sense, regardless of
the rate at which it is imposed or the extent
of the associated costs.
In addition, the Treasury Department
and the IRS have determined that the
empirical standards contained in Bank of
America I and that are contemplated by
the nonconfiscatory gross basis tax rule in
the existing regulations create substantial
compliance and administrative burdens
for taxpayers and the IRS when evaluating
whether a foreign tax is an income tax in
the U.S. sense. For example, the IRS and
taxpayers must obtain foreign tax return
information with respect to all persons
subject to the tax to determine if persons
subject to the tax are almost certain never
to incur an after-tax loss. See, for exam-
ple, PPL Corp. v. Comm’r, 135 T.C. 304
(2010), rev’d, 665 F.3d 60 (3d Cir. 2011),
rev’d, 569 U.S. 329 (2013); Texasgulf,
Inc. v. Comm’r, 107 T.C. 51 (1996), aff ’d,
172 F.3d 209 (2d Cir. 1999); and Exxon
Corp. v. Comm’r, 113 T.C. 338 (1999)
(applying the empirical analysis required
by the regulations).
Therefore, the proposed regulations
remove the nonconfiscatory gross basis
tax rule. Instead, the proposed regula-
tions provide that whether a tax meets the
net gain requirement is made solely on
the basis of the terms of the foreign tax
law that define the foreign taxable base,

Bulletin No. 2020–49 1481 November 30, 2020
without any consideration of the rate of
tax imposed on that base. See proposed
§1.901-2(b)(1). In addition, the cost re-
covery requirement in proposed §1.901-
2(b)(4) requires the deductions allowed
under the foreign tax law to approximate
the cost recovery provisions of the Inter-
nal Revenue Code in order for the foreign
tax to qualify as an income tax in the U.S.
sense. Under proposed §1.901-2(b)(4)
(i)(A), a tax that is imposed on gross re-
ceipts or gross income, without reduction
for any costs or expenses attributable to
earning that income, cannot qualify as a
net income tax, without regard to whether
the empirical impact of the tax is confis-
catory, and even if in practice there are no
or few costs and expenses attributable to
all or particular types of gross receipts in-
cluded in the foreign tax base. Under this
rule, the cost recovery requirement is not
satisfied for taxes such as payroll taxes
on gross income from wages, but may be
satisfied in the case of a personal income
tax similar to that imposed under section
1 of the Code on all gross income (includ-
ing wages), if the foreign country allows
taxpayers to reduce such gross income by
the substantial costs and expenses that are
reasonably attributable to such gross in-
come (taking into account any reasonable
deduction disallowance provisions).
Under the “alternative allowance rule”
in §1.901-2(b)(4) of the existing regula-
tions, a foreign tax that does not permit
recovery of one or more significant costs
or expenses, but that provides allowances
that effectively compensate for nonrecov-
ery of such significant costs or expenses,
is considered to permit recovery of such
costs or expenses. The Treasury Depart-
ment and IRS have determined, however,
that the alternative allowance rule fun-
damentally diverges from the approach
to cost recovery in the Internal Revenue
Code, and so is inconsistent with an essen-
tial element of an income tax in the U.S.
sense. Moreover, it is unduly burdensome,
and may be impossible as a practical mat-
ter, for taxpayers and the IRS to determine
whether an alternative allowance under
foreign tax law effectively compensates
for the nonrecovery of significant costs
or expenses attributable to realized gross
receipts under that foreign law. The alter-
native allowance rule in the existing regu-
lations has given rise to controversies be-
tween taxpayers and the IRS, and different
interpretations by the courts, over whether
the rule requires taxpayers to demonstrate
that the alternative allowance exceeds dis-
allowed expense deductions for a majority
of persons potentially subject to the tax,
a majority of persons that actually pay
the tax, or for taxpayers in the aggregate,
determined by comparing the aggregate
amounts of disallowed deductions and al-
ternative allowances reported on the for-
eign tax returns of all persons subject to
the tax. See, for example, Texasgulf, Inc.
v. Comm’r, 107 T.C. 51 (1996), aff ’d, 172
F3d 209 (2d Cir. 1999); and Exxon Corp. v.
Comm’r, 113 T.C. 338 (1999). Therefore,
the proposed regulations at §1.901-2(b)
(4)(i)(A) modify the alternative allow-
ance rule to treat alternative allowances
as meeting the cost recovery requirement
only if the foreign tax law expressly guar-
antees that the alternative allowance will
equal or exceed actual costs (for example,
under a provision identical to percentage
depletion allowed under section 613).
The proposed regulations at §1.901-
2(b)(4)(i)(B)(1) retain the existing rule
that foreign tax law is considered to per-
mit the recovery of significant costs and
expenses even if the costs and expenses
are recovered at a different time than they
would be if the Internal Revenue Code
applied, unless the time of recovery is so
much later (for example, after the proper-
ty becomes worthless or is disposed of) as
effectively to constitute a denial of such
recovery. The regulations clarify that the
different time can be either earlier or later
than it would be if the Code applied, and
that time value of money considerations
relating to the economic cost (or value) of
accelerating (or deferring) a foreign tax li-
ability are not relevant in determining the
amount of recovered costs and expenses.
The proposed regulations also add a
new rule to allow a tax to satisfy the cost
recovery requirement even if recovery of
all or a portion of certain costs or expens-
es is disallowed, if such disallowance is
consistent with the types of disallowances
required under the Internal Revenue Code.
See proposed §1.901-2(b)(4)(i)(B)(2). For
example, foreign tax law is considered to
permit the recovery of significant costs
and expenses even if such law disallows
interest deductions equal to a certain per-
centage of adjusted taxable income simi-
lar to the limitation under section 163(j) or
disallows interest and royalty deductions
in connection with hybrid transactions
similar to those subject to section 267A.
This new provision is consistent with the
rule that principles of U.S. law apply to
determine whether a tax is a creditable in-
come tax. See §1.901-2(a)(1)(ii); see also,
for example, Keasbey, 133 F.2d at 897;
and American Metal, 221 F.2d at 137.
Finally, proposed §1.901-2(b)(4)(i)(B)
(2) provides that an empirical analysis of a
foreign tax is still pertinent, in part, in de-
termining whether a cost or expense is sig-
nificant for purposes of the cost recovery
requirement. In particular, the significance
of a cost or expense is determined based
on whether, for all taxpayers to which the
foreign tax applies, the item of cost or ex-
pense constitutes a significant portion of
the total costs or expenses. However, pro-
posed §1.901-2(b)(4)(i)(B)(2) adds cer-
tainty by providing that costs or expenses
related to capital expenditures, interest,
rents, royalties, services, and research and
experimentation are always treated as sig-
nificant costs or expenses. The Treasury
Department and the IRS have determined
that these types of costs represent a sub-
stantial portion of expenses typically de-
ducted in computing taxable income for
U.S. tax purposes. Requiring a foreign
tax law to allow recovery of these costs
will increase assurances that the income
subject to U.S. and foreign tax is actu-
ally subject to double taxation. Because
interest expense in particular is a signif-
icant cost that under section 864(e)(2) is
allocable to all of a taxpayer’s worldwide
income-producing activities regardless of
where it is incurred, a foreign levy that
allows, for example, no deduction for in-
terest expense is not an income tax in the
U.S. sense, even if U.S. taxpayers record
minimal interest expense in foreign coun-
tries that restrict its deductibility.
v. Qualifying surtax
The Treasury Department and the IRS
have received questions on the appropri-
ate treatment of certain foreign taxes that
are computed as a percentage of the tax
due under a separate levy that is itself an
income tax. To address the treatment of
these taxes, proposed §1.901-2(b)(5) adds
a rule providing that a foreign tax satisfies

November 30, 2020 1482 Bulletin No. 2020–49
the net gain requirement if the base of the
foreign tax is the amount of a foreign in-
come tax.
4. Soak-up taxes
The proposed regulations move the
soak-up tax rule from the rules that define a
creditable levy to the rules for determining
the amount of creditable tax that is consid-
ered paid. See proposed §1.901-2(e)(6).
Because the rules at existing §§1.901-2(a)
(3)(ii) and 1.903-1(b)(2) treat an otherwise
creditable levy as a soak-up tax only to the
extent it would not be imposed but for the
availability of a credit, this change is more
consistent with the general structure of the
regulations that determine whether a sepa-
rate levy as a whole qualifies as a creditable
tax, and then identifies the amount of a par-
ticular taxpayer’s foreign tax liability that
is paid or accrued and can be claimed as a
foreign tax credit.
In addition, the proposed regulations
omit the special rule in §1.903-1(b)(2)
that limits the portion of a tax in lieu of
an income tax that is a soak-up tax to the
amount by which the foreign tax exceeds
the income tax that would have been paid
if the taxpayer had instead been subject
to the generally-imposed income tax. The
Treasury Department and the IRS have
determined that this rule is inconsistent
with the rationale for making soak-up
taxes not creditable, which is to ensure
that the foreign country does not impose
a soak-up tax liability that under the ex-
isting regulations could be allowed as a
foreign tax credit to reduce the taxpayer’s
U.S. tax liability.
Finally, the Treasury Department and
the IRS are reconsidering the examples il-
lustrating the soak-up tax rules that are con-
tained in §§1.901-2(c)(2) and 1.903-1(b)(3)
(Examples 6 and 7) and expect to include
updated examples in the regulations when
proposed §1.901-2(e)(6) is finalized. Com-
ments are requested on whether additional
issues are presented by currently applicable
soak-up taxes that should be addressed in
the final regulations.
5. Separate levy determination
Whether a foreign levy is an income
tax is determined independently for each
separate foreign levy. For purposes of sec-
tions 901 and 903, whether a single levy
or separate levies are imposed by a for-
eign country depends on U.S. principles
and not on whether foreign law imposes
the levy or levies in a single or separate
statutes. Section §1.901-2(d)(1) of the
existing regulations provides that, where
the base of a levy is different in kind, and
not merely in degree, for different classes
of persons subject to the levy, the levy is
considered for purposes of sections 901
and 903 to impose separate levies for such
classes of persons.
The proposed regulations revise
§1.901-2(d)(1) to clarify the determina-
tion of whether a foreign levy is separate
from another foreign levy for purposes of
determining if a levy meets the require-
ments of section 901 or 903. The Treasury
Department and the IRS have determined
that the standards under the existing regu-
lations for making this determination are
unclear. In one place the existing regu-
lations state that the only differentiating
factor is if the base of the levy is differ-
ent in kind, as opposed to degree. See, for
example, §1.901-2(d)(1) (“foreign levies
identical to the taxes imposed by sections
11, 541, 881, 882, 1491, and 3111 of the
Internal Revenue Code are each separate
levies, because the base of each of those
levies differs in kind, and not merely in
degree”). However, in the same sentence,
the regulations suggest that one levy may
be separate from another levy if a different
class of taxpayers is subject to each levy,
regardless of whether the base of the two
levies is different in kind. See, for exam-
ple, id. (“a foreign levy identical to the tax
imposed by section 871(b) of the Internal
Revenue Code is a separate levy from a
foreign levy identical to the tax imposed
by section 1 of the Internal Revenue Code
as it applies to persons other than those
described in section 871(b)” (emphasis
added)).
The proposed regulations modify the
rules for determining whether a foreign
levy is a separate levy to clarify how U.S.
principles are relevant in determining
whether one foreign levy is separate from
another foreign levy. In general, the pro-
posed regulations identify separate levies
as those that include different items of in-
come and expense in determining the base
of the tax, but in certain circumstances
separate levies may result even if the tax-
able base of each levy is the same. In par-
ticular, proposed §1.901-2(d)(1)(i) pro-
vides that a foreign levy is always separate
from another foreign levy if the levy is im-
posed by a different foreign tax authority,
even if the base of the tax is the same. Pro-
posed §1.901-2(d)(1)(ii) provides the gen-
eral rule that separate levies are imposed
on particular classes of taxpayers if the
taxable base is different for those taxpay-
ers. For example, the proposed regulations
provide that a foreign levy identical to the
tax imposed by section 3101 (employee
tax on wage income) is a separate levy
from the foreign levy identical to the tax
imposed by section 3111 (employer tax on
wages paid). Proposed §1.901-2(d)(1)(ii)
also provides that income included in the
taxable base of a separate levy may also
be included in the taxable base of another
levy (which may or may not also include
other items of income); and separate levies
are considered to be imposed if the taxable
bases are not combined as a single taxable
base. Therefore, a foreign levy identical
to the tax imposed by section 1411 is a
separate levy from a foreign levy identical
to the tax imposed by section 1 because
tax is separately imposed on the income
included in each taxable base.
Additionally, the proposed regulations
at §1.901-2(d)(1)(iii) provide that a for-
eign levy imposed on nonresidents is treat-
ed as a separate levy from that imposed on
residents of the taxing jurisdiction, even
if the base is the same for both levies, and
even if the levies are treated as a single
levy under foreign tax law. These changes
are intended to ensure that, in general, if
a generally-imposed income tax on resi-
dents is also imposed on an extraterritorial
basis on some nonresidents, in violation of
the jurisdictional nexus requirement, only
the portion of the levy that applies to non-
residents will not be treated as a foreign
income tax. Otherwise, a foreign coun-
try’s general income tax regime could fail
to qualify as a net income tax if the tax
was also imposed on an extraterritorial ba-
sis on some nonresidents.
Finally, proposed §1.901-2(d)(1)(iii)
provides that a withholding tax on gross
income of nonresidents is treated as a sep-
arate levy with respect to each class of
gross income (as listed in section 61) to
which it applies. This special rule is pro-
vided in order to allow withholding taxes

Bulletin No. 2020–49 1483 November 30, 2020
that are imposed on several classes of in-
come, based on sourcing rules that meet
the jurisdictional nexus requirement with
respect to only some of the classes of in-
come, to be analyzed as separate levies
under the covered withholding tax rule in
§1.903-1(c)(2). See Part VI.C.3 of this Ex-
planation of Provisions.
B. Amount of tax that is considered paid
1. Background
As discussed in more detail in Part X
of this Explanation of Provisions, section
901 allows a credit for foreign income tax-
es in either the year the taxes are paid or
the year the taxes accrue, according to the
taxpayer’s method of accounting for such
taxes. See section 905(a). Regardless of
the year in which the credit is allowed, the
taxpayer must both owe and actually remit
the foreign income tax to be entitled to a
foreign tax credit for such tax. See section
905(b); Chrysler v. Comm’r, 116 T.C. 465,
469 n.2 (2001), aff ’d, 436 F.3d. 644 (6th
Cir. 2006). The taxpayer’s liability for the
tax may become fixed and determinable in
a different taxable year than that in which
the tax is remitted, so that the taxpayer’s
entitlement to the credit may be perfected
in a taxable year after the taxable year in
which the credit is allowed.
Section 1.901-2(e) of the existing reg-
ulations provides rules for determining
the amount of foreign tax that is consid-
ered paid and eligible for credit under
section 901. The existing regulations at
§1.901-2(g)(1) and proposed §1.901-2(g)
(5) clarify that the word “paid” as used in
§1.901-2(e) means “paid” or “accrued,”
depending on whether the taxpayer claims
the foreign tax credit for taxes paid (that
is, remitted) or accrued (that is, for which
the liability becomes fixed) during the tax-
able year. The proposed regulations clar-
ify in several respects the amount of tax
that is considered paid (or accrued, as the
case may be) and eligible for credit. These
clarifications are explained in Parts VI.B.2
and 3 of this Explanation of Provisions.
2. Refundable amounts, credits, and
multiple levies
Under §1.901-2(e)(2)(i) of the existing
regulations, a payment to a foreign coun-
try is not treated as an amount of tax paid
to the extent that it is reasonably certain
that the amount will be refunded, credited,
rebated, abated, or forgiven. That regula-
tion further provides that it is not reason-
ably certain that an amount will be refund-
ed, credited, rebated, abated, or forgiven if
the amount is not greater than a reasonable
approximation of the final tax liability to
the foreign country.
Current law is unclear whether an
amount that is not treated as an amount of
tax paid under §1.901-2(e)(5)(i) because
it is reasonably certain to be credited
against a taxpayer’s tentative liability for
a second foreign tax should be treated as a
constructive refund of the credited amount
from the foreign country, followed by a
constructive payment by the taxpayer of
the second foreign tax. The law is simi-
larly unclear as to whether credits allowed
under foreign tax law that are computed
with reference to amounts other than for-
eign tax payments (such as, for example,
investment tax credits) may be treated as
a constructive receipt of cash by the tax-
payer from the foreign country, followed
by a constructive payment by the taxpayer
of foreign income tax. The results have
sometimes differed depending on whether
the credit is refundable under foreign law,
that is, whether taxpayers are entitled to
receive a cash payment from the foreign
country to the extent the credit exceeds
the taxpayer’s foreign income tax liabil-
ity. See, for example, Rev. Rul. 86-134,
1986-2 C.B. 104 (investment incentives
reduced tentative Dutch income tax liabil-
ity during period in which such incentives
could only be claimed as an offset against
the income tax liability, rather than as a
refundable credit).
The Treasury Department and the IRS
have determined that the current uncer-
tainty as to how to properly account for
tax credits leads to varying and incon-
sistent interpretations and that a single,
clear rule regarding the treatment of tax
credits would improve the consistency in
outcomes for taxpayers. In addition, the
Treasury Department and the IRS are con-
cerned that if the use of tax credits can be
treated as a means of payment of a foreign
income tax for foreign tax credit purposes,
then foreign countries, rather than reduc-
ing their tax rates, could instead offer tax
credits that would have the same econom-
ic effect without reducing the amount of
foreign income tax that is treated as paid
by taxpayers for purposes of the foreign
tax credit. The Treasury Department and
the IRS have also determined it is too ad-
ministratively challenging to determine
whether a foreign country whose law pro-
vides for nominally refundable credits in
practice actually issues cash payments
to taxpayers that do not have income tax
liabilities equal to the credit. In addition,
the Treasury Department and the IRS
have determined that the rule in §1.901-
2(e)(2)(i) with respect to amounts that
will be “credited” is ambiguous. Section
1.901-2(e)(4)(i) of the existing regulations
provides that if, under foreign law, a tax-
payer’s tentative liability for one levy (the
“first levy”) is or can be reduced by the
amount of the taxpayer’s liability for a dif-
ferent levy (the “second levy”), then the
amount considered paid by the taxpayer to
the foreign country pursuant to the second
levy is an amount equal to its entire liabil-
ity for that levy, and the remainder of the
amount paid is considered paid pursuant
to the first levy. However, §1.901-2(e)(2)
(i) suggests that the credited amount of the
second levy is not considered paid.
Therefore, proposed §1.901-2(e)(2)
(i) provides certainty on the treatment of
credited amounts by eliminating the pro-
vision that suggests that an amount of tax
is not treated as paid if it is allowed as a
credit. Instead, proposed §1.901-2(e)(2)
(ii) provides that foreign income tax is not
considered paid if it is reduced by a tax
credit, regardless of whether the amount
of the tax credit is refundable in cash.
Therefore, an amount allowed as a credit
(including, but not limited to, an amount
paid under one levy that is credited against
an amount due under another levy) is not
treated as a constructive payment of cash
from the foreign country (or a construc-
tive refund of the levy that is paid) fol-
lowed by a constructive payment of the
levy that is reduced by the credit, even
if the creditable amount is refundable in
cash to the extent it exceeds the taxpay-
er’s liability for the levy that is reduced by
the credit. However, proposed §1.901-2(e)
(2)(iii) provides that overpayments of tax
(which exceed the taxpayer’s liability and
so are not treated as an amount of tax paid)
that are refundable in cash at the taxpay-
er’s option and that are applied in satisfac-

November 30, 2020 1484 Bulletin No. 2020–49
tion of the taxpayer’s liability for foreign
income tax may qualify as an amount of
such foreign income tax paid.
Comments are requested on wheth-
er additional rules should be provided
for government grants that are provided
outside of the foreign tax system, and
the circumstances in which such grants
should also be treated as a reduction in the
amount of tax paid.
Finally, as noted in this Part VI.B.2, the
multiple levy rule in §1.901-2(e)(4) of the
existing regulations provides that when an
amount of a second levy is applied as a
credit to reduce the taxpayer’s liability for
a first levy, the full amount of the second
levy (and not the amount of the first levy
that is offset by the credit) is considered
paid. The proposed regulations clarify the
multiple levy rule by referring to the first
levy as the “reduced levy” and to the sec-
ond levy as the “applied levy.” The pro-
posed regulations also modify an existing
example and add a new example to illus-
trate the application of proposed §1.901-
2(e)(2) and (4). See proposed §1.901-2(e)
(4)(ii).
3. Noncompulsory payments
i. Background
Section 1.901-2(e)(5) provides that an
amount paid is not a compulsory payment,
and thus is not an amount of tax paid, to
the extent that the amount paid exceeds
the amount of the taxpayer’s liability un-
der foreign law for tax (the “noncompul-
sory payment rule”). Section 1.901-2(e)
(5) further provides that if foreign tax
law includes options or elections where-
by a taxpayer’s liability may be shifted, in
whole or part, to a different year, the tax-
payer’s use or failure to use such options
or elections does not result in a noncom-
pulsory payment, and that a settlement by
a taxpayer of two or more issues will be
evaluated on an overall basis, not on an is-
sue-by-issue basis, in determining wheth-
er an amount is a compulsory amount. In
addition, it provides that a taxpayer is not
required to alter its form of doing busi-
ness, its business conduct, or the form of
any transaction in order to reduce its lia-
bility for tax under foreign law.
On March 30, 2007, proposed regula-
tions (REG-156779-06) were published
in the Federal Register at 72 FR 15081
that, in part, would amend §1.901-2(e)(5)
to treat as a single taxpayer all foreign en-
tities in which the same United States per-
son has a direct or indirect interest of 80
percent or more (a “U.S.-owned foreign
group”). The proposed rule (the “2007
proposed regulations”) would apply for
purposes of determining whether amounts
paid are compulsory payments of foreign
tax, for example, when one member of a
U.S.-owned foreign group surrenders a
loss to another member of the group that
reduces the foreign tax due from the sec-
ond member in that year but increases the
amount of foreign tax owed by the loss
member in a subsequent year. In Notice
2007-95, 2007-2 C.B. 1091, the Treasury
Department and the IRS announced that,
in reviewing comments received, it was
determined that the proposed change may
lead to inappropriate results in certain cas-
es and that the proposed change would be
effective for taxable years beginning after
the publication of final regulations, but
that taxpayers may rely on that portion of
the proposed regulations for taxable years
ending on or after March 29, 2007, and
beginning on or before the date on which
final regulations are published.
Section 1.909-2 provides an exclusive
list of foreign tax credit splitter arrange-
ments, including a loss-sharing splitter
arrangement, which exists under a foreign
group relief or other loss-sharing regime
to the extent a “usable shared loss” of a
“U.S. combined income group” (that is, an
individual or corporation and all the en-
tities with which it combines income and
expense under Federal income tax law) is
used to offset foreign taxable income of
another U.S. combined income group. See
§1.909-1(b)(2).
ii. Treatment of elections and other
clarifications
Section 1.901-2(e)(5) currently applies
on a taxpayer-by-taxpayer basis, obligat-
ing each taxpayer to minimize its liabili-
ty for foreign taxes over time. The 2007
proposed regulations were intended to
create a limited exception to the taxpay-
er-by-taxpayer approach, recognizing that
the net effect of a loss surrender in the
case of a group relief regime may be to
minimize the amount of foreign taxes paid
in the aggregate by the group over time.
However, the 2007 proposed regulations
were both overinclusive and underinclu-
sive. Comments criticized the approach
taken, including how the U.S.-owned for-
eign group was defined, and noted that the
proposal had created uncertainty over the
extent to which noncompulsory payment
issues arise in situations not addressed
by the proposed regulations. In addition,
as noted in Notice 2007-95, the Treasury
Department and the IRS have determined
that the 2007 proposed regulations would
lead to inappropriate results in certain cas-
es. Furthermore, a comment received in
connection with 2012 temporary regula-
tions issued under section 909 (TD 9597,
77 FR 8127) recommended that the 2007
proposed regulations be withdrawn in
light of the coverage of loss-sharing split-
ter arrangements under the section 909
regulations.
The Treasury Department and the IRS
agree that the 2007 proposed regulations
should be withdrawn. However, withdraw-
ing the 2007 proposed regulations (which
taxpayers were permitted to rely on under
Notice 2007-95) without providing addi-
tional guidance could result in a disallow-
ance of all foreign tax credits related to
loss-sharing arrangements because under
§1.901-2(e)(5) the requirement to mini-
mize foreign income tax liability applies
on a taxpayer-by-taxpayer basis. To ad-
dress this issue, proposed §1.901-2(e)(5)
(ii)(B)(2) provides that when foreign law
permits one foreign entity to join a con-
solidated group, or to surrender its loss to
offset the income of another foreign entity
pursuant to a foreign group relief or other
loss-sharing regime, a taxpayer’s decision
to file as a consolidated group, to surren-
der or not to surrender a loss, or to use or
not to use a surrendered loss, will not give
rise to a noncompulsory payment.
Although the proposed regulations
will generally exempt loss surrender un-
der group relief or other loss-sharing re-
gimes from the noncompulsory payment
regulations, the Treasury Department and
the IRS remain concerned that in certain
cases loss sharing arrangements, particu-
larly when combined with hybrid arrange-
ments, may be used to separate foreign
taxes from the related income. For exam-
ple, if passive category income of a CFC
is offset for U.S. tax purposes by a loss

Bulletin No. 2020–49 1485 November 30, 2020
recognized by a disregarded entity owned
by that CFC, but that loss is surrendered
to reduce general category tested income
of an affiliated CFC for foreign tax pur-
poses, under §1.909-3(a) the split tax-
es of the loss CFC may be eligible to be
deemed paid if the affiliated CFC’s related
income is included in the U.S. sharehold-
er’s income in the same taxable year, but
such taxes may not be properly associ-
ated with the related income. Therefore,
the Treasury Department and the IRS are
considering whether additional guidance
on loss sharing arrangements, including
for example under §1.861-20, is needed.
Comments are requested on this and oth-
er aspects of the treatment of loss sharing
arrangements.
The existing regulations at §1.901-2(e)
(5) provide that where foreign tax law in-
cludes options or elections whereby a tax-
payer’s foreign income tax liability may
be shifted to a different year, the taxpay-
er’s use or failure to use such options or
elections does not result in a noncompul-
sory payment. However, the regulations
are not clear as to whether the use or fail-
ure to use options or elections that result
in an overall change in foreign income
tax liability over time would result in a
noncompulsory payment. For example, a
taxpayer’s choice to capitalize and amor-
tize capital expenditures over time, rather
than to claim a current expense deduction,
does not result in a noncompulsory pay-
ment; in contrast, a taxpayer’s election to
compute its tax liability under one of two
alternative regimes, one of which qual-
ifies as an income tax and one of which
qualifies as a tax in lieu of an income tax,
may result in a noncompulsory payment
if the taxpayer does not choose the option
that is reasonably calculated to minimize
its liability for creditable foreign tax over
time. Accordingly, proposed §1.901-2(e)
(5)(ii) provides that the use or failure to
use such an option or election is relevant
to whether a taxpayer has minimized its li-
ability for foreign income taxes. However,
an exception is provided for elections to
surrender losses under a foreign consoli-
dation, group relief or other loss-surrender
regime, as well as for an option or election
to treat an entity as fiscally transparent or
non-fiscally transparent for foreign tax
purposes. Because these elections and op-
tions generally have the effect of shifting
to another entity, rather than reducing in
the aggregate, a taxpayer group’s foreign
income tax liability, the Treasury Depart-
ment and the IRS have determined that
foreign tax credit concerns related to the
use or failure to use such an election or op-
tion are more appropriately addressed un-
der other rules. The Treasury Department
and IRS request comments on whether
there are other foreign options or elections
that should be excepted from the general
rule.
The Treasury Department and IRS are
aware that some taxpayers have taken the
position that because §1.901-2(e)(5) re-
fers to payments of “foreign taxes,” rather
than “foreign income taxes,” the noncom-
pulsory payment regulations only require
taxpayers to minimize their total liability
for all foreign taxes in the aggregate (in-
cluding non-income taxes such as excise
taxes), as opposed to minimizing foreign
income tax. The Treasury Department and
IRS disagree with this interpretation, since
§1.901-2(e) defines the amount of “taxes
paid” for purposes of section 901, which
only applies to creditable foreign income
taxes. Accordingly, proposed §1.901-2(e)
(5)(i) clarifies that taxpayers are obligat-
ed to minimize their foreign income tax
liabilities. For example, if a taxpayer may
choose to apply a tax credit to reduce ei-
ther the amount of a creditable income tax
or the amount of a non-creditable excise
tax, then the proposed regulations require
that the taxpayer choose to minimize its
liability for the creditable income tax; if
instead the taxpayer chooses to apply the
credit against the excise tax, income tax in
the amount of the applied credit is consid-
ered a noncompulsory payment.
Finally, proposed §1.901-2(e)(5)(i)
clarifies that the time value of money is
not relevant in determining whether a tax-
payer has met its obligation to minimize
the amount of its foreign income tax lia-
bilities over time. This rule is consistent
with the rule in §1.901-2(b)(4), providing
that the amount of costs that are treated as
recovered in computing the base of a for-
eign tax is the same, regardless of wheth-
er a taxpayer chooses to deduct currently,
or to capitalize and amortize, a particular
expense. Therefore, for example, if a tax-
payer subject to foreign income tax at a
rate of 20 percent chooses to capitalize
a $100x cost and deduct it ratably over
five years rather than to deduct the entire
$100x cost in the first year, the full $100x
cost is considered recovered under either
option, and is not affected by the fact that
as an economic matter the present value
of the $20x reduction in tax liability by
reason of the $100x deduction in the first
year exceeds the discounted present value
of the same $20x reduction in tax spread
over five years. Similarly, under proposed
§1.901-2(e)(5)(i), the taxpayer will be
treated as paying the same amount of for-
eign income tax regardless of whether it
chooses to pay that amount in the current
tax year or in a later year.
Although the Treasury Department and
the IRS understand that time value of mon-
ey considerations have economic effects,
for Federal income tax purposes income
and expenses (including taxes) general-
ly are neither discounted nor indexed by
reference to time value of money consid-
erations. A regime that required taxpayers
to minimize the discounted present value,
rather than the nominal amount, of foreign
income tax liabilities would be complex,
requiring assumptions about future tax
rates and appropriate discount rates. Sim-
ilarly, a regime that required taxpayers to
compare the discounted present value of
a foreign tax credit for a foreign income
tax to the discounted present value of a
deduction for an alternative payment of
non-creditable tax that would be incurred
in a different year and select the option that
minimized the cost to the U.S. fisc would
be comparably complex and burdensome
for taxpayers to apply and for the IRS to
administer. Accordingly, the proposed
regulations provide that economic consid-
erations related to the discounted present
value of U.S. and foreign tax benefits are
not taken into account for purposes of de-
termining the amount of cost recovery or
the amount of foreign income tax that is,
or would be under foreign tax law options
available to the taxpayer, paid or accrued
over time.
C. Tax in lieu of income tax
1. In general
Section 903 provides that, for purposes
of the foreign tax credit, the term “income,
war profits, and excess profits taxes” in-
cludes a tax paid in lieu of an income tax

November 30, 2020 1486 Bulletin No. 2020–49
otherwise generally imposed by any for-
eign country or by any possession of the
United States (an “in lieu of tax”). The ex-
isting regulations clarify that the foreign
country’s purpose in imposing the foreign
tax (for example, whether it imposes the
foreign tax because of administrative dif-
ficulty in determining the base of the in-
come tax otherwise generally imposed) is
immaterial. See §1.903-1(a). The existing
regulations further provide that it is im-
material whether the base of the foreign
tax bears any relation to realized net in-
come and that the base may, for example,
be gross income, gross receipts or sales,
or the number of units produced or sold.
See §1.903-1(b)(1). The existing regu-
lations also require that the foreign tax
meet a substitution requirement, which
is satisfied if the tax in fact operates as a
tax imposed in substitution for, and not in
addition to, an income tax or a series of in-
come taxes otherwise generally imposed.
See id.
The proposed regulations revise the
substitution requirement by more specif-
ically defining the circumstances in which
a foreign tax is considered “in lieu of” a
generally-imposed income tax, consistent
with the interpretation of the substitution
requirement in prior judicial decisions.
See, for example, Metro. Life Ins. Co. v.
United States, 375 F.2d 835, 838-40 (Ct.
Cl. 1967). In addition, the proposed regu-
lations provide that an in lieu of tax under
section 903, by virtue of the substitution
requirement, must also satisfy the juris-
dictional nexus requirement described
in proposed §1.901-2(c). Although prior
regulations under section 903 did contain
a jurisdictional limitation with respect to
in lieu of taxes, see §4.903-1(a)(4) (1980)
(requiring that an in lieu of tax follow “rea-
sonable rules of taxing jurisdiction within
the meaning of §4.901-2(a)(1)(iii)”), the
existing regulations do not contain such a
rule. The reasons for adopting a jurisdic-
tional nexus requirement under §1.901-2,
as described in Part VI.A.2 of this Expla-
nation of Provisions, apply equally to in
lieu of taxes described in section 903. In
addition, this rule is necessary to ensure
that a foreign tax that is imposed on net
gain but that fails the jurisdictional nexus
requirement in §1.901-2 cannot be con-
verted into a creditable tax under section
903 simply by being imposed on a taxable
base other than income (such as a tax on
gross receipts).
Furthermore, the proposed regulations
include a special rule for certain cross-bor-
der source-based withholding taxes in or-
der to clarify the application of the substi-
tution requirement to such taxes. The rules
in proposed §1.903-1 apply independently
to each separate levy. Therefore, if a sepa-
rate levy is an in lieu of tax, and a second
levy is later enacted by the same foreign
country, such second levy may also qual-
ify as an in lieu of tax if the requirements
in proposed §1.903-1 are met.
2. Substitution requirement
The foreign tax that is being analyzed
under section 903 (the “tested foreign
tax”) satisfies the substitution requirement
only if, based on the foreign tax law, four
tests are met. First, as under the existing
regulations, a separate levy that is a for-
eign income tax described in §1.901-2(a)
(3) (a “foreign net income tax”) must be
generally imposed by the same foreign
country (a “generally-imposed net income
tax”). See proposed §1.903-1(c)(1)(i).
Second, proposed §1.903-1(c)(1)(ii)
requires that neither the generally-im-
posed net income tax nor any other sep-
arate levy that is a foreign net income tax
imposed by the same foreign country that
imposes the tested foreign tax is imposed
with respect to any portion of the income
to which the amounts (such as sales or
units of production) that form the base of
the tested foreign tax relate (the “excluded
income”). For example, if a tonnage tax
regime applies with respect to a taxpayer
engaged in shipping, income from ship-
ping must be excluded from the foreign
country’s regular net income tax for the
tonnage tax to qualify as an in lieu of tax.
This requirement is not met if, under the
foreign tax law, a net income tax imposed
by the same foreign country applies to the
excluded income of any persons that are
subject to the tested foreign tax, even if
not all of the persons subject to the tested
foreign tax are subject to the net income
tax.
Third, proposed §1.903-1(c)(1)(iii)
requires that, but for the existence of the
tested foreign tax, the generally-imposed
net income tax would be imposed on the
excluded income. For example, if a ton-
nage tax regime applies with respect to a
taxpayer engaged in shipping, it must be
shown that, but for the existence of such
regime, the regular income tax would ap-
ply to income from shipping. This “but
for” requirement is met only if the imposi-
tion of the tested foreign tax bears a “close
connection” to the failure to impose the
generally-imposed net income tax on the
excluded income. See Metro. Life Ins. Co,
375 F.2d at 840.
The proposed regulations provide
that the close connection requirement is
satisfied if the generally-imposed net in-
come tax would apply by its terms to the
excluded income but for the fact that it
is expressly excluded. For example, if a
corporate income tax regime would, by
its terms, apply to all corporations, but in-
come of insurance companies is expressly
excluded by law under such regime and
taxed under a separate regime, then the
close connection requirement is met.
Otherwise, a close connection must
be established with proof that the foreign
country made a “cognizant and deliberate
choice” to impose the tested foreign tax in-
stead of the generally-imposed net income
tax. Id. Such proof may take into account
the legislative history of either the tested
foreign tax or the generally-imposed net
income tax for purposes of ascertaining
the intent and purpose of the two taxes
in order to determine the relationship be-
tween them.
Not all income derived by persons
subject to the tested foreign tax need be
excluded income, as long as the tested
foreign tax applies only to amounts that
relate to the excluded income. For exam-
ple, if a taxpayer that earns income from
operating restaurants and hotels is subject
to a generally-imposed net income tax ex-
cept that, pursuant to an agreement with
the foreign country, the taxpayer’s income
from restaurants is subject to a tax based
on number of tables and not to the income
tax, the table tax can meet the substitution
requirement notwithstanding that the ho-
tel income is subject to the generally-im-
posed net income tax.
Fourth, proposed §1.903-1(c)(1)(iv)
requires that, if the generally-imposed net
income tax were applied to the excluded
income, the generally-imposed net in-
come tax would either continue to qualify
as a foreign net income tax, or would itself

Bulletin No. 2020–49 1487 November 30, 2020
constitute a separate levy that is a foreign
net income tax. This rule is intended to
ensure that a foreign tax can qualify as an
in lieu of tax only if the foreign country
imposing the tax could instead have sub-
jected the excluded income to a tax on net
gain that would satisfy the jurisdictional
nexus requirement in §1.901-2(c).
Finally, proposed §1.861-20(h) pro-
vides a rule for allocating and apportion-
ing foreign taxes described in section 903
(other than withholding taxes) to statutory
and residual groupings. In general, the rule
provides that the in lieu of tax is allocated
and apportioned in the same proportions
as the excluded income.
3. Covered withholding tax
Gross-basis taxes, such as withholding
taxes, do not satisfy the net gain require-
ment under proposed §1.901-2(b). While
such withholding taxes may be treated
as in lieu of taxes under section 903, the
analysis under section 903 and existing
§1.903-1 is unclear. Therefore, proposed
§1.903-1(c)(2) provides a special rule for
applying the substitution requirement to
certain “covered withholding taxes” im-
posed by a foreign country that also has a
generally-imposed net income tax.
First, the tax must be a withholding tax
(as defined in section 901(k)(1)(B)) that is
imposed on gross income of persons who
are nonresidents of the foreign country
imposing the tax. See proposed §1.903-
1(c)(2)(i).
Second, the tax cannot be in addition
to a net income tax that is imposed by
the foreign country on any portion of the
income subject to the withholding tax.
See proposed §1.903-1(c)(2)(ii). Thus,
for example, if a withholding tax applies
by its terms to certain gross income of
nonresidents that is also subject to the
generally-imposed net income tax if it is
attributable to a taxable presence of the
nonresident in the foreign country impos-
ing the tax, the withholding tax cannot
meet the substitution requirement, includ-
ing as to nonresidents that do not have a
taxable presence in that country.
Third, the withholding tax must meet
the source-based jurisdictional nexus re-
quirement in proposed §1.901-2(c)(1)(ii),
requiring that rules for sourcing income to
the foreign country are reasonably similar
to the sourcing rules that apply for Fed-
eral income tax purposes (including that
services income is sourced to the place of
performance). Similar to the rule in pro-
posed §1.903-1(c)(1)(iv) requiring that
the generally-imposed net income tax, if
expanded to cover the excluded income,
would continue to qualify as a net income
tax under §1.901-2, proposed §1.903-1(c)
(2)(iii) requires that the income subject to
the withholding tax satisfies the source re-
quirement described in §1.901-2(c)(1)(ii).
VII. Rules for Allocating Taxes
after Certain Ownership and Entity
Classification Changes
A. Background
On February 14, 2012, the Federal
Register published final regulations (77
FR 8124, TD 9576) under section 901
concerning the determination of the per-
son who pays a tax for foreign tax credit
purposes (the “2012 final regulations”).
The 2012 final regulations address the in-
appropriate separation of foreign income
taxes from the income on which the tax
was imposed in certain circumstances.
The 2012 final regulations provide rules
for allocating foreign tax imposed on the
combined income of multiple persons, as
well as rules for allocating entity-level
foreign tax imposed on partnerships and
disregarded entities that undergo owner-
ship or certain entity classification chang-
es that do not cause the foreign taxable
year of the partnership or disregarded
entity (the “continuing foreign taxable
year”) to close.
Section 1.901-2(f)(4)(i) of the 2012 fi-
nal regulations addresses partnership ter-
minations under section 708(b)(1) that do
not cause the foreign taxable year to close.
Under this provision, foreign tax paid or
accrued with respect to the continuing
foreign taxable year (for example, in the
case of a section 708(b)(1) termination,
foreign tax paid or accrued by a successor
corporation or owner of a disregarded en-
tity) is allocated between each terminating
partnership and successor entity (or, in the
case of a partnership that becomes a disre-
garded entity, the owner of the disregarded
entity). The allocation is based upon the
respective portions of the foreign tax base
that are attributable under the principles of
§1.1502-76(b) to the period of existence
of the terminating partnership and suc-
cessor entity or the period of ownership
by a disregarded entity owner during the
continuing foreign taxable year. Section
1.901-2(f)(4)(i) also provides similar rules
for allocating foreign tax paid or accrued
by a partnership among the respective por-
tions of the partnership’s U.S. taxable year
that end with, and begin after, a change in
a partner’s interest in the partnership that
does not result in a partnership termina-
tion (a variance).
Section 1.901-2(f)(4)(ii) of the 2012
final regulations addresses a change in
the ownership of a disregarded entity that
does not cause the foreign taxable year of
the entity to close. Under this rule, foreign
tax paid or accrued with respect to the for-
eign taxable year is allocated between the
transferor and transferee of the disregard-
ed entity. The allocation is made based on
the respective portions of the foreign tax
base that are attributable under the prin-
ciples of §1.1502-76(b) to the period of
ownership of each transferor and transfer-
ee.
B. Covered events
The proposed regulations move the
§1.901-2(f)(4) allocation rules that apply
in the case of partnership terminations and
variances and other ownership and entity
classification changes to new §1.901-2(f)
(5), and modify those rules to ensure that
they cover any entity classification change
under U.S. tax law that does not cause
the entity’s foreign taxable year to close.
The proposed regulations also clarify cer-
tain aspects of the 2012 final regulations.
The general legal liability rules for taxes
imposed on partnerships and disregarded
entities are now contained in proposed
§1.901-2(f)(4) and are generally un-
changed from the 2012 final regulations.
Proposed §1.901-2(f)(5)(i) provides a
single allocation rule that applies to a part-
nership, disregarded entity, or corporation
that undergoes one or more “covered
events” during its foreign taxable year
that do not result in a closing of the for-
eign taxable year. Under proposed §1.901-
2(f)(5)(ii), a covered event is a partner-
ship termination under section 708(b)
(1), a transfer of a disregarded entity, or
a change in the entity classification of a

November 30, 2020 1488 Bulletin No. 2020–49
disregarded entity or a corporation. These
proposed regulations therefore apply to
allocate foreign tax paid or accrued with
respect to the continuing foreign taxable
year of a partnership that terminates under
section 708(b)(1), a disregarded entity that
becomes a partnership or a corporation,
and a corporation that becomes a partner-
ship or a disregarded entity. In addition,
proposed §1.901-2(f)(5)(iv) allocates for-
eign tax paid or accrued with respect to
certain changes in a partner’s interest in a
partnership (a “variance”) by treating the
variance as a covered event.
These proposed regulations also en-
sure that the allocation rules apply not just
in the case of one or more covered events
of the same type within a continuing for-
eign taxable year, but also in the case of
any combination of covered events. For
example, proposed §1.901-2(f)(5) applies
to foreign tax that is paid or accrued with
respect to a continuing foreign taxable year
in which a corporation elects to be treated
as a disregarded entity and the disregarded
entity subsequently becomes a partnership.
A portion of foreign tax is allocated among
all persons that were predecessor entities
(namely, a terminating partnership or cor-
poration undergoing an entity classification
change) or prior owners (namely, the owner
of a disregarded entity that is transferred or
undergoes an entity classification change)
during the continuing foreign taxable year.
Like the rules provided in the 2012 final
regulations, the allocation is made based
on the respective portions of the foreign tax
base for the continuing foreign taxable year
that are attributable under the principles of
§1.1502-76(b) to the period of existence
or ownership of each predecessor entity or
prior owner during such year.
C. Timing of the payment or accrual of an
allocated tax
These proposed regulations also pro-
vide consistent rules for when allocated
tax is treated as paid or accrued. Proposed
§1.901-2(f)(5)(i) provides that tax allocat-
ed to a predecessor entity is treated as paid
or accrued as of the close of the last day of
its last U.S. taxable year, and that tax allo-
cated to the prior owner of a disregarded
entity is treated as paid or accrued as of the
close of the last day of its U.S. taxable year
in which the change in ownership occurs.
D. Treatment of withholding taxes
The 2012 final regulations do not clear-
ly state whether foreign withholding tax-
es are subject to the allocation rules. As
explained in Part VI.A of this Explanation
of Provisions, foreign taxes are allocated
based on the portion of the foreign tax
base that is attributed to the period of ex-
istence or ownership of each predecessor
or prior owner during the foreign taxable
year, applying the principles of §1.1502-
76(b). The principles of §1.1502-76(b)
allow taxpayers to use either a closing of
the books method or a ratable allocation
method in attributing the foreign tax base
to these periods.
If the ratable allocation method is used,
foreign tax is generally allocated to a pre-
decessor entity or prior owner based on its
ratable share of the foreign tax base for the
continuing foreign taxable year. In the case
of net basis foreign tax paid or accrued by
a new owner or successor entity with re-
spect to a continuing foreign taxable year,
the resulting allocation of a portion of the
tax to a predecessor entity or prior own-
er is appropriate because the predecessor
entity or prior owner generally took into
account for U.S. tax purposes a portion of
the related income on which the net ba-
sis tax was imposed. However, in the case
of withholding tax that is imposed on an
amount that accrues for U.S. tax purposes
when it is paid, such as a dividend, an allo-
cation of a portion of the withholding tax
based on ratably allocating the dividend
income over the foreign taxable year to
a predecessor entity or prior owner is not
appropriate because the predecessor entity
or prior owner will not have taken any of
the related dividend income into account
for U.S. tax purposes. Even if withholding
tax is imposed on income, such as interest,
that accrues for U.S. tax purposes ratably
over a period, an allocation of a portion of
the withholding tax to a predecessor entity
or prior owner based on ratably allocating
the interest income over the foreign tax-
able year may not be appropriate if the
foreign taxable year is not the same period
as the accrual period under the terms of
the instrument that generated the interest.
Because applying the ratable alloca-
tion method under proposed §1.901-2(f)
(5) to allocate withholding taxes to a pre-
decessor entity or prior owner may sepa-
rate withholding taxes from income that
accrues when paid, and may not achieve
appropriate matching of withholding taxes
and related income in the case of withhold-
ing tax imposed on income that accrues
over a period, these proposed regulations
provide that withholding taxes paid in the
foreign taxable year of a covered event are
not subject to allocation under proposed
§1.901-2(f)(5).
E. Elections under sections 336(e) and
338
Sections 1.336-2(g)(3)(ii) and 1.338-
9(d) provide rules for allocating foreign
tax between old target and new target
where a section 336(e) election or 338
election, respectively, is in effect with re-
spect to the sale, exchange, or distribution
of the target and the transaction does not
cause old target’s foreign taxable year to
close. The proposed regulations clarify
that, in the case of a section 338 election,
the allocation is made with respect to the
portions of the foreign tax base that are at-
tributable under §1.1502-76(b) principles
to old target and new target, and clarify
how the allocation is made if there are
multiple transfers of the stock of target
that are each subject to a separate section
338 election during the foreign taxable
year. The proposed regulations also pro-
vide that if a section 338 election is made
for target and target holds an interest in
a disregarded entity or partnership, the
rules of §1.901-2(f)(4) and (5) apply to
determine the person who is considered
for Federal income tax purposes to pay
foreign income tax imposed at the entity
level on the income of the disregarded
entity or partnership. In addition, the pro-
posed regulations clarify that withholding
tax is not subject to allocation. Finally, the
proposed regulations make a conforming
change to the allocation rules that apply
where a section 336(e) election is in effect
by providing that withholding taxes are
not subject to allocation.
VIII. Transition Rules Accounting for
NOL Carrybacks
A. Background
The 2019 FTC final regulations provide
transition rules for assigning any separate

Bulletin No. 2020–49 1489 November 30, 2020
limitation loss (“SLL”) or overall foreign
loss (“OFL”) accounts in a pre-2018 sep-
arate category to a post-2017 separate
category. The regulations also provide
transition rules for how an SLL or OFL
that reduced pre-2018 general category
income is recaptured in post-2017 years,
and for how to treat foreign losses that
are part of general category net operating
losses (“NOLs”) incurred in pre-2018 tax-
able years that are carried forward to post-
2017 taxable years. See §1.904(f)-12(j).
The transition rules included in the
2019 FTC final regulations did not address
post-2017 NOL carrybacks to pre-2018
taxable years because section 172 general-
ly did not allow for NOL carrybacks when
the 2019 FTC final regulations were is-
sued. However, on March 27, 2020, Con-
gress enacted the Coronavirus Aid, Relief,
and Economic Security Act, Pub. L. 116-
136, 134 Stat. 281 (2020) (the “CARES
Act”), which revised section 172(b) to al-
low taxpayers to carry back, for five years,
NOLs incurred in 2018 through 2020.
B. Rule for post-2017 NOL carrybacks
The proposed regulations provide
rules analogous to the existing transition
rules in §1.904(f)-12(j) to situations in-
volving an NOL arising in a post-2017
taxable year that is carried back to a pre-
2018 taxable year. In particular, proposed
§1.904(f)-12(j)(5)(i) confirms that the
rules of §1.904(g)-3(b) apply to the NOL
carryback, and provides that income in a
pre-2018 separate category in the taxable
year to which the NOL is carried back is
generally treated as if it included only in-
come that would be assigned to the same
separate category in post-2017 taxable
years. Therefore, any SLL created by rea-
son of a passive category component of a
post-2017 NOL that is carried back to off-
set pre-2018 general category income will
be recaptured in post-2017 taxable years
as general category income, and not as a
combination of post-2017 general, foreign
branch, or section 951A category income.
However, in order to reduce the po-
tential for creating SLLs by reason of the
carryback of a post-2017 NOL component
in the foreign branch category or section
951A category to a pre-2018 taxable year,
the proposed regulations provide that such
losses will first ratably offset a taxpayer’s
general category income in the carryback
year, to the extent thereof, and that no SLL
account will be created as a result of that
offset. The amount of income in the gen-
eral category available to be offset under
this rule is determined after first offsetting
the general category income in the carry-
back year by a post-2017 NOL component
in the general category that is carried back
to the same year.
IX. Foreign Tax Credit Limitation Under
Section 904
A. Revisions to definition of foreign
branch category income
The proposed regulations revise certain
aspects of the foreign branch category in-
come rules in §1.904-4(f) to account for a
broader range of disregarded payments, as
well as to better coordinate with the rules
in §1.861-20 and the elective high-tax ex-
ception rules in proposed §1.954-1(d) of
the 2020 HTE proposed regulations (85
FR 44650).
Section 904(d)(2)(J)(i) defines foreign
branch category income as business profits
of a United States person that are attribut-
able to qualified business units in foreign
countries. Section 1.904-4(f)(2)(ii) and
(iii) of the 2019 FTC final regulations pro-
vide that income attributable to a foreign
branch does not include income arising
from activities carried out in the United
States or income arising from stock that is
not dealer property. Section 1.904-4(f)(1)
(ii) of the 2019 FTC final regulations, re-
flecting section 904(d)(2)(J)(ii), provides
that passive category income is excluded
from foreign branch category income.
These rules exclude from foreign branch
category income for purposes of section
904 income generated by assets that may
be owned through the foreign branch and
reflected on its books and records, but that
is not properly characterized as business
profits attributable to foreign branch ac-
tivities.
In contrast, in the different context of
applying the disregarded payment rules in
proposed §1.861-20(d)(3)(v) or proposed
§1.954-1(d), which rely on the rules in
§1.904-4(f), such income is properly at-
tributed to a taxable unit or a tested unit,
respectively, for purposes of those provi-
sions. In order to facilitate the incorpo-
ration by cross-reference of the rules and
principles in §1.904-4(f) for attributing in-
come to taxable units for purposes of other
provisions, the proposed regulations move
the exclusions for income arising from
U.S. activities and stock to §1.904-4(f)(1)
(iii) and (iv), respectively, and modify the
language to provide that such income may
be attributable to a foreign branch but is
always excluded from foreign branch cat-
egory income. See also Part V.F.4 of this
Explanation of Provisions (discussing
the rules in proposed §1.861-20(d)(3)(v)
(B)(2) for attributing income to taxable
units). This technical change does not re-
flect any reconsideration by the Treasury
Department and the IRS of the determi-
nation in the 2019 FTC final regulations
that income arising from U.S. activities
and stock do not constitute business prof-
its that are attributable to foreign branches
within the meaning of section 904(d)(2)
(J).
Proposed §1.904-4(f)(2)(vi)(G) pro-
vides that the disregarded reallocation
payment rules generally apply in the case
of disregarded payments made to and from
a “non-branch taxable unit” (as defined in
proposed §§1.904-4(f)(3) and 1.904-6(b)
(2)(i)(B)), which includes certain persons
and interests that do not meet the defini-
tion of a foreign branch or foreign branch
owner. This change accounts for the fact
that disregarded payments may occur
among, for example, foreign branches,
foreign branch owners, and disregarded
entities that have no trade or business (and
are therefore not foreign branches). In or-
der to attribute gross income to a foreign
branch or a foreign branch owner, disre-
garded payments to and from non-branch
taxable units must cause the reattribution
of current gross income to the same ex-
tent as disregarded payments to and from
foreign branches and foreign branch
owners. The gross income attributed to a
non-branch taxable unit after taking into
account all the disregarded payments that
it makes and receives must then be further
attributed to a foreign branch (if it is part
of a “foreign branch group”), or foreign
branch owner (if it is part of a “foreign
branch owner group”), to the extent of
its ownership of the non-branch taxable
unit. For this purpose, a non-branch tax-
able unit is part of either a foreign branch
group or a foreign branch owner group

November 30, 2020 1490 Bulletin No. 2020–49
to the extent it is owned, including indi-
rectly through other non-branch taxable
units, by a foreign branch or a foreign
branch owner, respectively. The gross in-
come that is attributed to the members of
a foreign branch group is attributed to the
foreign branch that owns the group, and
the gross income that is attributed to the
members of a foreign branch owner group
is attributed to the foreign branch owner
that owns the group.
The proposed regulations also clarify
that the reattribution of gross income by
reason of disregarded payments is capped
at the amount of current gross income in
the payor foreign branch or foreign branch
owner. See proposed §1.904-4(f)(2)(vi)
(A).
Finally, the proposed regulations in-
clude more detailed rules on the treatment
of payments between foreign branch-
es, and provide an example illustrating
the application of the matching rule in
§1.1502-13 to the rules in §1.904-4(f)(2)
(vi) in response to a comment received
with respect to the 2019 FTC proposed
regulations. See proposed §1.904-4(f)(4)
(xiii) through (xv) (Examples 13 through
15).
B. Financial services entities
Section 904(d)(2)(D)(i) provides that
financial services income can only be re-
ceived or accrued by a person “predom-
inantly engaged in the active conduct of
a banking, insurance, financing, or similar
business.” The 2019 FTC proposed regu-
lations modified the definition of a finan-
cial services entity (“FSE”) by adopting
a definition of “predominantly engaged
in the active conduct of a banking, insur-
ance, financing, or similar business” and
“income derived in the active conduct of
a banking, insurance, financing, or similar
business.” As discussed in the preamble
to the 2020 FTC final regulations, in re-
sponse to comments made in response to
the 2019 FTC proposed regulations, the
Treasury Department and the IRS deter-
mined that these provisions of the 2019
FTC proposed regulations should be re-
vised and reproposed to provide an addi-
tional opportunity for comment.
The proposed regulations retain the
general approach of the existing §1.904-
4(e) final regulations by providing a nu-
merical test whereby an entity is a finan-
cial services entity if more than a threshold
percentage of its gross income is derived
directly from active financing income, and
the regulations continue to contain a list
of income that qualifies as active financ-
ing income. However, the proposed reg-
ulations lower the threshold from 80 per-
cent to 70 percent, and further provide that
active financing income must generally be
earned from customers or other counter-
parties that are not related parties. These
changes will promote simplification and
greater consistency between Code pro-
visions that have complementary policy
objectives, while still taking into account
the differences between sections 954 and
904. The modified rule also makes clear
that internal financing companies do not
qualify as financial services entities if 70
percent or less of their gross income meets
the unrelated customer requirement. In
addition, the proposed regulations modify
§1.904-5(b)(2) to provide that the look-
through rules in §1.904-5 apply in all cas-
es to assign related party payments attrib-
utable to passive category income to the
passive category, including in the case of
related party payments made to a financial
services entity. Comments are requested
on the treatment of related party payments
in the numerator and denominator of the
70-percent gross income test, and wheth-
er related party payments should in some
cases constitute active financing income.
In the case of an insurance company’s
income from investments, the Treasury
Department and the IRS recognize that
an insurance company must hold passive
investment assets to support its insurance
obligations, including capital and surplus
in addition to insurance reserves, to en-
sure the company’s ability to satisfy insur-
ance liabilities if claims are greater than
anticipated or investment returns are less
than anticipated. However, the Treasury
Department and the IRS have determined
that limits on the amount of an insurance
company’s investment income that may
be treated as active financing income are
appropriate in cases where an insurance
company holds substantially more invest-
ment assets and earns substantially more
passive investment income than necessary
to support its insurance business. Thus,
proposed §1.904-4(e)(2)(ii) imposes a
cap on the amount of an insurance com-
pany’s income from investments that may
be treated as active financing income. The
cap is determined based on an applicable
percentage of the insurance company’s
total insurance liabilities. If investment
income exceeds the insurance company’s
investment income limitation, investment
income in excess of the limitation is not
considered ordinary and necessary to the
proper conduct of the company’s insur-
ance business and will not qualify as ac-
tive financing income.
The Treasury Department and the IRS
request comments on the investment in-
come limitation rule and in particular on
whether the applicable percentages select-
ed for life and nonlife insurance compa-
nies are reasonable.
X. Sections 901(a) and 905(a)—Rules
Regarding When the Foreign Tax Credit
Can Be Claimed
A. Background
Section 901(a) provides that a taxpay-
er has the option, for each taxable year,
to claim a credit for foreign income tax-
es paid or accrued to a foreign country in
such taxable year, subject to the limita-
tions under section 904. Alternatively, a
taxpayer may deduct the foreign income
taxes under section 164(a)(3). The deduc-
tion and credit for foreign income taxes
are mutually exclusive; section 275(a)
(4) provides that no deduction shall be
allowed for foreign income taxes if the
taxpayer chooses to take to any extent the
benefits of section 901. Section 1.901-1(c)
of the existing regulations, which clarifies
the application of section 275(a)(4), pro-
vides that if a taxpayer chooses with re-
spect to any taxable year to claim a credit
for taxes to any extent, such choice will
be considered to apply to all taxes paid or
accrued in such taxable year to all foreign
countries, and no portion shall be allowed
as a deduction in such taxable year or any
succeeding taxable year.
Section 901(a) further provides that
the choice to claim the foreign tax cred-
it for any taxable year “may be made or
changed at any time before the expira-
tion of the period prescribed for making
a claim for credit or refund of the tax
imposed by this chapter for such taxable
year.” Section 6511 prescribes the periods

Bulletin No. 2020–49 1491 November 30, 2020
for making a claim for credit or refund of
U.S. tax. The default period under section
6511(a) is three years from the time the
taxpayer filed the relevant return or two
years from when the tax is paid, which-
ever is later. Section 6511(d) sets forth
special periods of limitation for making a
claim of credit or refund of U.S. tax that is
attributable to particular attributes. Under
section 6511(d)(3), if the refund relates to
an overpayment attributable to any taxes
paid or accrued to any foreign country
for which credit is allowed under section
901, the taxpayer has 10 years from the
un-extended due date of the return for the
taxable year in which the foreign taxes
are paid or accrued to file the claim. See
§301.6511(d)-3. Section 6511(d)(2) sets
out a special limitations period for refund
claims “attributable to a net operating loss
carryback” of three years from the due
date of the return for the year in which
the net operating loss originated. The ex-
isting regulations at §1.901-1(d) provide
that a taxpayer can claim the benefits of
section 901 (or claim a deduction in lieu
of a foreign tax credit) at any time before
the expiration of the period prescribed by
section 6511(d)(3)(A).
Section 905(a) and §1.905-1(a) of the
existing regulations provide that a taxpay-
er may claim a credit for foreign income
taxes either in the year the taxes accrue or
in the year the taxes are paid, depending
on the taxpayer’s method of accounting.
Sections 1.446-1(c) and 1.461-1 provide
rules for when income and liabilities are
taken into account for taxpayers using the
cash receipts and disbursement method of
accounting (cash method) and for taxpay-
ers using the accrual method of account-
ing. Under §1.461-1(a)(1), cash method
taxpayers generally take into account al-
lowable deductions in the taxable year in
which paid. For accrual method taxpay-
ers, §1.461-1(a)(2) provides that liabili-
ties are taken into account in the taxable
year in which all the events have occurred
that establish the fact of the liability, the
amount of the liability can be determined
with reasonable accuracy, and economic
performance has occurred with respect to
the liability. If the liability of a taxpayer
is to pay a tax, economic performance
occurs as the tax is paid to the govern-
mental authority that imposed the tax. See
§1.461-4(g)(6)(i). However, in the case
of foreign income taxes, economic per-
formance occurs when the requirements
of the all events test, other than economic
performance, are met, whether or not the
taxpayer elects to credit such taxes un-
der section 901. See §1.461-4(g)(6)(iii)
(B). In the case of foreign income taxes
imposed on the basis of a taxable period,
because all of the events that fix the fact
and amount of liability for the foreign tax
with reasonable accuracy do not occur un-
til the end of the foreign taxable year, such
foreign income taxes accrue and are cred-
itable in the U.S. tax year within which the
taxpayer’s foreign taxable year ends. See
§1.960-1(b)(4); Revenue Ruling 61-93,
1961-1 C.B. 390.
Section 905(a) also provides that, re-
gardless of the taxpayer’s method of ac-
counting, a taxpayer can elect to claim the
foreign tax credit in the year in which the
taxes accrue. Once made, this election is
irrevocable and must be followed in all
subsequent years. In addition, courts have
held that the election to claim the foreign
tax credit on the accrual basis cannot be
made on an amended return. See Strong
v. Willcuts, 17 AFTR 1027 (D. Minn.)
(1935) (holding that taxpayer may not
change to accrual basis on an amended
return because when the taxpayer made
an election that the Government has ac-
cepted, the rights of the parties became
fixed); see also Rev. Rul. 59-101, 1959-
1 C.B. 189 (holding that a taxpayer who
elected on his original return to claim
credit for foreign income tax accrued may
not change this election and file amended
returns to claim credit for foreign taxes
in the year paid). However, for the year
the election is made, a taxpayer can claim
a credit both for taxes that accrue in that
year as well as taxes paid in such year that
had accrued in prior years. See Ferrer v.
Comm’r, 35 T.C. 617 (1961) (holding that
a cash method taxpayer is entitled, in the
year he elects pursuant to section 905(a)
to claim foreign tax credits on the accrual
basis, to claim a credit for prior years’ for-
eign income taxes paid as well as foreign
income taxes accrued in that year), rev’d
on other grounds, 304 F.2d 125 (2d Cir.
1962).
With respect to the accrual of a contest-
ed tax, the Supreme Court held in Dixie
Pine Products Co. v. Comm’r, 320 U.S.
516 (1944), that a state income tax that
is contested is not fixed, and so does not
accrue, until the contest is resolved. See
also section 461(f) (rule permitting tax-
payers to deduct contested taxes in the
year in which they are paid does not apply
to foreign income taxes). The contested
tax doctrine, however, does not apply in
determining when foreign taxes accrue
for purposes of the foreign tax credit. See
Cuba Railroad Co. v. United States, 124
F. Supp. 182, 185 (S.D.N.Y. 1954) (hold-
ing that taxes with respect to taxpayer’s
1943 income accrued for purposes of the
foreign tax credit in 1943 even though
the tax was contested and paid in a later
year). In Revenue Ruling 58-55, 1958-1
C.B. 266, the IRS examined Dixie Pine
and Cuba Railroad, as well as the legis-
lative history and purpose of the foreign
tax credit provisions, and concluded that a
contested foreign tax does not accrue until
the contest is resolved and the liability be-
comes finally determined, but for foreign
tax credit purposes, the foreign tax, once
finally determined, is considered to accrue
in the taxable year to which it relates. The
revenue ruling further clarified that this
“relation back” rule does not apply for
purposes of determining the taxable year
in which foreign taxes may be deducted
under section 164, which is governed by
the contested tax doctrine.
The relation back rule has since been
consistently applied by courts. See, for
example, United States v. Campbell, 351
F.2d 336, 338 (2d Cir. 1965) (explaining
that if a taxpayer contests his liability for
a foreign tax imposed on income in 1960,
and the liability is finally adjudicated
in 1965, the taxpayer may not claim the
credit until 1965, but at that time the cred-
it relates back to offset U.S. tax imposed
on taxpayer’s 1960 income); Albemarle
Corp. & Subsidiaries v. United States, 797
F.3d 1011, 1019 (Fed. Cir. 2015) (holding
that in the context of determining in what
year a taxpayer is eligible to claim a for-
eign tax credit, the relation back doctrine
applies, and thus the 10-year limitations
period for filing a refund claim started
to run from the un-extended due date for
the return for the year to which the tax
relates, not the later year in which the
contest was resolved). In Revenue Ruling
70-290, 1970-1 C.B. 160, the IRS held
that contested taxes that have been paid
to the foreign country may be provision-

November 30, 2020 1492 Bulletin No. 2020–49
ally accrued and claimed as a foreign tax
credit, even if the liability has not actually
accrued because the taxpayer continues to
contest its liability for the tax in the for-
eign country. The revenue ruling reasons
that this is permissible because section
905(c) would require a redetermination of
U.S. tax liability if the taxpayer’s contest
is successful, and the foreign tax is re-
funded to the taxpayer by the foreign gov-
ernment. Revenue Ruling 84-125, 1984-2
C.B. 125, similarly held that a taxpayer is
eligible to claim a credit for the portion
of contested taxes that have actually been
paid for the taxable year in which the con-
tested liability relates because such taxes
are accruable at the time of payment, even
though the amount of the liability is not
finally determined.
The Treasury Department and the
IRS received comments in response to
the 2019 FTC proposed regulations ask-
ing for clarification on when contested
taxes accrue for purposes of the foreign
tax credit and for clarification regarding
whether the special period of limitations
in section 6511(d)(3)(A) applies in the
case of a refund claim relating to foreign
income taxes that a taxpayer chose to de-
duct. Questions have also arisen regarding
whether taxpayers can make an election to
claim the foreign tax credit or revoke such
an election (in order to deduct the foreign
taxes) on an amended return when making
or revoking such election results in a time-
barred U.S. tax deficiency in one or more
intervening years because the assessment
statute under section 6501 does not align
with the time for making or changing the
election under §1.901-1(d).
These proposed regulations provide
rules clarifying when a foreign tax credit
may be taken for both cash method tax-
payers and for accrual method taxpayers,
and in the case of accrual method tax-
payers, clarify the application of the rela-
tion-back doctrine. The proposed regula-
tions also modify the period during which
a taxpayer can change the choice to claim
a credit or a deduction for foreign income
taxes on an amended return to align with
the different refund periods under section
6511. The proposed regulations also clar-
ify that a change from claiming a deduc-
tion to claiming a credit, or vice versa, for
foreign income taxes results in a foreign
tax redetermination under section 905(c).
In addition, the proposed regulations ad-
dress mismatch and time-barred deficien-
cy issues resulting from the application of
the relation-back doctrine for the accrual
of foreign income taxes for purposes of
the foreign tax credit, and the application
of the contested tax doctrine for purposes
of determining when foreign income taxes
can be deducted.
B. Rules for choosing to deduct or credit
foreign income taxes
1. Application of section 275(a)(4)
Section 1.901-1(c) of the existing
regulations, interpreting section 275(a)
(4), provides that if a taxpayer chooses
to claim a foreign tax credit to any ex-
tent with respect to the taxable year, such
choice applies to all creditable taxes and
no deduction for any such taxes is allowed
in such taxable year or in any succeeding
taxable year. Questions have arisen as to
whether this rule prevents taxpayers from
claiming either the benefit of a credit or a
deduction with respect to additional tax-
es that are paid in a taxable year in which
a taxpayer claims a foreign tax credit if
those additional taxes relate (under the
relation-back doctrine) to an earlier year
in which taxpayer claimed a deduction. As
described in Part X.A of this Explanation
of Provisions, additional tax paid by an ac-
crual method taxpayer (or a cash method
taxpayer that has elected to claim foreign
tax credits using the accrual method) as a
result of a foreign tax audit or at the end
of a contest relate back and are consid-
ered to accrue in the taxable year to which
the taxes relate. Thus, the additional tax-
es are not creditable in the year they are
paid and would only be creditable in the
relation-back year. However, if a taxpayer
deducted foreign income taxes in the rela-
tion-back year, the taxpayer cannot claim
an additional deduction in the earlier year
because the additional taxes accrue for de-
duction purposes in the year the additional
taxes are paid.
The Treasury Department and the IRS
have determined that this result is not in-
tended by section 275(a)(4), the purpose
of which is to prevent taxpayers from
claiming the benefits of both a credit and
a deduction with respect to the same tax-
es. Thus, the proposed regulations provide
an exception which allows a taxpayer that
is claiming credits on an accrual basis to
claim, in a year in which it has elected
to claim a credit for foreign income tax-
es that accrue in that year, also to deduct
additional taxes paid in that year that, for
foreign tax credit purposes, relate back
and are considered to accrue in a prior
year in which the taxpayer deducted for-
eign income taxes. See proposed §1.901-
1(c)(3).
2. Period within which an election to
claim a foreign tax credit can be made or
changed
The proposed regulations also modify
§1.901-1(d), which sets forth the peri-
od during which a taxpayer can make or
change its election to claim a foreign tax
credit. Existing §1.901-1(d), which was
amended in 1987 under TD 8160 (52 FR
33930-02), provides that a taxpayer can,
for a particular taxable year, claim the
benefits of section 901 or claim a deduc-
tion in lieu of a foreign tax credit at any
time before the expiration of the period
prescribed by section 6511(d)(3)(A) (or
section 6511(c) if the period is extend-
ed by agreement). The 1987 amendment
was preceded by cases in which courts
determined that the applicable period of
limitations for making an initial election
to claim a foreign tax credit under section
901 is the special 10-year period in section
6511(d)(3)(A). See Woodmansee v. Unit-
ed States, 578 F.2d 1302 (9th Cir. 1978);
Hart v. United States, 585 F.2d 1025 (Ct.
Cl. 1978) (also holding that prior regula-
tions, which required taxpayers to make
the election to claim a foreign tax credit
within the three-year period prescribed by
6511(a), were invalid).
However, as recent court decisions
have made clear, the 10-year statute of
limitations in section 6511(d)(3)(A) ap-
plies only to claims for credit or refund
of U.S. taxes attributable to foreign in-
come taxes for which the taxpayer was
allowed a credit; it does not apply in the
case of a claim for credit or refund of
U.S. taxes attributable to foreign income
taxes for which a taxpayer claimed a
deduction under section 164(a)(3). See,
for example, Trusted Media Brands, Inc.
v. United States, 899 F.3d 175 (2d Cir.
2018). In addition, the reason for the

Bulletin No. 2020–49 1493 November 30, 2020
special period of limitations provided by
section 6511(d)(3) is to allow taxpayers
to seek a refund of U.S. tax if foreign
taxes were assessed or increased after
the regular three-year statute of limita-
tions period has run, and to better align
with the IRS’ ability to assess addition-
al U.S. tax under section 905(c) when a
taxpayer receives a refund of the foreign
income tax claimed as a credit. The spe-
cial period of limitations is not needed
when a taxpayer instead claims a deduc-
tion, because accrued foreign income
taxes do not relate back for deduction
purposes, and the additional tax paid as
a result of the foreign assessment can be
claimed as a deduction in the year the
contest is resolved.
Therefore, the Treasury Department
and the IRS have determined that the bet-
ter interpretation of section 901(a) is that
the period for choosing or changing the
election to claim a credit or a deduction
is based on the applicable refund period,
depending on the choice made. Thus, an
election to claim a credit, or to change
from claiming a deduction to claiming a
credit, for taxes paid or accrued in a par-
ticular year must be made before the ex-
piration of the 10-year period prescribed
by section 6511(d)(3)(A) within which a
claim for refund attributable to foreign
tax credits may be made, but a choice
to claim a deduction, or to change from
claiming a credit to claiming a deduction,
for taxes paid or accrued in a particular
year must be made before the expira-
tion of the three-year period prescribed
by section 6511(a) within which a claim
for refund attributable to a section 164
deduction may be made. See proposed
§1.901-1(d). This proposed rule elimi-
nates the mismatch between the election
and refund periods that exists under the
existing regulations, whereby a taxpayer
who makes a timely election to change
from claiming a credit to claiming a de-
duction within a 10-year period may in
some cases be time-barred from obtaining
a refund of U.S. taxes attributable to the
resulting decrease in taxable income for
the deduction year. In addition, the pro-
posed rule is consistent with the court’s
decision in each of Hart and Woodman-
see, since it allows taxpayers to elect to
claim a credit within the 10-year period
provided by section 6511(d)(3)(A).
3. Change in election treated as a foreign
tax redetermination under section 905(c)
As part of the 2019 FTC final regula-
tions, the Treasury Department and the
IRS issued final regulations under §1.905-
3 to provide guidance on when foreign tax
redeterminations occur. Section 1.905-
3(a) provides that a foreign tax redeter-
mination means a change in the liability
for a foreign income tax or certain other
changes that affect a taxpayer’s foreign
tax credit. Consistent with section 905(c),
this includes when foreign income taxes
for which a taxpayer claimed a credit are
refunded, foreign income taxes when paid
or later adjusted differ from amounts a
taxpayer claimed as a credit or added to
PTEP group taxes, and when accrued tax-
es are not paid within 24 months of the
close of the taxable year to which the tax-
es relate. The 2020 FTC final regulations
further modify the definition of foreign
tax redetermination to include changes
to foreign income tax liability that affect
a taxpayer’s U.S. tax liability even when
there is no change to the amount of for-
eign tax credits claimed, such as when a
change to foreign taxes affects subpart F
and GILTI inclusion amounts or affects
whether or not a CFC’s subpart F income
and tested income is eligible for the high-
tax exception under section 954(b)(4) in
the year to which the redetermined foreign
tax relates.
These proposed regulations further
amend §1.905-3 to provide that a foreign
tax redetermination includes a change by a
taxpayer in its decision to claim a credit or
a deduction for foreign income taxes that
may affect a taxpayer’s U.S. tax liability.
Section 905(c)(1)(A) provides that a for-
eign tax redetermination is required “if
accrued taxes when paid differ from the
amounts claimed as credits by the taxpay-
er.” When a taxpayer changes its election
from claiming a credit to claiming a deduc-
tion, or vice versa, with respect to foreign
income taxes paid or accrued in a particular
year, the amount of tax that was accrued
and paid differs from the amount that has
been claimed as a credit by the taxpayer.
Accordingly, a change in a taxpayer’s elec-
tion to claim a credit or a deduction for for-
eign income taxes is described in section
905(c)(1)(A) even if the foreign income tax
liability remains unchanged.
This interpretation is consistent with
the purpose of section 905(c) and with-
in the constraints courts have placed in
interpreting the provision. As noted by
the court in Texas Co. (Caribbean) Ltd.
v. Comm’r, 12 T.C. 925 (1949), section
905(c) addresses problems for which the
relevant information might not be avail-
able within the general period of limita-
tions or ones where the taxpayer has ex-
clusive control of the information, which
justify removing these situations from
the generally-applicable period of limita-
tions on assessment. The court in Texas
Co. held that a U.S. tax deficiency that
results from a computational error, which
was discoverable by the IRS within the
normal assessment period, is not within
the scope of section 905(c). A taxpayer’s
decision to change its election can occur
outside the normal assessment period
under section 6501(a) and is information
that is under the exclusive control of the
taxpayer. Thus, the Treasury Department
and the IRS have determined that it is ap-
propriate to treat a change in election as
a foreign tax redetermination that requires
a redetermination of U.S. tax liability for
the affected years and notification of the
IRS to the extent required under §1.905-4.
The effect of treating a change in a
taxpayer’s decision to claim a credit or a
deduction for foreign income taxes as a
foreign tax redetermination is that the IRS
may assess and collect any U.S. tax de-
ficiencies in intervening years that result
from the taxpayer’s change in election,
even if the generally-applicable three-year
assessment period under section 6501(a)
has expired. See section 6501(c)(5). This
can occur, for example, if a timely change
to switch from deductions originally
claimed in a loss year (to increase a net
operating loss) to credits (in order to claim
a carryforward of excess foreign taxes in
a later year) would result in a time-barred
deficiency in a year to which the net op-
erating loss that was increased by the de-
ductions for foreign taxes was originally
carried. Currently, the law is unclear how
section 274(a)(4), equitable doctrines
such as the duty of consistency, or the
mitigation provisions under sections 1311
through 1314 operate to prevent taxpayers
from obtaining a double benefit (through
both a deduction and a credit) for a single
amount of foreign income tax paid. These

November 30, 2020 1494 Bulletin No. 2020–49
uncertainties have led taxpayers to request
guidance from the IRS to clarify the ef-
fect of a timely change in election on their
U.S. tax liabilities. The proposed regula-
tions provide a clear and efficient process
by which taxpayers can eliminate uncer-
tainty with respect to the tax consequenc-
es of changing from claiming a credit to
claiming a deduction, or vice versa, for
foreign income taxes, within the time pe-
riod allowed.
C. Rules for when a cash method
taxpayer can claim the foreign tax credit
Proposed §1.905-1(c) provides rules
on when foreign income taxes are credit-
able for taxpayers using the cash method
of accounting. Consistent with §1.461-
1(a)(1), which provides that for taxpay-
ers using the cash method, amounts rep-
resenting allowable deductions are taken
into account in the taxable year in which
they are paid, proposed §1.905-1(c)(1)
provides that foreign income taxes are
creditable in the taxable year in which
they are paid. Foreign income taxes are
generally considered paid in the year the
taxes are remitted to the foreign country.
However, foreign income taxes that are
withheld from gross income by the payor
are considered paid in the year withheld.
See proposed §1.905-1(c)(1). As dis-
cussed in Part VI.B of this Explanation of
Provisions, taxes that are not paid within
the meaning of §1.901-2(e) because they
exceed a reasonable approximation of
the taxpayer’s final foreign income tax
liability are not eligible for a foreign tax
credit.
The regulations at §1.905-3(a) further
provide that a refund of foreign income
taxes that have been claimed as a credit
in the year paid, or a subsequent determi-
nation that the amount paid exceeds the
taxpayer’s liability for foreign income tax,
is a foreign tax redetermination under sec-
tion 905(c), and the taxpayer must file an
amended return and redetermine its U.S.
tax liability for the affected years. How-
ever, additional taxes that are paid by a
cash method taxpayer in a later year with
respect to a prior year do not relate back to
the prior year, nor do they result in a rede-
termination of foreign income taxes paid
and U.S. tax lability under section 905(c)
for the prior year; instead, those additional
taxes are creditable in the year in which
they are paid.
Proposed 1.905-1(e) sets forth rules
for cash method taxpayers electing to
claim foreign tax credits on an accrual
basis. As provided by section 905(a), this
election is irrevocable, and once made,
must be followed in all subsequent years,
and consistent with the holding in Strong
v. Willcuts, the election generally can-
not be made on an amended return. See
proposed §1.905-1(e)(1). However, the
proposed regulations provide exceptions
to these general rules in order to ensure
that a taxpayer who makes this election
to switch from claiming credits on a cash
basis to an accrual basis is not double
taxed in certain situations. First, pro-
posed §1.905-1(e)(2) provides that a tax-
payer who has previously never claimed
a foreign tax credit may make the elec-
tion to claim the foreign tax credit on an
accrual basis when the taxpayer claims
the credit, even if such initial claim for
credit is made on an amended return. In
addition, following the decision in Ferrer
v. CIR, proposed §1.905-1(e)(3) provides
that, for the taxable year in which the ac-
crual election is made and for the subse-
quent years in which a taxpayer claims a
foreign tax credit on an accrual basis, that
taxpayer can claim a foreign tax credit
for taxes paid in the year, if pursuant to
the rules for accrual method taxpayers
that are described in Part X.D of this Ex-
planation of Provisions, those taxes paid
relate to a taxable year before the taxpay-
er elected to claim credits on an accrual
basis. The Treasury Department and the
IRS have determined that this result is
appropriate because otherwise taxpayers
that make the accrual election would, in
effect, have to forego a credit for prior
year taxes, unless the election is made
for the very first year in which a credit
is claimed.
D. Rules for accrual method taxpayers
1. In general
Proposed §1.905-1(d)(1) provides gen-
eral rules for when taxpayers using the
accrual method of accounting can claim
a foreign tax credit. This determination
requires applying the all events test con-
tained in §1.461-1. In accordance with
§1.461-1(a)(2)(i), foreign income taxes
accrue in the taxable year in which all
the events have occurred that establish
the fact of liability, and the amount of the
liability can be determined with reason-
able accuracy. See also §1.461-4(g)(6)(iii)
(B) (economic performance with respect
to foreign income taxes occurs when the
requirements of the all events test, other
than the payment prong of the economic
performance requirement, are met). The
proposed regulations confirm that where
the all events test has not been met with
respect to a foreign income tax liability,
such as in the case where the tax liability
is contingent upon a distribution of earn-
ings, such taxes have not accrued and may
not be claimed as a credit. See proposed
§1.905-1(d)(1)(i).
Proposed §1.905-1(d)(1)(ii) incor-
porates the relation-back doctrine, and
provides that, for foreign tax credit pur-
poses, once the all events test is met, the
foreign income taxes relate back and are
considered to accrue in the year to which
the taxes relate, the “relation-back year.”
For example, additional taxes paid as a
result of a foreign adjustment relate back
and are considered to accrue at the end of
the foreign taxable year(s) with respect to
which the taxes were adjusted. Thus, the
additional taxes paid in the later year are
creditable in the relation-back year, not
in the year in which the additional taxes
are paid. See proposed §1.905-1(d)(6)(iii)
(Example 3); see also §1.905-3(b)(1)(ii)
(A) (Example 1). Moreover, in the case of
foreign income taxes which are treated as
refunded pursuant to §1.905-3(a) because
they were not paid within 24 months of
the close of the taxable year in which they
first accrued, proposed §1.905-1(d)(1)(ii)
provides that when payment is later made,
the taxes are considered to accrue in the
relation-back year.
2. Special rule for 52-53 week taxable
years
Consistent with Revenue Ruling 61-
93, the proposed regulations provide that
the liability for a foreign tax becomes
fixed on the last day of the taxpayer’s for-
eign taxable year; thus, foreign income
taxes generally accrue and are creditable
in the taxpayer’s U.S. taxable year with
or within which its foreign taxable year

Bulletin No. 2020–49 1495 November 30, 2020
ends. However, the Treasury Department
and the IRS have determined that it is ap-
propriate to provide a limited exception
to this rule in order to address mismatch-
es that occur for taxpayers that elect to
use a 52-53 week taxable year for U.S.
tax purposes under §1.441-2. Section
1.441-2 permits certain eligible taxpay-
ers to elect to use a fiscal year that (i)
varies from 52 to 53 weeks in length, (ii)
always ends on the same day of the week,
and (iii) ends either on the same day of
the week that last occurs in a calendar
month or on whatever date the same day
of the week falls that is nearest to the last
day of the calendar month.
A taxpayer that adopts a 52-53 week
year, or that changes from a 52-53 week
year to another fiscal year, without chang-
ing its foreign taxable year, will often have
a short taxable year that does not include
the foreign year-end. That short U.S. tax-
able year would include substantially all of
the foreign income but none of the related
foreign taxes. Similarly, a taxpayer that
uses a 52-53 week year for U.S. tax pur-
poses but that uses a foreign tax year that
ends on a fixed month-end will in some
years have a U.S. taxable year that does
not include a foreign year-end and in oth-
er years have a U.S. taxable year that in-
cludes two foreign year-ends. For example,
a taxpayer who uses a 52-53 week year
that ends on the last Friday of December
for U.S. tax purposes would have a tax year
that begins Saturday, December 26, 2020,
and that ends Friday, December 31, 2021,
which includes two calendar year-ends.
The following taxable year, which begins
on Saturday, January 1, 2022, and ends on
Friday, December 30, 2022, would not in-
clude a calendar year-end.
Proposed §1.905-1(d)(2) addresses
these mismatches by providing that where
a U.S. taxpayer uses a 52-53 week taxable
year that ends by reference to the same
calendar month as its foreign taxable year,
and the U.S taxable year closes within 6
days of the close of the foreign taxable
year, then for purposes of determining the
amount of foreign income tax that accrues
during the U.S. taxable year, the U.S. tax-
able year will be deemed to end on the last
day of its foreign taxable year.
3. Accrual of contested foreign income
taxes
The Treasury Department and IRS have
determined that the administrative rulings
that allow an accrual method taxpayer to
claim a foreign tax credit for a contested
tax that has been remitted to a foreign
country, notwithstanding the fact that the
contest is ongoing, are inconsistent with
the all events test (specifically, the test’s
requirement that all the events must have
occurred that establish the fact and amount
of the liability with reasonable accuracy).
4

In addition, permitting taxpayers to claim
a credit for contested taxes before the con-
test is resolved reduces the incentive for
taxpayers to continue to pursue the con-
test and exhaust all effective and practical
remedies, as required under §1.901-2(e)
(5)(i), if the period of assessment for the
year to which the taxes relate has closed
and the IRS would be time-barred from
disallowing the foreign tax credit claimed
with respect to the contested tax paid on
noncompulsory payment grounds. The
Treasury Department and the IRS have
determined that this is an inappropriate
result that undermines the longstanding
policy for requiring an amount of foreign
income tax to be a compulsory payment in
order to be creditable.
Therefore, the proposed regulations
provide new rules for when a credit for
contested foreign income taxes can be
claimed. Following the Supreme Court’s
holding in Dixie Pine, and consistent
with the exception to section 461(f) and
§1.461-2(a)(2)(i) for foreign income tax-
es, proposed §1.905-1(d)(3) provides that
contested foreign income taxes do not ac-
crue until the contest is resolved, because
only then is the amount of the foreign
income tax liability finally determined.
Thus, contested foreign income taxes ac-
crue and are creditable only when resolu-
tion of the contest establishes the fact and
the amount of a liability with reasonable
accuracy, even if the taxpayer remits the
contested taxes to the foreign country in
an earlier year. When the contest is re-
solved, the liability accrues and, for for-
eign tax credit purposes, relates back and
is considered to accrue in the earlier year
to which the liability relates. Once the fi-
nally determined liability has been paid,
as required by section 905(c)(2)(B) and
§1.905-3(a), the taxpayer can claim a for-
eign tax credit in the relation-back year.
However, the Treasury Department and
the IRS recognize that a taxpayer may be
placed in a difficult position if it pays the
contested tax to the foreign country (which
it may do, for example, to toll the accru-
al of interest owed to the foreign country)
but cannot be made whole until the con-
test is resolved, possibly years later. Thus,
the proposed regulations provide that a
taxpayer may elect to claim a provision-
al credit for the portion of the taxes paid,
even though the contest is not resolved
and the amount of the liability is not yet
fixed. See proposed §1.905-1(d)(4). As a
condition for making this election, a tax-
payer must agree to give the IRS an op-
portunity to examine whether the taxpayer
exhausted all effective and practical rem-
edies when the contest is concluded by
agreeing to notify the IRS when the con-
test concludes and by agreeing to not as-
sert the statute of limitations as a defense
to the assessment of additional taxes and
interest if the IRS determines that the tax
was not a compulsory payment. The pro-
posed regulations require taxpayers mak-
ing this election to file with their amended
return (for the year in which the credit is
claimed) a provisional foreign tax credit
agreement meeting the conditions under
proposed §1.905-1(d)(4)(ii) through (iv)
and to file annual certifications notifying
the IRS of the status of the contest.
The Treasury Department and the IRS
intend to withdraw Revenue Ruling 70-
290 and Revenue Ruling 84-125 when the
proposed regulations are finalized. Tax-
payers can make the election under pro-
posed §1.905-1(d)(4) for contested taxes
remitted in taxable years beginning on or
after the date the proposed regulations are
finalized but that relate to an earlier tax-
able year. See proposed §1.905-1(h).
4. Correction of improper accruals
The proposed regulations address is-
sues that arise when an accrual method
taxpayer, including a foreign corporation
4
See Rev. Rul. 70-290, 1970-1 C.B. 160, and Rev. Rul. 84-125, 1984-2 C.B. 125, discussed in Part X.A of this Explanation of Provisions.

November 30, 2020 1496 Bulletin No. 2020–49
or a partnership or other pass-through en-
tity, has established an improper method
of accounting for accruing foreign income
taxes. A taxpayer generally establishes
an improper method of accounting for an
item once it has treated the item consis-
tently in two consecutive tax years (see
Rev. Rul. 90-38, 1990-1 CB 57). Pro-
posed §1.905-1(d)(5)(i) provides that the
time at which a taxpayer accrues a foreign
income tax expense generally is treated
as a method of accounting, regardless of
whether the taxpayer or the owners of the
foreign corporation, partnership or other
pass-through entity claim credits or de-
ductions for those taxes. Therefore, tax-
payers must comply with the procedures
set forth in Revenue Procedure 2015-13,
2015-5 I.R.B. 419, or successor adminis-
trative procedures, to obtain the Commis-
sioner’s consent before changing from an
improper method to a proper method of
accruing foreign income taxes.
The proposed regulations provide spe-
cific rules, under a “modified cut-off”
approach, for adjusting the amount of
foreign income taxes that can be claimed
as a credit or deduction in the year that a
taxpayer changes from an improper to a
proper method of accruing foreign income
taxes (and in subsequent years, if applica-
ble) in order to prevent a duplication or
omission of any amount of foreign income
tax paid. Proposed §1.905-1(d)(5)(ii) re-
quires taxpayers to adjust the amount of
foreign income tax that is assigned under
§1.861-20 to each statutory or residual
grouping (such as separate categories)
and that properly accrues in the year of
change, accounted for in the currency in
which the foreign tax liability is denom-
inated, (1) downward by the amount of
foreign income tax in the same grouping
that was improperly accrued and claimed
as a credit or a deduction in a taxable year
before the year of change (“pre-change
year”) and that did not properly accrue in
any pre-change year, and (2) upward by
the amount of foreign income tax in the
same grouping that properly accrued in a
pre-change year but which the taxpayer,
under its improper method of accounting,
failed to accrue and claim as either a credit
or a deduction in any pre-change year. To
the extent that the required amount of the
downward adjustment exceeds the amount
of properly-accrued foreign income tax in
the year of change, the balance carries for-
ward to offset properly-accrued taxes in
subsequent years.
Proposed §1.905-1(d)(5)(iii) provides
rules coordinating the application of the
rules under section 905(c) with the rules
in proposed §1.905-1(d)(5). Under pro-
posed §1.905-1(d)(5)(iii), the determina-
tion of whether an improperly-accrued
foreign income tax was paid within 24
months of the close of the taxable year to
which the taxes relate for purposes of sec-
tion 905(c)(2) will be measured from the
close of the taxable year(s) in which the
taxpayer accrued the tax. Any payment of
properly-accrued tax in and after the year
of change that is offset by the downward
adjustment required by proposed §1.905-
1(d)(5)(ii) and so not allowed as a foreign
tax credit or deduction in that year is treat-
ed as a payment of the foreign income tax
improperly accrued in pre-change years,
in order, based on the most recently-ac-
crued amounts.
Finally, proposed §1.905-1(d)(5)(iv)
provides that when a foreign corporation,
partnership, or other pass-through enti-
ty changes from an improper method of
accruing foreign income taxes, the rules
in §1.905-1(d)(5) apply as if the foreign
corporation, partnership or other pass-
through entity were eligible to, and did,
claim foreign tax credits. Comments are
requested on additional adjustments that
may be required to prevent an omission
or duplication of a tax benefit for foreign
income taxes that have been improperly
accrued (or which the taxpayer has im-
properly failed to accrue) under the tax-
payer’s improper method of accounting.
Comments are also requested on alterna-
tive methods for implementing a method
change involving the improper accrual of
foreign income taxes.
E. Creditable foreign tax expenditures
of partnerships and other pass-through
entities
The proposed regulations provide rules
that clarify when foreign income taxes
paid or accrued by a partnership or oth-
er pass-through entity (that is, foreign
income taxes for which the pass-through
entity is considered to be legally liable
under §1.901-2(f)) can be claimed as a
credit or deduction by such entity’s part-
ners, shareholders, or beneficiaries. Con-
sistent with the rules in §§1.702-1(a)(6)
and 1.703-1(b)(2), proposed §1.905-1(f)
provides that a partner that elects to claim
a foreign tax credit in a taxable year may
claim its distributive share of foreign in-
come taxes that the partnership paid or
accrued (as determined under the part-
nership’s method of accounting) during
the partnership’s taxable year that ends
with or within the partner’s taxable year.
Thus, the pass-through entity’s method of
accounting for foreign income taxes gen-
erally controls for purposes of determin-
ing the taxable year in which a partner is
considered to pay or accrue its distributive
share of those taxes. Therefore, a cash
method taxpayer may claim a credit for
its distributive share of an accrual method
partnership’s foreign income taxes even if
the partnership has not paid (that is, remit-
ted) the taxes to the foreign country during
the partner’s taxable year with or within
which the partnership’s tax expense ac-
crued, so long as those taxes otherwise
qualify for the credit, and subject to the
rules of section 905(c)(2)(A) (treating
accrued foreign taxes as refunded if not
paid within 24 months). The rules in pro-
posed §1.905-1(f) also apply in the case of
shareholders of a S corporation, beneficia-
ries of an estate or trust, or other owners
of a pass-through entity with respect to
foreign income taxes paid or accrued by
such entities.
With respect to a contested foreign
tax liability of a pass-through entity, the
proposed regulations provide that the
entity takes into account and reports a
contested foreign income tax to its part-
ners, shareholders, beneficiaries, or other
owners only when the contest concludes
and the finally determined amount of the
liability has been paid by the entity. This
rule takes into account the requirement in
section 905(c)(2)(B) and §1.905-3(a) that
a foreign tax that first accrues more than
24 months after the close of the taxable
year to which the tax relates can only be
claimed as a credit once the tax has been
paid. See proposed §1.905-1(f)(1). How-
ever, proposed §1.905-1(f)(2) allows a
partner or other owner of a pass-through
entity to claim a provisional foreign tax
credit for its share of a contested foreign
income tax liability that the entity has paid
to the foreign country pursuant to the pro-

Bulletin No. 2020–49 1497 November 30, 2020
cedures in proposed §1.905-1(d)(4). As
required by §§1.905-3(a) and 1.905-4(b),
a pass-through entity is required to noti-
fy the IRS and its partners, shareholders,
or beneficiaries if there is a foreign tax
redetermination with respect to foreign
income tax previously reported to its part-
ners, shareholders, or beneficiaries.
F. Conforming changes to regulations
under section 960
Existing regulations under section 960
provide a definition of a current year tax
that includes language regarding the tim-
ing of accrual of a foreign income tax, in-
cluding the timing of accrual of additional
payments of foreign income tax resulting
from a foreign tax redetermination. These
proposed regulations revise this definition
to cross-reference the proposed rules in
§1.905-1 regarding when foreign income
taxes are considered to be paid or accrued
for foreign tax credit purposes.
In addition, existing rules exclude from
the definition of a foreign income tax a
levy for which a credit is disallowed at the
level of a controlled foreign corporation.
The proposed regulations revise the defi-
nition of a foreign income tax in §1.960-
1(b) to include a levy that is a foreign in-
come tax within the meaning of proposed
§1.901-2(a), including a levy for which a
credit is disallowed at the level of the con-
trolled foreign corporation. These changes
are necessary to clarify that a foreign in-
come tax for which a credit is disallowed
is nonetheless an item of expense that
must be allocated and apportioned to an
income group under the rules of §1.960-
1(d) in order to determine the amount of
net income in each income group.
Finally, proposed §1.960-1(b)(5) intro-
duces a new defined term, “eligible cur-
rent year taxes,” that refers to current year
taxes for which a foreign tax credit may
be allowed. This change is necessary to
ensure that the current year taxes that are
deemed paid under sections 960(a) and (d)
comprise only current year taxes that are
eligible for a foreign tax credit. Conform-
ing changes to §1.960-2 are proposed to
provide that deemed paid computations are
made only with respect to eligible current
year taxes. Additional conforming changes
will be proposed to §1.960-3 to address the
computation of deemed paid taxes under
section 960(b) as part of future proposed
regulations under section 959.
XI. Applicability Dates
The rules in §§1.164-2(d), 1.336-2(g)
(3)(ii) and (iii), 1.338-9(d), 1.368(b)-
10(c)(1), 1.861-9(k), 1.861-10(f) and (g),
1.861-14(h), 1.861-20(h), 1.901-1, 1.901-
2, 1.903-1, 1.904-4(e)(1)(ii) and (e)(2)
and (3), 1.904-5(b)(2), 1.905-1, 1.905-
3(a) and (b)(4), 1.960-1(b)(4) through (6),
and 1.960-1(c)(1)(ii) through (iv) and (d)
(3)(ii)(B) generally apply to taxable years
beginning on or after the date final regu-
lations adopting these rules are filed with
the Federal Register.
Consistent with the prospective ap-
plicability date in the section 250 regu-
lations, the revisions to §§1.250(b)-1(c)
(7) and 1.250(b)-5(c)(5) apply to taxable
years beginning on or after January 1,
2021. See §1.250-1(b).
The rules in proposed §§1.367(b)-4(b)
(2)(i)(B), 1.367(b)-7(g), 1.367(b)-10(c)
(1), 1.861-3(d), 1.861-8(e)(4)(i), and
1.861-10(e)(8)(v) generally apply to tax-
able years ending on or after November 2,
2020.
Proposed §§1.245A(d)-1, 1.861-20
(other than proposed §1.861-20(h)),
1.904-4(f), and 1.904-6(b)(2) apply to
taxable years that begin after December
31, 2019, and end on or after November
2, 2020.
Finally, proposed §1.904(f)-12(j)(5)
applies to carrybacks of net operating
losses incurred in taxable years beginning
after December 31, 2017, which is con-
sistent with the applicability date in the
CARES Act with respect to net operating
loss carrybacks. See Pub. L. 116-136, 134
Stat. 355, section 2303(d), (2020); see
also section 7805(b)(2).
Special Analyses
I. Regulatory Planning and Review
Executive Orders 13771, 13563 and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits (including potential econom-
ic, environmental, public health and safe-
ty effects, distributive impacts, and equi-
ty). Executive Order 13563 emphasizes
the importance of quantifying both costs
and benefits, reducing costs, harmonizing
rules, and promoting flexibility. The Ex-
ecutive Order 13771 designation for any
final rule resulting from these proposed
regulations will be informed by comments
received.
The proposed regulations have been
designated by the Office of Information
and Regulatory Affairs (OIRA) as subject
to review under Executive Order 12866
pursuant to the Memorandum of Agree-
ment (MOA, April 11, 2018) between the
Treasury Department and the Office of
Management and Budget regarding re-
view of tax regulations. The Office of In-
formation and Regulatory Affairs has des-
ignated these regulations as economically
significant under section 1(c) of the MOA.
Accordingly, the OMB has reviewed these
regulations.
A. Background and need for the proposed
regulations
The U.S. foreign tax credit (FTC) re-
gime alleviates potential double taxation
by allowing a non-refundable credit for
foreign income taxes paid or accrued that
could be applied to reduce the U.S. tax on
foreign source income. Although the Tax
Cuts and Jobs Act (TCJA) eliminated the
U.S. tax on some foreign source income
by enacting a dividends received deduc-
tion, the United States continues to tax
other foreign source income, and to pro-
vide foreign tax credits against this U.S.
tax. The calculation of how foreign taxes
can be credited against U.S. tax operates
by defining different categories of foreign
source income (a “separate category”)
based on the type of income.
5
Foreign tax-
es paid or accrued, as well as deductions
for expenses borne by U.S. parents and
domestic affiliates that support foreign op-
erations, are allocated to the separate cate-
gories based on the income to which such
5
Before the TCJA, these categories were primarily the passive income and general income categories. The TCJA added new separate categories for global intangible low-taxed income (the
section 951A category) and foreign branch income.

November 30, 2020 1498 Bulletin No. 2020–49
taxes or deductions relate. These alloca-
tions of deductions reduce foreign source
taxable income and therefore reduce the
allowable FTCs for the separate category,
since FTCs are limited to the U.S. income
tax on the foreign source taxable income
(that is, foreign source gross income less
allocated expenses) in that separate cate-
gory. Therefore, these expense allocations
help to determine how much foreign tax
credit is allowable, and the taxpayer can
then use allowable foreign tax credits allo-
cated to each separate category against the
U.S. tax owed on income in that category.
The Code and existing regulations fur-
ther provide definitions of the foreign tax-
es that constitute creditable foreign taxes.
Section 901 allows a credit for foreign
income taxes, war profits taxes, and ex-
cess profits taxes. The existing regulations
under section 901 define these “foreign
income taxes” such that a foreign levy is
an income tax if it is a tax whose predom-
inant character is that of an income tax in
the U.S. sense. Under the existing regu-
lations, this requires that the foreign tax
is likely to reach net gain in the normal
circumstances in which it applies (the “net
gain requirement”), and that it is not a so-
called soak-up tax.
The “net gain requirement” is made
up of the realization, gross receipts, and
net income requirements, and the existing
regulations define in detail their meaning.
Generally, the creditability of the foreign
tax under the existing regulations relies
on the definition of an income tax under
U.S. principles, and on several aggregate
empirical tests designed to determine if in
practice the tax base upon which the tax
is levied is an income tax base. Howev-
er, compliance and administrative chal-
lenges faced by taxpayers and the IRS in
implementing the existing definition of
an income tax under these regulations ne-
cessitate changes to the existing structure.
These proposed regulations set forth such
changes.
Additionally, as a dollar-for-dollar
credit against United States income tax,
the foreign tax credit is intended to miti-
gate double taxation of foreign source in-
come. This fundamental purpose is most
appropriately served if there is substantial
conformity in the principles used to cal-
culate the base of the foreign tax and the
base of the U.S. income tax, not only with
respect to the definition of the income tax
base, but also with respect to the jurisdic-
tional nexus upon which the tax is levied.
The Treasury Department and the IRS
have received requests for guidance with
respect to a jurisdictional limitation, and
recommending that the regulations adopt
a rule necessitating some form of nexus
rule for creditable taxes. Further, coun-
tries, including the United States, have
traditionally adhered to consensus-based
norms governing jurisdictional nexus
for the imposition of tax. However, the
adoption or potential adoption by foreign
countries of novel extraterritorial foreign
taxes that diverge in significant respects
from these norms of taxing jurisdiction
now suggests that further guidance is ap-
propriate to ensure that creditable foreign
taxes in fact have a predominant character
of “an income tax in the U.S. sense.”
Finally, these regulations are necessary
in order to respond to outstanding com-
ments raised with respect to other regula-
tions and in order to address a variety of
issues arising from the interaction of pro-
visions in other regulations.
The Treasury Department and the IRS
issued final regulations in 2019 (84 FR
69022) (2019 FTC final regulations) and
proposed regulations (84 FR 69124) (2019
FTC proposed regulations), which are be-
ing finalized in this issue of the Federal
Register as part of the 2020 FTC final
regulations. The Treasury Department and
the IRS received comments with respect to
the 2019 FTC proposed regulations, some
of which are addressed in these proposed
regulations (instead of the 2020 FTC final
regulations) in order to allow further op-
portunity for notice and comment.
The following analysis provides an
overview of the regulations, discussion of
the costs and benefits of these regulations
as compared with the baseline, and a dis-
cussion of alternative policy choices that
were considered.
B. Overview of the structure of and need
for proposed regulations
These proposed regulations address a
variety of outstanding issues, most impor-
tantly with respect to the existing defini-
tion of an income tax. Section 901 allows
a credit for foreign income taxes, and the
existing regulations define the conditions
under which foreign taxes will be consid-
ered income taxes. These proposed regu-
lations revise aspects of this definition in
light of challenges that taxpayers and the
IRS have faced in applying the rules. In
particular, the requirements in the existing
regulations presuppose conclusions based
on country-level or other aggregated data
that can be difficult for taxpayers and the
IRS to analyze for purposes of determining
net gain, causing both administrative and
compliance burdens and difficulties re-
solving disputes. Therefore, the proposed
regulations revise the net gain require-
ments such that, in cases where data-driv-
en conclusions have been difficult to es-
tablish historically, the requirements rely
less on data of the effects of the foreign
tax, and instead rely more on the terms of
the foreign tax law (See Part VI.A.3 of the
Explanation of Provisions for addition-
al detail, and Part I.C.3.i. of this Special
Analyses for alternatives considered and
affected taxpayers). For example, a for-
eign tax, to be creditable, must generally
be levied on gross receipts (and certain
deemed gross receipts) net of deductions.
Under these proposed regulations, the use
of data to demonstrate that an alternative
receipts base upon which the tax is levied
is in practice a gross receipts equivalent
cannot be used to satisfy the gross receipts
portion of the net gain requirement.
In addition to these changes, the pro-
posed regulations introduce a jurisdic-
tional limitation for purposes of deter-
mining whether a foreign tax is an income
tax in the U.S. sense; that is, the foreign
tax law must require a sufficient nexus
between the foreign country and the tax-
payer’s activities or investment of capital
or other assets that give rise to the income
being taxed. Therefore, a tax imposed by
a foreign country on income that lacks
sufficient nexus to activity in the foreign
country (such as operations, employees,
factors of production) in a country is not
creditable. This limitation is designed to
ensure that the foreign tax is an income
tax in the U.S. sense by requiring that
there is an appropriate nexus between the
taxable amount and the taxing foreign ju-
risdiction (see Part VI. A.2 of the Expla-
nation of Provisions for additional detail,
and Part I.C.3.ii of this Special Analyses
for discussion of alternatives considered
and taxpayers affected). Together, the

Bulletin No. 2020–49 1499 November 30, 2020
clarifications and changes introduced in
the net gain requirement and the jurisdic-
tional nexus requirement will tighten the
rules governing the creditability of foreign
taxes and will likely restrict creditability
of foreign taxes to some extent relative to
the existing regulations.
Finally, these proposed regulations ad-
dress other issues raised in comments or
resulting from other legislation. For ex-
ample, comments asked for clarification
of uncertainty regarding the appropriate
level of aggregation (affiliated group ver-
sus subgroup) at which expenses of life
insurance companies should be allocated
to foreign source income, and comments
asked for clarification on when contested
taxes (that is, taxes owed to a foreign gov-
ernment which a taxpayer disputes) ac-
crue for purposes of the foreign tax credit.
With respect to the life insurance issue, the
2019 FTC proposed regulations specified
an allocation method, but requested com-
ments regarding whether another method
might be superior. Subsequent comments
supported both methods for different rea-
sons, and the Treasury Department and
the IRS found both methods to have merit.
Therefore, the proposed regulations allow
taxpayers to choose the most appropriate
method for their circumstances. (See Part
V.E of the Explanation of Provisions for
additional detail, and Part I.C.3.iii of this
Special Analyses for alternatives consid-
ered and affected taxpayers).
With respect to the contested tax issue,
the proposed regulations establish that
contested taxes do not accrue (and there-
fore cannot be claimed as a credit) until
the contest is resolved; however, the pro-
posed regulations will allow taxpayers to
claim a provisional credit for the portion
of taxes already paid to the foreign gov-
ernment, if the taxpayer agrees to notify
the IRS when the contest concludes and
agrees not to assert the statute of limita-
tions as a defense to assessment of U.S.
tax if the IRS determines that the taxpayer
failed to take appropriate steps to secure
a refund of the foreign tax. (See Part X.D
of the Explanation of Provisions for addi-
tional detail, and Part I.C.3.iv of this Spe-
cial Analyses for alternatives considered
and affected taxpayers). In this way, the
proposed regulations alleviate taxpay-
er cash flow constraints that could result
from temporary double taxation during
the period of dispute resolution, while still
providing the taxpayer with the incentive
to resolve the tax dispute and providing
the IRS with the ability to ensure that ap-
propriate action was taken regarding dis-
pute resolution.
The guidance and specificity provided
by these regulations clarify which foreign
taxes are creditable as income taxes, and
(with respect to contested taxes) when they
are creditable. The guidance also helps to
resolve uncertainty and more generally to
address issues raised in comments.
C. Economic analysis
1. Baseline
In this analysis, the Treasury Depart-
ment and the IRS assess the benefits and
costs of these proposed regulations rela-
tive to a no-action baseline reflecting an-
ticipated Federal income tax-related be-
havior in the absence of these regulations.
2. Summary of economic effects
The proposed regulations provide cer-
tainty and clarity to taxpayers regarding
the creditability of foreign taxes. In the
absence of the enhanced specificity pro-
vided by these regulations, similarly sit-
uated taxpayers might interpret the cred-
itability of taxes differently, particularly
with respect to new extraterritorial taxes,
potentially resulting in inefficient patterns
of economic activity. For example, some
taxpayers may forego specific economic
projects, foreign or domestic, that oth-
er taxpayers deem worthwhile based on
different interpretations of the tax con-
sequences alone. The guidance provided
in these regulations helps to ensure that
taxpayers face more uniform incentives
when making economic decisions. In gen-
eral, economic performance is enhanced
when businesses face more uniform sig-
nals about tax treatment.
In addition, these regulations generally
reduce the compliance and administrative
burdens associated with information col-
lection and analysis required to claim for-
eign tax credits, relative to the no-action
baseline. The regulations achieve this re-
duction because they rely to a significant-
ly lesser extent on data-driven conclusions
than the regulatory approach provided in
the existing regulations and instead rely
more on the terms and structure of the for-
eign tax law.
To the extent that taxpayers, in the ab-
sence of further guidance, would general-
ly interpret the existing foreign tax credit
rules as being more favorable to the tax-
payer than the proposed regulations pro-
vide, the proposed regulations may result
in reduced international activity relative
to the no-action baseline. This reduced
activity may have included both activities
that could have been beneficial to the U.S.
economy (perhaps because the activities
would have represented enhanced inter-
national opportunities for businesses with
U.S. owners) and activities that may not
have been beneficial (perhaps because the
activities would have been accompanied
by reduced activity in the United States).
Thus, the Treasury Department and the
IRS recognize that foreign economic ac-
tivity by U.S. taxpayers may be a comple-
ment or substitute to activity within the
United States and that to the extent these
regulations lead to a reduction in foreign
economic activity relative to the no-action
baseline, a mix of results may occur. To
the extent that foreign governments, in re-
sponse to these proposed regulations, alter
their tax regimes to reduce their reliance
on taxes that are not income taxes in the
U.S. sense, any such reduction in foreign
economic activity by U.S. taxpayers as a
result of these proposed regulations, rela-
tive to the no-action baseline, will be mit-
igated.
The Treasury Department and the IRS
project that the regulations will have eco-
nomic effects greater than $100 million
per year ($2020) relative to the no-action
baseline. This determination is based on
the substantial size of many of the busi-
nesses potentially affected by these regu-
lations and the general responsiveness of
business activity to effective tax rates,
6

one component of which is the creditabil-
ity of foreign taxes. Based on these two
magnitudes, even modest changes in the
treatment of foreign taxes, relative to the
no-action baseline, can be expected to
6
See E. Zwick and J. Mahon, “Tax Policy and Heterogeneous Investment Behavior,” at American Economic Review 2017, 107(1): 217-48 and articles cited therein.

November 30, 2020 1500 Bulletin No. 2020–49
have annual effects greater than $100 mil-
lion ($2020).
The Treasury Department and the IRS
have not undertaken quantitative esti-
mates of the economic effects of these
regulations. The Treasury Department
and the IRS do not have readily available
data or models to estimate with reasonable
precision (i) the tax stances that taxpay-
ers would likely take in the absence of the
proposed regulations or under alternative
regulatory approaches; (ii) the difference
in business decisions that taxpayers might
make between the proposed regulations
and the no-action baseline or alternative
regulatory approaches; or (iii) how this
difference in those business decisions will
affect measures of U.S. economic perfor-
mance.
In the absence of such quantitative es-
timates, the Treasury Department and the
IRS have undertaken a qualitative analy-
sis of the economic effects of the proposed
regulations relative to the no-action base-
line and relative to alternative regulatory
approaches. This analysis is presented in
Part I.C.3 of this Special Analyses.
The Treasury Department and the IRS
solicit comments on this economic anal-
ysis and particularly solicit data, models,
or other evidence that may be used to en-
hance the rigor with which the final regu-
lations might be developed.
3. Options Considered and Number
of Affected Taxpayers, by Specific
Provisions
i. “Net gain requirement” for determining
a creditable foreign tax
a. Summary
Under existing rules, a foreign tax is
creditable if it reaches “net gain,” which
is determined based in part on data-driv-
en analysis. Therefore, under the existing
rules, a gross basis tax can in certain cases
be creditable if it can be shown that the tax
as applied does not result in taxing more
than the taxpayer’s profit. In certain cases,
in order to determine creditability, the IRS
requests country-level or other aggregate
data to analyze whether the tax reaches
net gain. The creditability determination
is made based on data with respect to a
foreign tax in its entirety, as it is applied
for all taxpayers. In other words, the tax
is creditable or not creditable based on its
application to all taxpayers rather than on
a taxpayer-by-taxpayer basis. However,
different taxpayers can and do take differ-
ent positions with respect to what the lan-
guage of the existing regulations and the
empirical tests imply about creditability.
b. Options considered for the proposed
regulations
The Treasury Department and the IRS
considered three options to address con-
cerns with the “net gain” test. The first op-
tion is not to implement any changes and
to continue to determine the definition of
a foreign income tax based in part on con-
clusions based on country-level or other
aggregate data. This option would mean
that the determination of whether a tax
satisfies the definition of foreign income
tax would continue to be administratively
difficult for taxpayers and the IRS, in part
because it requires the IRS and the taxpay-
er to obtain information from the foreign
country to determine how the tax applies
in practice to taxpayers subject to the tax.
The existing regulations apply a “predom-
inant character” analysis such that devia-
tions from the net gain requirement do not
cause a tax to fail this requirement if the
predominant character of the tax is that
of an income tax in the U.S. sense. For
example, the existing regulations allow a
credit for a foreign tax whose base, judged
on its predominant character, is computed
by reducing gross receipts by significant
costs and expenses, even if gross receipts
are not reduced by all allocable costs and
expenses. This requires some judgment
in determining whether the exclusion of
some costs and expenses causes the tax to
fail the net gain requirement.
The second option considered is not to
use data-driven conclusions for any por-
tion of the net gain requirement and rely
only on foreign tax law to make the de-
termination. This rule would be easier to
apply compared with the first option be-
cause it requires looking only at foreign
law, regulations, and rulings. However,
this option could result in an overly harsh
outcome, to the extent the rules determine
whether a levy is an income tax in its en-
tirety (that is, not on a taxpayer-by-tax-
payer basis). For example, if a country
had a personal income tax that satisfied
all the requirements, except that the coun-
try also included imputed rental income
in the tax base, the Treasury Department
and the IRS would not necessarily want
to disallow as a credit the entire person-
al income tax system of that country due
to the one deviation from U.S. tax law
definitions of income tax. As part of this
option, the Treasury Department and the
IRS therefore considered also allowing a
parsing of each tax for conforming and
non-conforming parts. For example, in
the prior example, only a portion of the
income tax could be disallowed (that is,
the portion attributable to imputed rental
income). However, this approach would
be extremely complicated to administer
since there would need to be special rules
for determining which portion of the tax
relates to the non-conforming parts and
which do not. It would also imply that
taxpayers could not know from the outset
whether a particular levy is an income tax
but would instead have to analyze the tax
in each fact and circumstances in which it
applied to a particular taxpayer.
The third option considered is to use
data-driven conclusions only for portions
of the net gain requirement. The net gain
requirement consists of three require-
ments: the realization requirement, the
gross receipts requirement, and the cost
recovery requirement. The Treasury De-
partment and the IRS considered retaining
data-based conclusions in portions of the
realization requirement and the cost-re-
covery requirement but removing them
in the gross receipts requirement. This is
the approach taken in these regulations.
In these regulations, the cost recovery re-
quirement retains the rule that the tax base
must allow for recovery of significant
costs and expenses. Data are still used in
the cost recovery analysis to determine
whether a cost or expense is significant
with respect to all taxpayers.
Because these options differ in terms
of the creditability of foreign taxes, they
may increase or decrease foreign activity
by U.S. taxpayers. The Treasury Depart-
ment and the IRS have not projected the
differences in economic activity across
the three alternatives because they do
not have readily available data or models
that capture these effects. It is anticipated
that the proposed regulations will reduce

Bulletin No. 2020–49 1501 November 30, 2020
taxpayer compliance costs relative to the
baseline by significantly reducing the cir-
cumstances in which taxpayers must incur
costs to obtain data (which may or may
not be readily available) in order to evalu-
ate the creditability of a tax.
The Treasury Department and the IRS
do not have data or models that would
allow them to quantify the reduced ad-
ministrative burden resulting from these
final regulations relative to alternative
regulatory approaches. The Treasury De-
partment and the IRS expect that the reg-
ulations will reduce administrative bur-
den and compliance burdens because the
collection and analysis of empirical data
is time consuming for taxpayers and the
IRS, and the existing regulations have re-
sulted in a variety of disputes. Hence a re-
duction in required data collection should
reduce burdens. Further, greater reliance
on legal definitions rather than empirical
review of available data has the potential
to reduce the number of disputes, which
also should reduce burdens.
c. Number of affected taxpayers
The Treasury Department and the IRS
have determined that the population of
taxpayers potentially affected by the net
gain provisions of the proposed regula-
tions includes any taxpayer with foreign
operations claiming foreign tax credits
(or with the potential to claim foreign tax
credits). Based on currently available tax
filings for tax year 2018, there were about
9.3 million Form 1116s filed by U.S. indi-
viduals to claim foreign tax credits with
respect to foreign taxes paid on individu-
al, partnership, or S corporation income.
There were 17,500 Form 1118s filed by C
corporations to claim foreign tax credits
with respect to foreign taxes paid. In ad-
dition, there were about 16,500 C corpo-
rations with CFCs that filed at least one
Form 5471 with their Form 1120 return,
indicating a potential to claim a foreign
tax credit even if no credit was claimed in
2018. Similarly, in these data there were
about 41,000 individuals with CFCs that
e-filed at least one Form 5471 with their
Form 1040 return. In 2018, there were
about 3,250 S corporations with CFCs
that filed at least one Form 5471 with their
Form 1120S return. The identified S cor-
porations had an estimated 23,000 share-
holders. Finally, the Treasury Department
and the IRS estimate that there were ap-
proximately 7,500 U.S. partnerships with
CFCs that e-filed at least one Form 5741
in 2018. The identified partnerships had
approximately 1.7 million partners, as in-
dicated by the number of Schedules K-1
filed by the partnerships; however, this
number includes both domestic and for-
eign partners. Furthermore, there is, like-
ly to be some overlap between the Form
5471 and the Form 1116 and/or 1118 fil-
ers.
These numbers suggest that between
9.3 million (under the assumption that all
Form 5471 filers or shareholders of filers
also filed Form 1116 or 1118) and 11 mil-
lion (under the assumption that filers or
shareholders of filers of Form 5471 are a
separate pool from Form 1116 and 1118
filers) taxpayers will potentially be affect-
ed by these regulations. Based on Treasury
tabulations of Statistics of Income data,
the total volume of foreign tax credits re-
ported on Form 1118 in 2016 was about
90 billion dollars. Data do not exist that
would allow the Treasury Department or
the IRS to identify how this total volume
might change as a result of these regula-
tions; however, the Treasury Department
and the IRS anticipate that only a small
fraction of existing FTCs would be im-
pacted by these regulations.
ii. Jurisdictional nexus
a. Summary
Rules under existing §1.901-2 do not
explicitly require, for purposes of deter-
mining whether a foreign tax is a cred-
itable foreign income tax, the tax to be
imposed only on income that has a juris-
dictional nexus (or adequate connection)
to the country imposing the tax. In order
ensure that creditable taxes under section
901 conform to traditional international
norms of taxing jurisdiction and therefore
are income taxes in the U.S. sense, these
regulations add a jurisdictional nexus re-
quirement.
b. Options considered for the proposed
regulations
The Treasury Department and the IRS
considered the following three options
for designing a nexus requirement. The
first option considered is to create a ju-
risdictional nexus requirement based on
Articles 5 (Permanent Establishment) and
7 (Business Profits) in the U.S. Model
Income Tax Convention (the “U.S. Con-
vention”). The U.S. Convention includes
widely accepted and understood stan-
dards with respect to a country’s right to
tax a nonresident’s income. The relevant
articles of the U.S. Convention generally
require a certain presence or level of ac-
tivity before the country can impose tax
on business income, and the tax can only
be imposed on income that is attributable
to the business activity. This option was
rejected due to concerns that this standard
would be too rigid and prescriptive, and
such a rigid standard is not necessary;
there are numerous departures from the
U.S. Convention in both domestic laws
and bilateral treaties, which are not con-
sidered problematic because they are not
considered significant deviations from in-
ternational norms.
The second option considered was to
create a jurisdictional nexus requirement
based on Code section 864, which con-
tains a standard for income effectively
connected with the conduct of a U.S. trade
or business (ECI). The Code does not pro-
vide a definition of U.S. trade or business;
it is instead defined in case law, and the
definition is therefore not strictly delineat-
ed. This option was therefore rejected as
potentially being too broad, and not neces-
sarily targeting the primary concern with
respect to the new extraterritorial taxes,
which is that, in contrast to traditional in-
ternational income tax norms governing
the creditability of taxes, they are imposed
based on the location of customers or us-
ers, or other destination-based criteria.
The third option considered was to re-
quire that foreign tax imposed on a nonres-
ident must be based on the nonresident’s
activities located in the foreign country
(including its functions, assets, and risks
located in the foreign country) without
taking into account as a significant factor
the location of customers, users, or similar
destination-based criteria. This more nar-
rowly tailored approach better addresses
the concern that extraterritorial taxes that
are imposed on the basis of location of
customers, users, or similar criteria should
not be creditable under traditional norms

November 30, 2020 1502 Bulletin No. 2020–49
reflected in the Internal Revenue Code
that govern nexus and taxing rights and
therefore should be excluded from credit-
able income taxes. Taxes imposed on non-
residents that would meet the Code-based
ECI requirement could qualify, as well as
taxes that would meet the permanent es-
tablishment and business profit standard
under the U.S. Convention. This is the op-
tion adopted by the Treasury Department
and the IRS.
This approach is consistent with the
fact that under traditional norms reflected
in the Internal Revenue Code, income tax
is generally imposed taking into account
the location of the operations, employ-
ees, factors of production, residence, or
management of the taxpayer. In contrast,
consumption taxes such as sales taxes,
value-added taxes, or so-called destina-
tion based income taxes are generally im-
posed on the basis of location of custom-
ers, users, or similar destination-based
criteria. Although the tax incidence of
these two groups of taxes may vary, tax
incidence does not play a role in the defi-
nition of an income tax in general, or an
income tax in the U.S. sense. Therefore,
the choice among regulatory options
was based on which option most closely
aligned the definition of foreign income
taxes to taxes that are income taxes in the
U.S. sense.
The Treasury Department and the IRS
have not attempted to estimate the differ-
ences in economic activity that might re-
sult under each of these regulatory options
because they do not have readily available
data or models that capture (i) the juris-
dictional nexus of taxpayers’ activities
under the different regulatory approaches
and (ii) the economic activities that tax-
payers might undertake under different
jurisdictional nexus criteria. The Treasury
Department and the IRS further have not
attempted to estimate the difference in
compliance costs under each of these reg-
ulatory options.
c. Number of affected taxpayers
The Treasury Department and the IRS
have determined that the population of
taxpayers potentially affected by the ju-
risdictional nexus provisions of the pro-
posed regulations includes any taxpayer
with foreign operations claiming foreign
tax credits (or with the potential to claim
foreign tax credits). Based on currently
available tax filings for tax year 2018,
there were about 9.3 million Form 1116s
filed by U.S. individuals to claim for-
eign tax credits with respect to foreign
taxes paid on individual, partnership,
or S corporation income. There were
17,500 Form 1118s filed by C corpora-
tions to claim foreign tax credits with re-
spect to foreign taxes paid. In addition,
there were about 16,500 C corporations
with CFCs that filed at least one Form
5471 with their Form 1120 return, indi-
cating a potential to claim a foreign tax
credit, even if no credit was claimed in
these years. Similarly, for the same pe-
riod, there were about 41,000 individ-
uals with CFCs that e-filed at least one
Form 5471 with their Form 1040 return.
In 2018, there were about 3,250 S cor-
porations with CFCs that filed at least
one Form 5471 with their Form 1120S
return. The identified S corporations had
an estimated 23,000 shareholders. Final-
ly, the Treasury Department and the IRS
estimate that there were approximately
7,500 U.S. partnerships with CFCs that
e-filed at least one Form 5471 in 2018.
The identified partnerships had approxi-
mately 1.7 million partners, as indicated
by the number of Schedules K-1 filed by
the partnerships; however, this number
includes both domestic and foreign part-
ners. Furthermore, there is likely to be
overlap between the Form 5471 and the
Form 1116 and/or 1118 filers.
These numbers suggest that between
9.3 million (under the assumption that
all Form 5471 filers or shareholders of
filers also filed Form 1116 or 1118) and
11 million (under the assumption that fil-
ers or shareholders of filers of Form 5471
are a separate pool from Form 1116 and
1118 filers) taxpayers will potentially be
affected by these regulations. Based on
Treasury Department tabulations of Sta-
tistics of Income data, the total volume of
foreign tax credits reported on Form 1118
in 2016 was about 90 billion dollars. Data
do not exist that would allow us to identi-
fy how this total volume might change as
a result of these regulations; however, the
Treasury Department and the IRS antici-
pate that only a small fraction of existing
FTCs would be impacted by these regu-
lations.
iii. Allocation and apportionment of
expenses for insurance companies
a. Summary
Section 818(f) provides that for pur-
poses of applying the expense allocation
rules to a life insurance company, the
deduction for policyholder dividends,
reserve adjustments, death benefits, and
certain other amounts (“section 818(f) ex-
penses”) are treated as items that cannot
be definitely allocated to an item or class
of gross income. That means, in general,
that the expenses are apportioned ratably
across all of the life insurance company’s
gross income.
Under the expense allocation rules, for
most purposes, affiliated groups are treat-
ed as a single entity, although there are ex-
ceptions for certain expenses. The statute
is unclear, however, about how affiliated
groups are to be treated with respect to the
allocation of section 818(f) expenses of
life insurance companies. Depending on
how section 818(f) expenses are allocat-
ed across an affiliated group, the results
could be different because the gross in-
come categories across the affiliated group
could be calculated in multiple ways. The
Treasury Department and the IRS re-
ceived comments and are aware that in
the absence of further guidance taxpayers
are taking differing positions on this treat-
ment. Some taxpayers argue that the ex-
penses described in section 818(f) should
be apportioned based on the gross income
of the entire affiliated group, while others
argue that expenses should be apportioned
on a separate company or life subgroup
basis taking into account only the gross
income of life insurance companies.
b. Options considered for the proposed
regulations
The Treasury Department and the IRS
are aware of at least five potential meth-
ods for allocating section 818(f) expenses
in a life-nonlife consolidated group. First,
the expenses might be allocated solely
among items of the life insurance compa-
ny that has the reserves (“separate entity
method”). Second, to the extent the life
insurance company has engaged in a re-
insurance arrangement that constitutes an
intercompany transaction (as defined in

Bulletin No. 2020–49 1503 November 30, 2020
§1.1502-13(b)(1)), the expenses might be
allocated in a manner that achieves single
entity treatment between the ceding mem-
ber and the assuming member (“limited
single entity method”). Third, the expenses
might be allocated among items of all life
insurance members (“life subgroup meth-
od”). Fourth, the expenses might be allo-
cated among items of all members of the
consolidated group (including both life and
non-life members) (“single entity meth-
od”). Fifth, the expenses might be allocated
based on a facts and circumstances analysis
(“facts and circumstances method”).
The 2019 FTC proposed regulations
proposed adopting the separate enti-
ty method because it is consistent with
section 818(f) and with the separate en-
tity treatment of reserves under §1.1502-
13(e)(2). The Treasury Department and
the IRS recognized, however, that this
method may create opportunities for
consolidated groups to use intercompany
transactions to shift their section 818(f)
expenses and achieve a more advanta-
geous foreign tax credit result. Accord-
ingly, the Treasury Department and the
IRS requested comments on whether a
life subgroup method more accurately
reflects the relationship between section
818(f) expenses and the income pro-
ducing activities of the life subgroup as
a whole, and whether the life subgroup
method is less susceptible to abuse be-
cause it might prevent a consolidated
group from inflating its foreign tax credit
limitation through intercompany trans-
fers of assets, reinsurance transactions,
or transfers of section 818(f) expens-
es. Comments received supported both
methods and the Treasury Department
and the IRS have concluded that the life
subgroup method should generally be
used, because it minimizes opportunities
for abuse and is more consistent with the
general rules allocating expenses among
affiliated group members. However, rec-
ognizing that the single entity method
also has merit, the proposed regulations
permit a taxpayer to make a one-time
election to use the separate entity method
for all life insurance members in the af-
filiated group. This election is binding for
all future years and may not be revoked
without the consent of the Commissioner.
Because the election is binding and ap-
plies to all members of the group, taxpay-
ers will not be able to change allocation
methods from year to year depending on
which is most advantageous. The Trea-
sury Department and the IRS may con-
sider future proposed regulations to ad-
dress any additional anti-abuse concerns
(such as under section 845), if needed.
The Treasury Department and the IRS
have not attempted to assess the differenc-
es in economic activity that might result
under each of these regulatory options be-
cause they do not have readily available
data or models that capture activities at
this level of specificity. The Treasury De-
partment and the IRS further have not es-
timated the difference in compliance costs
under each of these regulatory options be-
cause they lack adequate data.
c. Number of affected taxpayers
The Treasury Department and the IRS
have determined that the population of tax-
payers potentially affected by these insur-
ance expense allocation rules consists of
life insurance companies that are members
of an affiliated group. The Treasury De-
partment and the IRS have established that
there are approximately 60 such taxpayers.
iv. Creditability of contested foreign
income taxes
a. Summary
Section 901 allows a taxpayer to claim
a foreign tax credit for foreign income tax-
es paid or accrued (depending on the tax-
payer’s method of accounting) in a taxable
year. Foreign income taxes accrue in the
taxable year in which all the events have
occurred that establish the fact of the lia-
bility and the amount of the liability can be
determined with reasonable accuracy (“all
events test”). When a taxpayer disputes or
contests a foreign tax liability with a for-
eign country, that contested tax does not
accrue until the contest concludes because
only then can the amount of the liability be
finally determined. However, under two
IRS revenue rulings (Rev. Ruls. 70-290 and
84-125), a taxpayer is allowed to claim a
credit for the portion of a contested tax that
the taxpayer has actually paid to the foreign
country, even though the taxpayer contin-
ues to dispute the liability. While this alle-
viates taxpayer cash flow constraints asso-
ciated with temporary double taxation, it is
not fully consistent with the all events test.
In addition, it potentially disincentivizes
the taxpayer from continuing to contest the
foreign tax, since the tax is already credited
and the dispute could be time-consuming
and costly, which could result in U.S. tax
being reduced by foreign tax in excess of
amounts properly due.
b. Options considered for the proposed
regulations
The Treasury Department and the IRS
considered three options for the treatment
of contested foreign taxes. The first option
considered is to not make any changes to
the existing rule and to continue to allow
taxpayers to claim a credit for a foreign tax
that is contested but that has been paid to
the foreign country. The Treasury Depart-
ment and the IRS determined that this op-
tion is inconsistent with the all events test.
It would also result in a taxpayer potential-
ly having two foreign tax redeterminations
(FTRs) with respect to one contested liabil-
ity: one FTR at the time the taxpayer pays
the contested tax to the foreign country, and
a second FTR when the contest concludes
(if the finally determined liability differs
from the amount that was paid and claimed
as a credit). Furthermore, this option im-
pinges on the IRS’s ability to enforce the
requirement in existing §1.902-1(e) that a
tax has to be a compulsory payment in or-
der to be creditable — if a taxpayer claims
a credit for a contested tax, then surrenders
the contest once the assessment statute
closes, the IRS would be time-barred from
challenging that the tax was not creditable
on the grounds that the taxpayer failed to
exhaust all practical remedies.
The second option considered is to only
allow taxpayers to claim a credit when
the contest concludes. In some cases, the
taxpayer must pay the tax to the foreign
country in order to contest the tax or in
order to stop the running of interest in the
foreign country. This option would leave
the taxpayer out of pocket to two countries
(potentially giving rise to cash flow issues
for the taxpayer) while the contest is pend-
ing, which could take several years. The
Treasury Department and the IRS deter-
mined that this outcome is unduly harsh.
The third option considered is to allow
taxpayers the option to claim a provisional

November 30, 2020 1504 Bulletin No. 2020–49
credit for an amount of contested tax that
is actually paid, even though in general,
taxpayers can only claim a credit when the
contest resolves. This is the option adopted
in proposed §1.905-1(d)(3) and (4). As a
condition for making this election, the tax-
payer must enter into a provisional foreign
tax credit agreement in which it agrees to
notify the IRS when the contest concludes
and agrees to not assert the expiration of
the assessment statute (for a period of three
years from the time the contest resolves)
as a defense to assessment, so that the IRS
is able to challenge the foreign tax credit
claimed with respect to the contested tax if
the IRS determines that the taxpayer failed
to exhaust all practical remedies.
The Treasury Department and the IRS
have not attempted to assess the differences
in economic activity that might result under
each of these regulatory options because
they do not have readily available data or
models that capture taxpayers’ activities
under the different treatments of contested
taxes. The Treasury Department and the
IRS further have not attempted to estimate
the difference in compliance costs under
each of these regulatory options.
c. Number of affected taxpayers
The Treasury Department and the IRS
have determined that the proposed regula-
tions potentially affect U.S. taxpayers that
claim foreign tax credits on an accrual ba-
sis and that contest a foreign income tax
liability with a foreign country. Although
data reporting the number of taxpayers that
claim a credit for contested foreign income
tax in a given year are not readily avail-
able, the potentially affected population of
taxpayers would, under existing §1.905-3,
have a foreign tax redetermination for the
year to which the contested tax relates.
Data reporting the number of taxpayers
subject to a foreign tax redetermination
in a given year are not readily available,
however some taxpayers currently subject
to such redetermination will file amended
returns. Based on currently available tax
filings for tax year 2018, the Treasury De-
partment and the IRS have determined that
approximately 1,500 filers would be af-
fected by these proposed regulations. This
estimate is based on the number of U.S.
corporations that filed an amended return
that had a Form 1118 attached to the Form
1120; S corporations that filed an amend-
ed return with a Form 5471 attached to the
Form 1120S or that reported an amount of
foreign tax accrued on the Form 1120S,
Schedule K; partnerships that filed an
amended return with a Form 5471 attached
to Form 1065 or that reported an amount
of foreign tax accrued on Schedule K; U.S.
individuals that filed an amended return
and had a Form 1116 attached to the Form
1040. Because only taxpayers that claim
foreign tax credits on an accrual basis
could potentially be subject to the proposed
regulations, only taxpayers that checked
the accrual box on the Form 1116 or Form
1118, or that indicated on Schedule K that
an amount of foreign income tax accrued,
were taken into account for the estimate.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (“Paperwork Re-
duction Act”) requires that a federal agen-
cy obtain the approval of the OMB before
collecting information from the public,
whether such collection of information is
mandatory, voluntary, or required to ob-
tain or retain a benefit.
A. Overview
The proposed regulations include new
collection of information requirements in
proposed §§1.905-1(d)(4) and (5), 1.901-
1(d)(2), and 1.905-3. The collections of
information in proposed §1.905-1(d)(4)
apply to taxpayers that elect to claim a pro-
visional credit for contested foreign income
taxes before the contest resolves. Taxpayers
making this election are required to file an
agreement described in proposed §1.905-
1(d)(4)(ii) as well as an annual certifica-
tion described in proposed §1.905-1(d)
(4)(iii). The collection of information in
§1.905-1(d)(5) requires taxpayers that are
correcting an improper method of accruing
foreign income tax expense to file a Form
3115, Application for Change in Account-
ing Method, with their return. Proposed
§§1.901-1(d)(2) and 1.905-3 require tax-
payers that make a change between claim-
ing a credit and a deduction for foreign in-
come taxes to comply with the notification
and reporting requirements in §1.905-4,
which is being finalized in a Treasury Deci-
sion published concurrently with this notice
of proposed rulemaking. The collection of
information in §1.905-4 generally requires
taxpayers to file an amended return for the
year or years affected by a foreign tax re-
determination (FTR), along with an updat-
ed Form 1116 or Form 1118, and a written
statement providing specific information
relating to the FTR. The burdens associated
with collections of information in proposed
§§1.905-1(d)(4)(iii) and (d)(5), 1.901-1(d)
(2), and 1.905-3, which will be conducted
through existing IRS forms, is described in
Part II.B of this Special Analyses. The bur-
den for a new collection of information in
proposed §1.905-1(d)(4)(ii), which will be
conducted on a new IRS form, is described
in Part II.C of this Special Analyses.
B. Collections of information — proposed
§§1.905-1(d)(4)(iii), 1.905-1(d)(5),
1.901-1(d)(2), and 1.905-3
The Treasury Department and the IRS
intend that the information collection re-
quirements described in this Part II.B will
be set forth in the forms and instructions
identified in Table 1.
Table 1. Table of Tax Forms Impacted
Tax Forms Impacted
Collection of InformationNumber of respondents (estimated) Forms to which the information may be attached
§1.905-1(d)(4)(iii)1,500Form 1116, Form 1118
§1.905-1(d)(5)465,500 - 514,500Form 3115
§1.901-1(d)(2), §1.905-310,400 - 13,500Form 1065 series, Form 1040 series, Form 1041 series,
and Form 1120 series
Source: [MeF, DCS, and IRS’s Compliance Data Warehouse]

Bulletin No. 2020–49 1505 November 30, 2020
As indicated in Table 1, the Treasury
Department and the IRS intend the annu-
al certification requirement in proposed
§1.905-1(d)(4)(iii), which applies to tax-
payers that elect to claim a provisional
credit for contested taxes, will be conduct-
ed through amendment of existing Form
1116, Foreign Tax Credit (Individual, Es-
tate, or Trust) (covered under OMB con-
trol numbers 1545-0074 for individuals,
and 1545-0121 for estates and trusts) and
existing Form 1118, Foreign Tax Credit
(Corporations) (covered under OMB con-
trol number 1545-0123). The collection
of information in proposed §1.905-1(d)
(4)(iii) will be reflected in the Paperwork
Reduction Act submission that the Trea-
sury Department and the IRS will sub-
mit to OMB for these forms. The current
status of the Paperwork Reduction Act
submissions related to these forms is sum-
marized in Table 2. The estimate for the
number of impacted filers with respect to
the collection of information in proposed
§1.905-1(d)(4)(iii), as well as with re-
spect to the collection of information in
proposed §1.905-1(d)(4)(ii) (described
in Part II.C), is based on the number of
U.S. corporations that filed an amended
return that had a Form 1118 attached to
the Form 1120; S corporations that filed
an amended return with a Form 5471 at-
tached to the Form 1120S or that reported
an amount of foreign tax accrued on the
Form 1120S, Schedule K; partnerships
that filed an amended return with a Form
5471 attached to Form 1065 or that re-
ported an amount of foreign tax accrued
on Schedule K; and U.S. individuals that
filed an amended return and had a Form
1116 attached to the Form 1040.
The Treasury Department and the IRS
expect that the collection of information
in proposed §1.905-1(d)(5) will be re-
flected in the Paperwork Reduction Act
submission that the Treasury Department
and the IRS will submit to OMB for Form
3115 (covered under OMB control num-
bers 1545-0123 and 1545-0074). See Ta-
ble 2 for current status of the Paperwork
Reduction Act submission for Form 3115.
Exact data is not available to estimate the
number of taxpayers that have used an in-
correct method of accounting for accruing
foreign income taxes, and that are poten-
tially subject to the collection of informa-
tion in proposed §1.905-1(d)(5). The es-
timate in Table 1 of number of taxpayers
potentially affected by this collection of
information is based on the total number
of filers in the Form 1040, Form 1041,
Form 1120, Form 1120S, and Form 1065
series that indicated on their return that
they use an accrual method of accounting,
and that either claimed a foreign tax credit
or claimed a deduction for taxes (which
could include foreign income taxes). This
represents an upper bound of potentially
affected taxpayers. The Treasury Depart-
ment and the IRS expect that only a small
percentage of this population of taxpayers
will be subject to the collection of infor-
mation in proposed §1.905-1(d)(5), be-
cause only taxpayers that have used an
improper method of accounting are sub-
ject to proposed §1.905-1(d)(5).
The collection of information resulting
from proposed §§1.901-1(d)(2) and 1.905-
3, which is contained in §1.905-4, will be
reflected in the Paperwork Reduction Act
submission that the Treasury Department
and the IRS will submit for OMB control
numbers 1545-0123, 1545-0074 (which
cover the reporting burden for filing an
amended return and amended Form 1116
and Form 1118 for individual and busi-
ness filers), OMB control number 1545-
0092 (which covers the reporting burden
for filing an amended return for estate and
trust filers), OMB control number 1545-
0121 (which covers the reporting burden
for filing a Form 1116 for estate and trust
filers), and OMB control number 1545-
1056 (which covers the reporting burden
for the written statement for FTRs). Ex-
act data are not available to estimate the
additional burden imposed by proposed
§§1.901-1(d)(2) and 1.905-3, which pro-
pose to amend the definition of foreign
tax redetermination in §1.905-3 to include
a taxpayer’s change from claiming a de-
duction to claiming a credit, or vice versa,
for foreign income taxes. Taxpayers mak-
ing or changing their election to claim a
foreign tax credit, under existing regula-
tions, must already file amended returns
and, if applicable, a Form 1116 or Form
1118, for the affected years. The Treasury
Department and the IRS do not anticipate
that proposed regulations, which would
require taxpayers making this change to
comply with the collection of information
and reporting burden in §1.905-4, will
substantially change the reporting require-
ment. Exact data are not available to esti-
mate the number of taxpayers potentially
subject to proposed §§1.901-1(d)(2) and
1.905-3. The estimate in Table 1 is based
upon the total number of filers in the Form
1040, Form 1041, and Form 1120 series
that either claimed a foreign tax credit
or claimed a deduction for taxes (which
could include foreign income taxes), and
filed an amended return. This estimate
represents an upper bound of potentially
affected taxpayers.
OMB control number 1545-0123 rep-
resents a total estimated burden time for
all forms and schedules for corporations
of 3.344 billion hours and total estimat-
ed monetized costs of $61.558 billion
($2019). OMB control number 1545-
0074 represents a total estimated burden
time, including all other related forms
and schedules for individuals, of 1.717
billion hours and total estimated mone-
tized costs of $33.267 billion ($2019).
OMB control number 1545-0092 rep-
resents a total estimated burden time, in-
cluding related forms and schedules, but
not including Form 1116, for trusts and
estates, of 307,844,800 hours and total
estimated monetized costs of $14.077 bil-
lion ($2018). OMB control number 1545-
0121 represents a total estimated burden
time for all estate and trust filers of Form
1116, of 25,066,693 hours and total esti-
mated monetized costs of $1.744 billion
($2018). OMB control number 1545-1056
has an estimated number of respondents
in a range from 8,900 to 13,500 and to-
tal estimated burden time of 56,000 hours
and total estimated monetized costs of
$2,583,840 ($2017).
The overall burden estimates provid-
ed for OMB control numbers 1545-0123,
1545-0074, and 1545-0092 are aggregate
amounts that relate to the entire package
of forms associated with these OMB con-
trol numbers and will in the future include
but not isolate the estimated burden of
the tax forms that will be revised as a re-
sult of the information collections in the
proposed regulations. The difference be-
tween the burden estimates reported here
and those future burden estimates will
therefore not provide an estimate of the
burden imposed by the proposed regula-
tions. The burden estimates reported here
have been reported for other regulations
related to the taxation of cross-border in-

November 30, 2020 1506 Bulletin No. 2020–49
come. The Treasury Department and IRS
urge readers to recognize that many of the
burden estimates reported for regulations
related to taxation of cross-border income
are duplicates and to guard against over-
counting the burden that international tax
provisions impose. The Treasury Depart-
ment and the IRS have not identified the
estimated burdens for the collections of
information in proposed §§1.905-1(d)(4)
(iii) and (d)(5), 1.901-1(d)(2), and 1.905-
3 because no burden estimates specific to
proposed §§1.905-1(d)(4)(iii) and (d)(5),
1.901-1(d)(2), and 1.905-3 are currently
available. The Treasury Department and
the IRS estimate burdens on a taxpay-
er-type basis rather than a provision-spe-
cific basis.
The Treasury Department and the IRS
request comments on all aspects of infor-
mation collection burdens related to the
proposed regulations, including estimates
for how much time it would take to com-
ply with the paperwork burdens described
above for each relevant form and ways
for the IRS to minimize the paperwork
burden. Any proposed revisions to these
forms that reflect the information collec-
tions contained in proposed §§1.905-1(d)
(4)(iii) and (d)(5), 1.901-1(d)(2), and
1.905-3 will be made available for public
comment at https://apps.irs.gov/app/pick-
list/list/draftTaxForms.html and will not
be finalized until after these forms have
been approved by OMB under the Paper-
work Reduction Act.
Table 2. Status of current Paperwork Reduction submissions.
FormType of FilerOMB Number(s)Status
Form 1116Trusts & estates (NEW
Model)
1545-0121Approved by OMB through 10/31/2020.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201704-1545-023
Individual (NEW Model)1545-0074Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201909-1545-021
Form 1118Business (NEW Model)1545-0123Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
Form 3115Business (NEW Model)1545-0123Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
Individual (NEW Model)1545-0074Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201909-1545-021
Notification of
FTRs
1545-1056Approved by OMB through 12/31/2020.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201703-1545-008
Amended returnsBusiness (NEW Model)1545-0123Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
Individual (NEW Model)1545-0074Approved by OMB through 1/31/2021.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201909-1545-021
Trusts & estates1545-0092Approved by OMB through 5/31/2022.
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201806-1545-014
C. Collections of information — proposed
§1.905-1(d)(4)(ii)
The collection of information con-
tained in §1.905-1(d)(4)(ii) have been
submitted to the Office of Management
and Budget (OMB) for review in accor-
dance with the Paperwork Reduction Act.
Commenters are strongly encouraged to
submit public comments electronically.
Comments and recommendations for the
proposed information collection should be
sent to http://www.reginfo.gov/public/do/
PRAMain, with electronic copies emailed
to the IRS at omb.unit@irs.gov (indicate
REG-101657-20 on the subject line). This
particular information collection can be
found by selecting “Currently under Re-
view - Open for Public Comments” then
by using the search function. Comments
can also be mailed to OMB, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regu-
latory Affairs, Washington, DC 20503,
with copies mailed to the IRS, Attn:
IRS Reports Clearance Officer, SE:W:-
CAR:MP:T:T:SP, Washington, DC 20224.
Comments on the collections of informa-
tion should be received by January 11,
2021.
The likely respondents are: U.S. per-
sons who pay or accrue foreign income
taxes:
Estimated total annual reporting bur-
den: 3,000 hours.
Estimated average annual burden per
respondent: 2 hours.
Estimated number of respondents:
1,500.
Estimated frequency of responses: an-
nually.

Bulletin No. 2020–49 1507 November 30, 2020
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certi-
fied that the proposed regulations will not
have a significant economic impact on a
substantial number of small entities within
the meaning of section 601(6) of the Reg-
ulatory Flexibility Act.
The proposed regulations provide
guidance needed to comply with statutory
changes and affect individuals and corpo-
rations claiming foreign tax credits. The
domestic small business entities that are
subject to the foreign tax credit rules in the
Code and in the proposed regulations are
generally those domestic small business
entities that are at least 10 percent corpo-
rate shareholders of foreign corporations,
and so are eligible to claim dividends
received deductions or compute foreign
taxes deemed paid under section 960 with
respect to inclusions under subpart F and
section 951A from CFCs. Other provi-
sions of these proposed regulations might
also affect domestic small business enti-
ties that operate in foreign jurisdictions or
that have income from sources outside of
the United States.
Based on 2018 Statistics of Income
data, the Treasury Department and the
IRS computed the fraction of taxpayers
owning a CFC by gross receipts size class.
The smaller size classes have a relative-
ly small fraction of taxpayers that own
CFCs, which suggests that many domes-
tic small business entities would be unaf-
fected by these regulations. Many of the
important aspects of the proposed reg-
ulations, including the rules in proposed
§§1.245A(d)-1(a), 1.367(b)-4, 1.367(b)-7,
1.367(b)-10, 1.861-3, and 1.960-1 apply
only to U.S. persons that operate a foreign
business in corporate form, and, in most
cases, only if the foreign corporation is a
CFC.
Other provisions in the proposed regu-
lations, specifically the rules in proposed
§§ 1.861-14 and 1.904-4, generally apply
only to members of an affiliated group and
insurance companies or other members of
the financial services industry earning in-
come from sources outside of the United
States. It is infrequent for domestic small
entities to operate as part of an affiliated
group, to be taxed as an insurance com-
pany, or to constitute a financial services
entity, and also earn income from sources
outside of the United States. Consequent-
ly, the Treasury Department and the IRS
expect that the proposed regulations are
unlikely to affect a substantial number of
domestic small business entities. Howev-
er, adequate data are not available at this
time to certify that a substantial number of
small entities would be unaffected.
The Treasury Department and the IRS
have determined that the proposed reg-
ulations will not have a significant eco-
nomic impact on domestic small business
entities. Based on information from the
Statistics of Income 2017 Corporate File,
foreign tax credits as a percentage of three
different tax-related measures of annual
receipts (see Table for variables) by cor-
porations are substantially less than the 3
to 5 percent threshold for significant eco-
nomic impact.
Size (by Busi-
ness Receipts)

under
$500,000
$500,000
under
$1,000,000
$1,000,000
under
$5,000,000
$5,000,000
under
$10,000,000
$10,000,000
under
$50,000,000
$50,000,000
under
$100,000,000
$100,000,000
under
$250,000,000
$250,000,000
or
more
FTC/Total
Receipts0.12%0.00%0.00%0.00%0.01%0.01%0.02%0.28%
FTC/(Total
Receipts-Total
Deductions)0.61%0.03%0.09%0.05%0.35%0.71%1.38%9.89%
FTC/Business
Receipts0.84%0.00%0.00%0.00%0.01%0.01%0.02%0.05%
Source: Statistics of Income (2017) Form 1120
Although proposed §§1.905-1(d)(4)
and (5), 1.901-1(d)(2), and 1.905-3 con-
tain a collection of information require-
ment, the small businesses that are subject
to these requirements are domestic small
entities with significant foreign opera-
tions. The data to assess precise counts
of small entities affected by proposed
§§1.905-1(d)(4) and (5), 1.901-1(d)(2),
and 1.905-3 are not readily available. As
demonstrated in the table in this Part III of
the Special Analyses, foreign tax credits
do not have a significant economic impact
for any gross-receipts class of business en-
tities.
7
Therefore, the proposed regulations
do not have a significant economic impact
on small business entities. Accordingly, it
is hereby certified that the requirements of
proposed §§1.905-1(d)(4) and (5), 1.901-
1(d)(2), and 1.905-3 will not have a sig-
nificant economic impact on a substantial
number of small entities.
Pursuant to section 7805(f), these pro-
posed regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small businesses. The Trea-
sury Department and the IRS also request
comments from the public on the certifi-
cations in this Part III of the Special Anal-
yses.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
7
Although proposed §§1.905-1(d)(5), 1.901-1(d)(2), and 1.905-3 also impact taxpayers that claim a deduction, instead of a credit, for foreign income taxes, the Treasury Department and the
IRS expect that the vast majority of taxpayers that have creditable foreign income taxes would choose a dollar-for-dollar credit instead of a deduction; thus, the data in this table measuring
foreign tax credit against various variables is a reasonable estimate of the economic impact of these proposed regulations.

November 30, 2020 1508 Bulletin No. 2020–49
that agencies assess anticipated costs and
benefits and take certain other actions be-
fore issuing a final rule that includes any
Federal mandate that may result in expen-
ditures 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 infla-
tion. This proposed rule does not include
any Federal mandate that may result in ex-
penditures 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 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 Executive order. This
proposed rule does not have federalism im-
plications and does not impose substantial
direct compliance costs on state and local
governments or preempt state law within
the meaning of the Executive order.
Comments and Request for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “ADDRESS-
ES” section. The Treasury Department
and the IRS request comments on all as-
pects of the proposed rules. See also the
specific requests for comments in the fol-
lowing Parts of the Explanation of Provi-
sions: I (on potential revisions to §1.861-
20(d) to address concerns regarding
foreign law transactions that may circum-
vent the purpose of section 245A(d)), III
(on the proposed revisions to §1.367(b)-
4(b)(2) and on whether further changes to
regulations issued under section 367 are
appropriate in order to clarify their appli-
cation after the repeal of section 902), V.A
(on the definition of advertising expen-
ditures and the method of cost recovery
for purposes of the election in proposed
§1.861-9(k)), V.D (regarding the rules
on direct allocation of interest expense
incurred by foreign banking branches),
V.F.2 (regarding the assignment of foreign
tax on a U.S. return of capital amount re-
sulting from a disposition of stock), V.F.3
(regarding the assignment of foreign tax
on partnership distributions and sales of
partnership interests), V.F.4.ii (regarding
ordering rules for assignment of foreign
taxes with respect to multiple disregarded
payments and regarding the assignment of
foreign gross basis taxes paid by taxable
units that make disregarded payments),
V.F.4.iii (regarding the method of deter-
mining the statutory and residual group-
ings to which a remittance is assigned),
V.F.5 (regarding the appropriate treatment
of foreign income taxes paid or accrued
in connection with the sharing of losses
and foreign law group-relief regimes),
VI.A.1 (on whether additional revisions to
§1.901-2A are needed in light of the pro-
posed revisions to §§1.901-2 and 1.903-
1), VI.A.2 (regarding the jurisdictional
nexus requirement in proposed §1.901-
2(c), including whether special rules are
needed to address foreign transfer pricing
rules that allocate profits to a resident on
a formulary basis), VI.A.3.ii (on whether
a more objective standard for identifying
acceptable deviations from the realization
requirement should be adopted in the fi-
nal regulations and on whether additional
categories of pre-realization timing dif-
ferences are needed), VI.A.4 (regarding
additional issues related to soak-up tax-
es), VI.B.2 (regarding additional rules for
government grants that are provided out-
side the foreign tax system), VI.B.3.ii (on
the treatment of loss sharing arrangements
and on other foreign options and elections
that should be excepted from the general
rule in §1.901-2(e)(5)(ii)), IX.B (on the
treatment of related party payments in the
70-percent gross income test, on whether
related party payments should in some
cases constitute active financing income,
and on the investment income limitation
rule), and X.D.4 (on alternative methods
and additional adjustments for implement-
ing a method change involving the im-
proper accrual of foreign income taxes).
Any electronic comments submitted,
and to the extent practicable any paper
comments submitted, will be made avail-
able at www.regulations.gov or upon re-
quest.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Regis-
ter. Announcement 2020-4, 2020-17 IRB
1, provides that until further notice, pub-
lic hearings conducted by the IRS will be
held telephonically. Any telephonic hear-
ing will be made accessible to people with
disabilities.
Drafting Information
The principal authors of the proposed
regulations are Corina Braun, Karen J.
Cate, Jeffrey P. Cowan, Logan M. Kinch-
eloe, Brad McCormack, Jeffrey L. Par-
ry, Tianlin (Laura) Shi, and Suzanne M.
Walsh of the Office of Associate Chief
Counsel (International), as well as Sarah
K. Hoyt and Brian R. Loss of Associate
Chief Counsel (Corporate). However,
other personnel from the Treasury De-
partment 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, 26 CFR part 1 is pro-
posed to be amended as follows:
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.245A(d)-1 in numerical order to read
in part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 1.245A(d)-1 also issued under
26 U.S.C. 245A(g).
* * * * *
Par. 2. Section 1.164-2 is amended by
revising paragraph (d) and adding para-
graph (i) to read as follows:
§1.164-2 Deduction denied in case of
certain taxes.
* * * * *

Bulletin No. 2020–49 1509 November 30, 2020
(d) Foreign income taxes. Except
as provided in §1.901-1(c)(2) and (3),
all foreign income taxes as defined in
§1.901-2(a) paid or accrued (as the case
may be, depending on the taxpayer’s
method of accounting for such taxes) in
such taxable year, if the taxpayer chooses
to take to any extent the benefits of sec-
tion 901, relating to the credit for taxes
of foreign countries and possessions of
the United States, for taxes that are paid
or accrued (according to the taxpayer’s
method of accounting for such taxes) in
such taxable year.
* * * * *
(i) Applicability dates. Paragraph (d) of
this section applies to foreign taxes paid or
accrued in taxable years beginning on or
after [date final regulations are filed with
the Federal Register].
Par. 3. Section 1.245A(d)-1 is added to
read as follows:
§1.245A(d)-1 Disallowance of foreign tax
credit or deduction.
(a) In general. With respect to a domes-
tic corporation for which a deduction un-
der section 245A(a) is allowable, neither
a foreign tax credit under section 901 nor
a deduction is allowed for foreign income
taxes that are attributable to a specified
distribution or specified earnings and prof-
its of a foreign corporation. In addition, if
a domestic corporation is a United States
shareholder of a foreign corporation (“up-
per-tier foreign corporation”) that itself
owns (including indirectly through a pass-
through entity) stock of another foreign
corporation (“lower-tier foreign corpora-
tion”), no foreign tax credit under section
901 (including by reason of section 960) is
allowed to the domestic corporation, and
no deduction is allowed to the upper-tier
foreign corporation, for foreign income
taxes paid or accrued by the upper-tier for-
eign corporation that are attributable to a
specified distribution or specified earnings
and profits of the lower-tier foreign cor-
poration. Moreover, neither a foreign tax
credit under section 901 nor a deduction
is allowed to a successor (including an in-
dividual who is a citizen or resident of the
United States) of a corporation described
in this paragraph (a) for foreign income
taxes that are attributable to the portion of
a foreign corporation’s specified earnings
and profits that constitute section 245A(d)
PTEP.
(b) Attribution of foreign income tax-
es to specified distributions and speci-
fied earnings and profits—(1) In gener-
al. Foreign income taxes are attributable
to a specified distribution from a foreign
corporation to the extent such taxes are
allocated and apportioned under §1.861-
20 to foreign taxable income arising from
the specified distribution. Foreign income
taxes are attributable to specified earn-
ings and profits of a foreign corporation
to the extent such taxes are allocated and
apportioned under §1.860-20 to foreign
taxable income arising from a distribution
or inclusion under foreign law of specified
earnings and profits if the event giving rise
to such distribution or inclusion does not
give rise to a specified distribution. See,
for example, §§1.861-20(d)(2)(ii)(B), (C),
or (D) (foreign law distribution or dispo-
sition and certain foreign law transfers
between taxable units), 1.861-20(d)(3)
(i)(C) (income from a reverse hybrid),
1.861-20(d)(3)(iii) (foreign law inclusion
regime), and 1.861-20(d)(3)(v)(C)(1)(i)
(disregarded payment treated as a remit-
tance). For purposes of this paragraph (b),
§1.861-20 is applied by treating foreign
gross income in an amount equal to the
amount of a distribution (under Federal
income tax law) that is a specified distri-
bution, or the amount of a distribution or
inclusion under foreign law that would if
recognized for Federal income tax pur-
poses be a distribution out of, or inclusion
with respect to, specified earnings and
profits, as a statutory grouping, and any
remaining portion of the foreign gross in-
come arising from the distribution or in-
clusion under foreign law as the residual
grouping. See also §1.960-1(e) (foreign
income tax paid or accrued by a controlled
foreign corporation that is assigned to the
residual grouping cannot be deemed paid
under section 960).
(2) Anti-avoidance rule. Foreign in-
come taxes are treated as attributable to a
specified distribution from, or the speci-
fied earnings and profits of, a foreign cor-
poration if a transaction, series of related
transactions, or arrangement is undertaken
with a principal purpose of avoiding the
purposes of section 245A(d) and this sec-
tion, including, for example, by separating
foreign income taxes from the income, or
earnings and profits, to which such foreign
income taxes relate or by making distribu-
tions (or causing inclusions) under foreign
law in multiple years that give rise to for-
eign income taxes that are allocated and
apportioned with reference to the same
previously taxed earnings and profits. See
paragraph (e)(4) of this section (Example
3).
(c) Definitions. The following defini-
tions apply for purposes of this section.
(1) Foreign income tax. The term for-
eign income tax has the meaning set forth
in §1.901-2(a).
(2) Hybrid dividend. The term hybrid
dividend has the meaning set forth in
§1.245A(e)-1(b)(2).
(3) Pass-through entity. The term pass-
through entity has the meaning set forth in
§1.904-5(a)(4).
(4) Section 245A(d) PTEP. The term
section 245A(d) PTEP means previously
taxed earnings and profits described in
§1.960-3(c)(2)(v) or (ix) to the extent such
previously taxed earnings and profits arose
as a result of a sale or exchange that by
reason of section 964(e)(4) or 1248 gave
rise to a deduction under section 245A(a)
or as a result of a tiered hybrid dividend
that by reason of section 245A(e)(2) and
§1.245A(e)-1(c)(1) gave rise to an inclu-
sion in the gross income of a United States
shareholder.
(5) Specified distribution. With respect
to a domestic corporation, the term speci-
fied distribution means, in the case of a dis-
tribution to the domestic corporation (in-
cluding indirectly through a pass-through
entity), the portion of the distribution that
is a dividend for which a deduction under
section 245A(a) is allowed or that is a hy-
brid dividend or that is attributable to sec-
tion 245A(d) PTEP. In addition, the term
specified distribution means, in the case of
a distribution from a foreign corporation
to another foreign corporation (including
indirectly through a pass-through entity),
the portion of the distribution that is attrib-
utable to section 245A(d) PTEP or that is a
tiered hybrid dividend that gives rise to an
inclusion in the gross income of a United
States shareholder of the second foreign
corporation by reason of section 245A(e)
(2) and §1.245A(e)-1(c)(1).
(6) Specified earnings and profits.
With respect to a domestic corporation,
the term specified earnings and profits

November 30, 2020 1510 Bulletin No. 2020–49
means the portion of earnings and prof-
its of the foreign corporation that would
give rise to a specified distribution (de-
termined without regard to section 246
or §1.245A-5) if an amount of money
equal to all of the foreign corporation’s
earnings and profits were distributed with
respect to the stock of the foreign corpo-
ration owned by all the shareholders on
any date on which the domestic corpora-
tion has an item of foreign gross income
as the result of a distribution from or in-
clusion with respect to the foreign cor-
poration under foreign law. In addition,
for purposes of applying §1.861-20(d)
(3)(i)(B) or (D) to assign foreign gross
income arising from a distribution with
respect to, or a disposition of, stock of the
foreign corporation, earnings and profits
in the amount of the U.S. return of cap-
ital amount (as defined in §1.861-20(b))
that are deemed to arise in a section 245A
subgroup (after applying the asset meth-
od in §1.861-9) are also treated as speci-
fied earnings and profits.
(7) Tiered hybrid dividend. The term
tiered hybrid dividend has the meaning set
forth in §1.245A(e)-1(c)(2).
(d) Effect on earnings and profits. The
disallowance of a credit or deduction for
foreign income taxes under paragraph (a)
of this section does not affect whether the
foreign income taxes reduce earnings and
profits of a corporation.
(e) Examples. The following examples
illustrate the application of this section.
(1) Presumed facts. Except as other-
wise provided, the following facts are pre-
sumed for purposes of the examples:
(i) USP is a domestic corporation;
(ii) CFC is a controlled foreign corpo-
ration organized in Country A, and is not
a reverse hybrid (as defined in §1.861-
20(b));
(iii) USP would be allowed a deduction
under section 245A(a) to the extent of div-
idends received from CFC;
(iv) All parties have a U.S. dollar func-
tional currency and a U.S. taxable year
and foreign taxable year that correspond
to the calendar year;
(v) No party has deductions for Coun-
try A tax purposes or deductions for Fed-
eral income tax purposes (other than for-
eign income tax expense); and
(vi) Section 245A(d) is the operative
section.
(2) Example 1: Distribution for foreign and
Federal income tax purposes—(i) Facts. USP owns
all of the outstanding stock of CFC. As of Decem-
ber 31, Year 1, CFC has $800x of section 951A
PTEP (as defined in §1.960-3(c)(2)(viii)) in a sin-
gle annual PTEP account (as defined in §1.960-3(c)
(1)), and $500x of earnings and profits described in
section 959(c)(3). On December 31, Year 1, CFC
distributes $1,000x of cash to USP. For Country
A tax purposes, the distribution is treated entirely
as a dividend to USP, and Country A imposes a
withholding tax on USP of $150x with respect to
the $1,000x of foreign gross income. For Federal
income tax purposes, $800x of the distribution is
excluded from USP’s gross income and not treat-
ed as a dividend under section 959(a) and (d), re-
spectively; the remaining $200x of the distribution
gives rise to a dividend to USP.
(ii) Analysis—(A) Identification of specified dis-
tribution. With respect to USP, $200x of the distri-
bution gives rise to a dividend for which a deduction
under section 245A(a) is allowed. Accordingly, the
distribution results in a $200x specified distribution.
See paragraph (c)(5) of this section.
(B) Foreign income taxes attributable to spec-
ified distribution. For purposes of allocating and
apportioning the $150x of Country A foreign in-
come tax, §1.861-20 is applied by first assigning the
$1,000x of Country A gross income to the relevant
statutory and residual groupings for purposes of
applying section 245A(d) as the operative section.
Under paragraph (b)(1) of this section, the statutory
grouping is foreign gross income in the amount of
the specified distribution and the residual grouping is
the remaining amount of foreign gross income. Un-
der §1.861-20(d)(3)(i)(B)(2), the foreign dividend
amount ($1,000x) is, to the extent of the U.S. divi-
dend amount ($1,000x), assigned to the same statu-
tory or residual groupings to which the distribution
of the U.S. dividend amount is assigned under Fed-
eral income tax law. Thus, $200x of the foreign div-
idend amount is assigned to the statutory grouping,
and the remaining $800x is assigned to the residual
grouping. Under §1.861-20(f), $30x ($150x x $200x
/ $1,000x) of the Country A foreign income tax is
apportioned to the statutory grouping, and $120x
($150x x $800x / $1,000x) of the Country A foreign
income tax is apportioned to the residual grouping.
(C) Disallowance. USP is allowed neither a for-
eign tax credit nor a deduction for the $30x of Coun-
try A foreign income tax that is allocated and appor-
tioned to, and therefore attributable to, the $200x
specified distribution. See paragraphs (a) and (b) of
this section.
(3) Example 2: Distribution for foreign law pur-
poses—(i) Facts. USP owns all of the outstanding
stock of CFC. On December 31, Year 1, CFC dis-
tributes $1,000x of its stock to USP. For Country
A tax purposes, the stock distribution is treated en-
tirely as a dividend to USP, and Country A imposes
a withholding tax on USP of $150x with respect to
the $1,000x of foreign gross income. For Federal in-
come tax purposes, USP recognizes no U.S. gross in-
come as a result of the stock distribution pursuant to
section 305(a). As of December 31, Year 1, the date
of the stock distribution, CFC has $800x of section
951A PTEP (as defined in §1.960-3(c)(2)(viii)) in a
single annual PTEP account (as defined in §1.960-
3(c)(1)), and $500x of earnings and profits described
in section 959(c)(3).
(ii) Analysis—(A) Identification of specified
earnings and profits. With respect to USP, CFC has
$500x of specified earnings and profits because if,
on December 31, Year 1, CFC were to distribute
$1,300x of money (an amount equal to all of CFC’s
earnings and profits) with respect to its stock to USP,
$500x of the distribution would be a dividend for
which USP would be allowed a deduction under
section 245A(a) and, therefore, would give rise to a
specified distribution. See paragraphs (c)(5) and (6)
of this section. The remaining $800x of the distribu-
tion would not be included in USP’s gross income or
treated as a dividend and, thus, would not give rise
to a deduction under section 245A(a). See section
959(a) and (d), respectively.
(B) Foreign income taxes attributable to speci-
fied earnings and profits. For purposes of allocating
and apportioning the $150x of Country A foreign
income tax, §1.861-20 is applied by first assigning
the $1,000x of Country A gross income to the rel-
evant statutory and residual groupings for purposes
of applying section 245A(d) as the operative section.
Under paragraph (b)(1) of this section, the statutory
grouping is the amount of foreign gross income aris-
ing from the foreign law distribution that would if
recognized for Federal income tax purposes be a dis-
tribution out of CFC’s specified earnings and profits,
and the residual grouping is the remaining amount of
the foreign gross income. There is no corresponding
U.S. item because under section 305(a) USP recog-
nizes no U.S. gross income with respect to the stock
distribution. Under §1.861-20(d)(2)(ii)(B), the item
of foreign gross income (the $1,000x dividend) is
assigned under the rules of §1.861-20(d)(3)(i)(B) to
the same statutory or residual groupings to which the
foreign gross income would be assigned if a distri-
bution of the same amount were made for Federal
income tax purposes on December 31, Year 1, the
date the stock distribution occurs for Country A tax
purposes. If recognized for Federal income tax pur-
poses, a $1,000x distribution on December 31, Year
1, would result in a U.S. dividend amount (which as
defined in §1.861-20(b) includes distributions of pre-
viously taxed earnings and profits) of $1,000x. Un-
der §1.861-20(d)(3)(i)(B)(2), the foreign dividend
amount ($1,000x) is, to the extent of the U.S. divi-
dend amount ($1,000x), assigned to the same statu-
tory or residual groupings from which a distribution
of the U.S. dividend amount would be made under
Federal income tax law. Thus, $200x of foreign
gross income related to the foreign dividend amount
is assigned to the statutory grouping for the gross in-
come that would arise from a distribution of CFC’s
specified earnings and profits, and $800x is assigned
to the residual grouping. Under §1.861-20(f), $30x
($150x x $200x / $1,000x) of the Country A foreign
income tax is apportioned to the statutory grouping,
and $120x ($150x x $800x / $1,000x) of the Country
A foreign income tax is apportioned to the residual
grouping.
(C) Disallowance. USP is allowed neither a
foreign tax credit nor a deduction for the $30x of
Country A foreign income tax that is allocated and
apportioned to, and therefore attributable to, the
$500x of specified earnings and profits of CFC. See
paragraphs (a) and (b) of this section.

Bulletin No. 2020–49 1511 November 30, 2020
(4) Example 3: Successive foreign law distribu-
tions subject to anti-abuse rule—(i) Facts. During
Year 1, CFC generates $500x of subpart F income
that is included in USP’s income under section
951(a), and $500x of foreign oil and gas extraction
income (as defined in section 907(c)(1)) in Country
A. As of December 31, Year 1, CFC has $500x of
earnings and profits described in section 959(c)(3)
and $500x of section 951(a)(1)(A) PTEP (as defined
in §1.960-3(c)(2)(x)). CFC generates no income in
Years 2 through 4. In each of Years 2 and 3, USP
makes a consent dividend election under Country A
law that, for Country A tax purposes, deems CFC to
distribute to USP, and USP immediately to contrib-
ute to CFC, $500x on December 31 of each year. For
Country A tax purposes, each deemed distribution
and contribution is treated as a dividend of $500x
to USP, followed immediately by a contribution to
CFC of $500x, and Country A imposes a withhold-
ing tax on USP of $150x with respect to $500x of
foreign gross income in each of Years 2 and 3. For
Federal income tax purposes, the Country A consent
dividend is disregarded, and USP recognizes no U.S.
gross income. In Year 4, CFC distributes $1,000x to
USP, which for Country A tax purposes is treated
as a return of contributed capital on which no with-
holding tax is imposed. For Federal income tax pur-
poses, $500x of the $1,000x distribution is excluded
from USP’s gross income and not treated as a divi-
dend under section 959(a) and (d), respectively; the
remaining $500x of the distribution gives rise to a
dividend to USP for which USP is allowed a deduc-
tion under section 245A(a). The Country A consent
dividend elections in Years 2 and 3 are made with
a principal purpose of avoiding the application of
section 245A(d) and this section to disallow a credit
or deduction for Country X withholding tax incurred
with respect to CFC’s specified earnings and profits.
(ii) Analysis—(A) Identification of specified
earnings and profits. With respect to USP, CFC has
$500x of specified earnings and profits in Years 2 and
3 because if, on the date of each foreign law distri-
bution, CFC were to distribute $1,000x of money (an
amount equal to all of CFC’s earnings and profits)
with respect to its stock owned by USP, $500x of
the distribution would be a dividend for which USP
would be allowed a deduction under section 245A(a)
and, therefore, would give rise to a specified distri-
bution. See paragraphs (c)(5) and (6) of this section.
(B) Foreign income taxes attributable to speci-
fied earnings and profits. For purposes of allocating
and apportioning the $150x of Country A foreign in-
come tax incurred by USP in each of Years 2 and 3,
§1.861-20 is applied by first assigning the $500x of
Country A gross income to the relevant statutory and
residual groupings for purposes of applying section
245A(d) as the operative section. Under paragraph
(b)(1) of this section, the statutory grouping is the
amount of foreign gross income arising from the
foreign law distribution that would if recognized for
Federal income tax purposes be a distribution out of
CFC’s specified earnings and profits, and the resid-
ual grouping is the remaining amount of the foreign
gross income. The $500x of foreign gross income is
not included in the U.S. gross income of USP, and
thus, there is no corresponding U.S. item. The Coun-
try A consent dividends in Years 2 and 3 meet the
definition of a foreign law distribution in §1.861-
20(b) because Country A treats them as a taxable
distribution but Federal income tax law does not.
Under §1.861-20(d)(2)(ii)(B), the $500x item of for-
eign law dividend income is assigned to a statutory
or residual grouping by treating CFC as making an
actual distribution (for Federal income tax purposes)
of $500x on December 31 of each of Years 2 and
3. Accordingly, in each of Years 2 and 3, the $500x
of foreign gross income arising from the foreign law
distribution is assigned to the residual grouping be-
cause the hypothetical distribution is treated as dis-
tributed out of section 951(a)(1)(A) PTEP, which are
not characterized as specified earnings and profits.
Under §1.861-20(f), none of the $150x of Country A
foreign income tax incurred by USP in each of Years
2 and 3 is apportioned to the statutory grouping relat-
ing to specified earnings and profits.
(C) Disallowance pursuant to anti-avoidance
rule. By electing to make two successive foreign
law distributions in Years 2 and 3 that were subject
to Country A withholding tax and that did not indi-
vidually exceed, but in the aggregate did exceed, the
section 951(a)(1)(A) PTEP of CFC, and then making
an actual distribution of property equal to all of the
earnings and profits of CFC in Year 4 that was not
subject to Country A withholding tax (because the
previous consent dividends converted CFC’s earn-
ings and profits to capital for Country A tax purpos-
es), USP would have avoided the disallowance under
section 245A(d) (but for the application of the an-
ti-avoidance rule in paragraph (b)(2) of this section)
despite having received a $500x dividend that gave
rise to a deduction under section 245A(a), and in-
curring withholding tax related to the earnings and
profits that gave rise to that dividend. However, the
Country A consent dividend elections in Years 2 and
3 were made with a principal purpose of avoiding
the purposes of section 245A(d) and this section.
Therefore, USP is allowed neither a foreign tax cred-
it nor a deduction for $150x of Country A foreign
income tax, which is treated as being attributable to
the $500x of specified earnings and profits of CFC.
See paragraphs (a) and (b)(2) of this section.
(f) Applicability date. This section ap-
plies to taxable years of a foreign corpora-
tion that begin after December 31, 2019,
and end on or after November 2, 2020,
and with respect to a United States person,
taxable years in which or with which such
taxable years of the foreign corporation
end.
§1.245A(e)-1 [AMENDED]
Par. 4. Section 1.245A(e)-1 is amended
by adding the language “and §1.245A(d)-
1” after the language “rules of section
245A(d)” in paragraphs (b)(1)(ii), (c)(1)
(iii), (g)(1)(ii) introductory text, (g)(1)(iii)
introductory text, and (g)(2)(ii) introduc-
tory text.
Par. 5. Section 1.250(b)-1 is amend-
ed by adding two sentences to the end of
paragraph (c)(7) to read as follows:
§1.250(b)-1 Computation of foreign-
derived intangible income (FDII).
* * * * *
(c) * * *
(7) * * * A taxpayer must use a con-
sistent method to determine the amount of
its domestic oil and gas extraction income
(“DOGEI”) and its foreign oil and gas ex-
traction income (“FOGEI”) from the sale
of oil or gas that has been transported or
processed. For example, a taxpayer must
use a consistent method to determine the
amount of FOGEI from the sale of gas-
oline from foreign crude oil sources in
computing the exclusion from gross tested
income under §1.951A-2(c)(1)(v) and the
amount of DOGEI from the sale of gas-
oline from domestic crude oil sources in
computing its section 250 deduction.
* * * * *
Par. 6. Section 1.250(b)-5 is amended
by revising paragraph (c)(5) to read as fol-
lows:
§1.250(b)-5 Foreign-derived deduction
eligible income (FDDEI) services.
* * * * *
(c) * * *
(5) Electronically supplied service.
The term electronically supplied service
means, with respect to a general service
other than an advertising service, a service
that is delivered primarily over the internet
or an electronic network and for which val-
ue of the service to the end user is derived
primarily from automation or electronic
delivery. Electronically supplied services
include the provision of access to digital
content (as defined in §1.250(b)-3), such
as streaming content; on-demand network
access to computing resources, such as
networks, servers, storage, and software;
the provision or support of a business or
personal presence on a network, such as
a website or a webpage; online interme-
diation platform services; services auto-
matically generated from a computer via
the internet or other network in response
to data input by the recipient; and similar
services. Electronically supplied services
do not include services that primarily in-
volve the application of human effort by
the renderer (not considering the human
effort involved in the development or
maintenance of the technology enabling

November 30, 2020 1512 Bulletin No. 2020–49
the electronically supplied services). Ac-
cordingly, electronically supplied services
do not include, for example certain ser-
vices (such as legal, accounting, medical,
or teaching services) provided electroni-
cally and synchronously.
* * * * *
Par. 7. Section 1.336-2 is amended:
1. By revising the heading of paragraph
(g)(3)(ii).
2. In paragraph (g)(3)(ii)(A), by revis-
ing the first sentence and removing the
language “foreign tax” and adding in its
place the language “foreign income tax”
in the second sentence.
3. By revising paragraphs (g)(3)(ii)(B)
and (g)(3)(iii).
4. By removing both occurrences of
paragraph (h) at the end of the section.
The revisions read as follows:
§1.336-2 Availability, mechanics, and
consequences of section 336(e) election.
* * * * *
(g) * * *
(3) * * *
(ii) Allocation of foreign income tax-
es—(A) * * * Except as provided in para-
graph (g)(3)(ii)(B) of this section, if a sec-
tion 336(e) election is made for target and
target’s taxable year under foreign law (if
any) does not close at the end of the dispo-
sition date, foreign income tax as defined
in §1.960-1(b)(5) (other than a withhold-
ing tax as defined in section 901(k)(1)(B))
paid or accrued by new target with respect
to such foreign taxable year is allocated
between old target and new target. * * *
(B) Foreign income taxes imposed on
partnerships and disregarded entities. If a
section 336(e) election is made for target
and target holds an interest in a disregard-
ed entity (as described in §301.7701-2(c)
(2)(i) of this chapter) or partnership, the
rules of §1.901-2(f)(4) and (5) apply to
determine the person who is considered
for Federal income tax purposes to pay
foreign income tax imposed at the entity
level on the income of the disregarded en-
tity or partnership.
(iii) Disallowance of foreign tax cred-
its under section 901(m). For rules that
may apply to disallow foreign tax credits
by reason of a section 336(e) election, see
section 901(m) and §§1.901(m)-1 through
1.901(m)-8.
* * * * *
Par. 8. Section 1.336-5 is revised to
read as follows:
§1.336-5 Applicability dates.
Except as otherwise provided in this
section, the provisions of §§1.336-1
through 1.336-4 apply to any qualified
stock disposition for which the disposition
date is on or after May 15, 2013. The pro-
visions of §1.336-1(b)(5)(i)(A) relating to
section 1022 apply on and after January
19, 2017. The provisions of §1.336-2(g)
(3)(ii) and (iii) apply to foreign income
taxes paid or accrued in taxable years be-
ginning on or after [date final regulations
are filed with the Federal Register].
Par. 9. Section 1.338-9 is amended by
revising paragraph (d) to read as follows:
§1.338-9 International aspects of section
338.
* * * * *
(d) Allocation of foreign income tax-
es—(1) In general. Except as provid-
ed in paragraph (d)(3) of this section, if
a section 338 election is made for target
(whether foreign or domestic), and tar-
get’s taxable year under foreign law (if
any) does not close at the end of the acqui-
sition date, foreign income tax as defined
in §1.901-2(a)(1)) (other than a withhold-
ing tax as defined in section 901(k)(1)(B))
paid or accrued by new target with respect
to such foreign taxable year is allocated
between old target and new target. If there
is more than one section 338 election with
respect to target during target’s foreign
taxable year, foreign income tax paid or
accrued with respect to that foreign tax-
able year is allocated among all old tar-
gets and new targets. The allocation is
made based on the respective portions of
the taxable income (as determined under
foreign law) for the foreign taxable year
that are attributable under the principles of
§1.1502-76(b) to the period of existence
of each old target and new target during
the foreign taxable year.
(2) Foreign income taxes imposed on
partnerships and disregarded entities. If
a section 338 election is made for target
and target holds an interest in a disregard-
ed entity (as described in §301.7701-2(c)
(2)(i) of this chapter) or partnership, the
rules of §1.901-2(f)(4) and (5) apply to
determine the person who is considered
for Federal income tax purposes to pay
foreign income tax imposed at the entity
level on the income of the disregarded en-
tity or partnership.
(3) Disallowance of foreign tax credits
under section 901(m). For rules that may
apply to disallow foreign tax credits by
reason of a section 338 election, see sec-
tion 901(m) and §§1.901(m)-1 through
1.901(m)-8.
(4) Applicability date. This paragraph
(d) applies to foreign income taxes paid or
accrued in taxable years beginning on or
after [date final regulations are filed with
the Federal Register].
* * * * *
§1.367(b)-2 [Amended]
Par. 10. Section 1.367(b)-2 is amend-
ed by removing the last sentence of para-
graph (e)(4), Example 1.
§1.367(b)-3 [Amended]
Par. 11. Section 1.367(b)-3 is amended:
1. In paragraph (b)(3)(ii):
i. By removing the last sentence of Ex-
ample 1.(ii).
ii. By removing the last sentence of Ex-
ample 2.(ii).
2. By removing the last sentence of
paragraph (c)(5), Example 1.(iii).
Par. 12. Section 1.367(b)-4 is amended:
1. By revising paragraph (b)(2)(i)(B).
2. By adding a sentence to the end of
paragraph (h).
The revision and addition read as fol-
lows:
§1.367(b)-4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(B) Immediately after the exchange, a
domestic corporation directly or indirect-
ly owns 10 percent or more of the voting
power or value of the transferee foreign
corporation; and
* * * * *

Bulletin No. 2020–49 1513 November 30, 2020
(h) * * * Paragraph (b)(2)(i)(B) of this
section applies to exchanges completed
in taxable years of exchanging share-
holders ending on or after November 2,
2020, and to taxable years of exchanging
shareholders ending before November 2,
2020 resulting from an entity classifica-
tion election made under §301.7701-3 of
this chapter that was effective on or before
November 2, 2020 but was filed on or af-
ter November 2, 2020.
Par. 13. Section 1.367(b)-7 is amended:
1. By adding a sentence to the end of
paragraph (b)(1).
2. By revising paragraph (g).
3. By adding paragraph (h).
The revisions and additions read as fol-
lows:
§1.367(b)-7 Carryover of earnings
and profits and foreign income taxes in
certain foreign-to-foreign nonrecognition
transactions.
* * * * *
(b) * * *
(1) * * * See paragraph (g) of this sec-
tion for rules applicable to taxable years
of foreign corporations beginning on or
after January 1, 2018, and taxable years
of United States shareholders in which
or with which such taxable years of for-
eign corporations end (“post-2017 taxable
years”).
* * * * *
(g) Post-2017 taxable years. As a re-
sult of the repeal of section 902 effective
for taxable years of foreign corporations
beginning on or after January 1, 2018, all
foreign target corporations, foreign ac-
quiring corporations, and foreign surviv-
ing corporations are treated as nonpooling
corporations in post-2017 taxable years.
Any amounts remaining in post-1986 un-
distributed earnings and post-1986 foreign
income taxes of any such corporation in
any separate category as of the end of the
foreign corporation’s last taxable year
beginning before January 1, 2018, are
treated as earnings and taxes in a single
pre-pooling annual layer in the foreign
corporation’s post-2017 taxable years for
purposes of this section. Foreign income
taxes that are related to non-previously
taxed earnings of a foreign acquiring cor-
poration and a foreign target corporation
that were accumulated in taxable years
before the current taxable year of the for-
eign corporation, or in a foreign target’s
taxable year that ends on the date of the
section 381 transaction, are not treated as
current year taxes (as defined in §1.960-
1(b)(4)) of a foreign surviving corporation
in any post-2017 taxable year. In addition,
foreign income taxes that are related to a
hovering deficit are not treated as current
year taxes of the foreign surviving corpo-
ration in any post-2017 taxable year, re-
gardless of whether the hovering deficit is
absorbed.
(h) Applicability dates. Except as oth-
erwise provided in this paragraph (h),
this section applies to foreign section 381
transactions that occur on or after Novem-
ber 6, 2006. Paragraph (g) of this section
applies to taxable years of foreign corpo-
rations ending on or after November 2,
2020, and to taxable years of United States
shareholders in which or with which such
taxable years of foreign corporations end.
Par. 14. Section 1.367(b)-10 is amend-
ed:
1. In paragraph (c)(1), by removing the
language “sections 902 or” and adding in
its place the language “section”.
2. By revising the heading and adding a
sentence to the end of paragraph (e).
The revision and addition read as fol-
lows:
§1.367(b)-10 Acquisition of parent stock
or securities for property in triangular
reorganizations.
* * * * *
(e) Applicability dates. * * * Paragraph
(c)(1) of this section applies to deemed
distributions that occur in taxable years
ending on or after November 2, 2020.
§1.461-1 [AMENDED]
Par. 15. Section 1.461-1 is amended
by removing the language “paragraph
(b)” and adding in its place the language
“paragraph (g)” in the last sentence of
paragraph (a)(4).
Par. 16. Section 1.861-3 is amended:
1. By revising the section heading.
2. By redesignating paragraph (d) as
paragraph (e).
3. By adding a new paragraph (d).
4. In newly redesignated paragraph (e):
i. By revising the heading.
ii. By removing “this paragraph” and
adding “this paragraph (e),” in its place.
iii. By adding a sentence to the end of
the paragraph.
The revisions and additions read as fol-
lows:
§1.861-3 Dividends and income
inclusions under sections 951, 951A,
and 1293 and associated section 78
dividends.
* * * * *
(d) Source of income inclusions under
sections 951, 951A, and 1293 and asso-
ciated section 78 dividends. For purposes
of sections 861 and 862 and §§ 1.861-1
and 1.862-1, and for purposes of apply-
ing this section, the amount included in
gross income of a United States person
under sections 951, 951A, and 1293 and
the associated section 78 dividend for the
taxable year with respect to a foreign cor-
poration are treated as dividends received
directly by the United States person from
the foreign corporation that generated the
inclusion. See section 904(h) and §1.904-
5(m) for rules concerning the resourcing
of inclusions under sections 951, 951A,
and 1293.
(e) Applicability dates. * * * Paragraph
(d) of this section applies to taxable years
ending on or after November 2, 2020.
Par. 17. Section 1.861-8, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended by revising para-
graph (e)(4)(i) and adding paragraph (h)
(4) to read as follows:
§1.861-8 Computation of taxable income
from sources within the United States and
from other sources and activities.
* * * * *
(e) * * *
(4) * * *
(i) Expenses attributable to controlled
services. If a taxpayer performs a con-
trolled services transaction (as defined in
§1.482-9(l)(1)), which includes any ac-
tivity by one member of a group of con-
trolled taxpayers (the renderer) that results
in a benefit to a controlled taxpayer (the
recipient), and the renderer charges the
recipient for such services, section 482
and §1.482-1 provide for an allocation

November 30, 2020 1514 Bulletin No. 2020–49
where the charge is not consistent with an
arm’s length result. The deductions for ex-
penses of the taxpayer attributable to the
controlled services transaction are consid-
ered definitely related to the amounts so
charged and are to be allocated to such
amounts.
* * * * *
(h) * * *
(4) Paragraph (e)(4)(i) of this section
applies to taxable years ending on or after
November 2, 2020.
Par. 18. Section 1.861-9, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended:
1. By adding a sentence to the end of
paragraph (g)(3).
2. By redesignating paragraph (k) as
paragraph (l).
3. By adding a new paragraph (k).
4. By revising newly redesignated
paragraph (l).
The additions and revision read as fol-
lows:
§1.861-9 Allocation and apportionment
of interest expense and rules for asset-
based apportionment.
* * * * *
(g) * * *
(3) * * * For purposes of applying
section 904 as the operative section, the
statutory or residual grouping of income
that assets generate, have generated, or
may reasonably be expected to generate
is determined after taking into account
any reallocation of income required under
§1.904-4(f)(2)(vi).
* * * * *
(k) Election to capitalize certain ex-
penses in determining tax book value of
assets—(1) In general. Solely for purpos-
es of apportioning interest expenses under
the asset method described in paragraph
(g) of this section, a taxpayer may elect to
determine the tax book value of its assets
by capitalizing and amortizing its research
and experimental and advertising expen-
ditures incurred in each taxable year under
the rules described in paragraphs (k)(2)
and (3) of this section. Any election made
pursuant to this paragraph (k)(1) by a tax-
payer must also be made by or on behalf
of all members of an affiliated group of
corporations as defined in §§1.861-11(d)
and 1.861-11T(d) that includes the tax-
payer. A taxpayer that makes an election
under this paragraph (k)(1) for a taxable
year must determine the tax book value of
its assets for the taxable year as if it had
capitalized its research and experimental
and advertising expenditures under para-
graphs (k)(2) and (3) of this section in ev-
ery prior taxable year. Any election made
pursuant to this paragraph (k)(1) applies
to all subsequent taxable years of the tax-
payer unless revoked by the taxpayer. Re-
vocation of such an election requires the
consent of the Commissioner.
(2) Research and experimental expen-
ditures—(i) In general. A taxpayer mak-
ing an election under paragraph (k)(1) of
this section must capitalize its specified
research or experimental expenditures
paid or incurred during the taxable year
(for purposes of apportioning interest ex-
pense under the asset method described
in paragraph (g) of this section) under the
rules in section 174, as contained in Pub.
L. 115–97, title I, section 13206(a), except
that the 15-year amortization period that
applies to foreign research applies to all
research whether conducted within or out-
side the United States.
(ii) Character of asset. The tax book
value of the asset created as a result of cap-
italizing and amortizing specified research
or experimental expenditures is appor-
tioned to statutory and residual groupings
by first assigning the asset to SIC code cat-
egories based on the SIC code categories
of the specified research or experimental
expenditures used to generate the asset,
and then apportioning the tax book value
of the asset in proportion to the taxpayer’s
sales in each statutory and residual group-
ing in the SIC code group for the taxable
year in which the expenditures are or were
incurred. The rules in §1.861-17 (without
regard to the exclusive apportionment rule
in §1.861-17(c)) apply for purposes of the
preceding sentence.
(iii) Effect of section 13206(a) of Pub.
L. 115–97, title I. Beginning with the first
taxable year in which the rules in section
13206(a) of Pub. L. 115–97, title I, for
capitalizing specified research or exper-
imental expenditures for Federal income
tax purposes become effective, the elec-
tion in paragraph (k)(1) of this section
will no longer apply to research and ex-
perimental expenditures incurred in that
taxable year and subsequent taxable years,
and the general rules for capitalizing and
amortizing specified research or exper-
imental expenditures under section 174
will apply instead in determining the tax
book value of assets attributable to such
expenditures for purposes of apportioning
expenses under the asset method.
(3) Advertising expenditures—(i) In
general. A taxpayer making an election
under paragraph (k)(1) of this section must
capitalize and amortize fifty percent of its
specified advertising expenses in each tax-
able year for purposes of apportioning ex-
penses under the asset method described
in paragraph (g) of this section. The share
of specified advertising expenses that are
charged to the capital account is treated as
being amortized ratably over the 10-year
period beginning with the midpoint of the
taxable year in which such expenses are
paid or incurred. The tax book value of
the asset created as a result of capitalizing
specified advertising expenses is appor-
tioned once, in the taxable year that the
expenses are incurred, to the statutory and
residual groupings based on the character
of the gross income that would be gener-
ated by selling products to, or perform-
ing services for, the persons to whom the
specified advertising expenses are direct-
ed, and ratably apportioning the tax book
value of the asset based on a reasonable
estimate of the number of such persons
with respect to each such grouping in such
taxable year. Therefore, for example, if 80
percent of specified advertising expenses
incurred in Year 1 for promoting Product
X relate to advertising viewed by persons
within the United States and 20 percent re-
late to advertising viewed by persons out-
side the United States, and sales of Prod-
uct X to persons within the United States
would be U.S. source general category
income and sales of Product X to persons
outside the United States would be foreign
source general category income, then for
purposes of section 904 as the operative
section, 80 percent of the asset is treated
as a U.S. source general category asset
and 20 percent of the asset is treated as
a foreign source general category asset
(regardless of the actual amount of sales
or gross income generated from product
sales in the taxable year). In subsequent
years, the amortizable portion of the asset
created from specified advertising expens-

Bulletin No. 2020–49 1515 November 30, 2020
es is treated as being amortized ratably
among the statutory and residual group-
ings to which the tax book value of the
asset was assigned in the taxable year that
it was created.
(ii) Specified advertising expenses.
The term specified advertising expenses
means any amount paid or incurred in a
taxable year (but only to the extent oth-
erwise deductible in such taxable year),
for the development, production, or place-
ment (including any form of transmission,
broadcast, publication, display, or distri-
bution) of any communication to the gen-
eral public (or portions thereof) which is
intended to promote the taxpayer (or any
related person under §1.861-8(c)(4)) or a
trade or business of the taxpayer (or any
related person), or any service, facility, or
product provided pursuant to such trade or
business.
(l) Applicability dates. (1) Except as
provided in paragraphs (l)(2) and (3) of
this section, this section applies to taxable
years that both begin after December 31,
2017, and end on or after December 4,
2018.
(2) Paragraphs (b)(1)(i), (b)(8), and (e)
(9) of this section apply to taxable years
that end on or after December 16, 2019.
For taxable years that both begin after
December 31, 2017, and end on or after
December 4, 2018, and also end before
December 16, 2019, see §1.861-9T(b)(1)
(i) as contained in 26 CFR part 1 revised
as of April 1, 2019.
(3) Paragraph (k) of this section applies
to taxable years beginning on or after [date
final regulations are filed with the Federal
Register].
Par. 19. Section 1.861-10 is amended:
1. By adding paragraph (a).
2. By revising paragraphs (e)(8)(v) and
(f).
3. By adding paragraphs (g) and (h).
The additions and revisions read as fol-
lows:
§1.861-10 Special allocations of interest
expense.
(a) In general. This section applies to
all taxpayers and provides exceptions to
the rules of §1.861-9 that require the al-
location and apportionment of interest
expense on the basis of all assets of all
members of the affiliated group. Section
1.861-10T(b) describes the direct allo-
cation of interest expense to the income
generated by certain assets that are sub-
ject to qualified nonrecourse indebted-
ness. Section 1.861-10T(c) describes the
direct allocation of interest expense to in-
come generated by certain assets that are
acquired in an integrated financial trans-
action. Section 1.861-10T(d) provides
special rules that apply to all transactions
described in §1.861-10T(b) and (c). Para-
graph (e) of this section requires the direct
allocation of third-party interest expense
of an affiliated group to such group’s in-
vestment in related controlled foreign cor-
porations in cases involving excess related
person indebtedness (as defined therein).
See also §1.861-9T(b)(5), which requires
the direct allocation of amortizable bond
premium. Paragraph (f) of this section
provides a special rule for certain regulat-
ed utility companies. Paragraph (g) of this
section requires the direct allocation of
interest expense in the case of certain for-
eign banking branches. Paragraph (h) of
this section sets forth applicability dates.
* * * * *
(e) * * *
(8) * * *
(v) Classification of loans between
controlled foreign corporations. In de-
termining the amount of related group
indebtedness for any taxable year, loans
outstanding from one controlled foreign
corporation to a related controlled for-
eign corporation are not treated as relat-
ed group indebtedness. For purposes of
determining the foreign base period ratio
under paragraph (e)(2)(iv) of this section
for a taxable year that ends on or after
November 2, 2020, the rules of this para-
graph (e)(8)(v) apply to determine the
related group debt-to-asset ratio in each
taxable year included in the foreign base
period, including in taxable years that end
before November 2, 2020.
* * * * *
(f) Indebtedness of certain regulat-
ed utilities. If an automatically except-
ed regulated utility trade or business (as
defined in §1.163(j)-1(b)(15)(i)(A)) has
qualified nonrecourse indebtedness with-
in the meaning of the second sentence in
§1.163(j)-10(d)(2), interest expense from
the indebtedness is directly allocated to
the taxpayer’s assets in the manner and to
the extent provided in §1.861-10T(b).
(g) Direct allocation of interest ex-
pense incurred by foreign banking
branches—(1) In general. The foreign
banking branch interest expense of a for-
eign banking branch is directly allocated
to the foreign banking branch income of
that foreign banking branch, to the extent
of the foreign banking branch income.
For rules that may apply to foreign bank-
ing branch interest expense in excess of
amounts allocated under this paragraph
(g), see §1.861-9.
(2) Adjustments to asset value. For pur-
poses of applying §1.861-9 to apportion
interest expense in excess of the interest
expense directly allocated under para-
graph (g)(1) of this section, the value of
the assets of the foreign banking branch
for the year (as determined under §1.861-
9T(g)(3)) is reduced (but not below zero)
by an amount equal to the liabilities of that
branch with respect to which the interest
expense was directly allocated under para-
graph (g)(1) of this section. For purposes
of this paragraph (g), the amount of a li-
ability with respect to a foreign currency
hedge described in §1.861-9T(b)(2) or
derivative financial product described in
§1.861-9T(b)(6) is zero.
(3) Definitions. The following defini-
tions apply for purposes of this paragraph
(g).
(i) Bank. The term bank means a bank,
as defined by section 2(c) of the Bank
Holding Company Act of 1956 (12 U.S.C.
1841(c)) without regard to 12 U.S.C.
1841(c)(2)(C) and (G)), that is licensed
or otherwise authorized to accept depos-
its, and accepts deposits in the ordinary
course of business.
(ii) Foreign banking branch. The term
foreign banking branch means a foreign
branch as defined in §1.904-4(f)(3), oth-
er than a disregarded entity (as defined in
§1.904-4(f)(3)), that is owned by a bank
and gives rise to a taxable presence in a
foreign country.
(iii) Foreign banking branch income.
The term foreign banking branch income
means gross income assigned to foreign
branch category income (within the mean-
ing of §1.904-4(f)(1)) that is attributable
to a foreign banking branch. Foreign bank-
ing branch income also includes gross
income attributable to a foreign banking
branch that would be assigned to the for-
eign branch category but is assigned to a

November 30, 2020 1516 Bulletin No. 2020–49
separate category for foreign branch cat-
egory income that is resourced under an
income tax treaty. See §1.904-4(k).
(iv) Foreign banking branch interest
expense. The term foreign banking branch
interest expense means the interest ex-
pense that is regarded for Federal income
tax purposes and that is recorded on the
separate books and records (as defined
in §1.989(a)-1(d)(1) and (2)) of a foreign
banking branch.
(v) Liability. The term liability means
a deposit or other debt obligation, transac-
tion, or series of transactions resulting in
expense or loss described in §1.861-9T(b)
(1)(i).
(h) Applicability dates. Except as pro-
vided in this paragraph (h), this section
applies to taxable years ending on or af-
ter December 4, 2018. Paragraph (e)(8)
(v) of this section applies to taxable years
ending on or after November 2, 2020, and
paragraphs (f) and (g) of this section ap-
ply to taxable years beginning on or after
[date final regulations are filed with the
Federal Register].
Par. 20. Section 1.861-14, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended by revising para-
graphs (h) and (k) to read as follows:
§1.861-14 Special rules for allocating
and apportioning certain expenses (other
than interest expense) of an affiliated
group of corporations.
* * * * *
(h) Special rule for the allocation and
apportionment of section 818(f)(1) items
of a life insurance company—(1) In gen-
eral. Except as provided in paragraph (h)
(2) of this section, life insurance company
items specified in section 818(f)(1) (“sec-
tion 818(f)(1) items”) are allocated and
apportioned as if all members of the life
subgroup were a single corporation (“life
subgroup method”). See also §1.861-8(e)
(16) for rules on the allocation of reserve
expenses with respect to dividends re-
ceived by a life insurance company.
(2) Alternative separate entity treat-
ment. A consolidated group may choose
not to apply the life subgroup method and
may instead allocate and apportion sec-
tion 818(f)(1) items solely among items
of the life insurance company that gener-
ated the section 818(f)(1) items (“separate
entity method”). A consolidated group
indicates its choice to apply the separate
entity method by applying this paragraph
(h)(2) for purposes of the allocation and
apportionment of section 818(f)(1) items
on its Federal income tax return filed for
its first taxable year to which this section
applies. A consolidated group’s use of
the separate entity method constitutes a
binding choice to use the method chosen
for that year for all members of the con-
solidated group and all taxable years of
such members thereafter. The taxpayer’s
choice of a method may not be revoked
without the prior consent of the Commis-
sioner.
* * * * *
(k) Applicability date. Except as pro-
vided in this paragraph (k), this section
applies to taxable years beginning after
December 31, 2019. Paragraph (h) of this
section applies to taxable years beginning
on or after [date final regulations are filed
with the Federal Register].
Par. 21. Section 1.861-20, as added
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is amended:
1. In paragraph (b)(4), by removing the
language “301(c)(3)(A)” and adding in its
place the language “301(c)(3)(A) or sec-
tion 731(a)”.
2. By revising paragraphs (b)(7), (19),
and (23).
3. By revising the first and second sen-
tences in paragraph (c) introductory text.
4. In paragraph (d)(2)(ii)(B), by adding
the text “, and paragraph (d)(3)(ii)(B) of
this section for rules regarding the assign-
ment of foreign gross income arising from
a distribution by a partnership” at the end
of the paragraph.
5. By adding paragraph (d)(2)(ii)(D).
6. In paragraph (d)(3)(i)(A), by remov-
ing the text “or an inclusion of foreign
law pass-through income” and adding the
language “, an inclusion of foreign law
pass-through income, or gain from a dis-
position under both foreign and Federal
income tax law” in its place.
7. By adding paragraphs (d)(3)(i)(D),
(d)(3)(ii) and (v), (g)(10) through (13),
and (h).
8. By revising paragraph (i).
The additions and revisions read as fol-
lows:
§1.861-20 Allocation and apportionment
of foreign income taxes.
* * * * *
(b) * * *
(7) Foreign income tax. The term for-
eign income tax has the meaning provided
in §1.901-2(a).
* * * * *
(19) U.S. capital gain amount. The
term U.S. capital gain amount means gain
recognized by a taxpayer on the sale, ex-
change, or other disposition of stock or
an interest in a partnership or, in the case
of a distribution with respect to stock or
a partnership interest, the portion of the
distribution to which section 301(c)(3)(A)
or 731(a)(1), respectively, applies. A U.S.
capital gain amount includes gain that is
subject to section 751 and §1.751-1, but
does not include any portion of the gain
recognized by a taxpayer that is included
in gross income as a dividend under sec-
tion 964(e) or 1248.
* * * * *
(23) U.S. return of capital amount. The
term U.S. return of capital amount means,
in the case of the sale, exchange, or other
disposition of either stock or an interest in
a partnership, the taxpayer’s adjusted ba-
sis of the stock or partnership interest, or
in the case of a distribution with respect to
stock or a partnership interest, the portion
of the distribution to which section 301(c)
(2) or 733, respectively, applies.
* * * * *
(c) * * * A foreign income tax (other
than certain in lieu of taxes described in
paragraph (h) of this section) is allocated
and apportioned to the statutory and re-
sidual groupings that include the items of
foreign gross income included in the base
on which the tax is imposed. Each such
foreign income tax (that is, each separate
levy) is allocated and apportioned sep-
arately under the rules in paragraphs (c)
through (f) of this section. * * *
* * * * *
(d) * * *
(2) * * *
(ii) * * *
(D) Foreign law transfers between
taxable units. An item of foreign gross
income arising from an event that foreign
law treats as a transfer of property, or as
giving rise to an item of accrued income,
gain, deduction, or loss with respect to

Bulletin No. 2020–49 1517 November 30, 2020
a transaction, between taxable units (as
defined in paragraph (d)(3)(v)(E) of this
section) of the same taxpayer, but that is
not treated as a disregarded payment (as
defined in paragraph (d)(3)(v)(E) of this
section) for Federal income tax purposes
in the same U.S. taxable year in which the
foreign income tax is paid or accrued, is
characterized and assigned to the group-
ing to which a disregarded payment in the
amount of the item of foreign gross in-
come (or the gross receipts giving rise to
the item of foreign gross income) would
be assigned under the rules of paragraph
(d)(3)(v) of this section if the event giving
rise to the foreign gross income resulted
in a disregarded payment in the U.S. tax-
able year in which the foreign income tax
is paid or accrued. For example, an item of
foreign gross income that a taxpayer rec-
ognizes by reason of a foreign law distri-
bution (such as a stock dividend or a con-
sent dividend) from a disregarded entity is
assigned to the same statutory or residual
groupings to which the foreign gross in-
come would be assigned if a distribution
of property in the amount of the taxable
distribution under foreign law were made
for Federal income tax purposes on the
date on which the foreign law distribution
occurred.
* * * * *
(3) * * *
(i) * * *
(D) Foreign gross income items aris-
ing from a disposition of stock. An item
of foreign gross income that arises from
a transaction that is treated as a sale, ex-
change, or other disposition of stock in a
corporation for Federal income tax pur-
poses is assigned first, to the extent of any
U.S. dividend amount that results from
the disposition, to the same statutory or
residual grouping (or ratably to the group-
ings) to which the U.S. dividend amount
is assigned under Federal income tax law.
If the foreign gross income item exceeds
the U.S. dividend amount, the foreign
gross income item is next assigned, to the
extent of the U.S. capital gain amount, to
the statutory or residual grouping (or rat-
ably to the groupings) to which the U.S.
capital gain amount is assigned under
Federal income tax law. Any excess of
the foreign gross income item over the
sum of the U.S. dividend amount and the
U.S. capital gain amount is assigned to the
same statutory or residual grouping (or
ratably to the groupings) to which earn-
ings equal to such excess amount would
be assigned if they were recognized for
Federal income tax purposes in the U.S.
taxable year in which the disposition oc-
curred. These earnings are deemed to arise
in the statutory and residual groupings in
the same proportions as the proportions in
which the tax book value of the stock is
(or would be if the taxpayer were a United
States person) assigned to the groupings
under the asset method in §1.861-9 in the
U.S. taxable year in which the disposition
occurs. See paragraph (g)(10) of this sec-
tion (Example 9).
(ii) Items of foreign gross income in-
cluded by a taxpayer by reason of its own-
ership of an interest in a partnership—(A)
Scope. The rules of this paragraph (d)(3)
(ii) apply to assign to a statutory or residu-
al grouping certain items of foreign gross
income that a taxpayer includes in foreign
taxable income by reason of its ownership
of an interest in a partnership. See para-
graphs (d)(1) and (2) of this section for
rules that apply in characterizing items of
foreign gross income that are attributable
to a partner’s distributive share of income
of a partnership. See paragraph (d)(3)(iii)
of this section for rules that apply in char-
acterizing items of foreign gross income
that are attributable to an inclusion under
a foreign law inclusion regime.
(B) Foreign gross income items aris-
ing from a distribution with respect to an
interest in a partnership. If a partnership
makes a distribution that is treated as a
distribution of property for both foreign
law and Federal income tax purposes,
the foreign gross income arising from the
distribution (including foreign gross in-
come attributable to a distribution from a
partnership that foreign law classifies as
a dividend from a corporation) is, to the
extent of the U.S. capital gain amount,
assigned to the statutory and residual
groupings to which the U.S. capital gain
amount is assigned under Federal income
tax law. If the foreign gross income aris-
ing from the distribution exceeds the U.S.
capital gain amount, such excess amount
is assigned to the statutory and residual
groupings to which earnings equal to such
excess amount would be assigned if they
were recognized in the U.S. taxable year
in which the distribution is made. These
earnings are deemed to arise in the statuto-
ry and residual groupings in the same pro-
portions as the proportions in which the
tax book value of the partnership interest
or the partner’s pro rata share of the part-
nership assets, as applicable, is assigned
(or would be assigned if the partner were
a United States person) for purposes of ap-
portioning the partner’s interest expense
under §1.861-9(e) in the U.S. taxable year
in which the distribution is made.
(C) Foreign gross income items aris-
ing from the disposition of an interest in
a partnership. An item of foreign gross
income arising from the sale, exchange,
or other disposition of an interest in a
partnership for Federal income tax pur-
poses is assigned first, to the extent of the
U.S. capital gain amount, to the statuto-
ry or residual grouping (or ratably to the
groupings) to which the U.S. capital gain
amount is assigned. Any excess of the for-
eign gross income item over the U.S. cap-
ital gain amount is assigned to the statuto-
ry and residual grouping (or ratably to the
groupings) to which a distributive share of
income of the partnership in the amount of
such excess would be assigned if such in-
come was recognized for Federal income
tax purposes in the U.S. taxable year in
which the disposition occurred. The items
constituting this distributive share of in-
come are deemed to arise in the statutory
and residual groupings in the same pro-
portions as the proportions in which the
tax book value of the partnership interest,
or the partner’s pro rata share of the part-
nership assets, as applicable, is assigned
(or would be assigned if the partner were
a United States person) for purposes of ap-
portioning the partner’s interest expense
under §1.861-9(e) in the U.S. taxable year
in which the disposition occurred.
* * * * *
(v) Disregarded payments—(A) In
general. This paragraph (d)(3)(v) ap-
plies to assign to a statutory or residual
grouping a foreign gross income item
that a taxpayer includes by reason of the
receipt of a disregarded payment. In the
case of a taxpayer that is an individual or
a domestic corporation, this paragraph (d)
(3)(v) applies to a disregarded payment
made between a taxable unit that is a for-
eign branch, a foreign branch owner, or a
non-branch taxable unit, and another such
taxable unit of the same taxpayer. In the

November 30, 2020 1518 Bulletin No. 2020–49
case of a taxpayer that is a foreign corpo-
ration, this paragraph (d)(3)(v) applies to
a disregarded payment made between tax-
able units that are tested units of the same
taxpayer. For purposes of this paragraph
(d)(3)(v), an individual or corporation is
treated as the taxpayer with respect to its
distributive share of foreign income taxes
paid or accrued by a partnership, estate,
trust or other pass-through entity. The
rules of paragraph (d)(3)(v)(B) of this sec-
tion apply to attribute U.S. gross income
comprising the portion of a disregarded
payment that is a reattribution payment to
a taxable unit, and to associate the foreign
gross income item arising from the receipt
of the reattribution payment with the stat-
utory and residual groupings to which that
U.S. gross income is assigned. The rules
of paragraph (d)(3)(v)(C) of this section
apply to assign to statutory and residual
groupings items of foreign gross income
arising from the receipt of the portion of
a disregarded payment that is a remittance
or a contribution. The rules of paragraph
(d)(3)(v)(D) of this section apply to assign
to statutory and residual groupings items
of foreign gross income arising from dis-
regarded payments in connection with dis-
regarded sales or exchanges of property.
Paragraph (d)(3)(v)(E) of this section pro-
vides definitions that apply for purposes
of this paragraph (d)(3)(v) and paragraph
(g) of this section.
(B) Reattribution payments—(1) In
general. This paragraph (d)(3)(v)(B) as-
signs to a statutory or residual grouping a
foreign gross income item that a taxpayer
includes by reason of the receipt by a tax-
able unit of the portion of a disregarded
payment that is a reattribution payment.
The foreign gross income item is assigned
to the statutory or residual groupings to
which one or more reattribution amounts
that constitute the reattribution payment
are assigned upon receipt by the taxable
unit. If a reattribution payment compris-
es multiple reattribution amounts and the
amount of the foreign gross income item
that is attributable to the reattribution
payment differs from the amount of the
reattribution payment, foreign gross in-
come is apportioned among the statutory
and residual groupings in proportion to
the reattribution amounts in each statutory
and residual grouping. The statutory or re-
sidual grouping of a reattribution amount
received by a taxable unit is the grouping
that includes the U.S. gross income at-
tributed to the taxable unit by reason of its
receipt of the gross reattribution amount,
regardless of whether, after taking into ac-
count disregarded payments made by the
taxable unit, the taxable unit has an attri-
bution item as a result of its receipt of the
reattribution amount. See paragraph (g)
(13) of this section (Example 12).
(2) Attribution of U.S. gross income to
a taxable unit. This paragraph (d)(3)(v)
(B)(2) provides attribution rules to deter-
mine the reattribution amounts received
by a taxable unit in the statutory and resid-
ual groupings in order to apply paragraph
(d)(3)(v)(B)(1) of this section to assign
foreign gross income items arising from a
reattribution payment to the groupings. In
the case of a taxpayer that is an individual
or a domestic corporation, the attribution
rules in §1.904-4(f)(2) apply to deter-
mine the reattribution amounts received
by a taxable unit in the separate catego-
ries (as defined in §1.904-5(a)(4)(v)) in
order to apply paragraph (d)(3)(v)(B)(1)
of this section for purposes of §1.904-6(b)
(2)(i). In the case of a taxpayer that is a
foreign corporation, the attribution rules
in §1.954-1(d)(1)(iii) apply to determine
the reattribution amounts received by a
taxable unit in the statutory and residual
groupings in order to apply paragraph (d)
(3)(v)(B)(1) of this section for purpos-
es of §§1.951A-2(c)(3), 1.954-1(c)(1)(i)
and (d)(1)(iv), and 1.960-1(d)(3)(ii). For
purposes of other operative sections (as
described in §1.861-8(f)(1)), the princi-
ples of §1.904-4(f)(2)(vi) or §1.954-1(d)
(1)(iii), as applicable, apply to determine
the reattribution amounts received by a
taxable unit in the statutory and residu-
al groupings. The rules and principles of
§1.904-4(f)(2)(vi) or §1.954-1(d)(1)(iii),
as applicable, apply to determine the ex-
tent to which a disregarded payment made
by the taxable unit is a reattribution pay-
ment and the reattribution amounts that
constitute a reattribution payment, and
to adjust the U.S. gross income initially
attributed to each taxable unit to reflect
the reattribution payments that the tax-
able unit makes and receives. The rules
in this paragraph (d)(3)(v)(B)(2) limit the
amount of a disregarded payment that is a
reattribution payment to the U.S. gross in-
come of the payor taxable unit that is rec-
ognized in the U.S. taxable year in which
the disregarded payment is made.
(3) Effect of reattribution payment on
foreign gross income items of payor tax-
able unit. The statutory or residual group-
ing to which an item of foreign gross
income of a taxable unit is assigned is
determined without regard to reattribu-
tion payments made by the taxable unit,
and without regard to whether the taxable
unit has one or more attribution items af-
ter taking into account such reattribution
payments. No portion of the foreign gross
income of the payor taxable unit is treat-
ed as foreign gross income of the payee
taxable unit by reason of the reattribution
payment, notwithstanding that U.S. gross
income of the payor taxable unit that is
used to assign foreign gross income of the
payor taxable unit to statutory and resid-
ual groupings is reattributed to the payee
taxable unit under paragraph (d)(3)(v)(B)
(1) of this section by reason of the reattri-
bution payment. See paragraph (e) of this
section for rules reducing the amount of
a foreign gross income item of a taxable
unit by deductions allowed under foreign
law, including deductions by reason of
disregarded payments made by a taxable
unit that are included in the foreign gross
income of the payee taxable unit.
(C) Remittances and contributions—
(1) Remittances—(i) In general. An item
of foreign gross income that a taxpayer in-
cludes by reason of the receipt of a remit-
tance by a taxable unit is assigned to the
statutory or residual groupings of the re-
cipient taxable unit that correspond to the
groupings out of which the payor taxable
unit made the remittance under the rules
of this paragraph (d)(3)(v)(C)(1)(i). A re-
mittance paid by a taxable unit is consid-
ered to be made ratably out of all of the ac-
cumulated after-tax income of the taxable
unit. The accumulated after-tax income of
the taxable unit that pays the remittance is
deemed to have arisen in the statutory and
residual groupings in the same proportions
as the proportions in which the tax book
value of the assets of the taxable unit are
(or would be if the owner of the taxable
unit were a United States person) assigned
for purposes of apportioning interest ex-
pense under the asset method in §1.861-9
in the taxable year in which the remittance
is made. See paragraph (g)(11) and (12)
of this section (Example 10 and 11). If the

Bulletin No. 2020–49 1519 November 30, 2020
payor taxable unit is determined to have
no assets under paragraph (d)(3)(v)(C)(1)
(ii) of this section, then the foreign gross
income that is included by reason of the
receipt of the remittance is assigned to the
residual grouping.
(ii) Assets of a taxable unit. The as-
sets of a taxable unit are determined in
accordance with §1.987-6(b), except that
for purposes of applying §1.987-6(b)(2)
under this paragraph (d)(3)(v)(C)(1)(ii), a
taxable unit is deemed to be a section 987
QBU (within the meaning of §1.987-1(b)
(2)) and assets of the taxable unit include
stock held by the taxable unit and the por-
tion of the tax book value of a reattribu-
tion asset that is assigned to the taxable
unit. The portion of the tax book value of
a reattribution asset that is assigned to a
taxable unit is an amount that bears the
same ratio to the total tax book value of
the reattribution asset as the sum of the
attribution items of that taxable unit aris-
ing from gross income produced by the
reattribution asset bears to the total gross
income produced by the reattribution as-
set. The portion of a reattribution asset
that is assigned to a taxable unit under this
paragraph (d)(3)(v)(C)(1)(ii) is not treated
as an asset of the taxable unit making the
reattribution payment for purposes of ap-
plying paragraph (d)(3)(v)(C)(1)(i) of this
section.
(2) Contributions. An item of foreign
gross income that a taxpayer includes by
reason of the receipt of a contribution by
a taxable unit is assigned to the residual
grouping. See, however, §1.904-6(b)(2)
(ii) (assigning certain items of foreign
gross income to the foreign branch cate-
gory for purposes of applying section 904
as the operative section).
(3) Disregarded payment that com-
prises both a reattribution payment and
a remittance or contribution. If both a
reattribution payment and either a remit-
tance or a contribution result from a single
disregarded payment, the foreign gross in-
come is first attributed to the portion of the
disregarded payment that is a reattribution
payment to the extent of the amount of the
reattribution payment, and any excess of
the foreign gross income item over the
amount of the reattribution payment is
then to attributed to the portion of the dis-
regarded payment that is a remittance or
contribution.
(D) Disregarded payments in connec-
tion with disregarded sales or exchanges
of property. An item of foreign gross in-
come attributable to gain recognized un-
der foreign law by reason of a disregarded
payment received in exchange for proper-
ty is characterized and assigned under the
rules of paragraph (d)(2) of this section. If
a taxpayer recognizes U.S. gross income
as a result of a disposition of property that
was previously received in exchange for a
disregarded payment, any item of foreign
gross income that the taxpayer recogniz-
es as a result of that same disposition is
assigned to a statutory or residual group-
ing under paragraph (d)(1) of this section,
without regard to any reattribution of the
U.S. gross income under §1.904-4(f)(2)
(vi)(A) (or the principles of §1.904-4(f)
(2)(vi)(A)) by reason of a disregarded
payment described in §1.904-4(f)(2)(vi)
(B)(2) (or by reason of §1.904-4(f)(2)(vi)
(D)). See paragraph (d)(3)(v)(B)(3) of this
section.
(E) Definitions. The following defini-
tions apply for purposes of this paragraph
(d)(3)(v) and paragraph (g) of this section.
(1) Attribution item. The term attribu-
tion item means the portion of an item of
gross income, computed under Federal in-
come tax law, that is attributed to a taxable
unit after taking into account all reattribu-
tion payments made and received by the
taxable unit.
(2) Contribution. The term contribu-
tion means:
(i) A transfer of property (within the
meaning of section 317(a)) to a taxable
unit that is disregarded for Federal income
tax purposes and that would be treated as
a contribution to capital described in sec-
tion 118 or a transfer described in section
351 if the taxable unit were a corporation
under Federal income tax law; or
(ii) The excess of a disregarded pay-
ment made by a taxable unit to another
taxable unit that the first taxable unit owns
over the portion of the disregarded pay-
ment that is a reattribution payment.
(3) Disregarded entity. The term dis-
regarded entity means an entity described
in §301.7701-2(c)(2) of this chapter that
is disregarded as an entity separate from
its owner for Federal income tax purposes.
(4) Disregarded payment. The term
disregarded payment means an amount
of property (within the meaning of sec-
tion 317(a)) that is transferred to or from
a taxable unit, including a payment in ex-
change for property or in satisfaction of an
account payable, or a remittance or con-
tribution, in connection with a transaction
that is disregarded for Federal income tax
purposes and that is reflected on the sepa-
rate set of books and records of the taxable
unit. A disregarded payment also includes
any other amount that is reflected on the
separate set of books and records of a tax-
able unit in connection with a transaction
that is disregarded for Federal income
tax purposes and that would constitute an
item of accrued income, gain, deduction,
or loss of the taxable unit if the transaction
to which the amount is attributable were
regarded for Federal income tax purposes.
(5) Reattribution amount. The term re-
attribution amount means an amount of
gross income, computed under Federal in-
come tax law, that is initially assigned to
a single statutory or residual grouping that
includes gross income of a taxable unit
but that is, by reason of a disregarded pay-
ment made by that taxable unit, attributed
to another taxable unit under paragraph
(d)(3)(v)(B)(2) of this section.
(6) Reattribution asset. The term re-
attribution asset means an asset that pro-
duces one or more items of gross income,
computed under Federal income tax law,
to which a disregarded payment is allocat-
ed under the rules of paragraph (d)(3)(v)
(B)(2) of this section.
(7) Reattribution payment. The term
reattribution payment means the portion
of a disregarded payment equal to the sum
of all reattribution amounts that are at-
tributed to the recipient of the disregarded
payment.
(8) Remittance. The term remittance
means:
(i) A transfer of property (within the
meaning of section 317(a)) by a taxable
unit that would be treated as a distribution
by a corporation to a shareholder with re-
spect to its stock if the taxable unit were
a corporation under Federal income tax
law; or
(ii) The excess of a disregarded pay-
ment made by a taxable unit to a second
taxable unit (including a second taxable
unit that shares the same owner as the
payor taxable unit) over the portion of the
disregarded payment that is a reattribu-
tion payment, other than an amount that is

November 30, 2020 1520 Bulletin No. 2020–49
treated as a contribution under paragraph
(d)(3)(v)(E)(2)(i) of this section.
(9) Taxable unit. In the case of a tax-
payer that is an individual or a domestic
corporation, the term taxable unit means
a foreign branch, a foreign branch owner,
or a non-branch taxable unit, as defined
in §1.904-6(b)(2)(i)(B). In the case of a
taxpayer that is a foreign corporation, the
term taxable unit means a tested unit, as
defined in §1.954-1(d)(2).
* * * * *
(g) * * *
(10) Example 9: Gain on disposition of stock—
(i) Facts. USP owns all of the outstanding stock
of CFC, which conducts business in Country A. In
Year 1, USP sells all of the stock of CFC to US2 for
$1,000x. For Country A tax purposes, USP’s basis
in the stock of CFC is $200x. Accordingly, USP rec-
ognizes $800x of gain on which Country A imposes
$80x of foreign income tax based on its rules for
taxing capital gains of nonresidents. For Federal in-
come tax purposes, USP’s basis in the stock of CFC
is $400x. Accordingly, USP recognizes $600x of
gain on the sale of the stock of CFC, of which $150x
is included in the gross income of USP as a dividend
under section 1248(a) that, as provided in section
1248(j), is treated as a dividend eligible for the de-
duction under section 245A(a). Under paragraphs (b)
(20) and (19) of this section, respectively, the sale of
CFC stock by USP gives rise to a $150x U.S. divi-
dend amount and a $450x U.S. capital gain amount.
Under §§1.904-4(d) and 1.904-5(c)(4), the $150x
U.S. dividend amount is general category section
245A subgroup income, and the $450x U.S. capital
gain amount is passive category income to USP. For
purposes of allocating and apportioning its interest
expense under §§1.861-9(g)(2)(i)(B) and 1.861-13,
USP’s stock in CFC is characterized as general cate-
gory stock in the section 245A subgroup.
(ii) Analysis. For purposes of allocating and ap-
portioning the $80x of Country A foreign income
tax, the $800x of Country A gross income from the
sale of the stock of CFC is first assigned to separate
categories. Under paragraph (d)(3)(i)(D) of this sec-
tion, the $800x of Country A gross income is first
assigned to the separate category to which the $150x
U.S. dividend amount is assigned, to the extent
thereof, and is next assigned to the separate catego-
ry to which the $450x U.S. capital gain amount is
assigned, to the extent thereof. Accordingly, $150x
of Country A gross income is assigned to the general
category in the section 245A subgroup, and $450x
of Country A gross income is assigned to the passive
category. Under paragraph (d)(3)(i)(D) of this sec-
tion, the remaining $200x of Country A gross income
is assigned to the statutory and residual groupings
to which earnings of CFC in that amount would be
assigned if they were recognized for Federal income
tax purposes in the U.S. taxable year in which the
disposition occurred. These earnings are all deemed
to arise in the section 245A subgroup of the gener-
al category, based on USP’s characterization of its
stock in CFC. Thus, under paragraph (d)(3)(i)(D)
of this section the $800x of foreign gross income,
and therefore the foreign taxable income, is charac-
terized as $350x ($150x + $200x) of income in the
general category section 245A subgroup and $450x
of income in the passive category. This is the result
even though for Country A tax purposes all $800x
of Country A gross income is characterized as gain
from the sale of stock, which would be passive cate-
gory income under section 904(d)(2)(B)(i), because
the income is assigned to a separate category based
on the characterization of the gain under Federal in-
come tax law. Under paragraph (f) of this section, the
$80x of Country A tax is ratably apportioned between
the general category section 245A subgroup and the
passive category based on the relative amounts of
foreign taxable income in each grouping. According-
ly, $35x ($80x x $350x / $800x) of the Country A tax
is apportioned to the general category section 245A
subgroup, and $45x ($80x x $450x / $800x) of the
Country A tax is apportioned to the passive category.
See also §1.245A(d)-1 for rules that may disallow a
foreign tax credit or deduction for the $35x of Coun-
try A tax apportioned to the general category section
245A subgroup.
(11) Example 10: Disregarded transfer of built-
in gain property—(i) Facts. USP owns FDE, a dis-
regarded entity that is treated for Federal income tax
purposes as a foreign branch operating in Country
A. FDE transfers Asset F, equipment used in FDE’s
trade or business in Country A, for no consideration
to USP in a transaction that is a remittance described
in paragraph (d)(3)(v)(E)(8)(i) of this section for
Federal income tax purposes but is treated as a distri-
bution of Asset F from a corporation to its sharehold-
er, USP, for Country A tax purposes. At the time of
the transfer, Asset F has a fair market value of $250x
and an adjusted basis of $100x for both Federal and
Country A income tax purposes. Country A impos-
es $30x of tax on FDE with respect to the $150x of
built-in gain on a deemed sale of Asset F, which is
recognized for Country A tax purposes by reason
of the transfer to USP. If FDE had sold Asset F for
$250x in a transaction that was regarded for Federal
income tax purposes, FDE would also have recog-
nized gain of $150x for Federal income tax purposes,
and that gain would have been characterized as for-
eign branch category income as defined in §1.904-
4(f). Country A also imposes $25x of withholding
tax, a separate levy, on USP by reason of the distri-
bution of Asset F, valued at $250x, to USP.
(ii) Analysis—(A) Net income tax on built-in
gain. For purposes of allocating and apportioning
the $30x of Country A foreign income tax imposed
on FDE by reason of the deemed sale of Asset F for
Country A tax purposes, under paragraph (c)(1) of
this section the $150x of Country A gross income
from the deemed sale of Asset F is first assigned to
a separate category. Because the transaction is disre-
garded for Federal income tax purposes, there is no
corresponding U.S. item. However, FDE would have
recognized gain of $150x, which would have been
a corresponding U.S. item, if the deemed sale had
been recognized for Federal income tax purposes.
Therefore, under paragraph (d)(2)(i) of this section,
the item of foreign gross income is characterized
and assigned to the grouping to which such corre-
sponding U.S. item would have been assigned if the
deemed sale were recognized under Federal income
tax law. Because the sale of Asset F in a regarded
transaction would have resulted in foreign branch
category income, the foreign gross income is char-
acterized as foreign branch category income. Under
paragraph (f) of this section, the $30x of Country A
tax is also allocated to the foreign branch category,
the statutory grouping to which the $150x of Country
A gross income is assigned. No apportionment of the
$30x is necessary because the class of gross income
to which the foreign gross income is allocated con-
sists entirely of a single statutory grouping, foreign
branch category income.
(B) Withholding tax on distribution. For pur-
poses of allocating and apportioning the $25x of
Country A withholding tax imposed on USP by
reason of the transfer of Asset F, under paragraph
(c)(1) of this section the $250x of Country A gross
income from the distribution of Asset F is first as-
signed to a separate category. The transfer of Asset
F is a remittance from FDE to USP, and thus there is
no corresponding U.S. item. Under paragraph (d)(3)
(v)(C)(1)(i) of this section, the item of foreign gross
income is assigned to the groupings to which the in-
come out of which the payment is made is assigned;
the payment is considered to be made ratably out of
all of the accumulated after-tax income of FDE, as
computed for Federal income tax purposes; and the
accumulated after-tax income of FDE is deemed to
have arisen in the statutory and residual groupings in
the same proportions as those in which the tax book
value of FDE’s assets in the groupings, determined
in accordance with paragraph (d)(3)(v)(C)(1)(ii) of
this section, are assigned for purposes of apportion-
ing USP’s interest expense. Because all of FDE’s as-
sets produce foreign branch category income, under
paragraph (d)(3)(v)(C)(1) of this section the foreign
gross income is characterized as foreign branch cate-
gory income. Under paragraph (f) of this section, the
$25x of Country A withholding tax is also allocated
entirely to the foreign branch category, the statutory
grouping to which the $250x of Country A gross in-
come is assigned. No apportionment of the $25x is
necessary because the class of gross income to which
the foreign gross income is allocated consists entire-
ly of a single statutory grouping, foreign branch cat-
egory income.
(12) Example 11: Disregarded payment that
is a remittance—(i) Facts. USP owns all of the
outstanding stock of CFC1. CFC1, a tested unit
within the meaning of §1.954-1(d)(2) (the “CFC1
tested unit”), owns all of the interests in FDE, a
disregarded entity that is organized in Country B.
CFC1’s interests in FDE are also a tested unit with-
in the meaning of §1.954-1(d)(2) (the “FDE tested
unit”). The sole assets of FDE (determined in ac-
cordance with paragraph (d)(3)(v)(C)(1)(ii) of this
section) consist of all of the outstanding stock of
CFC3, a controlled foreign corporation organized
in Country B. In Year 1, CFC3 pays a $400x divi-
dend to FDE that is excluded from CFC1’s foreign
personal holding company income (“FPHCI”) by
reason of section 954(c)(6). FDE makes no pay-
ments to CFC1 and pays no Country B tax in Year
1. In Year 2, FDE makes a $400x payment to CFC1
that is a remittance (as defined in paragraph (d)(3)
(v)(E) of this section). Under the laws of Country
B, the remittance gives rise to a $400x dividend.

Bulletin No. 2020–49 1521 November 30, 2020
Country B imposes a 5% ($20x) withholding tax
(which is an eligible current year tax as defined in
§1.960-1(b)) on CFC1 on the dividend. In Year 2,
CFC3 pays no dividends to FDE, and FDE earns
no income. For Federal income tax purposes, the
$400x payment from FDE to CFC1 is a disregard-
ed payment and results in no income to CFC1. For
purposes of this paragraph (g)(12) (Example 11),
section 960(a) is the operative section and the in-
come groups described in §1.960-1(d)(2) are the
statutory and residual groupings. See §1.960-1(d)
(3)(ii)(A) (applying §1.960-1 to allocate and ap-
portion current year taxes to income groups). For
Federal income tax purposes, in Year 2 the stock
of CFC3 owned by FDE has a tax book value of
$1,000x, $750x of which is assigned under the
asset method in §1.861-9 (as applied by treating
CFC1 as a United States person) to the general
category tested income group described in §1.960-
1(d)(2)(ii)(C), and $250x of which is assigned
to a passive category FPHCI group described in
§1.960-1(d)(2)(ii)(B)(2)(i).
(ii) Analysis. (A) The $20x Country B with-
holding tax on the remittance from FDE is im-
posed on a $400x item of foreign gross income that
CFC1 includes in income by reason of its receipt
of a disregarded payment. In order to allocate and
apportion the $20x of Country B withholding tax
under paragraph (c) of this section for purposes of
§1.960-1(d)(3)(ii)(A), paragraph (d)(3)(v) of this
section applies to assign the $400x item of foreign
gross dividend income to a statutory or residual
grouping. Under paragraph (d)(3)(v)(C)(1) of this
section, the $400x item of foreign gross income is
assigned to the statutory or residual groupings that
include the U.S. gross income that is attributable to
the CFC1 tested unit under the attribution rules in
§1.954-1(d)(1)(iii) and that correspond to the statu-
tory and residual groupings out of which FDE made
the remittance.
(B) Under paragraph (d)(3)(v)(C)(1)(i) of this
section, FDE is considered to pay the remittance rat-
ably out of all of its accumulated after-tax income,
which is deemed to have arisen in the statutory and
residual groupings in the same proportions as the
proportions in which the tax book value of FDE’s
assets would be assigned (if CFC1 were a United
States person) for purposes of apportioning interest
expense under the asset method in Year 2, the tax-
able year in which FDE made the remittance. Ac-
cordingly, $300x ($400x x $750x / $1,000x) of the
remittance is deemed to be made out of the general
category tested income of the FDE tested unit, and
$100x ($400x x $250x / $1,000x) of the remittance is
deemed to be made out of the passive category FPH-
CI of the FDE tested unit.
(C) Under paragraph (d)(3)(v)(C)(1)(i) of this
section, $300x of the $400x item of foreign gross
income from the remittance, and therefore an equal
amount of foreign taxable income, is assigned to
the income group that includes general category
tested income attributable to the CFC1 tested unit,
and $100x of this foreign gross income item, and
therefore an equal amount of foreign taxable in-
come, is assigned to the income group that includes
passive category FPHCI attributable to the CFC1
tested unit. Under paragraph (f) of this section,
the $20x of Country B withholding tax is ratably
apportioned between the income groups based on
the relative amounts of foreign taxable income in
each grouping. Accordingly, $15x ($20x x $300x /
$400x) of the Country B withholding tax is appor-
tioned to the income group that includes general
category tested income attributable to the CFC1
tested unit, and $5x ($20x x $100x / $400x) of the
Country B withholding tax is apportioned to the in-
come group that includes passive category FPHCI
attributable to the CFC1 tested unit. See §1.960-2
for rules on determining the amount of such taxes
that may be deemed paid under section 960(a) and
(d).
(13) Example 12: Disregarded payment that is a
reattribution payment—(i) Facts. (A) USP owns all
of the outstanding stock of CFC1, a tested unit with-
in the meaning of §1.954-1(d)(2) (the “CFC1 tested
unit”). CFC1 owns all of the interests in FDE1, a
disregarded entity organized in Country B. CFC1’s
interests in FDE1 are also a tested unit within the
meaning of §1.954-1(d)(2) (the “FDE1 tested unit”).
Country B imposes a 20 percent net income tax on
its residents. CFC1 also owns all of the interests in
FDE2, a disregarded entity organized in Country C.
CFC1’s interests in FDE2 are also a tested unit with-
in the meaning of §1.954-1(d)(2) (the “FDE2 tested
unit”). Country C imposes a 15 percent net income
tax on its residents. Each of the taxes imposed by
Countries B and C is a foreign income tax within the
meaning of §1.901-2(a) and a separate levy within
the meaning of §1.901-2(d). For purposes of this
paragraph (g)(13) (Example 12), the operative sec-
tion is the high-tax exception of §1.954-1(d), and the
statutory groupings are the general gross item group-
ings of each tested unit, as defined in §1.954-1(d)(1)
(ii)(A).
(B) FDE2 owns Asset A, which is intangible
property that has a tax book value of $10,000x and
is properly reflected on the separate set of books and
records of FDE2. In Year 1, pursuant to a license
agreement between FDE1 and FDE2 for the use of
Asset A, FDE1 makes a disregarded royalty pay-
ment to FDE2 of $1,000x that would be a deductible
royalty payment if regarded for Federal income tax
purposes. Because it is disregarded for Federal in-
come tax purposes, the $1,000x disregarded royal-
ty payment by FDE1 to FDE2 results in no income
to CFC1 for Federal income tax purposes. Also in
Year 1, pursuant to a sub-license agreement between
FDE1 and a third party for the use of Asset A, FDE1
earns $1,000x of royalty income for Federal income
tax purposes (the “U.S. gross royalty”) that is gross
tested income (as defined in §1.951A-2(c)(1)) and
properly reflected on the separate set of books and
records of FDE1.
(C) Under the laws of Country B, the transac-
tion that gives rise to the $1,000x item of U.S. gross
royalty income causes FDE1 to include a $1,200x
item of gross royalty income in its Country B tax-
able income (the “Country B gross royalty”). In ad-
dition, FDE1 deducts its $1,000x disregarded royalty
payment to FDE2 for Country B tax purposes. For
Country B tax purposes, FDE1 therefore has $200x
($1,200x - $1,000x) of taxable income on which
Country B imposes $40x (20% x $200x) of net in-
come tax.
(D) Under the laws of Country C, the $1,000x
disregarded royalty payment from FDE1 to FDE2
causes FDE2 to include a $1,000x item of gross
royalty income in its Country C taxable income (the
“Country C gross royalty”). FDE2 makes no de-
ductible payments under the laws of Country C. For
Country C tax purposes, FDE2 therefore has $1,000x
of taxable income on which Country C imposes
$150x (15% x $1,000x) of net income tax.
(ii) Analysis—(A) Country B net income tax.
(1) The Country B net income tax is imposed on
foreign taxable income of FDE1 that consists of a
$1,200x item of Country B gross royalty income
and a $1,000x item of royalty expense. For Feder-
al income tax purposes, the FDE1 tested unit has a
$1,000x item of U.S. gross royalty income that is
initially attributable to it under paragraph (d)(3)(v)
(B)(2) of this section and §1.954-1(d)(1)(iii). The
transaction that produced the $1,000x item of U.S.
gross royalty income also produced the $1,200x item
of Country B gross royalty income. Under paragraph
(b)(2) of this section, the $1,000x item of U.S. gross
royalty income is therefore the corresponding U.S.
item for the $1,200x item of Country B gross royalty
income of FDE1.
(2) The $1,000x disregarded royalty payment
from FDE1 to FDE2 is allocated under paragraph (d)
(3)(v)(B)(2) of this section and §1.954-1(d)(1)(iii) to
the $1,000x of U.S. gross income of the FDE1 tested
unit to the extent of that gross income. As a result,
the $1,000x disregarded royalty payment causes the
$1,000x item of U.S. gross royalty income to be reat-
tributed from the FDE1 tested unit to the FDE2 test-
ed unit, and results in a $1,000x reattribution amount
that is also a reattribution payment.
(3) The $1,200x Country B gross royalty item
that is included in the Country B taxable income of
FDE1 is assigned under paragraph (d)(1) of this sec-
tion to the statutory or residual grouping to which
the $1,000x corresponding U.S. item is initially as-
signed under §1.954-1(d)(1)(iii), namely, the general
gross item grouping of the FDE1 tested unit. This
assignment is made without regard to the $1,000x
reattribution payment from the FDE1 tested unit to
the FDE2 tested unit or to the fact that the FDE1
tested unit has no attribution item arising from its
$1,000x item of U.S. gross royalty income, which
is all reattributed to the FDE2 tested unit; none of
the FDE1 tested unit’s $1,200x Country B gross roy-
alty income is reattributed to the FDE2 tested unit
for this purpose. See paragraph (d)(3)(v)(B)(3) of
this section. Under paragraph (f) of this section, all
of the $40x of Country B net income tax is allocated
to the general gross item group of the FDE1 tested
unit, the statutory grouping to which the $1,200x
item of Country B gross royalty income of FDE1 is
assigned. No apportionment of the $40x is necessary
because the class of gross income to which the for-
eign gross income is allocated consists entirely of a
single statutory grouping.
(B) Country C net income tax. The Country C
net income tax is imposed on foreign taxable in-
come of FDE2 that consists of a $1,000x item of
Country C gross royalty income. For Federal in-
come tax purposes, under paragraph (d)(3)(v)(B)
(2) of this section and §1.954-1(d)(1)(iii), the FDE2
tested unit has a reattribution amount of $1,000x of

November 30, 2020 1522 Bulletin No. 2020–49
U.S. gross royalty income by reason of its receipt
of the $1,000x reattribution payment from FDE1.
The $1,000x item of U.S. gross royalty income that
is included in the taxable income of the FDE2 test-
ed unit by reason of the $1,000x reattribution pay-
ment is assigned under paragraph (d)(3)(v)(B)(1)
of this section to the statutory or residual grouping
to which the $1,000x reattribution amount of U.S.
gross royalty income that constitutes the reattribu-
tion payment is assigned upon receipt by the FDE2
tested unit under §1.954-1(d)(1)(iii), namely, the
general gross item group of the FDE2 tested unit.
Under paragraph (d)(3)(v)(B)(1) of this section, the
$1,000x item of Country C gross royalty income
is assigned to the statutory grouping to which the
$1,000x corresponding U.S. item is assigned. Ac-
cordingly, under paragraph (f) of this section, all of
the $150x of Country C net income tax is allocated
to the general gross item group of the FDE2 tested
unit, the statutory grouping to which the $1,000x
item of Country C gross royalty income of FDE2 is
assigned. No apportionment of the $150x is neces-
sary because the class of gross income to which the
foreign gross income is allocated consists entirely
of a single statutory grouping.
(h) Allocation and apportionment of
certain foreign in lieu of taxes described
in section 903. A tax that is a foreign in-
come tax by reason of §1.903-1(c)(1) is
allocated and apportioned to statutory and
residual groupings in the same propor-
tions as the foreign taxable income that
comprises the excluded income (as de-
fined in §1.903-1(c)(1)). See paragraph (f)
of this section for rules on allocating and
apportioning certain withholding taxes de-
scribed in §1.903-1(c)(2).
(i) Applicability date. Except as pro-
vided in this paragraph (i), this section
applies to taxable years beginning after
December 31, 2019. Paragraphs (b)(19)
and (23) and (d)(3)(i), (ii), and (v) of this
section apply to taxable years that begin
after December 31, 2019, and end on or
after November 2, 2020. Paragraph (h) of
this section applies to taxable years begin-
ning after [date final regulations are filed
with the Federal Register].
Par. 22. Section 1.901-1 is amended:
1. By revising the section heading and
paragraphs (a) through (d).
2. In paragraph (e), by removing the
language “a husband and wife” and add-
ing the language “spouses” in its place.
3. By revising paragraphs (f) and (h)
(1).
4. By removing paragraph (h)(2).
5. By redesignating paragraph (h)(3) as
paragraph (h)(2).
6. By revising the heading and second
sentence in paragraph (j).
The revisions and additions read as fol-
lows:
§1.901-1 Allowance of credit for foreign
income taxes.
(a) In general. Citizens of the Unit-
ed States, domestic corporations, certain
aliens resident in the United States or
Puerto Rico, and certain estates and trusts
may choose to claim a credit, as provided
in section 901, against the tax imposed by
chapter 1 of the Internal Revenue Code
(Code) for certain taxes paid or accrued
to foreign countries and possessions of the
United States, subject to the conditions
prescribed in this section.
(1) Citizen of the United States. An
individual who is a citizen of the United
States, whether resident or nonresident,
may claim a credit for—
(i) The amount of any foreign income
taxes, as defined in §1.901-2(a), paid or
accrued (as the case may be, depending on
the individual’s method of accounting for
such taxes) during the taxable year;
(ii) The individual’s share of any such
taxes of a partnership of which the indi-
vidual is a member, or of an estate or trust
of which the individual is a beneficiary;
and
(iii) In the case of an individual who
has made an election under section 962,
the taxes deemed to have been paid under
section 960 (see §1.962-1(b)(2)).
(2) Domestic corporation. A domestic
corporation may claim a credit for—
(i) The amount of any foreign income
taxes, as defined in §1.901-2(a), paid or
accrued (as the case may be, depending
on the corporation’s method of accounting
for such taxes) during the taxable year;
(ii) The corporation’s share of any such
taxes of a partnership of which the corpo-
ration is a member, or of an estate or trust
of which the corporation is a beneficiary;
and
(iii) The taxes deemed to have been
paid under section 960.
(3) Alien resident of the United States
or Puerto Rico. Except as provided in a
Presidential proclamation described in
section 901(c), an individual who is a
resident alien of the United States (as de-
fined in section 7701(b)), or an individual
who is a bona fide resident of Puerto Rico
(as defined in section 937(a)) during the
entire taxable year, may claim a credit
for—
(i) The amount of any foreign income
taxes, as defined in §1.901-2(a), paid or
accrued (as the case may be, depending on
the individual’s method of accounting for
such taxes) during the taxable year;
(ii) The individual’s share of any such
taxes of a partnership of which the indi-
vidual is a member, or of an estate or trust
of which the individual is a beneficiary;
and
(iii) In the case of an individual who
has made an election under section 962,
the taxes deemed to have been paid under
section 960 (see §1.962-1(b)(2)).
(4) Estates and trusts. An estate or trust
may claim a credit for:
(i) The amount of any foreign income
taxes, as defined in §1.901-2(a), paid or
accrued (as the case may be, depending on
the estate or trust’s method of accounting
for such taxes) during the taxable year to
the extent not allocable to and taken into
account by its beneficiaries under para-
graph (a)(1)(ii), (a)(2)(ii), or (a)(3)(ii) of
this section (see section 642(a)); and
(ii) In the case of an estate or trust that
has made an election under section 962,
the taxes deemed to have been paid under
section 960 (see §1.962-1(b)(2)).
(b) Limitations. Certain Code sections,
including sections 245A(d) and (e)(3),
814, 901(e) through (m), 904, 906, 907,
908, 909, 911, 965(g), 999, and 6038, re-
duce, defer, or otherwise limit the credit
against the tax imposed by chapter 1 of
the Code for certain amounts of foreign
income taxes.
(c) Deduction denied if credit
claimed—(1) In general. Except as pro-
vided in paragraphs (c)(2) and (3) of this
section, if a taxpayer chooses with respect
to any taxable year to claim a foreign tax
credit to any extent, such choice will be
considered to apply to all of the foreign
income taxes paid or accrued (as the case
may be, depending on the taxpayer’s
method of accounting for such taxes) in
such taxable year, and no portion of any
such taxes is allowed as a deduction from
gross income in any taxable year. See sec-
tion 275(a)(4).
(2) Exception for taxes not subject to
section 275. Foreign income taxes for
which a credit is disallowed and to which
section 275 does not apply may be al-

Bulletin No. 2020–49 1523 November 30, 2020
lowed as a deduction under section 164(a)
(3). See, for example, sections 901(f),
901(j)(3), 901(k)(7), 901(l)(4), 901(m)
(6), and 908(b). For rules on the year in
which a deduction for foreign income
taxes is allowed under section 164(a)(3),
see §§1.446-1(c)(1)(ii), 1.461-2(a)(2), and
1.461-4(g)(6)(iii)(B).
(3) Exception for additional taxes paid
by an accrual basis taxpayer that relate
to a prior year for which the taxpayer de-
ducted foreign income taxes. In a taxable
year in which a taxpayer chooses to claim
a credit for foreign income taxes accrued
in that year (including a cash method tax-
payer who has made an election under
section 905(a) to claim credits in the year
the taxes accrue), additional foreign in-
come taxes that are finally determined and
paid as a result of a foreign tax redetermi-
nation in that taxable year may be claimed
as a deduction in such taxable year, if the
additional foreign income taxes relate to
a prior taxable year in which the taxpay-
er chose to claim a deduction, rather than
a credit, for foreign income taxes paid or
accrued (as the case may be, depending on
the taxpayer’s overall method of account-
ing) in that prior year.
(4) Example. The following example
illustrates the application of paragraph (c)
(3) of this section.
(i) Facts. USC is a domestic corporation that is
engaged in a trade or business in Country X through
a branch. USC uses an accrual method of account-
ing and uses the calendar year as its taxable year for
U.S. and Country X tax purposes. For taxable years
1 through 3, USC chooses to deduct foreign income
taxes, including Country X income taxes, for Fed-
eral income tax purposes in the U.S. taxable year in
which the taxes accrue. In years 4 through 6, USC
chooses to claim a credit under section 901 for for-
eign income taxes that accrued in those years. In year
6, USC pays an additional $50x in tax to Country
X with respect to year 1 as a result of a Country X
tax audit.
(ii) Analysis. The additional $50x of Country X
tax for year 1 that is paid by USC in year 6 cannot
be claimed as a deduction on an amended return for
year 1, because those taxes did not accrue until year
6. See section 461(f) (flush language); §§1.461-1(a)
(2)(i) and 1.461-2(a)(2). In addition, because the
additional $50x of Country X tax liability relates
to and is considered to accrue in year 1 for foreign
tax credit purposes, USC cannot claim a credit for
the $50x on its Federal income tax return for year
6. See §1.905-1(d)(1). However, pursuant to para-
graph (c)(3) of this section, USC can claim a de-
duction for the additional $50x of year 1 Country
X tax on its Federal income tax return for year 6,
in addition to claiming a credit for foreign income
taxes that accrued in year 6.
(d) Period during which election can
be made or changed—(1) In general.
The taxpayer may, for a particular tax-
able year, elect to claim the benefits of
section 901 (or claim a deduction in lieu
of electing a foreign tax credit) at any
time before the expiration of the period
within which a claim for credit or refund
of Federal income tax for such taxable
year that is attributable to such credit or
deduction, as the case may be, may be
made or, if longer, the period prescribed
by section 6511(c) if the refund period
for that taxable year is extended by an
agreement to extend the assessment pe-
riod under section 6501(c)(4). Thus, an
election to claim a credit for foreign in-
come taxes paid or accrued (as the case
may be, depending on the taxpayer’s
method of accounting for such taxes)
in a particular taxable year can be made
within the period prescribed by section
6511(d)(3)(A) for claiming a credit or
refund of Federal income tax for that
taxable year that is attributable to a cred-
it for the foreign income taxes paid or
accrued in that particular taxable year
or, if longer, the period prescribed by
section 6511(c) with respect to that par-
ticular taxable year. A choice to claim a
deduction under section 164(a)(3), rath-
er than a credit, for foreign income taxes
paid or accrued in a particular taxable
year can be made within the period pre-
scribed by section 6511(a) or 6511(c), as
applicable, for claiming a credit or re-
fund of Federal income tax for that par-
ticular taxable year.
(2) Manner in which election is made
or changed. A taxpayer claims a deduc-
tion or elects to claim a credit for foreign
income taxes paid or accrued in a par-
ticular taxable year by filing an original
or amended return for that taxable year
within the relevant period specified in
paragraph (d)(1) of this section. A claim
for credit shall be accompanied by Form
1116 in the case of an individual, estate
or trust, and by Form 1118 in the case of
a corporation (and an individual, estate
or trust making an election under section
962). See §§1.905-3 and 1.905-4 for rules
requiring the filing of amended returns for
all affected years when a timely change in
the taxpayer’s election results in U.S. tax
deficiencies.
* * * * *
(f) Taxes against which credit not al-
lowed. The credit for foreign income taxes
is allowed only against the tax imposed
by chapter 1 of the Code, except that it is
not allowed against tax that, under section
26(b)(2), is treated as a tax not imposed
under such chapter.
* * * * *
(h) * * *
(1) Except as provided in paragraphs
(c)(2) and (3) of this section, a taxpayer
who deducts foreign income taxes paid or
accrued (as the case may be, depending on
the taxpayer’s method of accounting for
such taxes) for that taxable year (see sec-
tions 164 and 275); and
* * * * *
(j) Applicability date. * * * This section
applies to foreign taxes paid or accrued in
taxable years beginning on or after [date
final regulations are filed with the Federal
Register].
Par. 23. Section 1.901-2 is amended:
1. By revising paragraphs (a) heading
and (a)(1).
2. By removing the undesignated para-
graph following paragraph (a)(1).
3. By revising paragraphs (a)(3), (b)
heading, (b)(1), (b)(2) heading, and (b)(2)
(i).
4. By removing the undesignated para-
graph following paragraph (b)(2)(i) and
paragraph (b)(2)(ii).
5. By redesignating paragraphs (b)(2)
(iii) and (iv) as paragraphs (b)(2)(ii) and
(iii), respectively.
6. By revising paragraphs (b)(3), (b)(4)
heading, and (b)(4)(i).
7. By removing the undesignated para-
graph following paragraph (b)(4)(i).
8. By revising paragraph (b)(4)(iv).
9. By adding paragraph (b)(5).
10. By revising paragraphs (c) and (d)
(1).
11. By removing the last sentence of
paragraph (d)(2).
12. By revising paragraphs (e) heading,
(e)(1), and (e)(2)(i).
13. By redesignating paragraph (e)(2)
(ii) as paragraph (e)(2)(iv).
14. By adding a new paragraph (e)(2)
(ii) and paragraph (e)(2)(iii).
15. By removing the undesignated sen-
tence after paragraph (e)(3)(iii)(C) and
paragraph (e)(3)(v).
16. By revising paragraphs (e)(4) and
(e)(5)(i).

November 30, 2020 1524 Bulletin No. 2020–49
17. By redesignating paragraph (e)(5)
(ii) as paragraph (e)(5)(iii).
18. By adding a new paragraph (e)(5)
(ii) and paragraph (e)(6).
19. In paragraph (f)(3)(ii)(A), by re-
moving the language Ҥ1.909-2T(b)(2)
(vi)” and adding the language “§1.909-
2(b)(2)(vi)” in its place.
20. In paragraph (f)(3)(iii)(B)(2), by
removing the language Ҥ1.909-2T(b)(3)
(i)” and adding the language “§1.909-2(b)
(3)(i)” in its place.
21. By revising paragraph (f)(4).
22. By redesignating paragraphs (f)
(5) and (6) as paragraphs (f)(6) and (7),
respectively.
23. By adding a new paragraph (f)(5).
24. By revising newly redesignated
paragraph (f)(6).
25. In newly redesignated paragraph
(f)(7) introductory text, by removing the
language “paragraphs (f)(3) and (f)(4)”
and adding the language “paragraphs (f)
(3) through (6)” in its place.
26. In newly redesignated paragraph (f)
(7), by removing Example 3.
27. By revising paragraphs (g) and (h).
The revisions and additions read as fol-
lows:
§1.901-2 Income, war profits, or excess
profits tax paid or accrued.
(a) Definition of foreign income tax—
(1) Overview and scope. Paragraphs (a),
(b), and (c) of this section define a for-
eign income tax for purposes of section
901. Paragraph (d) of this section contains
rules describing what constitutes a sep-
arate levy. Paragraph (e) of this section
provides rules for determining the amount
of foreign income tax paid by a person.
Paragraph (f) of this section contains rules
for determining by whom foreign income
tax is paid. Paragraph (g) of this section
defines the terms used in this section.
Paragraph (h) of this section provides the
applicability date for this section.
(i) In general. Section 901 allows a
credit for the amount of income, war prof-
its, and excess profits taxes paid during
the taxable year to any foreign country,
and section 903 provides that for purpos-
es of Part III of subchapter N of the Code
and sections 164(a) and 275(a), such taxes
include a tax paid in lieu of a tax on in-
come, war profits or excess profits that is
otherwise generally imposed by a foreign
country (collectively, for purposes of this
section, a “foreign income tax”). Whether
a foreign levy is a foreign income tax is
determined independently for each sepa-
rate levy. A foreign tax either is or is not
a foreign income tax, in its entirety, for all
persons subject to the foreign tax.
(ii) Requirements. A foreign levy is a
foreign income tax only if—
(A) It is a foreign tax; and
(B) Either:
(1) The foreign tax is a net income tax,
as defined in paragraph (a)(3) of this sec-
tion; or
(2) The foreign tax is a tax in lieu of an
income tax, as defined in §1.903-1(b).
* * * * *
(3) Net income tax. A foreign tax is
a net income tax only if the foreign tax
meets the net gain and jurisdictional nex-
us requirements in paragraphs (b) and (c)
of this section.
(b) Net gain requirement—(1) In gen-
eral. A foreign tax satisfies the net gain
requirement only if the tax satisfies the re-
alization, gross receipts, and cost recovery
requirements in paragraphs (b)(2), (3), and
(4) of this section, respectively, or if the
foreign tax is a surtax described in para-
graph (b)(5) of this section. Paragraphs (b)
(2) through (5) of this section are applied
with respect to a foreign tax solely on the
basis of the foreign tax law governing the
calculation of the foreign taxable base, un-
less otherwise provided, and without any
consideration of the rate of tax imposed on
the foreign taxable base.
(2) Realization requirement—(i) In
general. A foreign tax satisfies the reali-
zation requirement if it is imposed upon
one or more of the events described in
paragraphs (b)(2)(i)(A) through (C) of this
section. If a foreign tax meets the realiza-
tion requirements in paragraphs (b)(2)(i)
(A) through (C) of this section except with
respect to one or more specific and defined
classes of nonrealization events (such as,
for example, imputed rental income from
a personal residence used by the owner),
and as judged based on the application of
the foreign tax to all taxpayers subject to
the foreign tax, the incidence and amounts
of gross receipts attributable to such non-
realization events is insignificant relative
to the incidence and amounts of gross re-
ceipts attributable to events covered by
the foreign tax that do meet the realization
requirement, then the foreign tax is treated
as meeting the realization requirement in
paragraph (b)(2) of this section (despite
the fact that the foreign tax is also im-
posed on the basis of some nonrealization
events, and that some persons subject to
the foreign tax may only be taxed on non-
realization events).
(A) Realization events. The foreign tax
is imposed upon or after the occurrence
of events (“realization events”) that result
in the realization of income under the in-
come tax provisions of the Internal Reve-
nue Code.
(B) Pre-realization recapture events.
The foreign tax is imposed upon the oc-
currence of an event before a realization
event (a “pre-realization event”) that re-
sults in the recapture (in whole or part)
of a tax deduction, tax credit, or other tax
allowance previously accorded to the tax-
payer (for example, the recapture of an in-
centive tax credit if required investments
are not completed within a specified pe-
riod).
(C) Pre-realization timing difference
events. The foreign tax is imposed upon
the occurrence of a pre-realization event,
other than one described in paragraph (b)
(2)(i)(B) of this section, but only if the for-
eign country does not, upon the occurrence
of a later event, impose tax under the same
or a separate levy (a “second tax”) on the
same taxpayer (for purposes of this para-
graph (b)(2)(i)(C), treating a disregarded
entity as defined in §301.7701-3(b)(2)
(i)(C) of this chapter as a taxpayer sepa-
rate from its owner), with respect to the
income on which tax is imposed by rea-
son of such pre-realization event (or, if it
does impose a second tax, a credit or other
comparable relief is available against the
liability for such a second tax for tax paid
on the occurrence of the pre-realization
event) and—
(1) The imposition of the tax upon such
pre-realization event is based on the dif-
ference in the fair market value of prop-
erty at the beginning and end of a period;
(2) The pre-realization event is the
physical transfer, processing, or export of
readily marketable property (as defined in
paragraph (b)(2)(ii) of this section) and
the imposition of the tax upon the pre-re-
alization event is based on the fair market
value of such property; or

Bulletin No. 2020–49 1525 November 30, 2020
(3) The pre-realization event relates to
a deemed distribution (for example, by a
corporation to a shareholder) or inclusion
(for example, under a controlled foreign
corporation inclusion regime) of amounts
(such as earnings and profits) that meet the
realization requirement in paragraph (b)
(2) of this section in the hands of the per-
son that, under foreign tax law, is deemed
to distribute such amounts.
* * * * *
(3) Gross receipts requirement—(i)
Rule. A foreign tax satisfies the gross re-
ceipts requirement if it is imposed on the
basis of actual gross receipts, on the basis
of the amount of deemed gross receipts
arising from pre-realization timing dif-
ference events described in paragraph (b)
(2)(i)(C) of this section, or on the basis of
gross receipts from an insignificant non-re-
alization event that is described in the sec-
ond sentence of paragraph (b)(2) of this
section. A taxpayer’s actual gross receipts
are determined taking into account the
gross receipts that are properly allocated to
such taxpayer under a foreign tax meeting
the jurisdictional nexus requirements of
paragraph (c)(1)(i) or (c)(2) of this section.
(ii) Examples. The following examples
illustrate the rules of paragraph (b)(3)(i)
of this section.
(A) Example 1: Cost-plus tax—(1) Facts. Coun-
try X imposes a “cost-plus tax” on country X cor-
porations that serve as regional headquarters for
affiliated nonresident corporations, and this tax is a
separate levy (within the meaning of paragraph (d)
of this section). A headquarters company for pur-
poses of this tax is a corporation that performs ad-
ministrative, management or coordination functions
solely for nonresident affiliated entities. Due to the
difficulty of determining on a case-by-case basis the
arm’s length gross receipts that headquarters compa-
nies would charge affiliates for such services, gross
receipts of a headquarters company are deemed, for
purposes of this tax, to equal 110 percent of the busi-
ness expenses incurred by the headquarters company.
(2) Analysis. Because the cost-plus tax is based
on costs and not on gross receipts, under paragraph
(b)(3)(i) of this section the cost-plus tax does not sat-
isfy the gross receipts requirement.
(B) Example 2: Petroleum taxed on extraction—
(1) Facts. Country X imposes a tax that is a separate
levy (within the meaning of paragraph (d) of this
section) on income from the extraction of petroleum.
Under the terms of that tax, gross receipts from ex-
traction income are deemed to equal 105 percent of
the fair market value of petroleum extracted.
(2) Analysis. Because it is imposed on deemed
gross receipts that exceed the fair market value of
the petroleum extracted, the tax on extraction income
does not satisfy the gross receipts requirement of
paragraph (b)(3)(i) of this section.
(4) Cost recovery requirement—(i)
In general—(A) Requirement. A foreign
tax satisfies the cost recovery require-
ment if the base of the tax is computed
by reducing gross receipts (as described
in paragraph (b)(3) of this section) to per-
mit recovery of the significant costs and
expenses (including significant capital
expenditures) attributable, under reason-
able principles, to such gross receipts. In
addition, a foreign tax satisfies the cost
recovery requirement if the foreign tax
law permits recovery of an amount that
by its terms may be greater, but can never
be less, than the actual amounts of such
significant costs and expenses (for exam-
ple, under a provision identical to per-
centage depletion allowed under section
613). A foreign tax whose base is gross
receipts or gross income for which no re-
duction is allowed under foreign tax law
for costs and expenses does not satisfy
the cost recovery requirement, even if in
practice there are few costs and expenses
attributable to all or particular types of
gross receipts included in the foreign tax
base. See paragraph (b)(4)(iv) of this sec-
tion (Example 3).
(B) Significant costs and expenses—
(1) Timing of recovery. A foreign tax law
permits recovery of significant costs and
expenses even if such costs and expens-
es are recovered earlier or later than they
are recovered under the Internal Revenue
Code, unless the time of recovery is so
much later (for example, after the property
becomes worthless or is disposed of) as ef-
fectively to constitute a denial of such re-
covery. The amount of costs and expenses
that are considered to be recovered under
the foreign tax law is neither discounted
nor augmented by taking into account the
time value of money attributable to any
acceleration or deferral of a tax benefit
resulting from the foreign law cost recov-
ery method compared to when tax would
be paid under the Internal Revenue Code.
Therefore, the cost recovery requirement
is satisfied where items deductible under
the Internal Revenue Code are capitalized
under the foreign tax law and recovered
either immediately, on a recurring basis
over time, or upon the occurrence of some
future event, or where the recovery of
items capitalized under the Internal Reve-
nue Code occurs more or less rapidly than
under the foreign tax law.
(2) Amounts that must be recovered.
Whether a cost or expense is significant
for purposes of this paragraph (b)(4)(i)
is determined based on whether, for all
taxpayers in the aggregate to which the
foreign tax applies, the item of cost or
expense constitutes a significant portion
of the taxpayers’ total costs and expens-
es. However, costs and expenses related
to capital expenditures, interest, rents,
royalties, services, or research and ex-
perimentation are always treated as sig-
nificant costs or expenses for purposes of
this paragraph (b)(4)(i). Foreign tax law is
considered to permit recovery of signifi-
cant costs and expenses even if recovery
of all or a portion of certain costs or ex-
penses is disallowed, if such disallowance
is consistent with the types of disallow-
ances required under the Internal Revenue
Code. For example, foreign tax law is con-
sidered to permit recovery of significant
costs and expenses if such law disallows
interest deductions equal to a certain per-
centage of adjusted taxable income simi-
lar to the limitation under section 163(j),
disallows interest and royalty deductions
in connection with hybrid transactions
similar to those described in section
267A, or disallows certain expenses based
on public policy considerations similar to
those disallowances contained in section
162. A foreign tax law that does not permit
recovery of one or more significant costs
or expenses does not meet the cost recov-
ery requirement, even if it provides alter-
native allowances that in practice equal or
exceed the amount of nonrecovered costs
or expenses. However, in determining
whether a foreign tax (the “tested foreign
tax”) meets the cost recovery requirement,
it is immaterial whether the tested foreign
tax allows a deduction for other taxes that
would qualify as foreign income taxes
(determined without regard to whether
such other tax allows a deduction for the
tested foreign tax). See paragraph (b)(4)
(iv) of this section (Example 5).
(3) Attribution of costs and expenses to
gross receipts. Principles used in the for-
eign tax law to attribute costs and expens-
es to gross receipts may be reasonable
even if they differ from principles that
apply under the Internal Revenue Code
(for example, principles that apply under
section 265, 465 or 861(b) of the Internal
Revenue Code).

November 30, 2020 1526 Bulletin No. 2020–49
* * * * *
(iv) Examples. The following examples
illustrate the rules of this paragraph (b)(4).
(A) Example 1: Tax on gross interest income of
certain residents; no deductions allowed—(1) Facts.
Country X imposes a net income tax on corporations
resident in Country X; however, that income tax
is not applicable to banks. Country X also impos-
es a tax (the “bank tax”) of 1 percent on the gross
amount of interest income derived by banks resident
in Country X; no deductions are allowed. Banks res-
ident in Country X incur substantial costs and ex-
penses (for example, interest expense) attributable to
their interest income.
(2) Analysis. Because the terms of the bank tax
do not permit recovery of significant costs and ex-
penses attributable to the gross receipts included in
the tax base, under paragraph (b)(4)(i) of this sec-
tion the bank tax does not satisfy the cost recovery
requirement.
(B) Example 2: Tax on gross interest income of
nonresidents; no deductions allowed—(1) Facts.
Country X imposes a net income tax on nonresident
persons engaged in a trade or business in Country
X. Country X also imposes a tax (the “bank tax”)
of 1 percent on the gross amount of interest income
earned by nonresident banks from loans to residents
of Country X if such banks are not engaged in a trade
or business in Country X or if such interest income
is not considered attributable to a trade or business
conducted in Country X. Under Country X tax law,
no deductions are allowed in determining the base of
the bank tax. Banks incur substantial costs and ex-
penses (for example, interest expense) attributable to
their interest income.
(2) Analysis. Because no deductions are allowed
in determining the base of the bank tax, under para-
graph (b)(4)(i) of this section the bank tax does not
satisfy the cost recovery requirement.
(C) Example 3: Payroll tax—(1) Facts. A foreign
country imposes payroll tax at the rate of 10 percent
on the amount of gross wages realized by resident
employees; no deductions are allowed in computing
the base of the payroll tax.
(2) Analysis. Because the foreign tax law does
not allow for the recovery of any costs and expenses
attributable to gross receipts included in the taxable
base, under paragraph (b)(4)(i) of this section the
payroll tax does not satisfy the cost recovery require-
ment.
(D) Example 4: Tax on gross wages reduced by
allowable deductions–(1) Facts. A foreign country
imposes a tax at the rate of 40 percent on the real-
ized gross receipts of its residents, including gross
income from wages, reduced by deductions for sig-
nificant costs and expenses attributable to the gross
receipts included in the taxable base.
(2) Analysis. Because foreign tax law allows for
the recovery of significant costs and expenses attrib-
utable to gross receipts included in the taxable base,
under paragraph (b)(4)(i) of this section the tax satis-
fies the cost recovery requirement.
(E) Example 5: No deduction for another net in-
come tax—(1) Facts. Each of Country X and Prov-
ince Y (a political subdivision of Country X) impos-
es a tax on resident corporations, called the “Country
X income tax” and the “Province Y income tax,”
respectively. Each tax has an identical base, which is
computed by reducing a corporation’s realized gross
receipts by deductions that, based on the laws of
Country X and Province Y, generally permit recov-
ery of the significant costs and expenses (including
significant capital expenditures) that are attributable
under reasonable principles to such gross receipts.
However, the Country X income tax does not allow
a deduction for the Province Y income tax for which
a taxpayer is liable, nor does the Province Y income
tax allow a deduction for the Country X income tax
for which a taxpayer is liable.
(2) Analysis. Under paragraph (d)(1)(i) of this
section, each of the Country X income tax and the
Province Y income tax is a separate levy. Without
regard to whether the Province Y income tax may
allow a deduction for the Country X income tax, and
without regard to whether the Country X income tax
may allow a deduction for the Province Y income
tax, both taxes would qualify as net income taxes un-
der paragraph (a)(3) of this section. Therefore, under
paragraph (b)(4)(i)(B)(2) of this section the fact that
neither levy’s base allows a deduction for the other
levy is immaterial, and both levies satisfy the cost
recovery requirement.
(5) Surtax on net income tax. A for-
eign tax satisfies the net gain requirement
in this paragraph (b) if the base of the
foreign tax is the amount of a net income
tax. For example, if a tax (surtax) is com-
puted as a percentage of a separate levy
that is itself a net income tax, then such
surtax is considered to satisfy the net
gain requirement.
(c) Jurisdictional nexus requirement. A
foreign tax meets the jurisdictional nexus
requirement only if the tax satisfies the
requirements of paragraph (c)(1) of this
section (with respect to a separate levy
imposed on nonresidents of the foreign
country) or paragraph (c)(2) of this sec-
tion (with respect to a separate levy im-
posed on residents of the foreign country).
(1) Tax on nonresidents. Each of the
items of income of nonresidents of a for-
eign country that is subject to the foreign
tax must satisfy the requirements of para-
graph (c)(1)(i), (ii), or (iii) of this section.
(i) Income attribution based on activ-
ities nexus. The income that is taxable in
the foreign country is limited to income
that is attributable, under reasonable
principles, to the nonresident’s activities
within the foreign country (including the
nonresident’s functions, assets, and risks
located in the foreign country), without
taking into account as a significant factor
the location of customers, users, or any
other similar destination-based criterion.
For purposes of the preceding sentence,
attribution of income under reasonable
principles includes rules similar to those
for determining effectively connected in-
come under section 864(c).
(ii) Nexus based on source of income.
The amount of income (other than income
from sales or other dispositions of proper-
ty) that is taxable in the foreign country on
the basis of source (instead of on the basis
of activities as described in paragraph (c)
(1)(i) of this section) is based on income
arising from sources within the foreign
country that imposes the tax, but only if
the sourcing rules of the foreign tax law
are reasonably similar to the sourcing rules
that apply for Federal income tax purpos-
es. In particular, a foreign tax on income
from services must be sourced based on
where the services are performed, and not
based on the location of the service recip-
ient.
(iii) Nexus based on situs of proper-
ty. The amount of income from sales or
dispositions of property that is taxable
in the foreign country on the basis of the
situs of real or movable property (instead
of on the basis of activities as described
in paragraph (c)(1)(i) of this section) in-
cludes only gains that are attributable to
the disposition of real property situated in
the foreign country or movable property
forming part of the business property of
a taxable presence in the foreign country
(including, for purposes of this paragraph
(c)(1)(iii), interests in a company or other
entity to the extent attributable to such real
property or business property).
(2) Tax on residents. A foreign tax im-
posed on residents of the foreign country
imposing the foreign tax may be imposed
on the worldwide income of the resident,
but must provide that any allocation to or
from the resident of income, gain, deduc-
tion, or loss with respect to transactions
between such resident and organizations,
trades, or businesses owned or controlled
directly or indirectly by the same inter-
ests (that is, any allocation made pursuant
to the foreign country’s transfer pricing
rules) is determined under arm’s length
principles, without taking into account as
a significant factor the location of custom-
ers, users, or any other similar destina-
tion-based criterion.
(3) Example. The following example
illustrates the rules of this paragraph (c).
(i) Facts. Country X imposes a separate levy on
nonresident companies that furnish specified types
of electronically supplied services to users located
in Country X (the “ESS tax”). The base of the ESS

Bulletin No. 2020–49 1527 November 30, 2020
tax is computed by taking the nonresident compa-
ny’s overall net income (determined under rules
consistent with paragraph (b) of this section) related
to supplying electronically supplied services, and
deeming a portion of such net income to be attrib-
utable to a deemed permanent establishment of the
nonresident company in Country X. The amount of
the nonresident company’s net income attributable to
the deemed permanent establishment is determined
on a formulary basis based on the percentage of the
nonresident company’s total users that are located in
Country X.
(ii) Analysis. The taxable base of the ESS tax is
not computed based on a nonresident company’s ac-
tivities located in Country X, but instead takes into
account the location of the nonresident company’s
users. Therefore, the ESS tax does not meet the
requirement in paragraph (c)(1)(i) of this section.
The ESS tax also does not meet the requirement in
paragraph (c)(1)(ii) of this section because it is not
imposed on the basis of source, and it does not meet
the requirement in paragraph (c)(1)(iii) of this sec-
tion because it is not imposed on the sale or other
disposition of property.
(iii) Alternative facts. Instead of imposing the
ESS tax by deeming nonresident companies to have
a permanent establishment in Country X, Country
X treats gross income from electronically supplied
services provided to users located in Country X as
sourced in Country X. The gross income sourced to
Country X is reduced by costs that are reasonably at-
tributed to such gross income, to arrive at the taxable
base of the ESS tax. The amount of the nonresident’s
gross income that is sourced to Country X is deter-
mined by multiplying the nonresident’s total gross
income by the percentage of its total users that are
located in Country X.
(iv) Analysis. Country X tax law’s rule for sourc-
ing electronically supplied services is not based on
where the services are performed, but is based on
the location of the service recipient. Therefore, the
ESS tax, which is imposed on the basis of source,
does not meet the requirement in paragraph (c)(1)
(ii) of this section. The ESS tax also does not meet
the requirement in paragraph (c)(1)(i) of this section
because it is not imposed on the basis of a nonresi-
dent’s activities located in Country X, and it does not
meet the requirement in paragraph (c)(1)(iii) of this
section because it is not imposed on the sale or other
disposition of property.
(d) * * *
(1) In general. Each foreign levy
must be analyzed separately to determine
whether it is a net income tax within the
meaning of paragraph (a)(3) of this sec-
tion and whether it is a tax in lieu of an
income tax within the meaning of §1.903-
1(b)(2). Whether a single levy or separate
levies are imposed by a foreign country
depends on U.S. principles and not on
whether foreign tax law imposes the levy
or levies pursuant to a single or separate
statutes. A foreign levy is a separate levy
described in this paragraph (d)(1) if it is
described in paragraph (d)(1)(i), (ii), or
(iii) of this section. In the case of levies
that apply to dual capacity taxpayers, see
also §1.901-2A(a).
(i) Taxing authority. A levy imposed
by one taxing authority (for example, the
national government of a foreign country)
is always separate from a levy imposed
by another taxing authority (for exam-
ple, a political subdivision of that foreign
country), even if the base of the levy is the
same.
(ii) Different taxable base. Where the
base of a foreign levy is computed dif-
ferently for different classes of persons
subject to the levy, the levy is considered
to impose separate levies with respect to
each such class of persons. For exam-
ple, foreign levies identical to the taxes
imposed by sections 1, 11, 541, 871(a),
871(b), 881, 882, 3101 and 3111 of the
Internal Revenue Code are each separate
levies, because the levies are imposed
on different classes of taxpayers, and the
base of each of those levies contains dif-
ferent items than the base of each of the
others. A taxable base of a separate levy
may consist of a particular type of income
(for example, wage income, investment
income, or income from self-employ-
ment). The taxable base of a separate levy
may also consist of an amount unrelated
to income (for example, wage expense or
assets). A separate levy may provide that
items included in the base of the tax are
computed separately merely for purpos-
es of a preliminary computation and are
then combined as a single taxable base.
Income included in the taxable base of a
separate levy may also be included in the
taxable base of another levy (which may
or may not also include other items of in-
come); separate levies are considered to
be imposed if the taxable bases are not
combined as a single taxable base. For
example, a foreign levy identical to the
tax imposed by section 1 is a separate
levy from a foreign levy identical to the
tax imposed by section 1411, because tax
is imposed under each levy on a separate
taxable base that is not combined with
the other as a single taxable base. Where
foreign tax law imposes a levy that is the
sum of two or more separately comput-
ed amounts of tax, and each such amount
is computed by reference to a different
base, separate levies are considered to be
imposed. Levies are not separate merely
because different rates apply to different
classes of taxpayers that are subject to the
same provisions in computing the base of
the tax. For example, a foreign levy iden-
tical to the tax imposed on U.S. citizens
and resident alien individuals by section
1 of the Internal Revenue Code is a sin-
gle levy notwithstanding that the levy has
graduated rates and applies different rate
schedules to unmarried individuals, mar-
ried individuals who file separate returns,
and married individuals who file joint re-
turns. In addition, in general, levies are
not separate merely because some provi-
sions determining the base of the levy ap-
ply, by their terms or in practice, to some,
but not all, persons subject to the levy.
For example, a foreign levy identical to
the tax imposed by section 11 of the In-
ternal Revenue Code is a single levy even
though some provisions apply by their
terms to some but not all corporations
subject to the section 11 tax (for example,
section 465 is by its terms applicable to
corporations described in sections 465(a)
(1)(B), but not to other corporations), and
even though some provisions apply in
practice to some but not all corporations
subject to the section 11 tax (for example,
section 611 does not, in practice, apply
to any corporation that does not have a
qualifying interest in the type of property
described in section 611(a)).
(iii) Tax imposed on nonresidents. A
foreign levy imposed on nonresidents is
always treated as a separate levy from that
imposed on residents, even if the base of
the tax as applied to residents and nonres-
idents is the same, and even if the levies
are treated as a single levy under foreign
tax law. In addition, a withholding tax (as
defined in section 901(k)(1)(B)) that is
imposed on gross income of nonresidents
is treated as a separate levy as to each sep-
arate class of income described in section
61 (for example, interest, dividends, rents,
or royalties) subject to the withholding
tax.
* * * * *
(e) Amount of foreign income tax that
is creditable—(1) In general. Credit is al-
lowed under section 901 for the amount
of foreign income tax that is paid by the
taxpayer. The amount of foreign income
tax paid by the taxpayer is determined
separately for each taxpayer.
(2) * * *

November 30, 2020 1528 Bulletin No. 2020–49
(i) Refundable amounts. An amount
remitted to a foreign country is not an
amount of foreign income tax paid to the
extent that it is reasonably certain that the
amount will be refunded, rebated, abated,
or forgiven. It is reasonably certain that an
amount will be refunded, rebated, abated,
or forgiven to the extent the amount ex-
ceeds a reasonable approximation of final
foreign income tax liability to the foreign
country. See section 905(c) and §1.905-
3 for the required redeterminations if
amounts claimed as a credit (on either the
cash or accrual basis) exceed the amount
of the final foreign income tax liability.
(ii) Credits. Except as provided in para-
graph (e)(2)(iii) of this section, an amount
of foreign income tax liability is not an
amount of foreign income tax paid to the
extent the foreign income tax is reduced,
satisfied or otherwise offset by a tax cred-
it, regardless of whether the amount of the
tax credit is refundable in cash to the ex-
tent it exceeds the taxpayer’s liability for
foreign income tax.
(iii) Overpayments of tax applied as a
credit. An amount of foreign income tax
paid is not reduced (or treated as construc-
tively refunded) solely by reason of the
fact that the amount paid is allowed (or
may be allowed) as a credit to reduce the
amount of a different separate levy owed
by the taxpayer. See paragraphs (e)(2)(ii)
and (e)(4) of this section. However, under
paragraph (e)(2)(i) of this section (and
taking into account any redetermination
required under section 905(c) and §1.905-
3), an amount remitted with respect to a
separate levy for a foreign taxable period
that constitutes an overpayment of the tax-
payer’s final liability for that levy for that
period, and that is refundable in cash at the
taxpayer’s option, is not an amount of tax
paid. Therefore, if such an overpayment
of one tax is applied as a credit against a
different foreign income tax liability owed
by the taxpayer for the same or a different
taxable period, the credited amount may
qualify as an amount of that different for-
eign income tax paid, if it does not exceed
a reasonable approximation of the taxpay-
er’s final foreign income tax liability for
the taxable period to which the overpay-
ment is applied.
* * * * *
(4) Multiple levies—(i) In general. If,
under foreign law, a taxpayer’s tentative
liability for one levy (the “reduced levy”)
is or can be reduced by the amount of the
taxpayer’s liability for a different levy (the
“applied levy”), then the amount consid-
ered paid by the taxpayer to the foreign
country pursuant to the applied levy is an
amount equal to its entire liability for that
applied levy (not limited to the amount ap-
plied to reduce the reduced levy), and the
remainder of the total amount paid is con-
sidered paid pursuant to the reduced levy.
See also paragraphs (e)(2)(ii) and (iii) of
this section.
(ii) Examples. The following examples
illustrate the rules of paragraphs (e)(2)(ii)
and (iii) and (e)(4)(i) of this section.
(A) Example 1: Tax reduced by credits—(1)
Facts. A’s tentative liability for foreign income tax
imposed by Country X is 100u (units of Country X
currency). However, under Country X tax law, in
determining A’s final foreign income tax liability
its tentative liability is reduced by a 15u credit for
a separate Country X levy that does not qualify as a
foreign income tax and that A accrued and paid on
its gross services income, and is also reduced by a
5u credit for charitable contributions. Under Country
X tax law, the amount of the charitable contributions
credit is refundable in cash to the extent the credit ex-
ceeds the taxpayer’s Country X income tax liability
after applying the credit for the tax on gross services
income. A timely remits the 80u due to Country X.
(2) Analysis. Under paragraphs (e)(2)(ii) and (e)
(4) of this section, the amount of Country X income
tax paid by A is 80u (100u tentative liability – 20u
tax credits), and the amount of Country X tax on
gross services income paid by A is 15u.
(B) Example 2: Tax paid by credit for overpay-
ment—(1) Facts. The facts are the same as in para-
graph (e)(4)(ii)(A)(1) of this section (the facts in Ex-
ample 1), except that A’s final Country X income tax
liability of 80u is satisfied by applying a credit for an
otherwise refundable 60u overpayment from the pre-
vious taxable year of A’s liability for a separate levy
imposed by Country X that is also a foreign income
tax and remitting the balance due of 20u.
(2) Analysis. The result is the same as in para-
graph (e)(4)(ii)(A)(2) of this section (the analysis in
Example 1). Under paragraph (e)(2)(iii) of this sec-
tion, the portion of A’s Country X income tax liabil-
ity that was satisfied by applying the 60u overpay-
ment of A’s different foreign income tax liability for
the previous taxable year qualifies as an amount of
Country X income tax paid, because that refundable
overpayment exceeded (and so is not treated as a
payment of) A’s different foreign income tax liability
for the previous taxable year.
(5) * * *
(i) In general. An amount remitted to
a foreign country (a “foreign payment”)
is not a compulsory payment, and thus is
not an amount of foreign income tax paid,
to the extent that the foreign payment ex-
ceeds the amount of liability for foreign
income tax under the foreign tax law (as
defined in paragraph (g) of this section).
A foreign payment does not exceed the
amount of such liability if the foreign pay-
ment is determined by the taxpayer in a
manner that is consistent with a reason-
able interpretation and application of the
substantive and procedural provisions of
foreign tax law (including applicable tax
treaties) in such a way as to reduce, over
time, the taxpayer’s reasonably expected
liability under foreign law for foreign in-
come tax, and if the taxpayer exhausts all
effective and practical remedies, including
invocation of competent authority proce-
dures available under applicable tax trea-
ties, to reduce, over time, the taxpayer’s
liability for foreign income tax (including
liability pursuant to a foreign tax audit ad-
justment). See paragraph (e)(5)(ii) of this
section for the effect of options and elec-
tions under foreign tax law. An interpre-
tation or application of foreign law is not
reasonable if there is actual notice or con-
structive notice (for example, a published
court decision) to the taxpayer that the in-
terpretation or application is likely to be
erroneous. In interpreting foreign tax law,
a taxpayer may generally rely on advice
obtained in good faith from competent
foreign tax advisors to whom the taxpayer
has disclosed the relevant facts. Wheth-
er a taxpayer has satisfied its obligation
to minimize the aggregate amount of its
liability for foreign income taxes over
time is determined without regard to the
present value of a deferred tax liability or
other time value of money considerations.
In determining whether a taxpayer has
exhausted all effective and practical rem-
edies, a remedy is effective and practical
only if the cost of pursuing it (including
the risk of incurring an offsetting or addi-
tional tax liability) is reasonable in light
of the amount at issue and the likelihood
of success. An available remedy is consid-
ered effective and practical if an econom-
ically rational taxpayer would pursue it
whether or not a compulsory payment of
the amount at issue would be eligible for
a U.S. foreign tax credit. A settlement by
a taxpayer of two or more issues will be
evaluated on an overall basis, not on an is-
sue-by-issue basis, in determining wheth-
er an amount is a compulsory payment. A
taxpayer is not required to alter its form
of doing business, its business conduct, or
the form of any business transaction in or-

Bulletin No. 2020–49 1529 November 30, 2020
der to reduce its liability under foreign law
for foreign income tax.
(ii) Effect of foreign tax law elections—
(A) In general. Where foreign tax law in-
cludes options or elections whereby a tax-
payer’s foreign income tax liability may
be shifted, in whole or part, to a different
year or years, the taxpayer’s use or failure
to use such options or elections does not
result in a foreign payment in excess of
the taxpayer’s liability for foreign income
tax. Except as provided in paragraph (e)
(5)(ii)(B) of this section, where foreign
tax law provides for options or elections
whereby a taxpayer’s foreign income tax
liability may be permanently decreased
in the aggregate over time, the taxpayer’s
failure to use such options or elections re-
sults in a foreign payment in excess of the
taxpayer’s liability for foreign income tax.
(B) Exception for certain options or
elections—(1) Entity classification elec-
tions. If foreign tax law provides an op-
tion or election to treat an entity as fiscally
transparent or non-fiscally transparent, a
taxpayer’s decision to use or not use such
option or election is not considered to in-
crease the taxpayer’s liability for foreign
income tax over time for purposes of this
paragraph (e)(5).
(2) Foreign consolidation, group relief,
or other loss sharing regime. If foreign
tax law provides an option or election for
one foreign entity to join in the filing of
a consolidated return with another foreign
entity, or to surrender its loss in order to
offset the income of another foreign entity
pursuant to a foreign group relief or other
loss-sharing regime, a taxpayer’s deci-
sion whether to file a consolidated return,
whether to surrender a loss, or whether to
use a surrendered loss, is not considered
to increase the taxpayer’s liability for for-
eign income tax over time for purposes of
this paragraph (e)(5).
* * * * *
(6) Soak-up taxes—(i) In general. An
amount remitted to a foreign country is
not an amount of foreign income tax paid
to the extent that liability for the foreign
income tax is dependent (by its terms or
otherwise) on the availability of a credit
for the tax against income tax liability to
another country. Liability for foreign in-
come tax is dependent on the availabili-
ty of a credit for the foreign income tax
against income tax liability to another
country only if and to the extent that the
foreign income tax would not be imposed
on the taxpayer but for the availability of
such a credit.
(ii) [Reserved]
(f) * * *
(4) Taxes imposed on partnerships and
disregarded entities—(i) Partnerships.
If foreign law imposes tax at the entity
level on the income of a partnership, the
partnership is considered to be legally li-
able for such tax under foreign law and
therefore is considered to pay the tax for
Federal income tax purposes. The rules
of this paragraph (f)(4)(i) apply regard-
less of which person is obligated to remit
the tax, which person actually remits the
tax, or which person the foreign country
could proceed against to collect the tax in
the event all or a portion of the tax is not
paid. See §§1.702-1(a)(6) and 1.704-1(b)
(4)(viii) for rules relating to the determi-
nation of a partner’s distributive share of
such tax.
(ii) Disregarded entities. If foreign law
imposes tax at the entity level on the in-
come of an entity described in §301.7701-
2(c)(2)(i) of this chapter (a disregarded
entity), the person (as defined in section
7701(a)(1)) who is treated as owning the
assets of the disregarded entity for Federal
income tax purposes is considered to be
legally liable for such tax under foreign
law. Such person is considered to pay the
tax for Federal income tax purposes. The
rules of this paragraph (f)(4)(ii) apply re-
gardless of which person is obligated to
remit the tax, which person actually remits
the tax, or which person the foreign coun-
try could proceed against to collect the tax
in the event all or a portion of the tax is
not paid.
(5) Allocation of taxes in the case of
certain ownership changes—(i) In gen-
eral. If a partnership, disregarded entity,
or corporation undergoes one or more
covered events during its foreign taxable
year that do not result in a closing of the
foreign taxable year, then a portion of the
foreign income tax (other than a with-
holding tax described in section 901(k)
(1)(B)) paid or accrued by a person under
paragraphs (f)(1) through (4) of this sec-
tion with respect to the continuing for-
eign taxable year in which such change or
changes occur is allocated to and among
all persons that were predecessor entities
or prior owners during such foreign tax-
able year. The allocation is made based
on the respective portions of the taxable
income (as determined under foreign law)
for the continuing foreign taxable year
that are attributable under the principles of
§1.1502-76(b) to the period of existence
or ownership of each predecessor entity or
prior owner during the continuing foreign
taxable year. Foreign income tax allocated
to a person that is a predecessor entity is
treated (other than for purposes of section
986) as paid or accrued by the person as
of the close of the last day of its last U.S.
taxable year. Foreign income tax allocated
to a person that is a prior owner, for exam-
ple a transferor of a disregarded entity, is
treated (other than for purposes of section
986) as paid or accrued by the person as of
the close of the last day of its U.S. taxable
year in which the covered event occurred.
(ii) Covered event. For purposes of this
paragraph (f)(5), a covered event is a part-
nership termination under section 708(b)
(1), a transfer of a disregarded entity, or
a change in the entity classification of a
disregarded entity or a corporation.
(iii) Predecessor entity and prior own-
er. For purposes of this paragraph (f)(5),
a predecessor entity is a partnership or
a corporation that undergoes a covered
event as described in paragraph (f)(5)(ii)
of this section. A prior owner is a person
that either transfers a disregarded entity
or owns a disregarded entity immediately
before a change in the entity classification
of the disregarded entity as described in
paragraph (f)(5)(ii) of this section.
(iv) Partnership variances. In the case
of a change in any partner’s interest in the
partnership (a variance), except as other-
wise provided in section 706(d)(2) (relat-
ing to certain cash basis items) or 706(d)
(3) (relating to tiered partnerships), for-
eign tax paid or accrued by the partnership
during its U.S. taxable year in which the
variance occurs is allocated between the
portion of the U.S. taxable year ending on,
and the portion of the U.S. taxable year
beginning on the day after, the day of the
variance. The allocation is made under the
principles of this paragraph (f)(5) as if the
variance were a covered event.
(6) Allocation of foreign taxes in con-
nection with elections under section
336(e) or 338 or §1.245A-5(e). For rules
relating to the allocation of foreign taxes

November 30, 2020 1530 Bulletin No. 2020–49
in connection with elections made pursu-
ant to section 336(e), see §1.336-2(g)(3)
(ii). For rules relating to the allocation of
foreign taxes in connection with elections
made pursuant to section 338, see §1.338-
9(d). For rules relating to the allocation of
foreign taxes in connection with elections
made pursuant to §1.245A-5(e)(3)(i), see
§1.245A-5(e)(3)(i)(B).
* * * * *
(g) Definitions. For purposes of this
section and §§1.901-2A and 1.903-1, the
following definitions apply.
(1) Foreign country and possession
(territory) of the United States. The term
foreign country means any foreign state,
any possession (territory) of the Unit-
ed States, and any political subdivision
of any foreign state or of any possession
(territory) of the United States. The term
possession (or territory) of the United
States includes American Samoa, Guam,
the Commonwealth of the Northern Mari-
ana Islands, the Commonwealth of Puerto
Rico, and the U.S. Virgin Islands.
(2) Foreign levy. The term foreign levy
means a levy imposed by a foreign coun-
try.
(3) Foreign tax. The term foreign tax
means a foreign levy that is a tax as de-
fined in paragraph (a)(2) of this section.
(4) Foreign tax law. The term foreign
tax law means the laws of the foreign
country imposing a foreign tax, as modi-
fied by applicable tax treaties. The foreign
tax law is construed on the basis of the for-
eign country’s statutes, regulations, case
law, and administrative rulings or other
official pronouncements, as modified by
applicable income tax treaties.
(5) Paid, payment, and paid by. The
term paid means “paid” or “accrued”; the
term payment means “payment” or “accru-
al”; and the term paid by means “paid by”
or “accrued by or on behalf of,” depending
on whether the taxpayer claims the foreign
tax credit for taxes paid (that is, remitted)
or taxes accrued (as determined under
§1.905-1(d)) during the taxable year.
(6) Resident and nonresident. The
terms resident and nonresident, when used
in the context of the foreign tax law of a
foreign country, have the meaning provid-
ed in paragraphs (g)(6)(i) and (ii) of this
section.
(i) Resident. An individual is a resi-
dent of a foreign country if the individu-
al is liable to income tax in such country
by reason of the individual’s residence,
domicile, citizenship, or similar criteri-
on under such country’s foreign tax law.
An entity (including a corporation, part-
nership, trust, estate, or an entity that is
disregarded as an entity separate from its
owner for Federal income tax purposes) is
a resident of a foreign country if the entity
is liable to tax on its income (regardless
of whether tax is actually imposed) under
the laws of the foreign country by reason
of the entity’s place of incorporation or
place of management in that country (or
in a political subdivision or local authority
thereof), or by reason of a criterion of sim-
ilar nature, or if the entity is of a type that
is specifically identified as a resident in an
income tax treaty with the United States to
which the foreign country is a party. If an
individual or entity is a resident of more
than one country, a single country of resi-
dence will be determined based upon ap-
plicable rules for resolving dual residency
under the foreign tax law of the foreign
country or countries; if no resolution is
reached, the individual or entity is treated
as a resident of each country.
(ii) Nonresident. A nonresident with
respect to a foreign country is any individ-
ual or entity that is not a resident of such
foreign country.
(h) Applicability date. This section ap-
plies to foreign taxes paid or accrued in
taxable years beginning on or after [date
final regulations are filed with the Federal
Register].
* * * * *
Par. 24. Section 1.903-1 is revised to
read as follows:
§1.903-1 Taxes in lieu of income taxes.
(a) Overview. Section 903 provides
that the term “income, war profits, and ex-
cess profits taxes” includes a tax paid in
lieu of a tax on income, war profits, or ex-
cess profits that is otherwise generally im-
posed by any foreign country. Paragraphs
(b) and (c) of this section define a tax de-
scribed in section 903. Paragraph (d) of
this section provides examples illustrating
the application of this section. Paragraph
(e) of this section sets forth the applica-
bility date of this section. For purposes of
this section and §§1.901-2 and 1.901-2A,
a tax described in section 903 is referred
to as a “tax in lieu of an income tax” or
an “in lieu of tax”; and the definitions in
§1.901-2(g) apply for purposes of this sec-
tion. Determinations of the amount of a
tax in lieu of an income tax that is paid by
a person and determinations of the person
by whom such tax is paid are made under
§1.901-2(e) and (f), respectively. Section
1.901-2A contains additional rules appli-
cable to dual capacity taxpayers (as de-
fined in §1.901-2(a)(2)(ii)(A)).
(b) Definition of tax in lieu of an in-
come tax—(1) In general. Paragraphs (b)
(2) and (c) of this section provide the re-
quirements for a foreign levy to qualify as
a tax in lieu of an income tax. The rules
of this section are applied independently
to each separate levy (within the mean-
ing of §§1.901-2(d) and 1.901-2A(a)).
A foreign tax either is or is not a tax in
lieu of an income tax in its entirety for all
persons subject to the tax. It is immateri-
al whether the base of the in lieu of tax
bears any relation to realized net gain. The
base of the foreign tax may, for example,
be gross income, gross receipts or sales,
or the number of units produced or export-
ed. The foreign country’s reason for im-
posing a foreign tax on a base other than
net income (for example, because of ad-
ministrative difficulty in determining the
amount of income that would otherwise
be subject to a net income tax) is imma-
terial, although paragraph (c)(1) of this
section generally requires a showing that
the foreign country made a deliberate and
cognizant choice to impose the in lieu of
tax instead of a net income tax (see para-
graph (c)(1)(iii) of this section).
(2) Requirements. A foreign levy is a
tax in lieu of an income tax only if—
(i) It is a foreign tax; and
(ii) It satisfies the substitution require-
ment of paragraph (c) of this section.
(c) Substitution requirement—(1) In
general. A foreign tax (the “tested foreign
tax”) satisfies the substitution requirement
if, based on the foreign tax law, the require-
ments in paragraphs (c)(1)(i) through (iv)
of this section are satisfied with respect to
the tested foreign tax, or the tested foreign
tax is a covered withholding tax described
in paragraph (c)(2) of this section.
(i) Existence of generally-imposed net
income tax. A separate levy that is a net
income tax (as described in §1.901-2(a)
(3)) is generally imposed by the same for-

Bulletin No. 2020–49 1531 November 30, 2020
eign country (the “generally-imposed net
income tax”) that imposes the tested for-
eign tax.
(ii) Non-duplication. Neither the gener-
ally-imposed net income tax nor any other
separate levy that is a net income tax is
also imposed, in addition to the tested for-
eign tax, by the same foreign country on
any persons with respect to any portion of
the income to which the amounts (such as
sales or units of production) that form the
base of the tested foreign tax relate (the
“excluded income”). Therefore, a tested
foreign tax does not meet the requirement
of this paragraph (c)(1)(ii) if a net income
tax imposed by the same foreign country
applies to the excluded income of any per-
sons that are subject to the tested foreign
tax, even if not all of the persons subject
to the tested foreign tax are subject to the
net income tax.
(iii) Close connection to excluded in-
come. But for the existence of the tested
foreign tax, the generally-imposed net
income tax would otherwise have been
imposed on the excluded income. The
requirement in the preceding sentence is
met only if the imposition of such tested
foreign tax bears a close connection to the
failure to impose the generally-imposed
net income tax on the excluded income;
the relationship cannot be merely inciden-
tal, tangential, or minor. A close connec-
tion exists if the generally-imposed net
income tax would apply by its terms to the
income, but for the fact that the excluded
income is expressly excluded. Otherwise,
a close connection must be established
with proof that the foreign country made
a cognizant and deliberate choice to im-
pose the tested foreign tax instead of the
generally-imposed net income tax. Such
proof must be based on foreign tax law, or
the legislative history of either the tested
foreign tax or the generally-imposed net
income tax that describes the provisions
excluding taxpayers subject to the tested
foreign tax from the generally-imposed
net income tax. If one tested foreign tax
meets the requirements in this paragraph
(c)(1), and another tested foreign tax that
applies to the same class of taxpayers and
relates to the same excluded income as the
first tested foreign tax is enacted later in
time (and not contemporaneously with the
first tested foreign tax), there is a rebut-
table presumption that such second tested
foreign tax does not meet the close con-
nection requirement in this paragraph (c)
(1)(iii). Not all income derived by persons
subject to the tested foreign tax need be
excluded income, as long as the tested
foreign tax applies only to amounts that
relate to the excluded income.
(iv) Jurisdiction to tax excluded in-
come. If the generally-imposed net in-
come tax were applied to the excluded in-
come, the generally-imposed net income
tax would either continue to qualify as a
net income tax described in §1.901-2(a)
(3), or would constitute a separate levy
from the generally-imposed net income
tax that would itself be a net income tax
described in §1.901-2(a)(3).
(2) Covered withholding tax. A tested
foreign tax is a covered withholding tax
if, based on the foreign tax law, the re-
quirements in paragraphs (c)(1)(i) and (c)
(2)(i) through (iii) of this section are met
with respect to the tested foreign tax. See
also §1.901-2(d)(1)(iii) for rules treating
withholding taxes as separate levies with
respect to each class of income subject to
the tax.
(i) Withholding tax on nonresidents.
The tested foreign tax is a withholding tax
(as defined in section 901(k)(1)(B)) that
is imposed on gross income of persons
who are nonresidents of the foreign coun-
try imposing the tested foreign tax. It is
immaterial whether the tested foreign tax
is withheld by the payor or is imposed di-
rectly on the nonresident taxpayer.
(ii) Non-duplication. The tested for-
eign tax is not in addition to any net in-
come tax that is imposed by the foreign
country on any portion of the net income
attributable to the gross income that is
subject to the tested foreign tax. There-
fore, a tested foreign tax does not meet
the requirement of this paragraph (c)(2)
(ii) if by its terms it applies to gross in-
come of nonresidents that are also sub-
ject to a net income tax imposed by the
same foreign country on the same in-
come, even if not all nonresidents subject
to the tested foreign tax are also subject
to the net income tax.
(iii) Source-based jurisdictional nexus.
The income subject to the tested foreign
tax satisfies the source requirement de-
scribed in §1.901-2(c)(1)(ii).
(d) Examples. The following examples
illustrate the rules of this section.
(1) Example 1: Tax on gross income from ser-
vices; non-duplication requirement—(i) Facts.
Country X imposes a tax at the rate of 3 percent on
the gross receipts of companies, wherever resident,
from furnishing specified types of electronically sup-
plied services to customers located in Country X (the
“ESS tax”). No deductions are allowed in determin-
ing the taxable base of the ESS tax. In addition to
the ESS tax, Country X imposes a net income tax
within the meaning of §1.901-2(a)(3) on resident
companies (the “net income tax”) and also imposes
a net income tax within the meaning of §1.901-2(a)
(3) on the income of nonresident companies that is
attributable, under reasonable principles, to the non-
resident’s activities within Country X (the “perma-
nent establishment tax”). Both the net income tax
and the permanent establishment tax, which are each
separate levies under §1.901-2(d)(1)(iii), qualify as
generally-imposed net income taxes. The ESS tax
applies to both resident and nonresident companies
regardless of whether the company is also subject to
the net income tax or permanent establishment tax,
respectively.
(ii) Analysis. Under §1.901-2(d)(1)(iii), the ESS
tax comprises two separate levies, one imposed on
resident companies (the “resident ESS tax”), and one
imposed on nonresident companies (the “nonresident
ESS tax”). Under paragraph (c)(1)(ii) of this section,
neither the resident ESS tax nor the nonresident ESS
tax satisfies the substitution requirement, because by
its terms the income subject to the ESS tax is also
subject to a generally-imposed net income tax im-
posed by Country X. Similarly, under paragraph (c)
(2)(ii) of this section, the nonresident ESS tax is not
a covered withholding tax because it is imposed in
addition to the permanent establishment tax. It is
immaterial that some nonresident taxpayers that are
subject to the nonresident ESS tax are not also sub-
ject to the permanent establishment tax on the gross
receipts included in the base of the nonresident ESS
tax. Therefore, neither the resident ESS tax nor the
nonresident ESS tax is a tax in lieu of an income tax.
(2) Example 2: Tax on gross income from ser-
vices; jurisdictional nexus—(i) Facts. The facts are
the same as in paragraph (d)(1)(i) of this section (the
facts in Example 1), except that under Country X
tax law, the nonresident ESS tax is imposed only if
the nonresident company does not have a permanent
establishment in Country X under domestic law or
an applicable income tax treaty. In addition, the text
of and legislative history to the nonresident ESS tax
demonstrate that Country X made a cognizant and
deliberate choice to impose the nonresident ESS
tax instead of the permanent establishment tax with
respect to the gross receipts that are subject to the
nonresident ESS tax.
(ii) Analysis—(A) General application of substi-
tution requirement. The nonresident ESS tax meets
the requirements in paragraphs (c)(1)(i) and (ii) of
this section because Country X has a generally-im-
posed net income tax, the permanent establishment
tax, and neither the permanent establishment tax nor
any other separate levy is imposed by Country X on a
nonresident’s gross income that forms the base of the
nonresident ESS tax (which is the excluded income)
in addition to the nonresident ESS tax. The text of
and legislative history to the nonresident ESS tax
demonstrate that Country X made a cognizant and

November 30, 2020 1532 Bulletin No. 2020–49
deliberate choice to exclude the excluded income
from the base of the generally-imposed permanent
establishment tax. Therefore, the nonresident ESS
tax meets the requirement in paragraph (c)(1)(iii) of
this section because but for the existence of the test-
ed foreign tax, the generally-imposed permanent es-
tablishment tax would otherwise have been imposed
on the excluded income. However, if Country X had
modified the permanent establishment tax to also ap-
ply to the excluded income, the modified permanent
establishment tax would not qualify as a net income
tax described in §1.901-2(a)(3), because it would fail
the jurisdictional nexus requirement in §1.901-2(c)
(1). First, the modified tax would not satisfy §1.901-
2(c)(1)(i) because the modified tax would not apply
to income attributable under reasonable principles to
the nonresident’s activities within the foreign coun-
try, since the modified tax is determined by taking
into account the location of customers. Second, the
modified tax would not satisfy §1.901-2(c)(1)(ii)
because the excluded income is from services per-
formed outside of Country X. Third, the modified
tax would not satisfy the property nexus in §1.901-
2(c)(1)(iii) because the excluded income is not from
sales of property located in Country X. Because if
the Country X generally-imposed net income tax
applied to excluded income it would not qualify as
a net income tax described in §1.901-2(a)(3), the
nonresident ESS tax does not meet the requirement
in paragraph (c)(1)(iv) of this section. Therefore, the
nonresident ESS tax does not satisfy the substitution
requirement in paragraph (c)(1) of this section.
(B) Covered withholding tax analysis. The non-
resident ESS tax meets the requirement in paragraph
(c)(1)(i) of this section, because there exists a gener-
ally-imposed net income tax (the permanent estab-
lishment tax), and it also meets the requirements in
paragraphs (c)(2)(i) and (ii) of this section, because it
is a withholding tax on gross income of nonresidents
that is not also subject to the permanent establish-
ment tax. However, the nonresident ESS tax does
not meet the requirement in paragraph (c)(2)(iii) of
this section because the services income subject to
the nonresident ESS tax is from electronically sup-
plied services performed outside of Country X. See
§1.901-2(c)(1)(ii). Therefore, the nonresident ESS
tax is not a covered withholding tax under paragraph
(c)(2) of this section. Because the nonresident ESS
tax does not meet the substitution requirement of
paragraph (c) of this section, it is not a tax in lieu of
an income tax.
(e) Applicability date. This section ap-
plies to foreign taxes paid or accrued in
taxable years beginning on or after [date
final regulations are filed with the Federal
Register].
§1.904-2 [AMENDED]
Par. 25. Section 1.904-2(j)(1)(iii)(D)
is amended by removing the language
“§1.904(f)-12(j)(5)” and adding the lan-
guage “§1.904(f)-12(j)(6)” in its place.
Par. 26. Section 1.904-4, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended:
1. By revising paragraph (b)(2)(i)(A).
2. By revising the third sentence of
paragraph (c)(4).
3. By revising paragraphs (e)(1)(ii) and
(e)(2) and (3).
4. In paragraph (f)(1)(i) introductory
text, by removing the language “para-
graph (f)(1)(ii) of this section” and adding
in its place the language “paragraph (f)(1)
(ii), (iii), or (iv) of this section”.
5. By adding paragraphs (f)(1)(iii) and
(iv).
6. By removing and reserving para-
graphs (f)(2)(ii) and (iii).
7. By revising paragraphs (f)(2)(vi)(A)
and (f)(2)(vi)(B)(1)(ii).
8. By adding paragraph (f)(2)(vi)(G).
9. By revising paragraph (f)(3)(v).
10. By redesignating paragraphs (f)(3)
(viii) and (ix) as paragraphs (f)(3)(ix) and
(xii), respectively.
11. By adding a new paragraph (f)(3)
(viii).
12. In newly redesignated paragraph (f)
(3)(ix), by removing the language “para-
graph (f)(3)(viii)” and adding the lan-
guage “paragraph (f)(3)(ix)” in its place.
13. By redesignating paragraph (f)(3)
(x) as paragraph (f)(3)(xiii).
14. By adding a new paragraph (f)(3)
(x) and paragraph (f)(3)(xi).
15. In paragraphs (f)(4)(i)(B)(1) and
(2), by removing the language “paragraph
(f)(3)(viii)” and adding the language
“paragraph (f)(3)(ix)” in its place.
16. In paragraphs (f)(4)(iv)(B)(1) and
(f)(4)(v)(B)(2), by removing the language
“paragraph (f)(3)(x)” and adding the lan-
guage “paragraph (f)(3)(xiii)” in its place.
17. By adding paragraphs (f)(4)(xiii)
through (xvi) and (q)(3).
The additions and revisions read as fol-
lows:
§1.904-4 Separate application of section
904 with respect to certain categories of
income.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(A) Income received or accrued by any
person that is of a kind that would be for-
eign personal holding company income
(as defined in section 954(c), taking into
account any exceptions or exclusions to
section 954(c), including, for example,
section 954(c)(3), (c)(6), (h), or (i)) if the
taxpayer were a controlled foreign corpo-
ration, including any amount of gain on
the sale or exchange of stock in excess
of the amount treated as a dividend under
section 1248;
* * * * *
(c) * * *
(4) * * * The grouping rules of para-
graphs (c)(3)(i) through (iv) of this sec-
tion also apply separately to income at-
tributable to each tested unit described in
§1.954-1(d)(2)(i) of a controlled foreign
corporation, and to each foreign QBU of
a noncontrolled 10-percent owned foreign
corporation or any other look-through en-
tity defined in §1.904-5(i), or of any Unit-
ed States person.
* * * * *
(e) * * *
(1) * * *
(ii) Definition of financial services in-
come. The term financial services income
means income derived by a financial ser-
vices entity, as defined in paragraph (e)(3)
of this section, that is:
(A) Income derived in the active con-
duct of a banking, insurance, financing, or
similar business (active financing income)
as defined in paragraph (e)(2) of this sec-
tion; or
(B) Passive income as defined in sec-
tion 904(d)(2)(B) and paragraph (b) of
this section as determined before the ap-
plication of the exception for high-taxed
income but after the application of the
exception for export financing interest,
but not including payments from a relat-
ed person that is not a financial services
entity (determined after the application
of the financial services group rule of
paragraph (e)(3)(ii) of this section) that
are attributable to passive category in-
come under the look-through rules of
§1.904-5.
(2) Active financing income—(i) In-
come included. For purposes of paragraph
(e)(1) and (3) of this section, income is ac-
tive financing income only if it is income
from –
(A) Regularly making personal, mort-
gage, industrial, or other loans to custom-
ers in the ordinary course of the corpora-
tion’s trade or business;

Bulletin No. 2020–49 1533 November 30, 2020
(B) Factoring evidences of indebted-
ness for customers;
(C) Purchasing, selling, discounting,
or negotiating for customers notes, drafts,
checks, bills of exchange, acceptances, or
other evidences of indebtedness;
(D) Issuing letters of credit and negoti-
ating drafts drawn thereunder for custom-
ers;
(E) Performing trust services, includ-
ing as a fiduciary, agent, or custodian, for
customers, provided such trust activities
are not performed in connection with ser-
vices provided by a dealer in stock, securi-
ties or similar financial instruments;
(F) Arranging foreign exchange trans-
actions for, or engaging in foreign ex-
change transactions with, customers;
(G) Arranging interest rate, currency or
commodities futures, forwards, options or
notional principal contracts for, or enter-
ing into such transactions with, customers;
(H) Underwriting issues of stock, debt
instruments or other securities under best
efforts or firm commitment agreements
for customers;
(I) Engaging in finance leasing (that is,
is any lease that is a direct financing lease
or a leveraged lease for accounting pur-
poses and is also a lease for tax purposes)
for customers;
(J) Providing charge and credit card
services for customers or factoring receiv-
ables obtained in the course of providing
such services;
(K) Providing traveler’s check and
money order services for customers;
(L) Providing correspondent bank ser-
vices for customers;
(M) Providing paying agency and col-
lection agency services for customers;
(N) Maintaining restricted reserves
(including money or securities) in a segre-
gated account in order to satisfy a capital
or reserve requirement imposed by a local
banking or securities regulatory authority;
(O) Engaging in hedging activities di-
rectly related to another activity described
in this paragraph (e)(2)(i);
(P) Repackaging mortgages and other
financial assets into securities and servic-
ing activities with respect to such assets
(including the accrual of interest inciden-
tal to such activity);
(Q) Engaging in financing activities
typically provided in the ordinary course
by an investment bank, such as project
financing provided in connection with
construction projects, structured finance
(including the extension of a loan and
the sale of participations or interests in
the loan to other financial institutions or
investors), and leasing activities to the ex-
tent incidental to such financing activities;
(R) Providing financial or investment
advisory services, investment manage-
ment services, fiduciary services, or cus-
todial services to customers;
(S) Purchasing or selling stock, debt in-
struments, interest rate or currency futures
or other securities or derivative financial
products (including notional principal
contracts) from or to customers and hold-
ing stock, debt instruments and other se-
curities as inventory for sale to customers,
unless the relevant securities or derivative
financial products are not held in a dealer
capacity;
(T) Effecting transactions in securities
for customers as a securities broker;
(U) Investing funds in circumstances
in which the taxpayer holds itself out as
providing a financial service by the accep-
tance or the investment of such funds, in-
cluding income from investing deposits of
money and income earned investing funds
received for the purchase of traveler’s
checks or face amount certificates;
(V) Investments by an insurance com-
pany of its unearned premiums or reserves
ordinary and necessary to the proper con-
duct of the insurance business (as defined
in paragraph (e)(2)(ii) of this section);
(W) Activities generating income of a
kind that would be insurance income as
defined in section 953(a)(1) (including re-
lated person insurance income as defined
in section 953(c)(2) and without regard
to the exception in section 953(a)(2) for
income that is exempt insurance income
under section 953(e)), but with respect
to investment income includible in sec-
tion 953(a)(1) insurance income, only to
the extent ordinary and necessary to the
proper conduct of the insurance business
(as defined in paragraph (e)(2)(ii) of this
section); or
(X) Providing services as an insurance
underwriter, insurance brokerage or agen-
cy services, or loss adjuster and surveyor
services.
(ii) Ordinary and necessary investment
income of an insurance company. For pur-
poses of paragraphs (e)(2)(i)(V) and (W)
of this section, income from investments
by an insurance company is not ordinary
and necessary to the proper conduct of the
insurance business to the extent that the
investment income component of para-
graphs (e)(2)(i)(V) and (W) of this section
exceeds the insurance company’s invest-
ment income limitation. Any item of in-
vestment income falling under both para-
graphs (e)(2)(i)(V) and (W) of this section
is only counted once.
(A) Insurance company investment in-
come limitation. An insurance company’s
investment income limitation for a taxable
year is equal to the company’s passive
category income (as defined in section
904(d)(2)(B) and paragraph (b) of this
section, but including income excluded
from foreign personal holding company
income under section 954(i)) multiplied
by the proportion that the company’s in-
vestment asset limitation (as determined
under paragraph (e)(2)(ii)(B) of this sec-
tion) bears to the value of the company’s
passive category assets (as determined un-
der §1.861-9(g)(2)) for such taxable year.
For purposes of this paragraph (e)(2)(ii),
the term passive category asset means an
asset that is characterized as a passive cat-
egory asset, under the rules of §§1.861-9
through 1.861-13.
(B) Insurance company investment as-
set limitation. For purposes of paragraph
(e)(2)(ii)(A) of this section, the investment
asset limitation equals the applicable per-
centage of the company’s total insurance
liabilities. The applicable percentage is—
(1) 200 percent of total insurance lia-
bilities, for a domestic corporation taxable
under part I of subchapter L of the Code
or a foreign corporation that would be tax-
able under part I of subchapter L if it were
a domestic corporation.
(2) 400 percent of total insurance lia-
bilities, for a domestic corporation taxable
under part II of subchapter L or a foreign
corporation that would be taxable under
part II of subchapter L if it were a domes-
tic corporation.
(C) Total insurance liabilities. For pur-
poses of paragraph (e)(2)(ii)(B) of this
section—
(1) Corporations taxable under part I
of subchapter L. In the case of a corpo-
ration taxable under part I of subchapter
L (including a foreign corporation that is
a section 953(d) company), the term to-

November 30, 2020 1534 Bulletin No. 2020–49
tal insurance liabilities means the sum of
the total reserves (as defined in section
816(c)) plus (to the extent not included
in total reserves) the items referred to in
paragraphs (3), (4), (5), and (6) of section
807(c).
(2) Corporations taxable under part II
of subchapter L. In the case of a corpo-
ration taxable under part II of subchapter
L (including a foreign corporation that is
a section 953(d) company), the term to-
tal insurance liabilities means the sum
of unearned premiums (determined under
§1.832-4(a)(8)) and unpaid losses.
(3) Controlled foreign insurance cor-
porations. In the case of a controlled for-
eign corporation that would be taxable
under subchapter L if it were a domestic
corporation, the term total insurance lia-
bilities means the reserve determined in
accordance with section 953(b)(3).
(D) Example. The following example
illustrates the application of this para-
graph (e)(2)(ii).
(1) Facts. X is a domestic nonlife insurance com-
pany taxable under part II of subchapter L. X has
passive category assets valued under §1.861-9(g)(2)
at $1,000x, total insurance liabilities of $200x, and
passive category income of $100x.
(2) Analysis—Investment income limitation. Pur-
suant to paragraph (e)(2)(ii)(B) of this section, the
applicable percentage for nonlife insurance compa-
nies is 400 percent, and X has an investment asset
limitation of $800x, which is equal to its total insur-
ance liabilities of $200x multiplied by 400 percent.
The proportion of its investment asset limitation
($800x) to its passive category assets ($1,000x) is 80
percent. Pursuant to paragraph (e)(2)(ii)(A) of this
section, X has an investment income limitation equal
to its passive category income ($100x) multiplied
by 80 percent, or $80x. Under paragraph (e)(2)(ii)
of this section, no more than $80x of X’s $100x of
income from investments qualifies as ordinary and
necessary to the proper conduct of X’s insurance
business.
(3) Financial services entities—(i)
Definition of financial services entity—
(A) In general. The term financial ser-
vices entity means an individual or cor-
poration that is predominantly engaged
in the active conduct of a banking, insur-
ance, financing, or similar business (active
financing business) for any taxable year.
Except as provided in paragraph (e)(3)(ii)
of this section, a determination of whether
an individual or corporation is a financial
services entity is done on an individual or
entity-by-entity basis. An individual or
corporation is predominantly engaged in
the active financing business for any year
if for that year more than 70 percent of
its gross income is derived directly from
active financing income under paragraph
(e)(2) of this section with customers, or
counterparties, that are not related to such
individual or corporation under section
267(b) or 707 (except in the case of para-
graph (e)(2)(i)(W) of this section which
permits related party insurance).
(B) Certain gross income included
and excluded. For purposes of applying
the rules in paragraph (e)(3)(i)(A) of this
section (including by reason of paragraph
(e)(3)(ii) of this section), gross income
includes interest on State and local bonds
described in section 103(a), but does not
include income from a distribution of
previously taxed earnings and profits de-
scribed in section 959(a) or (b). In addi-
tion, total gross income (for purposes of
the denominator of the 70-percent test)
includes income received from related
persons.
(C) Treatment of partnerships and oth-
er pass-through entities. For purposes of
applying the rules in paragraph (e)(3)(i)
(A) of this section (including by reason of
paragraph (e)(3)(ii) of this section) with
respect to an individual or corporation
that is a direct or indirect partner in a part-
nership, the partner’s distributive share
of partnership income is characterized as
if each partnership item of gross income
were realized directly by the partner. For
example, in applying section 954(h)(2)(B)
under paragraph (e)(3)(i)(A) of this sec-
tion, a customer with respect to a partner-
ship is treated as a related person with re-
spect to an individual or corporation that is
a partner in the partnership if the customer
is related to the individual or corporation
under section 954(d)(3). The principles of
this paragraph (e)(3)(i)(C) apply for an in-
dividual or corporation’s share of income
from any other pass-through entities.
(ii) Financial services group. A cor-
poration that is a member of a financial
services group is deemed to be a financial
services entity regardless of whether it is
a financial services entity under paragraph
(e)(3)(i) of this section. For purposes of
this paragraph (e)(3)(ii), a financial ser-
vices group means an affiliated group as
defined in section 1504(a) (but determined
without regard to paragraphs (2) or (3) of
section 1504(b)) if more than 70 percent
of the affiliated group’s gross income is
active financing income under paragraph
(e)(2) of this section. For purposes of de-
termining whether an affiliated group is
a financial services group under the pre-
vious sentence, only the income of group
members that are domestic corporations,
or foreign corporations that are controlled
foreign corporations in which U.S. mem-
bers of the affiliated group own, directly
or indirectly, at least 80 percent of the to-
tal voting power and value of the stock,
is included. In addition, indirect owner-
ship is determined under section 318, and
the income of the group does not include
any income from transactions with other
members of the group. Passive income
will not be considered to be active financ-
ing income merely because that income is
earned by a member of the group that is a
financial services entity without regard to
the rule of this paragraph (e)(3)(ii).
* * * * *
(f) * * *
(1) * * *
(iii) Income arising from U.S. activities
excluded from foreign branch category
income. Gross income that is attributable
to a foreign branch and that arises from
activities carried out in the United States
by any foreign branch, including income
that is reflected on a foreign branch’s sep-
arate books and records, is not assigned to
the foreign branch category. Instead, such
income is assigned to the general catego-
ry or a specified separate category under
the rules of this section. However, under
paragraph (f)(2)(vi) of this section, gross
income (including U.S. source gross in-
come) attributable to activities carried on
outside the United States by the foreign
branch may be assigned to the foreign
branch category by reason of a disregard-
ed payment to a foreign branch from a
foreign branch owner or another foreign
branch that is allocable to income record-
ed on the books and records of the payor
foreign branch or foreign branch owner.
(iv) Income arising from stock ex-
cluded from foreign branch category in-
come—(A) In general. Except as provided
in paragraph (f)(1)(iv)(B) of this section,
gross income that is attributable to a for-
eign branch and that comprises items of
income arising from stock of a corporation
(whether foreign or domestic), including
gain from the disposition of such stock
or any inclusion under section 951(a),

Bulletin No. 2020–49 1535 November 30, 2020
951A(a), 1248, or 1293(a), is not assigned
to the foreign branch category. Instead,
such income is assigned to the general
category or a specified separate category
under the rules of this section.
(B) Exception for dealer property.
Paragraph (f)(1)(iv)(A) of this section
does not apply to gain recognized from
dispositions of stock in a corporation, if
the stock would be dealer property (as de-
fined in §1.954-2(a)(4)(v)) if the foreign
branch were a controlled foreign corpora-
tion.
* * * * *
(2) * * *
(vi) * * *
(A) In general. If a foreign branch
makes a disregarded payment to its for-
eign branch owner or a second foreign
branch, and the disregarded payment is al-
locable to gross income that would be at-
tributable to the foreign branch under the
rules in paragraphs (f)(2)(i) through (v) of
this section, the gross income attributable
to the foreign branch is adjusted down-
ward (but not below zero) to reflect the
allocable amount of the disregarded pay-
ment, and the gross income attributable
to the foreign branch owner or the second
foreign branch is adjusted upward by the
same amount as the downward adjustment,
translated (if necessary) from the for-
eign branch’s functional currency to U.S.
dollars (or the second foreign branch’s
functional currency, as applicable) at the
spot rate (as defined in §1.988-1(d)) on
the date of the disregarded payment. For
rules addressing multiple disregarded pay-
ments in a taxable year, see paragraph (f)
(2)(vi)(F) of this section. Similarly, if a
foreign branch owner makes a disregard-
ed payment to its foreign branch and the
disregarded payment is allocable to gross
income attributable to the foreign branch
owner, the gross income attributable to the
foreign branch owner is adjusted down-
ward (but not below zero) to reflect the
allocable amount of the disregarded pay-
ment, and the gross income attributable to
the foreign branch is adjusted upward by
the same amount as the downward adjust-
ment, translated (if necessary) from U.S.
dollars to the foreign branch’s functional
currency at the spot rate on the date of the
disregarded payment. An adjustment to
the attribution of gross income under this
paragraph (f)(2)(vi) does not change the
total amount, character, or source of the
United States person’s gross income; does
not change the amount of a United States
person’s income in any separate category
other than the foreign branch and general
categories (or a specified separate catego-
ry associated with the foreign branch and
general categories); and has no bearing on
the analysis of whether an item of gross
income is eligible to be resourced under
an income tax treaty.
(B) * * *
(1) * * *
(ii) Disregarded payments from a for-
eign branch to its foreign branch owner
or to another foreign branch are allocable
to gross income attributable to the payor
foreign branch to the extent a deduction
for that payment or any disregarded cost
recovery deduction relating to that pay-
ment, if regarded, would be allocated
and apportioned to gross income attrib-
utable to the payor foreign branch un-
der the principles of §§1.861-8 through
1.861-14T and 1.861-17 (without regard
to exclusive apportionment) by treating
foreign source gross income and U.S.
source gross income in each separate cate-
gory (determined before the application of
this paragraph (f)(2)(vi) to the disregard-
ed payment at issue) each as a statutory
grouping.
* * * * *
(G) Effect of disregarded payments
made and received by non-branch taxable
units—(1) In general. For purposes of de-
termining the amount, source, and charac-
ter of gross income attributable to a for-
eign branch and its foreign branch owner
under paragraph (f)(2) of this section, the
rules of paragraph (f)(2) of this section ap-
ply to a non-branch taxable unit as though
the non-branch taxable unit were a foreign
branch or a foreign branch owner, as ap-
propriate, to attribute gross income to the
non-branch taxable unit and to further at-
tribute, under this paragraph (f)(2)(vi)(G),
the income of a non-branch taxable unit
to one or more foreign branches or to a
foreign branch owner. See paragraph (f)
(4)(xvi) of this section (Example 16).
(2) Foreign branch group income. The
income of a foreign branch group is at-
tributed to the foreign branch that owns
the group. The income of a foreign branch
group is the aggregate of the U.S. gross
income that is attributed, under the rules
of this paragraph (f)(2), to each member
of the foreign branch group, determined
after taking into account all disregard-
ed payments made and received by each
member.
(3) Foreign branch owner group in-
come. The income of a foreign branch
owner group is attributed to the foreign
branch owner that owns the group. The
income of a foreign branch owner group
income is the aggregate of the U.S. gross
income that is attributed, under the rules
of this paragraph (f)(2), to each member
of the foreign branch owner group, deter-
mined after taking into account all disre-
garded payments made and received by
each member.
(3) * * *
(v) Disregarded payment. A disregard-
ed payment includes an amount of proper-
ty (within the meaning of section 317(a))
that is transferred to or from a non-branch
taxable unit, foreign branch, or foreign
branch owner, including a payment in
exchange for property or in satisfaction
of an account payable, or a remittance or
contribution, in connection with a trans-
action that is disregarded for Federal in-
come tax purposes and that is reflected on
the separate set of books and records of a
non-branch taxable unit (other than an in-
dividual or domestic corporation) or a for-
eign branch. A disregarded payment also
includes any other amount that is reflected
on the separate set of books and records
of a non-branch taxable unit (other than
an individual or a domestic corporation)
or a foreign branch in connection with a
transaction that is disregarded for Federal
income tax purposes and that would con-
stitute an item of accrued income, gain,
deduction, or loss of the non-branch tax-
able unit (other than an individual or a do-
mestic corporation) or the foreign branch
if the transaction to which the amount is
attributable were regarded for Federal in-
come tax purposes.
* * * * *
(viii) Foreign branch group. The term
foreign branch group means a foreign
branch and one or more non-branch tax-
able units (other than an individual or a
domestic corporation), to the extent that
the foreign branch owns the non-branch
taxable unit directly or indirectly through
one or more other non-branch taxable
units.

November 30, 2020 1536 Bulletin No. 2020–49
* * * * *
(x) Foreign branch owner group. The
term foreign branch owner group means
a foreign branch owner and one or more
non-branch taxable units (other than an
individual or a domestic corporation), to
the extent that the foreign branch owner
owns the non-branch taxable unit direct-
ly or indirectly through one or more other
non-branch taxable units.
(xi) Non-branch taxable unit. The term
non-branch taxable unit has the meaning
provided in §1.904-6(b)(2)(i)(B).
* * * * *
(4) * * *
(xiii) Example 13: Disregarded payment from
domestic corporation to foreign branch—(A) Facts.
P, a domestic corporation, owns FDE, a disregard-
ed entity that is a foreign branch. FDE’s functional
currency is the U.S. dollar. In Year 1, P accrues and
records on its books and records for Federal income
tax purposes $400x of gross income from the license
of intellectual property to unrelated parties that is not
passive category income, all of which is U.S. source
income. P also accrues $600x of foreign source pas-
sive category interest income. P compensates FDE
for services that FDE performs in a foreign country
with an arm’s length payment of $350x, which FDE
records on its books and records; the transaction is
disregarded for Federal income tax purposes. Absent
the application of paragraph (f)(2)(vi) of this section,
the $400x of gross income earned by P from the li-
cense would be general category income that would
not be attributable to FDE. If the payment were re-
garded for Federal income tax purposes, the deduc-
tion for the payment of $350x from P to FDE would
be allocated and apportioned entirely to P’s $400x
of general category gross licensing income under
the principles of §§1.861-8 and 1.861-8T (treating
U.S. source general category gross income and for-
eign source passive category gross income each as
a statutory grouping). There are no other expenses
incurred by P or FDE.
(B) Analysis. The disregarded payment from P,
a United States person, to FDE, its foreign branch,
is not recorded on FDE’s separate books and re-
cords (as adjusted to conform to Federal income tax
principles) under paragraph (f)(2)(i) of this section
because it is disregarded for Federal income tax pur-
poses. The disregarded payment is allocable to gross
income attributable to P because a deduction for the
payment, if it were regarded, would be allocated and
apportioned to the $400x of P’s U.S. source licens-
ing income. Accordingly, under paragraphs (f)(2)(vi)
(A) and (f)(2)(vi)(B)(3) of this section, the amount of
gross income attributable to the FDE foreign branch
(and the gross income attributable to P) is adjusted
in Year 1 to take the disregarded payment into ac-
count. Accordingly, $350x of P’s $400x U.S. source
general category gross income from the license is
attributable to the FDE foreign branch for purposes
of this section. Therefore, $350x of the U.S. source
gross income that P earned with respect to its license
in Year 1 constitutes U.S. source gross income that
is assigned to the foreign branch category and $50x
remains U.S. source general category income. P’s
$600x of foreign source passive category interest
income is unchanged.
(xiv) Example 14: Regarded payment from
non-consolidated domestic corporation to a foreign
branch—(A) Facts. The facts are the same as in
paragraph (f)(4)(xiii)(A) of this section (the facts of
Example 13), except P wholly owns USS, and USS
(rather than P) owns FDE. P and USS do not file a
consolidated return. USS has no gross income oth-
er than the $350x foreign source services income it
receives from P, through FDE, for Federal income
tax purposes.
(B) Analysis. P has $400x of U.S. source general
category gross income from the license and $600x of
foreign source passive category interest income. The
$350x services payment from P, a United States per-
son, to FDE, a foreign branch of USS, is not a disre-
garded payment because the transaction is regarded
for Federal income tax purposes. Under §§1.861-8
and 1.861-8T, P’s $350x deduction for the services
payment is allocated and apportioned to its U.S.
source general category gross income. The payment
of $350x from P to USS is services income attrib-
utable to FDE, and foreign branch category income
of USS under paragraph (f)(2)(i) of this section.
Accordingly, USS has $350x of foreign source for-
eign branch category gross income. P has $600x of
foreign source passive category income and $400x
of U.S. source general category gross income and a
$350x deduction for the services payment, resulting
in $50x of U.S. source general category taxable in-
come to P.
(xv) Example 15: Regarded payment from a
member of a consolidated group to a foreign branch
of another member of the group—(A) Facts. The
facts are the same as in paragraph (f)(4)(xiv)(A) of
this section (the facts of Example 14), except that
P and USS are members of an affiliated group that
files a consolidated return pursuant to section 1502
(P group).
(B) Analysis—(1) Definitions under §1.1502-13.
Under §1.1502-13(b)(1), the $350x services pay-
ment from P, a United States person, to FDE, a for-
eign branch of USS, is an intercompany transaction
between P and USS; USS is the selling member, P is
the buying member, P has a corresponding deduc-
tion of $350x for the services payment, and USS has
$350x of intercompany income. The payment is not
a disregarded payment because the transaction is re-
garded for Federal income tax purposes.
(2) Timing and attributes under §1.1502-13—(i)
Separate entity versus single entity analysis. Under a
separate entity analysis, the result is the same as in
paragraph (f)(4)(xiv)(B) of this section (the analy-
sis in Example 14), whereby P has $600x of foreign
source passive category income and $50x of U.S.
source general category income, and USS has $350x
of foreign source foreign branch category income. In
contrast, under a single entity analysis, the result is
the same as in paragraph (f)(4)(xiii)(B) of this section
(the analysis in Example 13), whereby P has $600x
of foreign source passive category income, $50x of
U.S. source general category income, and $350x of
U.S. source foreign branch category income.
(ii) Application of the matching rule. Under the
matching rule in §1.1502-13(c), the timing, char-
acter, source, and other attributes of USS’s $350x
intercompany income and P’s corresponding $350x
deduction are redetermined to produce the effect of
transactions between divisions of a single corpora-
tion, as if the services payment had been made to a
foreign branch of that corporation. Accordingly, all
of USS’s foreign source income of $350x is redeter-
mined to be U.S. source, rather than foreign source,
income. Therefore, for purposes of §1.1502-4(c)(1),
the P group has $600x of foreign passive category in-
come, $50x of U.S. source general category income,
and $350x of U.S. source foreign branch category
income.
(xvi) Example 16: Disregarded payment made
from non-branch taxable unit—(A) Facts. The facts
are the same as in paragraph (f)(4)(xiii)(A) of this
section (the facts of Example 13), except that P also
wholly owns FDE1, a disregarded entity that is a
non-branch taxable unit. In addition, FDE1 (rather
than P) is the entity that properly accrues and records
on its books and records the $400x of U.S. source
general category income from the license of intellec-
tual property and the $600x of foreign source passive
category interest income, and FDE1 (rather than P)
is the entity that makes the $350x payment, which is
disregarded for Federal income tax purposes, to FDE
in compensation for services.
(B) Analysis. Under paragraph (f)(2)(vi)(G) of
this section, the rules of paragraph (f)(2) of this sec-
tion apply to attribute gross income to FDE1, a non-
branch taxable unit, as though FDE1 were a foreign
branch. Under these rules, the $400x of licensing
income and the $600 of interest income are initial-
ly attributable to FDE1. This income is adjusted in
Year 1 to take into account the $350x disregarded
payment, which is allocable to the $400x of licens-
ing income of FDE1. Accordingly, $50x of the $400x
of U.S. source general category licensing income is
attributable to FDE1 and $350x of this income is
attributable to the FDE foreign branch. In order to
determine the income that is attributable to P, the
foreign branch owner, and FDE, the foreign branch,
the income that is attributed to FDE1, after taking
into account all of the disregarded payments that it
makes and receives, must be further attributed to one
or more foreign branches or a foreign branch owner
under paragraph (f)(2)(vi)(G) of this section. Under
paragraph (f)(2)(vi)(G) of this section, the income
of FDE1 is attributed to the foreign branch group or
foreign branch owner group of which it is a mem-
ber. Because FDE1 is wholly owned by P, FDE is
a member solely of the foreign branch owner group
that is owned by P. See definition of “foreign branch
owner group” in §1.904-4(f)(3). All of the income
that is attributed to FDE1 under paragraph (f)(2) of
this section, namely, the $50x of U.S. source general
category licensing income and the $600x of foreign
source passive category interest income, is further
attributed to P. See §1.904-4(f)(2)(vi)(G)(3). There-
fore, the result is the same as in paragraph (f)(4)(xiii)
(B) of this section (the analysis in Example 13).
* * * * *
(q) * * *
(3) Paragraphs (e)(1)(ii) and (e)(2) and
(3) of this section apply to taxable years
beginning on or after [date final regula-
tions are filed with the Federal Register].
Paragraph (f) of this section applies to

Bulletin No. 2020–49 1537 November 30, 2020
taxable years that begin after December
31, 2019, and end on or after November
2, 2020.
Par. 27. Section 1.904-5 is amended by
revising paragraphs (b)(2) and (o) as fol-
lows:
§1.904-5 Look-through rules as applied
to controlled foreign corporations and
other entities.
* * * * *
(b) * * *
(2) Priority and ordering of look-
through rules. To the extent the look-
through rules assign income to a separate
category, the income is assigned to that
separate category rather than the separate
category to which the income would have
been assigned under §1.904-4 (not taking
into account §1.904-4(l)). See paragraph
(k) of this section for ordering rules for
applying the look-through rules.
* * * * *
(o) Applicability dates. Except as pro-
vided in this paragraph (o), this section is
applicable for taxable years that both be-
gin after December 31, 2017, and end on
or after December 4, 2018. Paragraph (b)
(2) of this section applies to taxable years
beginning on or after [date final regula-
tions are filed with the Federal Register].
Par. 28. Section 1.904-6, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Reg-
ister, is further amended by adding para-
graph (b)(2) and revising paragraph (g) to
read as follows:
§1.904-6 Allocation and apportionment
of foreign income taxes.
* * * * *
(b) * * *
(2) Disregarded payments—(i) In gen-
eral—(A) Assignment of foreign gross
income. Except as provided in paragraph
(b)(2)(ii) of this section, if a taxpayer that
is an individual or a domestic corporation
includes an item of foreign gross income
by reason of the receipt of a disregarded
payment by a foreign branch or foreign
branch owner (as those terms are defined
in §1.904-4(f)(3)), or a non-branch tax-
able unit, the foreign gross income item
is assigned to a separate category under
§1.861-20(d)(3)(v).
(B) Definition of non-branch taxable
unit. The term non-branch taxable unit
means a person or interest that is described
in paragraph (b)(2)(i)(B)(1) or (2) of this
section, respectively.
(1) Persons. A non-branch taxable unit
described in this paragraph (b)(2)(i)(B)
(1) means a person that is not otherwise
a foreign branch owner and that is a U.S.
individual, a domestic corporation, or a
foreign or domestic partnership (or other
pass-through entity, as defined in §1.904-
5(a)(4)) an interest in which is owned,
directly or indirectly through one or more
other partnerships (or other pass-through
entities), by a U.S. individual or a domes-
tic corporation.
(2) Interests. A non-branch taxable unit
described in this paragraph (b)(2)(i)(B)
(2) means an interest of a foreign branch
owner or an interest of a person described
in paragraph (b)(2)(i)(B)(1) of this sec-
tion that is not otherwise a foreign branch,
and that is either a disregarded entity or
a branch, as defined in §1.267A-5(a)(2),
including a branch described in §1.954-
1(d)(2)(i)(C) (modified by substituting the
term “person” for “controlled foreign cor-
poration”).
(ii) Foreign branch group contribu-
tions—(A) In general. If a taxpayer in-
cludes an item of foreign gross income by
reason of a foreign branch group contribu-
tion, the foreign gross income is assigned
to the foreign branch category, or, in the
case of a foreign branch owner that is a
partnership, to the partnership’s general
category income that is attributable to the
foreign branch. See, however, §§1.861-
20(d)(3)(v)(C)(2) and 1.960-1(d)(3)(ii)
(A) and (e) for rules providing that foreign
income tax on a disregarded payment that
is a contribution from a controlled foreign
corporation to a taxable unit is assigned
to the residual grouping and cannot be
deemed paid under section 960.
(B) Foreign branch group contribu-
tion. A foreign branch group contribution
is a contribution (as defined in §1.861-
20(d)(3)(v)(E)) made by a member of a
foreign branch owner group to a member
of a foreign branch group that the payor
owns, made by a member of a foreign
branch group to another member of that
group that the payor owns, or made by
a member of a foreign branch group to
a member of a different foreign branch
group that the payor owns. For purposes
of this paragraph (b)(2)(ii)(B), the terms
foreign branch group and foreign branch
owner group have the meanings provided
in §1.904-4(f)(3).
* * * * *
(g) Applicability date. Except as other-
wise provided in this paragraph (g), this
section applies to taxable years that begin
after December 31, 2019. Paragraph (b)
(2) of this section applies to taxable years
that begin after December 31, 2019, and
end on or after November 2, 2020.
Par. 29. Section 1.904(f)-12 is amend-
ed by:
1. Removing paragraph (j)(6).
2. Redesignating paragraph (j)(5) as
paragraph (j)(6).
3. Adding a new paragraph (j)(5) and
paragraph (j)(7).
The additions read as follows:
§1.904(f)-12 Transition rules.
* * * * *
(j) * * *
(5) Treatment of net operating loss-
es incurred in post-2017 taxable years
that are carried back to pre-2018 taxable
years—(i) In general. Except as provid-
ed in paragraph (j)(5)(ii) of this section,
a net operating loss (NOL) incurred in a
taxable year beginning after December 31,
2017 (a “post-2017 taxable year”), which
is carried back, pursuant to section 172, to
a taxable year beginning before January
1, 2018 (a “pre-2018 carryback year”),
will be carried back under the rules of
§1.904(g)-3(b). For purposes of applying
the rules of §1.904(g)-3(b), income in a
pre-2018 separate category in the taxable
year to which the net operating loss is car-
ried back is treated as if it included only
income that would be assigned to the post-
2017 general category. Therefore, any
separate limitation loss created by reason
of a passive category component of an
NOL from a post-2017 taxable year that
is carried back to offset general category
income in a pre-2018 carryback year will
be recaptured in post-2017 taxable years
as general category income, and not as a
combination of general, foreign branch,
and section 951A category income.
(ii) Foreign source losses in the post-
2017 separate categories for foreign
branch category income and section

November 30, 2020 1538 Bulletin No. 2020–49
951A category income. Net operating
losses attributable to a foreign source
loss in the post-2017 separate categories
for foreign branch category income and
section 951A category income are treat-
ed as first offsetting general category
income in a pre-2018 carryback year to
the extent available to be offset by the
net operating loss carryback. If the sum
of foreign source losses in the taxpayer’s
separate categories for foreign branch
category income and section 951A cate-
gory income in the year the net operating
loss is incurred exceeds the amount of
general category income that is available
to be offset in the carryback year, then the
amount of foreign source loss in each of
the foreign branch and section 951A cat-
egories that is treated as offsetting gener-
al category income under this paragraph
(j)(5)(ii), is determined on a proportion-
ate basis. General category income in the
pre-2018 carryback year is first offset by
foreign source loss in the taxpayer’s post-
2017 separate category for general cate-
gory income in the year the net operating
loss is incurred before any foreign source
loss in that year in the separate categories
for foreign branch category income and
section 951A category income is carried
back to reduce general category income.
To the extent a foreign source loss in a
post-2017 separate category for foreign
branch category income or section 951A
category income offsets general category
income in a pre-2018 taxable year under
the rules of this paragraph (j)(5)(ii), no
separate limitation loss account is creat-
ed.
* * * * *
(7) Applicability date. Except as other-
wise provided in this paragraph (j)(7), this
paragraph (j) applies to taxable years end-
ing on or after December 31, 2017. Para-
graph (j)(5) of this section applies to car-
rybacks of net operating losses incurred in
taxable years beginning on or after Janu-
ary 1, 2018.
Par. 30. Section 1.905-1 is amended by:
1. Revising the section heading and
paragraph (a).
2. Redesignating paragraph (b) as para-
graph (g).
3. Adding a new paragraph (b) and
paragraphs (c), (d), (e), and (f).
4. Revising the heading of newly re-
designated paragraph (g).
5. Adding paragraph (h).
The revisions and additions read as fol-
lows:
§1.905-1 When credit for foreign income
taxes may be taken.
(a) Scope. This section provides rules
regarding when the credit for foreign in-
come taxes (as defined in §1.901-2(a))
may be taken, based on a taxpayer’s
method of accounting for such taxes.
Paragraph (b) of this section provides the
general rule. Paragraph (c) of this section
sets forth rules for determining the taxable
year in which taxpayers using the cash
receipts and disbursement method of ac-
counting for income (“cash method”) may
claim a foreign tax credit. Paragraph (d) of
this section sets forth rules for determin-
ing the taxable year in which taxpayers
using the accrual method of accounting
for income (“accrual method”) may claim
a foreign tax credit. Paragraph (e) of this
section provides rules for taxpayers us-
ing the cash method to claim foreign tax
credits on the accrual basis pursuant to the
election provided under section 905(a).
Paragraph (f) of this section provides rules
for when foreign income tax expenditures
of a pass-through entity can be taken as a
credit by the entity’s partners, sharehold-
ers, or owners. Paragraph (g) of this sec-
tion provides rules for when a foreign tax
credit can be taken with respect to blocked
income. Paragraph (h) provides the appli-
cability dates for this section.
(b) General rule. The credit for taxes
provided in subpart A, part III, subchapter
N, chapter 1 of the Code (the “foreign tax
credit”) may be taken either on the return
for the year in which the taxes accrued
or on the return for the year in which the
taxes were paid, depending on whether
the taxpayer uses the accrual or the cash
receipts and disbursements method of ac-
counting for purposes of computing tax-
able income and filing returns. However,
regardless of the year in which the credit
is claimed under the taxpayer’s method
of accounting for foreign income taxes,
the foreign tax credit is allowed only to
the extent the foreign income taxes are
ultimately both owed and actually remit-
ted to the foreign country (in the case of
a taxpayer claiming the foreign tax credit
on the accrual basis, within the time pre-
scribed by section 905(c)(2)). See section
905(b) and §§1.901-1(a) and 1.901-2(e).
Because the taxpayer’s liability for for-
eign income tax may accrue (that is, be-
come fixed and determinable) in a differ-
ent taxable year than that in which the tax
is paid (that is, remitted), the taxpayer’s
entitlement to the credit may be perfect-
ed, or become subject to adjustment, by
reason of events that occur in a taxable
year after the taxable year in which the
credit is allowed. See section 905(c) and
§1.905-3(a) for rules relating to changes
to the taxpayer’s foreign income tax li-
ability that require a redetermination of
the allowable foreign tax credit and the
taxpayer’s U.S. tax liability.
(c) Rules for cash method taxpayers—
(1) Credit allowed in year paid. Except
as provided in paragraph (e) of this sec-
tion, a taxpayer who uses the cash method
may claim a foreign tax credit only in the
taxable year in which the foreign income
taxes are paid. Generally, foreign income
taxes are considered paid in the taxable
year in which the taxes are remitted to the
foreign country. However, foreign with-
holding taxes described in section 901(k)
(1)(B), as well as foreign net income tax-
es described in §1.901-2(a)(3)(i) that are
withheld from the taxpayer’s gross income
by the payor, are treated as paid in the
year in which they are withheld. Foreign
income taxes that have been withheld or
remitted but which are not considered an
amount of tax paid for purposes of section
901 under the rules of §1.901-2(e) (for
example, because the amount withheld or
remitted was not a compulsory payment),
however, are not eligible for a foreign tax
credit. See §§1.901-2(e) and 1.905-3(b)
(1)(ii)(B) (Example 2).
(2) Adjustments to taxes claimed as a
credit in the year paid. A refund of foreign
income taxes for which a foreign tax cred-
it has been claimed on the cash basis, or a
subsequent determination that the amount
paid exceeds the taxpayer’s liability for
foreign income tax, requires a redetermi-
nation of foreign income taxes paid and
the taxpayer’s U.S. tax liability pursu-
ant to section 905(c) and §1.905-3. See
§1.905-3(a) and (b)(1)(ii)(G) (Example
7). Additional foreign income taxes paid
that relate back to a prior year in which
foreign income taxes were claimed as a
credit on the cash basis, including by rea-

Bulletin No. 2020–49 1539 November 30, 2020
son of the settlement of a dispute with the
foreign tax authority, may only be claimed
as a credit in the year the additional taxes
are paid. The payment of such additional
taxes does not result in a redetermination
pursuant to section 905(c) or §1.905-3 of
the foreign income taxes paid in any prior
year, although a redetermination of U.S.
tax liability may be required due, for ex-
ample, to a carryback of unused foreign
tax under section 904(c) and §1.904-2.
(d) Rules for accrual method taxpay-
ers—(1) Credit allowed in year accrued—
(i) In general. A taxpayer who uses the
accrual method may claim a foreign tax
credit only in the taxable year in which
the foreign income taxes are considered to
accrue for foreign tax credit purposes un-
der the rules of this paragraph (d). Foreign
income taxes accrue in the taxable year in
which all the events have occurred that
establish the fact of the liability and the
amount of the liability can be determined
with reasonable accuracy. See §§1.446-
1(c)(1)(ii)(A) and 1.461-4(g)(6)(iii)(B).
For purposes of the preceding sentence, a
foreign income tax that is contingent on
a future distribution of earnings does not
meet the all events test until the earnings
are distributed. A foreign income tax lia-
bility determined on the basis of a foreign
taxable year becomes fixed and determin-
able at the close of the taxpayer’s foreign
taxable year. Therefore, foreign income
taxes that are computed based on items of
income, deduction, and loss that arise in a
foreign taxable year accrue in the United
States taxable year with or within which
the taxpayer’s foreign taxable year ends.
Foreign withholding taxes that are paid
with respect to a foreign taxable year and
that represent advance payments of a for-
eign net income tax liability determined
on the basis of that foreign taxable year
accrue at the close of the foreign taxable
year. Foreign withholding taxes imposed
on a payment giving rise to an item of for-
eign gross income accrue on the date the
payment from which the tax is withheld
is made (or treated as made under foreign
tax law).
(ii) Relation-back rule for adjustments
to taxes claimed as a credit in year ac-
crued. Additional tax paid as a result of a
change in the foreign tax liability, includ-
ing additional taxes paid when a contest
with a foreign tax authority is resolved,
relate back and are considered to accrue
at the end of the foreign taxable year with
respect to which the taxes were imposed
(the “relation-back year”). Addition-
al withholding tax paid as a result of a
change in the amount of an item of for-
eign gross income (such as pursuant to a
foreign transfer pricing adjustment), also
relate back and are considered to accrue in
the year in which the payment from which
the additional tax is withheld is made (or
considered to have been made under for-
eign tax law). Foreign income taxes that
are not paid within 24 months after the
close of the taxable year in which they
were accrued are treated as refunded pur-
suant to §1.905-3(a); when subsequently
paid, the foreign income taxes are allowed
as a credit in the relation-back year. See
§1.905-3(b)(1)(ii)(E) (Example 5). For
special rules that apply to determine when
foreign income tax is considered to accrue
in the case of certain ownership and en-
tity classification changes, see §§1.336-
2(g)(3)(ii), 1.338-9(d), 1.901-2(f)(5), and
1.1502-76.
(2) Special rule for 52-53 week U.S.
taxable years. If a taxpayer has elected
pursuant to section 441(f) to use a U.S.
taxable year consisting of 52-53 weeks,
and such U.S. taxable year closes within
six calendar days of the end of the tax-
payer’s foreign taxable year, the determi-
nation of when foreign income taxes ac-
crue under paragraph (d)(1) of this section
is made by deeming the taxpayer’s U.S.
taxable year to end on the last day of its
foreign taxable year.
(3) Accrual of contested foreign tax
liability. A contested foreign income tax
liability is finally determined and ac-
crues for purposes of paragraph (d)(1) of
this section when the contest is resolved.
However, pursuant to section 905(c)(2),
no credit is allowed for any accrued tax
that is not paid within 24 months of the
close of the relation-back year until the tax
is actually remitted and considered paid.
Thus, except as provided in paragraph (d)
(4) of this section, a foreign tax credit for
a contested foreign income tax liability
cannot be claimed until such time as both
the contest is resolved and the tax is ac-
tually paid, even if the contested liability
(or portion thereof) has previously been
remitted to the foreign country. Once the
contest is resolved and the foreign income
tax liability is finally determined and paid,
the tax liability accrues, and is considered
actually to accrue in the relation-back year
for purposes of the foreign tax credit. See
paragraph (d)(1) of this section; see also
section 6511(d)(3) and §301.6511(d)-3 of
this chapter for a special 10-year period of
limitations for claiming a credit or refund
of U.S. tax that is attributable to foreign
income taxes for which a credit is allowed
under section 901, which runs from the
unextended due date of the return for the
taxable year in which the foreign income
taxes are paid (within the meaning of
paragraph (c) of this section, for taxpay-
ers claiming credits on the cash basis) or
accrued (within the meaning of this para-
graph (d)), for taxpayers claiming credits
on the accrual basis).
(4) Election to claim a provisional
credit for contested taxes remitted before
accrual—(i) Conditions of election. A tax-
payer may, under the conditions provided
in this paragraph (d)(4), elect to claim a
foreign tax credit (but not a deduction) for
a contested foreign income tax liability (or
a portion thereof) in the relation-back year
when the contested amount (or a portion
thereof) is remitted to the foreign country,
notwithstanding that the liability is not fi-
nally determined and so has not accrued.
To make the election, a taxpayer must file
an amended return for the taxable year to
which the contested tax relates, togeth-
er with a Form 1116 (Foreign Tax Cred-
it (Individual, Estate, or Trust)) or Form
1118 (Foreign Tax Credit—Corporations),
and the agreement described in paragraph
(d)(4)(ii) of this section. In addition, the
taxpayer must, for each subsequent tax-
able year up to and including the taxable
year in which the contest is resolved,
file the annual certification described in
paragraph (d)(4)(iii) of this section. Any
portion of a contested foreign income tax
liability for which a provisional credit is
claimed under this paragraph (d)(4) that
is subsequently refunded by the foreign
country results in a foreign tax redetermi-
nation under §1.905-3(a).
(ii) Contents of provisional foreign tax
credit agreement. The provisional foreign
tax credit agreement must contain the fol-
lowing:
(A) A statement that the document is an
election and an agreement under the pro-
visions of paragraph (d)(4) of this section;

November 30, 2020 1540 Bulletin No. 2020–49
(B) A description of contested foreign
income tax liability, including the name
of the foreign tax or taxes being contest-
ed, the name of the country imposing the
tax, the amount of the contested tax, and
the U.S. taxable year(s) and the income to
which the contested foreign income tax li-
ability relates;
(C) The amount of the contested for-
eign income tax liability in paragraph (d)
(4)(ii)(B) of this section that has been re-
mitted to the foreign country and the date
of the remittance(s);
(D) An agreement by the taxpayer, for
a period of three years from the later of
the filing or the due date (with extensions)
of the return for the taxable year in which
the taxpayer notifies the Internal Revenue
Service of the resolution of the contest,
not to assert the statute of limitations on
assessment as a defense to the assessment
of additional taxes or interest related to the
contested foreign income tax liability de-
scribed in paragraph (d)(4)(ii)(B) of this
section that may arise from a determina-
tion that the taxpayer failed to exhaust all
effective and practical remedies to min-
imize its foreign income tax liability, so
that the amount of the contested foreign
income tax is not a compulsory payment
and is not considered paid within the
meaning of §1.901-2(e)(5);
(E) A statement that the taxpayer
agrees to comply with all the conditions
and requirements of paragraph (d)(4) of
this section, including to provide notice to
the Internal Revenue Service upon the res-
olution of the contest, and to treat the fail-
ure to comply with such requirement as a
refund of the contested foreign income tax
liability that requires a redetermination of
the taxpayer’s U.S. tax liability pursuant
to §1.905-3(b); and
(F) Any additional information as may
be prescribed by the Commissioner of In-
ternal Revenue in Internal Revenue Ser-
vice forms or instructions.
(iii) Annual certification. For each tax-
able year following the year in which an
election pursuant to paragraph (d)(4) of
this section is made up to and including
the taxable year in which the contest is
resolved, the taxpayer must include with
its timely-filed return a certification con-
taining the information described in para-
graphs (d)(4)(iii)(A) through (C) of this
section in the form or manner prescribed
by the Commissioner of Internal Revenue
in Internal Revenue Service forms or in-
structions.
(A) A description of the contested
foreign income tax liability, including
the name of the foreign tax or taxes, the
country imposing the tax, the amount of
the contested tax, and a description of the
status of the contest.
(B) With the return for the taxable year
in which the contest is resolved, notifica-
tion that the contest has been resolved.
Such notification must include the date
of final resolution and the amount of the
finally determined foreign income tax li-
ability.
(C) Any additional information, which
may include a copy of the final judgment,
order, settlement, or other documentation
of the contest resolution, as may be pre-
scribed by the Commissioner of Internal
Revenue in Internal Revenue Service
forms or instructions.
(iv) Signatory. The provisional foreign
tax credit agreement and the annual certi-
fication must be signed under penalties of
perjury by a person authorized to sign the
return of the taxpayer.
(v) Failure to comply. A taxpayer that
fails to comply with the requirements
for filing a provisional foreign tax credit
agreement under paragraphs (d)(4)(i) and
(ii) of this section will not be allowed a
provisional credit for the contested for-
eign income tax liability. A taxpayer that
fails to comply with the annual certifica-
tion requirement of paragraph (d)(4)(iii)
of this section will be treated as receiving
a refund of the amount of the contested
foreign income tax liability on the date
the annual certification is required to be
filed under paragraph (d)(4)(iii) of this
section, resulting in a redetermination of
the taxpayer’s U.S. tax liability pursuant
to §1.905-3(b).
(5) Correction of improper accruals—
(i) In general. The accrual of a foreign in-
come tax expense generally involves the
determination of the proper timing for
recognizing the expense for Federal in-
come tax purposes. Thus, foreign income
tax expense is a material item within the
meaning of section 446. See §1.446-1(e)
(2)(ii). As a material item, a change in the
timing of accruing a foreign income tax
expense is generally a change in meth-
od of accounting. See section 446(e). A
change from an improper method of ac-
cruing foreign income taxes to the proper
method of accrual described in this para-
graph (d) is treated as a change in a meth-
od of accounting, regardless of whether
the taxpayer (or a partner or beneficiary
taking into account a distributive share of
foreign income taxes paid by a partner-
ship or other pass-through entity) chooses
to claim a deduction or a credit for such
taxes in any taxable year. For purposes
of this paragraph (d)(5), an improper
method of accruing foreign income tax-
es includes a method under which for-
eign income tax is accrued in a taxable
year other than the taxable year in which
the requirements of the all events test in
§§1.446-1(c)(1)(ii)(A) and 1.461-4(g)(6)
(iii)(B) are met, or which fails to apply
the relation-back rule in paragraph (d)(1)
of this section that applies for purposes
of the foreign tax credit, but does not in-
clude corrections to estimated accruals or
errors in computing the amount of foreign
income tax that is allowed as a deduction
or credit in any taxable year. Taxpayers
must file a Form 3115, Application for
Change in Accounting Method, in accor-
dance with Revenue Procedure 2015-13
(or any successor administrative proce-
dure prescribed by the Commissioner) to
obtain the Commissioner’s permission to
change from an improper method of ac-
cruing foreign income taxes to the proper
method described in this paragraph (d).
In order to prevent a duplication or omis-
sion of a benefit for foreign income taxes
that accrue in any taxable year (whether
through the double allowance or double
disallowance of either a deduction or a
credit, the allowance of both a deduction
and a credit, or the disallowance of ei-
ther a deduction or a credit, for the same
amount of foreign income tax), the rules
in paragraphs (d)(5)(ii) through (iv) of
this section, describing a modified cut-
off approach, apply if the Commission-
er grants permission for the taxpayer to
change to the proper method of accrual.
Under the modified cut-off approach, a
section 481(a) adjustment is neither re-
quired nor permitted with respect to the
amounts of foreign income tax that were
improperly accrued (or improperly not
accrued) under the taxpayer’s improper
method in taxable years before the tax-
able year of change.

Bulletin No. 2020–49 1541 November 30, 2020
(ii) Adjustments required to implement
a change in method of accounting for ac-
cruing foreign income taxes. A change
from an improper method of accruing
foreign income taxes to the proper meth-
od described in this paragraph (d) is made
under the modified cut-off approach de-
scribed in this paragraph (d)(5)(ii). Under
the modified cut-off approach, the amount
of foreign income tax in a statutory or re-
sidual grouping (such as a separate catego-
ry as defined in §1.904-5(a)(4)) that prop-
erly accrues in the taxable year of change
(accounted for in the currency in which
the foreign tax liability is denominated) is
adjusted downward (but not below zero)
by the amount of foreign income tax in the
same grouping that the taxpayer improp-
erly accrued in a prior taxable year and for
which the taxpayer claimed a credit or a
deduction in such prior taxable year, but
only if the improperly-accrued amount of
foreign income tax did not properly ac-
crue in a taxable year before the taxable
year of change. Conversely, under the
modified cut-off approach, the amount
of foreign income tax in any statutory or
residual grouping that properly accrues in
the taxable year of change (accounted for
in the currency in which the foreign tax li-
ability is denominated) is adjusted upward
by the amount of foreign income tax in
the same grouping that properly accrued
in a taxable year before the taxable year
of change but which, under the taxpayer’s
improper method of accounting, the tax-
payer failed to accrue and claim as either
a credit or a deduction in any taxable year
before the taxable year of change. For
purposes of the foreign tax credit, the ad-
justed amounts of accrued foreign income
taxes, including any upward adjustment,
are translated into U.S. dollars under
§1.986(a)-1 as if those amounts properly
accrued in the taxable year of change. To
the extent that the downward adjustment
in any grouping required under this modi-
fied cut-off approach exceeds the amount
of foreign income tax properly accruing
in that grouping in the year of change,
such excess will carry forward to each
subsequent taxable year and reduce prop-
erly-accrued amounts of foreign income
tax in the same grouping to the extent of
those properly-accrued amounts, until all
improperly-accrued amounts included in
the downward adjustment are accounted
for. See §1.861-20 for rules that apply to
assign foreign income taxes to statutory
and residual groupings.
(iii) Application of section 905(c)—
(A) Two-year rule. Except as otherwise
provided in this paragraph (d)(5)(iii), if
the taxpayer claimed a credit for improp-
erly-accrued amounts in a taxable year
before the taxable year of change, no ad-
justment is required under section 905(c)
(2) and §1.905-3(a) solely by reason of the
improper accrual. For purposes of apply-
ing section 905(c)(2) and §1.905-3(a) to
improperly-accrued amounts of foreign
income tax that were claimed as a cred-
it in any taxable year before the taxable
year of change, the 24-month period runs
from the close of the U.S. taxable year(s)
in which those amounts were accrued un-
der the taxpayer’s improper method and
claimed as a credit. To the extent any im-
properly-accrued amounts remain unpaid
as of the date 24 months after the close
of the taxable year in which the amounts
were improperly accrued and claimed as
a credit, an adjustment is required under
section 905(c)(2) and §1.905-3(a) as if the
improperly-accrued amounts were refund-
ed as of the date 24 months after the close
of such taxable year. See §1.986(a)-1(c) (a
refund or other downward adjustment to
foreign income taxes paid or accrued on
more than one date reduces the foreign in-
come taxes paid or accrued on a last-in,
first-out basis, starting with the amounts
most recently paid or accrued).
(B) Application of payments. Amounts
of foreign income tax that a taxpayer ac-
crued and claimed as a credit or a deduc-
tion in a taxable year before the taxable
year of change under the taxpayer’s im-
proper method, but that had properly ac-
crued either in the taxable year the credit
or deduction was claimed or in a differ-
ent taxable year before the taxable year
of change, are not included in the down-
ward adjustment required by paragraph
(d)(5)(ii) of this section. Remittances to
the foreign country of such amounts (ac-
counted for in the currency in which the
foreign tax liability is denominated) are
treated first as payments of the amounts
of tax that had properly accrued in the
taxable year claimed as a credit or de-
duction to the extent thereof, and then as
payments of the amounts of tax that were
improperly accrued in a different taxable
year, on a last-in, first-out basis, starting
with the most recent improperly-accrued
amounts. Remittances to the foreign coun-
try of amounts of foreign income tax that
properly accrue in or after the taxable year
of change (accounted for in the foreign
currency in which the foreign tax liability
is denominated) but that are offset by the
amounts included in the downward ad-
justment required by paragraph (d)(5)(ii)
of this section are treated as payments of
the amounts of tax that were improperly
accrued before the taxable year of change
and included in the downward adjustment
on a last-in, first-out basis, starting with the
most recent improperly-accrued amounts.
Additional amounts of foreign income tax
that first accrue in or after the taxable year
of change but that relate to a taxable year
before the taxable year of change are tak-
en into account in the earlier of the taxable
year of change or the taxable year or years
in which they would have been considered
to accrue based upon the taxpayer’s im-
proper method. Additional amounts of for-
eign income tax that first accrue in or after
the taxable year of change and that relate
to the taxable year of change or a taxable
year after the year of change are taken into
account in the proper relation-back year,
but may then be subject to the downward
adjustment required by paragraph (d)(5)
(ii) of this section.
(iv) Foreign income tax expense im-
properly accrued by a foreign corpora-
tion, partnership, or other pass-through
entity. Foreign income tax expense of a
foreign corporation reduces both the cor-
poration’s taxable income and its earnings
and profits, and may give rise to an amount
of foreign taxes deemed paid under sec-
tion 960 that may be claimed as a credit
by a United States shareholder that is a
domestic corporation or that is a person
that makes an election under section 962.
If the Commissioner grants permission for
a foreign corporation to change its meth-
od of accounting for foreign income tax
expense, the duplication or omission of
those expenses (accounted for in the func-
tional currency of the foreign corporation)
and the associated foreign income taxes
(translated into dollars in accordance with
§1.986(a)-1) are accounted for by apply-
ing the rules in paragraph (d)(5)(ii) of this
section as if the foreign corporation were
itself eligible to, and did, claim a credit

November 30, 2020 1542 Bulletin No. 2020–49
under section 901 for such amounts. In the
case of a partnership or other pass-through
entity that is granted permission to change
its method of accounting for accruing
foreign income taxes to a proper method
as described in this paragraph (d), such
partnership or other pass-through entity
must provide its partners or other owners
with the information needed for the part-
ners or other owners to properly account
for the improperly-accrued or unaccrued
amounts under the rules in paragraph (d)
(5)(ii) of this section as if their proportion-
ate shares of foreign income tax expense
were directly paid or accrued by them.
(6) Examples. The following examples
illustrate the application of paragraph (d)
of this section. Unless otherwise stated,
for purposes of these examples it is pre-
sumed that the local currency in each of
Country X and Country Y and the func-
tional currency of any foreign branch is
the Euro (€), and at all relevant times the
exchange rate is $1:€1.
(i) Example 1: Accrual of foreign income tax—
(A) Facts. A, a U.S. citizen, resides and works in
Country X. A uses the calendar year as the U.S. tax-
able year, and has made an election under paragraph
(e) of this section to claim foreign tax credits on an
accrual basis. Country X has a tax year that begins on
April 1 and ends on March 31. A’s wages are subject
to net income tax, at graduated rates, under Country
X tax law and are subject to withholding on a month-
ly basis by A’s employer in Country X. In the period
between April 1, Year 1, and March 31, Year 2, A
earns $50,000x in Country X wages, from which A’s
employer withholds $10,000x in tax. On December
1, Year 1, A receives a dividend distribution from a
Country Y corporation, from which the corporation
withheld $500x of tax. Country Y imposes with-
holding tax on dividends paid to nonresidents solely
based on the gross amount of the dividend payment;
A is not required to file a tax return in Country Y.
(B) Analysis. Under paragraph (d)(1) of this sec-
tion, A’s liability for Country X net income tax ac-
crues on March 31, Year 2, the last day of the Coun-
try X taxable year. The Country X net income tax
withheld by A’s employer from A’s wages is a rea-
sonable approximation of, and represents an advance
payment of, A’s final net income tax liability for the
year, which becomes fixed and determinable only at
the close of the Country X taxable year. Thus, A can-
not claim a credit for any portion of the Country X
net income tax on A’s Federal income tax return for
Year 1, and may claim a credit for the entire Country
X net income tax that accrues on March 31, Year 2,
on A’s Federal income tax return for Year 2. A may
claim a credit for the Country Y withholding tax on
A’s Federal income tax return for Year 1, because the
withholding tax accrued on December 1, Year 1.
(ii) Example 2: 52-53 week taxable year—(A)
Facts. USC, an accrual method taxpayer, is a do-
mestic corporation that operates in branch form in
Country X. USC uses the calendar year for Country
X tax purposes. For Federal income tax purposes,
USC elects pursuant to §1.441-2(a) to use a 52-53
week taxable year that ends on the last Friday of De-
cember. In Year 1, USC’s U.S. taxable year ends on
Friday, December 25; in Year 2, USC’s U.S. taxable
year ends Friday, December 31. For its foreign tax-
able year ending December 31, Year 1, USC earns
$10,000x of foreign source income through its Coun-
try X branch and incurs Country X foreign income
tax of $500x; for Year 2, USC earns $12,000x and
incurs Country X foreign income tax of $600x.
(B) Analysis. Under paragraph (d)(1) of this sec-
tion, the $500x of Country X foreign income tax be-
comes fixed and determinable at the close of USC’s
foreign taxable year, on December 31, Year 1, which
is after the close of its U.S. taxable year (December
25, Year 1). The $600x of Country X foreign income
tax becomes fixed and determinable on December
31, Year 2. Thus, both the Year 1 and Year 2 Country
X foreign income taxes accrue in USC’s U.S. taxable
year ending December 31, Year 2. However, pursu-
ant to paragraph (d)(2) of this section, for purposes
of determining the amount of foreign income taxes
accrued in each taxable year for foreign tax cred-
it purposes, USC’s U.S. taxable year is deemed to
end on December 31, the end of USC’s Country X
taxable year. USC may therefore claim a foreign tax
credit for $500x of Country X foreign income tax on
its Federal income tax return for Year 1 and a credit
for $600x of Country X foreign income tax on its
Federal income tax return for Year 2.
(iii) Example 3: Contested tax—(A) Facts. USC
is a domestic corporation that operates in branch
form in Country X. USC uses an accrual method of
accounting and uses the calendar year as its U.S. and
Country X taxable year. In Year 1, when the aver-
age exchange rate described in §1.986(a)-1(a)(1) is
$1:€1, USC earns €20,000x = $20,000x through its
Country X branch for U.S. and Country X tax pur-
poses and accrues Country X foreign income taxes of
€500x = $500x, which USC claims as a credit on its
Federal income tax return for Year 1. In Year 3, when
the average exchange rate is $1:€1.2, Country X as-
serts that USC owes additional foreign income taxes
of €100x with respect to USC’s Year 1 income. USC
contests the liability but remits €40x to Country X
with respect to the contested liability in Year 3. USC
does not make an election under paragraph (d)(4) of
this section to claim a provisional credit with respect
to the €40x. In Year 6, after exhausting all effective
and practical remedies, it is finally determined that
USC is liable for €50x of additional Country X for-
eign income taxes with respect to its Year 1 income.
USC pays an additional €10x to Country X on Sep-
tember 15, Year 6, when the spot rate described in
§1.986(a)-1(a)(2)(i) is $1:€2.
(B) Analysis. Pursuant to paragraph (d)(3) of this
section, the additional liability asserted by Country
X with respect to USC’s Year 1 income does not ac-
crue until the contest is resolved in Year 6. USC’s
remittance of €40x of contested tax in Year 3 is not
a payment of accrued tax, and so is not a foreign tax
redetermination. Both the €40x of Country X tax-
es paid in Year 3 and the €10x of Country X taxes
paid in Year 6 accrue in Year 6, when the contest is
resolved. Once accrued and paid, the €50x relates
back for foreign tax credit purposes to Year 1, and
can be claimed as a credit by USC on a timely-filed
amended return for Year 1. Under §1.986(a)-1(a), for
foreign tax credit purposes the €40x paid in Year 3 is
translated into dollars at the average exchange rate
for Year 1 (€40x x $1 / €1 = $40x), and the €10x paid
in Year 6 is translated into dollars at the spot rate on
the date paid (€10x x $1 / €2 = $5x). Accordingly, af-
ter the €50x of Country X income tax is paid in Year
6 USC may claim an additional foreign tax credit of
$45x for Year 1.
(iv) Example 4: Provisional credit for contested
tax—(A) Facts. The facts are the same as in para-
graph (d)(6)(iii)(A) of this section (the facts of Ex-
ample 3), except that USC pays the entire contested
tax liability of €100x to Country X in Year 3 and
elects under paragraph (d)(4) of this section to claim
a provisional foreign tax credit on an amended return
for Year 1. In Year 6, upon resolution of the contest,
USC receives a refund of €50x from Country X.
(B) Analysis. In Year 3, USC may claim a provi-
sional foreign tax credit for $100x (€100x translated
at the average exchange rate for Year 1) of contested
foreign tax paid to Country X by filing an amended
return for Year 1, with Form 1118 attached, and a
provisional foreign tax credit agreement described in
paragraph (d)(4)(ii) of this section. In each year for
Years 4 through 6, USC must attach the certification
described in paragraph (d)(4)(iii) of this section to its
timely-filed Federal income tax return. In Year 6, as
a result of the €50x refund, USC must redetermine its
U.S. tax liability for Year 1 and for any other affected
year pursuant to §1.905-3, reducing the Year 1 for-
eign tax credit by $50x (from $600x to $550x), and
comply with the notification requirements in §1.905-
4. See §1.986(a)-1(c) (refunds of foreign income tax
translated into U.S. dollars at the rate used to claim
the credit).
(v) Example 5: Improperly accelerated accru-
al—(A) Facts—(1) Foreign income tax accrued and
paid. USC is a domestic corporation that operates a
foreign branch in Country X. All of USC’s gross and
taxable income is foreign source foreign branch cat-
egory income, and all of its foreign income taxes are
properly allocated and apportioned under §1.861-20
to the foreign branch category. USC uses the accrual
method of accounting and uses the calendar year as
its U.S. taxable year. For Country X tax purposes,
USC uses a fiscal year that ends on March 31. USC
accrued €200x = $200x of Country X net income
tax (as defined in §1.901-2(a)(3)) for its foreign tax-
able year ending March 31, Year 2. It timely filed its
Country X tax return and paid the €200x on January
15, Year 3. USC accrued and paid with its timely filed
Country X tax returns €280x and €240x of Country
X net income tax for its foreign taxable years ending
on March 31 of Year 3 and Year 4, respectively, on
January 15 of Year 4 and Year 5, respectively.
(2) Improper accrual. On its Federal income tax
return for Year 1, USC improperly pro-rated and ac-
celerated the accrual of Country X net income tax
and claimed a credit for $150x, equal to three-fourths
of the Country X net income tax of $200x that relates
to USC’s foreign taxable year ending March 31, Year
2. Continuing with this improper method of accru-
ing foreign income taxes, USC claimed a foreign tax
credit of $260x on its U.S. tax return for Year 2, com-
prising $50x (one-fourth of the $200x of net income
tax relating to its foreign taxable year ending March
31, Year 2) plus $210x (three-fourths of the $280x

Bulletin No. 2020–49 1543 November 30, 2020
of net income tax relating to its foreign taxable year
ending March 31, Year 3). Similarly, USC improp-
erly accrued and claimed a foreign tax credit on its
U.S. tax return for Year 3 for $250x of Country X
net income tax, comprising $70x (one-fourth of the
$280x that properly accrued in Year 3) plus $180x
(three-fourths of the $240x that properly accrued
in Year 4). In Year 4, USC realizes its mistake and,
as provided in paragraph (d)(5)(i) of this section,
files Form 3115 with the IRS to seek permission to
change from an improper method to a proper method
of accruing foreign income taxes.
Table 1 to paragraph (d)(6)(v)(A)(2)
Country X taxable year ending in U.S. calendar
taxable year
Net income tax properly accrued ($1 = €1))Net income tax accrued under improper method ($1 = €1))
3/31/Y1 ends in Year 10¾ (200x) = 150x
3/31/Y2 ends in Year 2200x¼ (200x) + ¾ (280x) = 260x
3/31/Y3 ends in Year 3280x¼ (280x) + ¾ (240x) = 250x
3/31/Y4 ends in Year 4240x[year of change]
(B) Analysis—(1) Downward adjustment. Under
paragraph (d)(5)(ii) of this section, in Year 4, the year
of change, USC must reduce (but not below zero) the
amount (in Euros) of Country X net income tax in
the foreign branch category that properly accrues in
Year 4, €240x, by the amount of foreign income tax
that was accrued and claimed as either a deduction or
a credit in a year before the year of change, and that
had not properly accrued in either the year in which
the tax was accrued under USC’s improper method
or in any other taxable year before the taxable year
of change. For all taxable years before the taxable
year of change, under its improper method USC had
accrued and claimed as a credit a total of €660x =
$660x of foreign income tax, of which only €480x
= $480x had properly accrued. Therefore, the down-
ward adjustment required by paragraph (d)(5)(ii) of
this section is €180x (€660x - €480x = €180x). In
Year 4, USC’s foreign tax credit in the foreign branch
category is reduced by $180x (€180x downward ad-
justment translated into dollars at $1:€1, the average
exchange rate for Year 4), from $240x to $60x.
(2) Application of section 905(c)—(i) Year 1.
Under paragraph (d)(5)(iii) of this section, the €200x
USC paid on January 15, Year 3, that relates to its
Country X taxable year ending on March 31, Year 2,
is first treated as a payment of the €50x of that Coun-
try X net income tax liability that properly accrued
and was claimed as a credit by USC in Year 2, and
next as a payment of the €150x of that Country X
net income tax liability that USC improperly accrued
and claimed as a credit in Year 1. Because all €150x
of the Country X net income tax that was improperly
accrued and claimed as a credit in Year 1 was paid
within 24 months of December 31, Year 1, no foreign
tax redetermination occurs, and no redetermination
of U.S. tax liability is required, for Year 1.
(ii) Year 2. Under paragraph (d)(5)(iii) of this
section, the €280x USC paid on January 15, Year
4, that relates to its Country X taxable year ending
on March 31, Year 3, is first treated as a payment of
the €70x = $70x of that Country X net income tax
liability that properly accrued and was claimed as a
credit by USC in Year 3, and next as a payment of
the €210x = $210x of that Country X net income tax
liability that USC improperly accrued and claimed
as a credit in Year 2. Together with the €50x = $50x
of USC’s Country X net income tax liability that
properly accrued and was claimed as a credit in Year
2, all €260x of the Country X net income tax that
was accrued and claimed as a credit in Year 2 under
USC’s improper method was paid within 24 months
of December 31, Year 2. Accordingly, no foreign tax
redetermination occurs, and no redetermination of
U.S. tax liability is required, for Year 2.
(iii) Year 3. Under paragraph (d)(5)(iii) of this
section, the €240x USC paid on January 15, Year
5, that relates to its Country X taxable year ending
on March 31, Year 4, is first treated as a payment of
the €60x = $60x of that Country X net income tax
liability that properly accrued and was claimed as a
credit by USC in Year 4, and next as a payment of
the €180x = $180x of that Country X net income tax
liability that USC improperly accrued and claimed as
a credit in Year 3. Together with the €70x = $70x of
USC’s Country X net income tax liability that prop-
erly accrued and was claimed as a credit by USC in
Year 3, all €250x of the Country X net income tax
that was accrued and claimed as a credit in Year 3
under USC’s improper method was paid within 24
months of December 31, Year 3. Accordingly, no
foreign tax redetermination occurs, and no redeter-
mination of U.S. tax liability is required, for Year 3.
(iv) Year 4. Under paragraph (d)(5)(iii) of this
section, €60x = $60x of USC’s January 15, Year 5
payment of €240x with respect to its Country X net
income tax liability for Year 4 is treated as a payment
of €60x = $60x of Country X net income tax that, af-
ter application of the downward adjustment required
by paragraph (d)(5)(ii) of this section, was accrued
and claimed as a credit in Year 4, the year of change.
(vi) Example 6: Failure to pay improperly-ac-
crued tax within 24 months—(A) Facts. The facts
the same as in paragraph (d)(6)(v) of this section (the
facts in Example 5), except that USC does not pay
its €240x tax liability for its Country X taxable year
ending on March 31, Year 4, until January 15 of Year
6, when the spot rate described in §1.986(a)-1(a)(2)
(i) is $1:€1.5.
(B) Analysis. The results are the same as in para-
graphs (d)(6)(v)(B)(2)(i) and (ii) of this section (the
analysis in Example 5 for Year 1 and Year 2). With
respect to Year 3, because the €180x = $180x of Year
4 foreign income tax that was improperly accrued
and credited in Year 3 was not paid within 24 months
of the end of Year 3, under section 905(c)(2) and
§1.905-3(a) that €180x = $180x is treated as refund-
ed on December 31, Year 5, requiring a redetermina-
tion of USC’s Federal income tax liability for Year 3
(to reverse out the credit claimed). When in Year 6
USC pays the €240x of Country X income tax liabil-
ity for Year 4, however, under paragraph (d)(5)(iii)
of this section that payment is first treated as a pay-
ment of the €60x = $60x that was properly accrued
and claimed as a credit in Year 4, and then as a pay-
ment of the €180x that was improperly accrued and
claimed as a credit in Year 3 and that was treated as
refunded in Year 5. Under section 905(c)(2)(B) and
§1.905-3(a), that Year 6 payment of accrued but un-
paid tax is a second foreign tax redetermination for
Year 3 that also requires a redetermination of USC’s
U.S. tax liability. Under §1.986(a)-1(a)(2), the €180x
of redetermined tax for Year 3 is translated into dol-
lars at the spot rate on January 15, Year 6, when
the tax is paid (€180x x $1 / €1.5 = $120x). Under
§1.905-4(b)(1)(iv), USC may file one amended re-
turn accounting for both foreign tax redeterminations
(which occur in two consecutive taxable years) with
respect to Year 3, which taken together result in a
reduction in USC’s foreign tax credit for Year 3 from
$250x to $190x ($250x originally accrued - $180x
unpaid after 24 months + $120x paid in Year 6).
(vii) Example 7: Additional payment of improp-
erly-accrued tax—(A) Facts. The facts are the same
as in paragraph (d)(6)(v)(A) of this section (the facts
in Example 5), except that in Year 6, Country X as-
sessed additional net income tax of €100x with re-
spect to USC’s Country X taxable year ending March
31, Year 3, and after exhausting all effective and
practical remedies to reduce its liability for Coun-
try X income tax, USC pays the additional assessed
tax on September 15, Year 7, when the spot rate de-
scribed in §1.986(a)-1(a)(2)(i) is $1:€0.5.
(B) Analysis. Under paragraph (d)(3) of this sec-
tion, the additional €100x of Country X income tax
USC paid in Year 7 with respect to its foreign taxable
year that ended March 31, Year 3, relates back and
is considered to accrue in Year 3. However, under
its improper method of accounting USC had accrued
and claimed foreign tax credits for Country X net in-
come tax that related to Year 3 on its Federal income
tax returns for both Year 2 and Year 3. Accordingly,
under paragraph (d)(5)(iii)(B) of this section USC
must redetermine its U.S. tax liability for both Year 2
and Year 3 (and any other affected years) to account
for the additional €100x of Country X net income
tax liability, using the improper method it used to ac-
crue foreign income taxes before the year of change.
Therefore, €75x = $150x of the €100x of additional
tax is treated as if it accrued in Year 2, and €25x =
$50x of the additional tax is treated as if it accrued
in Year 3. Under §1.905-4(b)(1)(iii), USC may claim
a refund for any resulting overpayment of U.S. tax

November 30, 2020 1544 Bulletin No. 2020–49
for Year 2 or Year 3 or any other affected year by
filing an amended return within the period provided
in section 6511.
(viii) Example 8: Tax improperly accrued before
year of change exceeds tax properly accrued in year
of change—(A) Facts. USC owns all of the stock in
CFC, a controlled foreign corporation organized in
Country X. Country X imposes net income tax on
Country X corporations at a rate of 10% only in the
year its earnings are distributed to its shareholders,
rather than in the year the income is earned. Both USC
and CFC use the calendar year as their taxable year for
both Federal and Country X income tax purposes and
CFC uses the Euro as its functional currency. In each
of Years 1-3, CFC earns €1,000x for both Federal and
Country X income tax purposes of general category
foreign base company sales income (before reduction
for foreign income taxes). CFC improperly accrues
€100x of Country X net income tax with respect to
€1,000x of income at the end of each of Years 1 and 2,
even though no distribution is made in those years. In
Year 1, for which the average exchange rate is $1:€1,
USC computes and includes in income with respect
to CFC $900x of subpart F income, claims a deemed
paid foreign tax credit of $100x under section 960(a),
and has a section 78 dividend of $100x. In Year 2,
for which the average exchange rate is $1:€0.5, USC
computes and includes in income with respect to CFC
$1,800x of subpart F income, claims a deemed paid
foreign tax credit of $200x under section 960(a), and
has a section 78 dividend of $200x. In Year 2, CFC
makes a distribution to USC of €400x of earnings and
pays €40x of net income tax to Country X. In Year
3, for which the average exchange rate is $1:€1, CFC
makes another distribution to USC of €500x of earn-
ings and pays €50x in net income tax to Country X. In
Year 3, USC realizes its mistake and seeks permission
from the IRS for CFC to change to a proper method
of accruing foreign income taxes. In Year 4, for which
the average exchange rate is $1:€2, CFC makes a dis-
tribution of €700x of earnings and pays €70x of net
income tax to Country X.
Table 2 to paragraph (d)(6)(viii)(A)
Taxable year ending:Foreign income tax properly accrued Foreign income tax accrued under improper method
12/31/Y1 ($1:€1)0€100x = $100x
12/31/Y2 ($1:€0.5)€40x = $80x€100x = $200x
12/31/Y3 ($1:€1)€50x = $50x[year of change]
12/31/Y4 ($1:€2)€70x = $35x
(B) Analysis—(1) Downward adjustment. Un-
der paragraph (d)(5)(iv) of this section, CFC applies
the rules of paragraph (d)(5) of this section as if it
claimed a foreign tax credit under section 901 for
Country X taxes. Under paragraph (d)(5)(ii) of this
section, in Year 3, the year of change, CFC must re-
duce (but not below zero) the amount (in Euros) of
Country X net income tax allocated and apportioned
to its general category foreign base company sales
income group that properly accrues in Year 3, €50x,
by the amount of foreign income tax (in Euros) that
was improperly accrued in that statutory grouping in
a year before the year of change, and that had not
properly accrued in either the year accrued or in
another taxable year before the year of change. For
all taxable years before the year of change, under its
improper method CFC had accrued a total of €200x
of foreign income tax with respect to its general cat-
egory foreign base company sales income group, of
which only €40x had properly accrued. Therefore,
the downward adjustment required by paragraph
(d)(5)(ii) of this section is €160x (€200x - €40x =
€160x). In Year 3, CFC’s €50x of eligible foreign
income taxes in the general category foreign base
company sales income group is reduced by €50x to
zero. The €110x balance of the downward adjust-
ment carries forward to Year 4, and reduces CFC’s
€70x of eligible foreign income taxes in the general
category foreign base company sales income group
by €70x to zero. The remaining €40x balance of the
downward adjustment carries forward to later years
and will reduce CFC’s eligible foreign income taxes
in the general category foreign base company sales
income group until all improperly-accrued amounts
are accounted for.
(2) Application of section 905(c)—(i) Year 2. Un-
der paragraph (d)(5)(iii) of this section, CFC’s pay-
ment in Year 2 of the €40x of Country X net income
tax that properly accrued in Year 2, before the year
of change, is treated as a payment of €40x of foreign
income tax that CFC properly accrued in Year 2. The
€60x of foreign income tax that CFC improperly
accrued in Year 2 that remains unpaid at the end of
Year 2 is not adjusted in Year 2. Under paragraph
(d)(5)(iii) of this section, CFC’s payment in Year 3
of €50x of Country X net income tax that properly
accrued but was offset by the downward adjustment
in Year 3 is treated as a payment of €50x of the €60x
of Country X net income tax most recently improp-
erly accrued in Year 2. In addition, CFC’s payment
in Year 4 of €70x of Country X net income tax that
properly accrued but was offset by the downward
adjustment in Year 4 is treated first as a payment of
the remaining €10x of Country X net income tax that
was improperly accrued in Year 2. Because all €100x
of foreign income tax accrued in Year 2 under CFC’s
improper method of accounting is treated as paid
within 24 months of December 31, Year 2, no for-
eign tax redetermination occurs, and no redetermi-
nation of CFC’s foreign base company sales income,
earnings and profits, and eligible foreign income tax-
es, or of USC’s $1,800x subpart F inclusion, $200x
deemed paid credit, and $200x section 78 dividend
or its U.S. tax liability is required, for Year 2.
(ii) Year 1. Because all €100x of the tax CFC
improperly accrued in Year 1 remained unpaid as of
December 31, Year 3, the date 24 months after the
end of Year 1, under section 905(c)(2) and §1.905-
3(a) that €100x is treated as refunded on December
31, Year 3. Under §1.905-3(b)(2)(ii), USC must re-
determine its Federal income tax liability for Year
1 to account for the foreign tax redetermination, in-
creasing CFC’s foreign base company sales income
and earnings and profits by €100x, and decreasing
its eligible foreign income taxes by $100x. How-
ever, under paragraph (d)(5)(iii)(B) of this section
€60x = $30x of CFC’s payment in Year 4 of €70x
of Country X net income tax that properly accrued
but was offset by the downward adjustment in Year
4 is treated as a payment of €60x of the €100x of
Country X net income tax that was improperly ac-
crued in Year 1 and treated as refunded in Year 3.
Under §1.905-4(b)(1)(iv), USC may account for the
two foreign tax redeterminations that occurred in
Years 3 and 4 on a single amended Federal income
tax return for Year 1. CFC’s foreign base company
sales income (taking into account the reduction for
foreign income taxes) and earnings and profits for
Year 1 are recomputed as €1,000x - €100x + €100x
- €60x = €940x, and its eligible foreign income tax-
es are recomputed as $100x - $100x + $30x = $30x.
USC’s subpart F inclusion with respect to CFC for
Year 1 (translated at the average exchange rate for
Year 1 of $1:€1) is increased from $900x to $940x
(€940x x $1 / €1), and the amount of foreign taxes
deemed paid under section 960(a) and the amount
of the section 78 dividend are reduced from $100x
to $30x.
(iii) Summary. As of the end of Year 4, CFC and
USC have been allowed a $30x foreign tax credit for
Year 1, and a $200x foreign tax credit for Year 2. If in
a later taxable year CFC distributes additional earn-
ings to USC and accrues €40x of additional Country
X net income tax that is offset by the balance of the
€40x downward adjustment, CFC’s payment of that
€40x Country X net income tax liability will be treat-
ed as a payment of the remaining €40x of Country X
net income tax that was improperly accrued in Year 1
and treated as refunded as of the end of Year 3.
(ix) Example 9: Improperly deferred accrual—
(A) Facts—(1) Foreign income tax accrued and
paid. USC is a domestic corporation that operates a
foreign branch in Country X. All of USC’s gross and
taxable income is foreign source foreign branch cat-
egory income, and all of its foreign income taxes are
properly allocated and apportioned under §1.861-20
to the foreign branch category. USC uses the accrual
method of accounting and uses the calendar year as
its taxable year for both Federal and Country X in-
come tax purposes. USC accrued €160x of Country
X net income tax (as defined in §1.901-2(a)(3)) with
respect to Year 1. USC filed its Country X tax return
and paid the €160x on June 30, Year 2. USC accrued

Bulletin No. 2020–49 1545 November 30, 2020
€180x, €240x, and €150x of Country X tax for Years
2, 3, and 4, respectively, and paid with its timely filed
Country X tax returns these tax liabilities on June 30
of Years 3, 4, and 5, respectively. The average ex-
change rate described in §1.986(a)-1(a)(1) is $1:€0.5
in Year 1, $1:€1 in Year 2, $1:€1.25 in Year 3, and
$1:€1.5 in Year 4.
(2) Improper accrual. On its Federal income tax
return for Year 1, USC claimed no foreign tax cred-
it. On its Federal income tax return for Year 2, USC
improperly accrued and claimed a credit for $160x
(€160x of Country X tax for Year 1 that it paid in Year
2, translated into dollars at the average exchange rate
for Year 2). Continuing with this improper method of
accounting, USC improperly accrued and claimed a
credit in Year 3 for $144x (€180x of Country X tax
for Year 2 that it paid in Year 3, translated into dollars
at the average exchange rate for Year 3). In Year 4,
USC realizes its mistake and seeks permission from
the IRS to change to a proper method of accruing
foreign income taxes.
Table 3 to paragraph (d)(6)(ix)(A)(2)
Taxable year ending:Foreign income tax properly accrued Foreign income tax accrued under improper method
12/31/Y1 ($1:€0.5)€160x = $320x0
12/31/Y2 ($1:€1)€180x = $180x€160x = $160x
12/31/Y3 ($1:€1.25)€240x = $192x€180x = $144x
12/31/Y4 ($1:€1.5)€150x = $100x[year of change]
(B) Analysis—(1) Upward adjustment. Under
paragraph (d)(5)(ii) of this section, in Year 4, the year
of change, USC increases the amount of Country X
net income tax allocated and apportioned to its for-
eign branch category that properly accrues in Year 4,
€150x, by the amount of foreign income tax in that
same grouping that properly accrued in a taxable
year before the taxable year of change, but which,
under its improper method of accounting, USC failed
to accrue and claim as either a credit or deduction be-
fore the taxable year of change. For all taxable years
before the taxable year of change, under a proper
method, USC would have accrued a total of €580x of
foreign income tax, of which it accrued and claimed
a credit for only €340x under its improper method.
Thus, in Year 4, USC increases its €150x of properly
accrued foreign income taxes in the foreign branch
category by €240x (€580x - €340x), and may claim
a credit in that year for the total, €390x, or $260x
(translated into dollars at the average exchange rate
for Year 4, as if the total amount properly accrued
in Year 4).
(2) Application of section 905(c). Under para-
graph (d)(5)(iii) of this section, USC’s payment
of the €160x of Year 1 tax that USC accrued and
claimed as a credit in Year 2 under its improper
method of accounting is first treated as a payment of
the amount of that (Year 1) tax liability that properly
accrued in Year 2. Since none of the €160x properly
accrued in Year 2, the €160x is treated as a payment
of that (Year 1) tax liability that USC improperly
accrued and claimed as a credit in Year 2, €160x.
Because all €160x of the Country X net income tax
that was improperly accrued and claimed as a credit
in Year 2 was paid within 24 months of the end of
Year 2, no foreign tax redetermination occurs, and no
redetermination of USC’s $160x foreign tax credit
and U.S. tax liability is required, for Year 2. Simi-
larly, because all €180x of the Year 2 Country X net
income tax that was improperly accrued and claimed
as a credit in Year 3 was paid within 24 months of the
end of Year 3, no foreign tax redetermination occurs,
and no redetermination of USC’s $144x foreign tax
credit and U.S. tax liability is required, for Year 3.
(e) Election by cash method taxpayer
to take credit on the accrual basis—(1)
In general. A taxpayer who uses the cash
method of accounting for income may
elect to take the foreign tax credit in the
taxable year in which the taxes accrue in
accordance with the rules in paragraph
(d) of this section. Except as provided in
paragraph (e)(2) of this section, an elec-
tion pursuant to this paragraph (e)(1) must
be made on a timely-filed original return,
by checking the appropriate box on Form
1116 (Foreign Tax Credit (Individual, Es-
tate, or Trust)) or Form 1118 (Foreign Tax
Credit—Corporations) indicating the cash
method taxpayer’s choice to claim the
foreign tax credit in the year the foreign
income taxes accrue. Once made, the elec-
tion is irrevocable and must be followed
for purposes of claiming a foreign tax
credit for all subsequent years. See section
905(a).
(2) Exception for cash method taxpay-
ers claiming a foreign tax credit for the
first time. If the year with respect to which
an election pursuant to paragraph (e)(1) of
this section to claim the foreign tax credit
on an accrual basis is made (the “election
year”) is the first year for which a taxpay-
er has ever claimed a foreign tax credit,
the election to claim the foreign tax credit
on an accrual basis can also be made on
an amended return filed within the period
permitted under §1.901-1(d)(1). The elec-
tion is binding in the election year and all
subsequent taxable years in which the tax-
payer claims a foreign tax credit.
(3) Treatment of taxes that accrued
in a prior year. In the election year and
subsequent taxable years, a cash method
taxpayer that claimed foreign tax credits
on the cash basis in a prior taxable year
may claim a foreign tax credit not only
for foreign income taxes that accrue in the
election year, but also for foreign income
taxes that accrued (or are considered to ac-
crue) in a taxable year preceding the elec-
tion year but that are paid in the election
year or subsequent taxable year, as appli-
cable. Under paragraph (c) of this section,
foreign income taxes paid with respect to
a taxable year that precedes the election
year may be claimed as a credit only in the
year the taxes are paid and do not require
a redetermination under section 905(c) or
§1.905-3 of U.S. tax liability in any prior
year.
(4) Examples. The following examples
illustrate the application of paragraph (e)
of this section.
(i) Example 1—(A) Facts. A, a U.S. citizen who
is a resident of Country X, is a cash method taxpay-
er who uses the calendar year as the taxable year
for both U.S. and Country X tax purposes. In Year
1 through Year 5, A claims foreign tax credits for
Country X foreign income taxes on the cash method,
in the year the taxes are paid. For Year 6, A makes
a timely election to claim foreign tax credits on the
accrual basis. In Year 6, A accrues $100x of Country
X foreign income taxes with respect to Year 6. Also
in Year 6, A pays $80x in foreign income taxes that
had accrued in Year 5.
(B) Analysis. Pursuant to paragraph (e)(3) of this
section, A can claim a foreign tax credit in Year 6 for
the $100x of Country X taxes that accrued in Year 6
and for the $80x of Country X taxes that accrued in
Year 5 but that are paid in Year 6.
(ii) Example 2—(A) Facts. The facts are the
same as in paragraph (e)(4)(i)(A) of this section
(the facts of Example 1), except that in Year 7, A is
assessed an additional $10x of foreign income tax
by Country X with respect to A’s income in Year 3.
After exhausting all effective and practical remedies,
A pays the additional $10x to Country X in Year 8.
(B) Analysis. Pursuant to paragraph (e)(3) of this
section, A can claim a foreign tax credit in Year 8
for the additional $10x of foreign income tax paid to
Country X in Year 8 with respect to Year 3.
(f) Rules for creditable foreign tax ex-
penditures of partners, shareholders, or
beneficiaries of a pass-through entity—

November 30, 2020 1546 Bulletin No. 2020–49
(1) Effect of pass-through entity’s method
of accounting on when foreign tax credit
or deduction can be claimed. Each partner
that elects to claim the foreign tax credit
for a particular taxable year may treat its
distributive share of the creditable foreign
tax expenditures (as defined in §1.704-
1(b)(4)(viii)(b)) of the partnership that are
paid or accrued by the partnership, under
the partnership’s method of accounting,
during the partnership’s taxable year end-
ing with or within the partner’s taxable
year, as foreign income taxes paid or ac-
crued (as the case may be, according to
the partner’s method of accounting for
such taxes) by the partner in that particu-
lar taxable year. See §§1.702-1(a)(6) and
1.703-1(b)(2). Under §§1.905-3(a) and
1.905-4(b)(2), additional creditable for-
eign tax expenditures of the partnership
that result from a change in the partner-
ship’s foreign tax liability for a prior tax-
able year, including additional taxes paid
when a contest with a foreign tax authority
is resolved, must be identified by the part-
nership as a prior year creditable foreign
tax expenditure in the information report-
ed to its partners for its taxable year in
which the additional tax is actually paid.
Subject to the rules in paragraphs (c) and
(e) of this section, a partner using the cash
method of accounting for foreign income
taxes may claim a credit (or a deduction)
for its distributive share of such addition-
al taxes in the partner’s taxable year with
or within which the partnership’s taxable
year ends. Subject to the rules in para-
graph (d) of this section, a partner using
the accrual method of accounting for for-
eign income taxes may claim a credit for
the partner’s distributive share of such ad-
ditional taxes in the relation-back year, or
may claim a deduction in its taxable year
with or within which the partnership’s tax-
able year ends. The principles of this para-
graph (f)(1) apply to determine the year in
which a shareholder of a S corporation, or
the grantor or beneficiary of an estate or
trust, may claim a foreign tax credit (or a
deduction) for its proportionate share of
foreign income taxes paid or accrued by
the S corporation, estate or trust. See sec-
tions 642(a), 671, 901(b)(5), and 1373(a)
and §§ 1.1363-1(c)(2)(iii) and 1.1366-1(a)
(2)(iv). See §§1.905-3 and 1.905-4 for
notifications and adjustments of U.S. tax
liability that are required if creditable for-
eign tax expenditures of a partnership or S
corporation, or foreign income taxes paid
or accrued by a trust or estate, are refund-
ed or otherwise reduced.
(2) Provisional credit for contested tax-
es. Under paragraph (d)(3) of this section,
a contested foreign tax liability does not
accrue until the contest is resolved and
the amount of the liability has been final-
ly determined. In addition, under section
905(c)(2), a foreign income tax that is
not paid within 24 months of the close of
the taxable year to which the tax relates
may not be claimed as a credit until the
tax is actually paid. Thus, a partnership
or other pass-through entity cannot take
the contested tax into account as a credit-
able foreign tax expenditure until both the
contest is resolved and the tax is actually
paid. However, to the extent that a partner-
ship or other pass-through entity remits a
contested foreign tax liability to a foreign
country, a partner or other owner of such
pass-through entity that claims foreign tax
credits on the accrual basis, may, by com-
plying with the rules in paragraph (d)(4)
of this section, elect to claim a provision-
al credit for its distributive share of such
contested tax liability in the relation-back
year.
(3) Example. The following example
illustrates the application of paragraph (f)
of this section.
(i) Facts. ABC is a U.S. partnership that is en-
gaged in a trade or business in Country X. ABC has
two U.S. partners, A and B. For Federal income tax
purposes, ABC and partner A both use the accrual
method of accounting and utilize a taxable year end-
ing on September 30. ABC uses a taxable year end-
ing on September 30 for Country X tax purposes. B
is a calendar year taxpayer that uses the cash method
of accounting. For its taxable year ending September
30, Year 1, ABC accrues $500x in foreign income tax
to Country X; each partner’s distributive share of the
foreign income tax is $250x. In its taxable year end-
ing September 30, Year 5, ABC settles a contest with
Country X with respect to its Year 1 tax liability and,
as a result of such settlement, accrues an additional
$100x in foreign income tax for Year 1. ABC remits
the additional tax to Country X in January of Year
6. A and B both elect to claim foreign tax credits for
their respective taxable Years 1 through 6.
(ii) Analysis. For its taxable year ending Septem-
ber 30, Year 1, A can claim a credit for its $250x dis-
tributive share of foreign income taxes paid by ABC
with respect to ABC’s taxable year ending Septem-
ber 30, Year 1. Pursuant to paragraph (f)(1) of this
section, B can claim its distributive share of $250x
of foreign income tax for its taxable year ending
December 31, Year 1, even if ABC does not remit
the Year 1 taxes to Country X until Year 2. Although
the additional $100x of Country X foreign income
tax owed by ABC with respect to Year 1 accrued in
its taxable year ending September 30, Year 5, upon
conclusion of the contest, because ABC uses the
accrual method of accounting, it does not take the
additional tax into account until the tax is actually
paid, in its taxable year ending September 30, Year
6. See section 905(c)(2)(B) and paragraph (f)(1) of
this section. Pursuant to §1.905-4(b)(2), ABC is re-
quired to notify the IRS and its partners of the for-
eign tax redetermination. A’s distributive share of the
additional tax relates back, is considered to accrue,
and may be claimed as a credit for Year 1; however,
A cannot claim a credit for the additional tax until
Year 6, when ABC remits the tax to Country X. See
§1.905-3(a). B’s distributive share of the additional
tax does not relate back to Year 1 and is creditable in
B’s taxable year ending December 31, Year 6.
(g) Blocked income. * * *
(h) Applicability dates. This section
applies to foreign income taxes paid or
accrued in taxable years beginning on or
after [date final regulations are filed in
the Federal Register]. In addition, the
election described in paragraph (d)(4) of
this section may be made with respect to
amounts of contested tax that are remit-
ted in taxable years beginning on or after
[date final regulations are filed in the Fed-
eral Register] and that relate to a taxable
year beginning before [date final regula-
tions are filed in the Federal Register].
Par. 31. Section 1.905-3, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended:
1. In paragraph (a), by revising the first
two sentences.
2. By adding paragraph (b)(4).
3. By revising paragraph (d).
The revisions and addition read as fol-
lows:
§1.905-3 Adjustments to U.S. tax liability
and to current earnings and profits as a
result of a foreign tax redetermination.
(a) * * * For purposes of this section
and §1.905-4, the term foreign tax rede-
termination means a change in the liabili-
ty for foreign income taxes (as defined in
§1.901-2(a)) or certain other changes de-
scribed in this paragraph (a) that may af-
fect a taxpayer’s U.S. tax liability, includ-
ing by reason of a change in the amount of
its foreign tax credit, a change to claim a
foreign tax credit for foreign income tax-
es that it previously deducted, a change
to claim a deduction for foreign income
taxes that it previously credited, a change
in the amount of its distributions or inclu-

Bulletin No. 2020–49 1547 November 30, 2020
sions under sections 951, 951A, or 1293,
a change in the application of the high-tax
exception described in §1.954-1(d), or a
change in the amount of tax determined
under sections 1291(c)(2) and 1291(g)
(1)(C)(ii). In the case of a taxpayer that
claims the credit in the year the taxes are
paid, a foreign tax redetermination occurs
if any portion of the tax paid is subse-
quently refunded, or if the taxpayer’s li-
ability is subsequently determined to be
less than the amount paid and claimed as
a credit. * * *
(b) * * *
(4) Change in election to claim a for-
eign tax credit. A redetermination of U.S.
tax liability is required to account for the
effect of a timely change by the taxpayer
to claim a foreign tax credit or a deduction
for foreign income taxes paid or accrued
in any taxable year as permitted under
§1.901-1(d).
* * * * *
(d) Applicability dates. Except as pro-
vided in this paragraph (d), this section
applies to foreign tax redeterminations
occurring in taxable years ending on or af-
ter December 16, 2019, and to foreign tax
redeterminations of foreign corporations
occurring in taxable years that end with
or within a taxable year of a United States
shareholder ending on or after December
16, 2019 and that relate to taxable years
of foreign corporations beginning after
December 31, 2017. The first two sen-
tences of paragraph (a) of this section, and
paragraph (b)(4) of this section, apply to
foreign tax redeterminations occurring in
taxable years beginning on or after [date
final regulations are filed with the Federal
Register].
§1.954-1 [AMENDED]
Par. 32. Section 1.954-1, as proposed
to be amended in 85 FR 44650 (July 23,
2020), is further amended by removing
the second sentence in paragraph (d)(1)
(iv)(A).
Par. 33. Section 1.960-1, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended:
1. By revising paragraph (b)(4).
2. By redesignating paragraphs (b)(5)
through (37) as paragraphs (b)(6) through
(38), respectively.
3. By adding a new paragraph (b)(5).
4. By revising newly redesignated
paragraph (b)(6) and paragraph (c)(1)(ii).
5. By redesignating paragraphs (c)(1)
(iii) through (vi) as paragraphs (c)(1)(iv)
through (vii).
6. By adding a new paragraph (c)(1)
(iii).
7. In newly redesignated paragraph (c)
(1)(iv), by removing the language “Third,
current year taxes” in the first sentence
adding the language “Fourth, eligible cur-
rent year taxes” in its place.
8. In newly redesignated paragraph
(c)(1)(v), by removing the language
“Fourth,” from the first sentence and add-
ing the language “Fifth,” in its place.
9. In newly redesignated paragraph (c)
(1)(vi), by removing the language “Fifth,”
from the first sentence and adding the lan-
guage “Sixth,” in its place.
10. In newly redesignated paragraph
(c)(1)(vii), by removing the language
“Sixth,” from the first sentence and adding
the language “Seventh,” in its place.
11. In paragraph (d)(1), by removing
the language “the U.S. dollar amount of
current year taxes” from the first sentence
and adding the language “the U.S. dollar
amount of eligible current year taxes” in
its place.
12. In paragraph (d)(3)(i) introductory
text, by removing the language “current
year taxes” from the second sentence and
adding the language “eligible current year
taxes” in its place.
13. In paragraph (d)(3)(ii)(A), by revis-
ing the last sentence.
14. In paragraph (d)(3)(ii)(B), by re-
moving the language “a current year tax”
from the first sentence and adding the lan-
guage “an eligible current year tax” in its
place.
15. In paragraph (f)(1)(ii), by removing
the language “tax” from the fifth sentence
and adding the language “eligible current
year tax” in its place.
16. In paragraph (f)(2)(ii)(B)(1), by re-
moving the language “current year taxes”
from the last sentence and adding the lan-
guage “eligible current year taxes” in its
place.
17. In paragraph (f)(2)(ii)(B)(2), by
removing the language “current year tax-
es” from the fifth sentence and adding the
language “eligible current year taxes” in
its place.
The additions and revisions read as fol-
lows:
§1.960-1 Overview, definitions, and
computational rules for determining
foreign income taxes deemed paid under
section 960(a), (b), and (d).
* * * * *
(b) * * *
(4) Current year tax. The term current
year tax means a foreign income tax that
is paid or accrued by a controlled foreign
corporation in a current taxable year (tak-
ing into account any adjustments resulting
from a foreign tax redetermination (as
defined in §1.905-3(a)). See §1.905-1 for
rules on when foreign income taxes are
considered paid or accrued for foreign tax
credit purposes; see also §1.367(b)-7(g)
for rules relating to foreign income taxes
associated with foreign section 381 trans-
actions and hovering deficits.
(5) Eligible current year tax. The term
eligible current year tax means a current
year tax, except that an eligible current
year tax does not include a current year
tax paid or accrued by a controlled for-
eign corporation for which a credit is dis-
allowed or suspended at the level of the
controlled foreign corporation. See, for
example, sections 245A(e)(3), 901(k)(1),
(l), and (m), 909, and 6038(c)(1)(B). Eli-
gible current year tax, however, includes a
current year tax that may be deemed paid
but for which a credit is reduced or dis-
allowed at the level of the United States
shareholder. See, for example, sections
901(e), 901(j), 901(k)(2), 908, 965(g), and
6038(c)(1)(A).
(6) Foreign income tax. The term for-
eign income tax has the meaning provided
in §1.901-2(a).
* * * * *
(c) * * *
(1) * * *
(ii) Second, deductions (other than for
current year taxes) of the controlled for-
eign corporation for the current taxable
year are allocated and apportioned to
reduce gross income in the section 904
categories and the income groups within
a section 904 category. See paragraph (d)
(3)(i) of this section. Deductions for cur-
rent year taxes (other than eligible current
year taxes) of the controlled foreign cor-
poration for the current taxable year are

November 30, 2020 1548 Bulletin No. 2020–49
allocated and apportioned to reduce gross
income in the section 904 categories and
the income groups within a section 904
category. Additionally, the functional cur-
rency amounts of eligible current year tax-
es are allocated and apportioned to reduce
gross income in the section 904 categories
and the income groups within a section
904 category, and to reduce earnings and
profits in the PTEP groups that were in-
creased as provided in paragraph (c)(1)(i)
of this section. No deductions other than
eligible current year taxes may be allocat-
ed and apportioned to PTEP groups. See
paragraph (d)(3)(ii) of this section.
(iii) Third, for purposes of computing
foreign taxes deemed paid, eligible cur-
rent year taxes that were allocated and
apportioned to income groups and PTEP
groups in the section 904 categories are
translated into U.S. dollars in accordance
with section 986(a).
* * * * *
(d) * * *
(3) * * *
(ii) * * *
(A) * * * For purposes of determining
foreign income taxes deemed paid under
the rules in §§1.960-2 and 1.960-3, the
U.S. dollar amount of eligible current year
taxes is assigned to the section 904 cate-
gories, income groups, and PTEP groups
(to the extent provided in paragraph (d)
(3)(ii)(B) of this section) to which the el-
igible current year taxes are allocated and
apportioned.
* * * * *
Par. 34. Section 1.960-2, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Regis-
ter, is further amended:
1. In paragraph (b)(2), by removing the
language “current year taxes” and adding
the language “eligible current year taxes”
in its place.
2. In paragraph (b)(3)(i), by removing
the language “current year taxes” each
place it appears and adding the language
“eligible current year taxes” in its place.
3. In paragraph (b)(5)(i), by revising
the seventh sentence.
4. In paragraph (b)(5)(ii)(A), by revis-
ing the first and second sentences.
5. In paragraph (b)(5)(ii)(B), by revis-
ing the first and second sentences.
6. In paragraph (c)(4), by removing the
language “current year taxes” and adding
the language “eligible current year taxes”
in its place.
7. In paragraph (c)(5), by removing the
language “current year taxes” each place
it appears and adding the language “eligi-
ble current year taxes” in its place.
8. In paragraph (c)(7)(i)(A), by revis-
ing the fifth sentence.
9. In paragraph (c)(7)(i)(B), by revis-
ing the first and second sentences.
10. In paragraph (c)(7)(ii)(A)(1), by
revising the ninth and eleventh sentences.
11. In paragraph (c)(7)(ii)(B)(1)(i), by
revising the first and second sentences.
12. In paragraph (c)(7)(ii)(B)(1)(ii), by
removing the language “foreign income
taxes” in the first sentence and adding the
language “eligible current year taxes” in
its place.
The additions and revisions read as fol-
lows:
§1.960-2 Foreign income taxes deemed
paid under sections 960(a) and (d).
* * * * *
(b) * * *
(5) * * *
(i) * * * CFC has current year taxes,
all of which are eligible current year taxes,
translated into U.S. dollars, of $740,000x
that are allocated and apportioned as
follows: $50,000x to subpart F income
group 1; $240,000x to subpart F income
group 2; and $450,000x to subpart F in-
come group 3. * * *
(ii) * * *
(A) * * * Under paragraphs (b)(2) and
(3) of this section, the amount of CFC’s
foreign income taxes that are properly at-
tributable to items of income in subpart F
income group 1 to which a subpart F in-
clusion is attributable equals USP’s pro-
portionate share of the eligible current
year taxes that are allocated and appor-
tioned under §1.960-1(d)(3)(ii) to sub-
part F income group 1, which is $40,000x
($50,000x x 800,000u/1,000,000u). Under
paragraphs (b)(2) and (3) of this section,
the amount of CFC’s foreign income tax-
es that are properly attributable to items
of income in subpart F income group 2 to
which a subpart F inclusion is attributable
equals USP’s proportionate share of the
eligible current year taxes that are allo-
cated and apportioned under §1.960-1(d)
(3)(ii) to subpart F income group 2, which
is $192,000x ($240,000x x 1,920,000u /
2,400,000u). * * *
(B) * * * Under paragraphs (b)(2) and
(3) of this section, the amount of CFC’s
foreign income taxes that are properly at-
tributable to items of income in subpart F
income group 3 to which a subpart F in-
clusion is attributable equals USP’s pro-
portionate share of the eligible current
year taxes that are allocated and appor-
tioned under §1.960-1(d)(3)(ii) to subpart
F income group 3, which is $360,000x
($450,000x x 1,440,000u / 1,800,000u).
CFC has no other subpart F income groups
within the general category. * * *
* * * * *
(c) * * *
(7) * * *
(i) * * *
(A) * * * CFC1 has current year taxes,
all of which are eligible current year taxes,
translated into U.S. dollars, of $400x that
are all allocated and apportioned to the
tested income group. * * *
(B) * * * Under paragraph (c)(5) of this
section, USP’s proportionate share of the
eligible current year taxes that are allo-
cated and apportioned under §1.960-1(d)
(3)(ii) to CFC1’s tested income group is
$400x ($400x x 2,000u / 2,000u). There-
fore, under paragraph (c)(4) of this section,
the amount of foreign income taxes that
are properly attributable to tested income
taken into account by USP under section
951A(a) and §1.951A-1(b) is $400x. * * *
(ii) * * *
(A) * * *
(1) * * * CFC1 has current year taxes,
all of which are eligible current year tax-
es, translated into U.S. dollars, of $100x
that are all allocated and apportioned to
CFC1’s tested income group. * * * CFC2
has current year taxes, all of which are
eligible current year taxes, translated into
U.S. dollars, of $20x that are allocated
and apportioned to CFC2’s tested income
group.
* * * * *
(B) * * *
(1) * * *
(i) * * * Under paragraphs (c)(5) and (6)
of this section, US1’s proportionate share
of the eligible current year taxes that are
allocated and apportioned under §1.960–
1(d)(3)(ii) to CFC1’s tested income group
is $95x ($100x × 285u / 300u). Therefore,
under paragraph (c)(4) of this section, the

Bulletin No. 2020–49 1549 November 30, 2020
amount of the foreign income taxes that
are properly attributable to tested income
taken into account by US1 under section
951A(a) and § 1.951A–1(b) is $95x. * * *
* * * * *
Par. 35. Section 1.960-7, as amended
in FR Doc. 2020-21819, published else-
where in this issue of the Federal Register,
is further amended by revising paragraph
(b) to read as follows:
§1.960-7 Applicability dates.
* * * * *
(b) Section 1.960-1(c)(2) and (d)(3)(ii)
apply to taxable years of a foreign cor-
poration beginning after December 31,
2019, and to each taxable year of a do-
mestic corporation that is a United States
shareholder of the foreign corporation in
which or with which such taxable year of
such foreign corporation ends. For taxable
years of a foreign corporation that end on
or after December 4, 2018, and also begin
before January 1, 2020, see §1.960-1(c)
(2) and (d)(3)(ii) as in effect on December
17, 2019. Paragraphs (b)(4), (5), and (6),
(c)(1)(ii), (iii), and (iv), and (d)(3)(ii)(A)
and (B) of §1.960-1, and paragraphs (b)
(2), (b)(3)(i), (b)(5)(i), (b)(5)(iv)(A), and
(c)(4), (5), and (7) of §1.960-2, apply to
taxable years of foreign corporations be-
ginning on or after [date final regulations
are filed in the Federal Register], and to
each taxable year of a domestic corpora-
tion that is a United States shareholder of
the foreign corporation in which or with
which such taxable year of such foreign
corporation ends. For taxable years of for-
eign corporations beginning before [date
final regulations are filed in the Federal
Register], with respect to the paragraphs
described in the preceding sentence, see
§§1.960-1 and 1.960-2 as in effect on No-
vember 12, 2020.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on No-
vember 2, 2020, 11:15 a.m., and published in the is-
sue of the Federal Register for November 12, 2020,
85 F.R. 72078)

Bulletin No. 2020–49 i November 30, 2020
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

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

Bulletin No. 2020–49 iii November 30, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–49
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin
2019–52, dated December 27, 2019.

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