Internal Revenue Bulletin 2020-22 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 2020–22
May 26, 2020
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
Rev. Proc. 2020-21, page 872.
This revenue procedure provides temporary guidance re-
garding the public approval requirement under § 147(f) of
the Internal Revenue Code (Code) for tax-exempt qualified
private activity bonds. Specifically, in light of the Coronavi-
rus Disease 2019 (COVID-19) pandemic, this revenue pro-
cedure provides that hearings held by teleconference as
described in section 4.01 of this revenue procedure will be
treated as held in a location that, based on the facts and
circumstances, is convenient for residents of the approving
governmental unit for the purpose of § 1.147-1(d)(2) of the
Income Tax Regulations.
ADMINISTRATIVE, INCOME TAX
Rev. Proc. 2020-30, page 873.
As a result of travel restrictions and disruptions resulting
from the global outbreak of the virus that causes COVID-19,
individuals may temporarily conduct activities in a foreign
country that would not otherwise have been conducted
there. This revenue procedure provides that certain of
these activities are not taken into account for purposes of
section 1503(d) or Form 8858.
EMPLOYEE PLANS, INCOME TAX
Notice 2020-33, page 868.
This notice increases the $500 limit for unused amounts
remaining in a health FSA that may be carried over into the
following year by making the carryover amount 20 percent
of the maximum salary reduction amount under § 125(i),
which is indexed for inflation. For 2020, the carryover
amount will increase to $550. The notice cross referenc-
es Notice 2020-29 for guidance on how a § 125 cafete-
ria plan may be amended to allow prospective health FSA
election changes for the 2020 calendar year. Regarding
individual coverage HRAs, this notice also provides clari-
fication regarding reimbursement for premium expenses
occurring prior to the beginning of the plan year (gener-
ally addressing the need to pay the premium for January
health insurance coverage in December of the previous
year).
INCOME TAX
Notice 2020-25, page 863.
Notice to temporarily expand the circumstances and
time periods in which a tax-exempt bond that is pur-
chased by its state or local governmental issuer is
treated as continuing in effect without resulting in a
reissuance or retirement of the purchased tax-exempt
bond for purposes of § 103 and §§ 141 through 150
of the Internal Revenue Code.
Notice 2020-29, page 864.
To assist with the nation’s response to the 2019 Novel
Coronavirus outbreak (COVID-19), this notice provides for
increased flexibility with respect to mid-year elections under
a § 125 cafeteria plan during calendar year 2020 relat-
ed to employer-sponsored health coverage, health Flexible
Spending Arrangements (health FSAs), and dependent care
assistance programs. This notice also provides increased
flexibility with respect to grace periods to apply unused
amounts in health FSAs to medical care expenses incurred
through December 31, 2020, and unused amounts in de-
pendent care assistance programs to dependent care ex-
penses incurred through December 31, 2020. Further, the
notice provides that the relief provided in Notice 2020-15,
2020-14 IRB 559 regarding high deductible health plans
and expenses related to COVID-19, and in section 3701
of the Coronavirus Aid, Relief, and Economic Security Act
Finding Lists begin on page ii.

(CARES Act) regarding a temporary exemption for telehealth
services, may be applied retroactively to January 1, 2020.
REG-113295-18, page 875.
This document contains proposed regulations clarify-
ing that the following deductions allowed to an estate
or non-grantor trust are not miscellaneous itemized
deductions subject to suspension under section 67(g):
costs paid or incurred in connection with the adminis-
tration of an estate or non-grantor trust that would not
have been incurred if the property were not held in the
estate or trust, the personal exemption of an estate or
non-grantor trust, the distribution deduction for trusts
distributing current income, and the distribution de-
duction for estates and trusts accumulating income.
The proposed regulations also provide guidance on
determining the character, amount, and allocation of
deductions in excess of gross income succeeded to
by a beneficiary on the termination of an estate or
non-grantor trust.
Rev. Proc. 2020-19, page 871.
To enable publicly offered real estate investment
trusts (REITs) and publicly offered regulated invest-
ment companies (RICs) to conserve capital, this rev-
enue procedure modifies the safe harbor provided in
Rev. Proc. 2017-45, 2017-35 I.R.B. 216, to tempo-
rarily reduce the minimum amount of cash that share-
holders may receive to not less than 10 percent of the
total declared distribution in order for the distribution
to be taxable under section 301 by reason of section
305(b). This revenue procedure modifies Rev. Proc.
2017-45 solely with respect to distributions declared
by a publicly offered REIT or publicly offered RIC on or
after April 1, 2020, and on or before December 31,
2020.

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.
May 26, 2020 Bulletin No. 2020–22

Part III
Expanded Temporary Rule
Allowing Governmental
Issuers to Purchase Certain
of Their Own Tax-Exempt
Bonds
Notice 2020-25
SECTION 1. PURPOSE
This notice temporarily expands the
circumstances and time periods in which
a tax-exempt bond that is purchased by
its state or local governmental issuer is
treated as continuing in effect without re-
sulting in a reissuance or retirement of the
purchased tax-exempt bond solely for pur-
poses of § 103 and §§ 141 through 150 of
the Internal Revenue Code (Code).
SECTION 2. BACKGROUND
Notice 2008-41, 2008-15 I.R.B. 742,
and proposed regulations regarding re-
issuance of state or local bonds (83 F.R.
67701, December 31, 2018) (proposed
regulations) provide rules that allow gov-
ernmental issuers to purchase their own
tax-exempt qualified tender bonds on a
temporary basis without resulting in a re-
issuance or retirement of the purchased
tax-exempt bonds solely for purposes of
§ 103 and §§ 141 to 150. Pursuant to the
preamble to the proposed regulations, is-
suers may apply proposed § 1.150-3 to
events and actions taken with respect to
bonds that occur before the date that is 90
days after the date of publication of the
Treasury decision adopting those rules as
final regulations in the Federal Register.
83 F.R. at 67703.
In recognition of the need for liquidi-
ty and stability in the markets, including
the short-term tax-exempt bond market,
during the current period of economic
disruption, this notice provides expanded
time periods during which governmental
issuers may purchase and hold their own
tax-exempt qualified tender bonds and
tax-exempt commercial paper. For pur-
poses of this notice, the term “tax-exempt
commercial paper” means tax-exempt
bonds issued pursuant to the same com-
mercial paper program that are treated as
a single issue under § 1.150-1(c)(4)(ii) of
the Income Tax Regulations.
SECTION 3. SCOPE AND
APPLICATION
3.1. Permitted holding period. For
purposes of this notice, the term “permit-
ted holding period” means calendar year
2020.
3.2. Expanded temporary rule allowing
governmental issuers to purchase their
own tax-exempt bonds. Solely for pur-
poses of § 103 and §§ 141 through 150,
the Department of the Treasury (Trea-
sury Department) and the Internal Reve-
nue Service (IRS) will treat a tax-exempt
qualified tender bond or tax-exempt com-
mercial paper that is purchased by its gov-
ernmental issuer on a temporary basis as
continuing in effect without resulting in a
reissuance or retirement of the purchased
tax-exempt bond if the governmental issu-
er purchases the tax-exempt qualified ten-
der bond or tax-exempt commercial paper
during the permitted holding period and
holds the bond no later than the end of the
permitted holding period.
Thus, recognizing that the purchased
bond is treated as continuing in effect
without resulting in a reissuance or re-
tirement of that bond solely for purposes
of § 103 and §§ 141 through 150 during
the permitted holding period, the govern-
mental issuer may refund the purchased
bond with a refunding bond, tender the
purchased bond for purchase in a quali-
fied tender right in its capacity as a bond-
holder, or otherwise resell the purchased
bond during this permitted holding peri-
od. Further, in the case of the purchase of
any particular obligation of tax-exempt
commercial paper, including a purchase
of such a particular obligation at maturi-
ty, a refinancing of that purchased tax-ex-
empt commercial paper with tax-exempt
commercial paper during the permitted
holding period will be treated as part of
the same issue as the issue of which the
purchased tax-exempt commercial paper
was a part.
3.3. Extension of purchase date for the
180-day holding period. Section 3.2(3)(b)
of Notice 2008-41 (regarding operating
rules for purchases pursuant to a qualified
tender right) is supplemented to provide
that the 90-day period is extended to 180
days with respect to any purchase by or
on behalf of a governmental issuer pursu-
ant to a qualified tender right as long as
such purchase occurs during the permitted
holding period.
3.4. No terminations of qualified hedg-
es. For arbitrage purposes under § 148, a
qualified hedge with respect to bonds is
not deemed terminated under § 1.148-4(h)
as a result of the governmental issuer’s
holding of the hedged bonds during the
periods described in sections 3.2 and 3.3
of this notice.
3.5. Coordination with proposed reis-
suance regulations. Issuers that apply the
proposed regulations to a bond may apply
sections 3.2 and 3.4 of this notice to that
bond. In addition, issuers that apply the
proposed regulations to a bond may apply
§ 1.150-3(c)(2) of the proposed regulations
by extending the 90-day period referenced
therein to 180 days, provided that the ac-
quisition of the qualified tender bond oc-
curs within the permitted holding period.
3.6. No inferences on law. This notice
provides administrative relief in further-
ance of public policy to promote liquidity
and stability in the short-term tax-exempt
bond market. Except with respect to the
administrative relief expressly provided in
this notice, no inference should be drawn
from this notice regarding any other Fed-
eral tax issues affecting tax-exempt bonds
or any other security. In addition, this no-
tice is not intended to address any other
Federal tax issue implicated in the trans-
actions described in this notice allowing
governmental issuers to purchase their
own tax-exempt bonds on a temporary ba-
sis in prescribed circumstances.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
This notice modifies and supplements
Notice 2008-41.
SECTION 5. EFFECTIVE DATE
This notice is effective May 4, 2020.
Issuers may apply this notice retroactively
to purchases on or after January 1, 2020.
Bulletin No. 2020–22 863 May 26, 2020

SECTION 6. DRAFTING
INFORMATION
The principal authors of this notice
are Johanna Som de Cerff and Zoran Sto-
janovic of the Office of Associate Chief
Counsel (Financial Institutions and Prod-
ucts). However, other personnel from the
IRS and the Treasury Department partic-
ipated in its development. For further in-
formation regarding this notice, contact
Mr. Stojanovic at (202) 317-6980 (not a
toll-free number).
COVID-19 GUIDANCE
UNDER § 125 CAFETERIA
PLANS AND RELATED TO
HIGH DEDUCTIBLE HEALTH
PLANS
Notice 2020-29
I. PURPOSE AND OVERVIEW
To assist with the nation’s response
to the 2019 Novel Coronavirus outbreak
(COVID-19), this notice provides for in-
creased flexibility with respect to mid-
year elections under a § 125 cafeteria plan
during calendar year 2020 related to em-
ployer-sponsored health coverage, health
Flexible Spending Arrangements (health
FSAs), and dependent care assistance pro-
grams. This notice also provides increased
flexibility with respect to grace periods to
apply unused amounts in health FSAs to
medical care expenses incurred through
December 31, 2020, and unused amounts
in dependent care assistance programs to
dependent care expenses incurred through
December 31, 2020.
As described more fully below, this no-
tice provides that –
• For mid-year elections made during
calendar year 2020, a § 125 cafete-
ria plan may permit employees who
are eligible to make salary reduction
contributions under the plan to: (1)
with respect to employer-sponsored
health coverage, (a) make a new
election on a prospective basis, if the
employee initially declined to elect
employer-sponsored health coverage;
(b) revoke an existing election and
make a new election to enroll in dif-
ferent health coverage sponsored by
the same employer on a prospective
basis; and (c) revoke an existing elec-
tion on a prospective basis, provided
that the employee attests in writing
that the employee is enrolled, or im-
mediately will enroll, in other health
coverage not sponsored by the em-
ployer; (2) revoke an election, make a
new election, or decrease or increase
an existing election applicable to a
health FSA on a prospective basis;
and (3) revoke an election, make a
new election, or decrease or increase
an existing election regarding a de-
pendent care assistance program on a
prospective basis;
• For unused amounts remaining in a
health FSA or a dependent care assis-
tance program under the § 125 cafete-
ria plan as of the end of a grace period
or plan year ending in 2020, a § 125
cafeteria plan may permit employees
to apply those unused amounts to pay
or reimburse medical care expenses
or dependent care expenses, respec-
tively, incurred through Decem-
ber 31, 2020; and
• The relief provided in Notice 2020-
15, 2020-14 IRB 559 regarding high
deductible health plans (HDHPs) and
expenses related to COVID-19, and
in section 3701 of the Coronavirus
Aid, Relief, and Economic Security
Act (CARES Act) (P.L. 116-136, 134
Stat. 281 (March 27, 2020)) regarding
an exemption for telehealth services,
may be applied retroactively to Janu-
ary 1, 2020.
II. BACKGROUND
A. Elections Under a § 125 Cafeteria
Plan
Section 125(d)(1) of the Internal Rev-
enue Code (Code) defines a § 125 cafe-
teria plan as a written plan maintained
by an employer under which all partici-
pants are employees, and all participants
may choose among two or more benefits
consisting of cash and qualified benefits.
Subject to certain exceptions, § 125(f)
defines a qualified benefit as any benefit
which, with the application of § 125(a), is
not includable in the gross income of the
employee by reason of an express provi-
sion of the Code. Qualified benefits that
may be provided under a § 125 cafeteria
plan include employer-provided accident
and health plans excludable under §§ 106
and 105(b), health FSAs excludable under
§§ 106 and 105(b), and dependent care
assistance programs excludable under
§ 129.
Elections regarding qualified benefits
under a § 125 cafeteria plan generally
must be irrevocable and must be made pri-
or to the first day of the plan year, except
as provided under Treas. Reg. § 1.125-
4.
1
Treas. Reg. § 1.125-4 provides that a
§ 125 cafeteria plan may permit an em-
ployee to revoke an election during a pe-
riod of coverage and to make a new elec-
tion under certain circumstances, such as
if the employee experiences a change in
status or there are significant changes in
the cost of coverage. Section 125 does not
require a § 125 cafeteria plan to permit the
mid-year election changes allowed under
Treas. Reg. § 1.125-4.
Due to the nature of the public health
emergency posed by COVID-19 and un-
anticipated changes in the need for medi-
cal care, some employers have indicated a
willingness to offer employees who initial-
ly declined to elect employer-sponsored
health coverage an opportunity to elect
health coverage or allow employees en-
rolled in employer-sponsored health cov-
erage to enroll in different health cover-
age offered by the same employer or drop
their existing employer-sponsored health
coverage to enroll in other health cover-
age not offered by their employer (for ex-
ample, coverage offered by their spouse’s
employer). In addition, some employees
may have an increase or decrease in medi-
cal expenses due to unanticipated changes
in the need for or availability of medical
1
In contrast, for qualified transportation fringe benefits under § 132(f) (which pursuant to § 125(f)(1) may not be offered under a § 125 cafeteria plan), Treas. Reg. § 1.132-9, Q&A 14 provides
that employees may change or revoke compensation reduction elections related to the qualified transportation fringe benefits under § 132(f) before the employee is able currently to receive
the cash or other taxable amount at the employee’s discretion (generally before the beginning of a pay period).
May 26, 2020 864 Bulletin No. 2020–22

Bulletin No. 2020–22 865 May 26, 2020
care and may wish to increase or decrease
amounts in their health FSAs. Further,
some employees may have an increase or
decrease in the need for dependent care
assistance due to the unanticipated closure
of schools and child care providers and
changes to the employee’s work location
or schedule. Depending on an employee’s
circumstances, the exceptions set forth in
Treas. Reg. § 1.125-4 may not apply with
respect to election changes that employees
may wish to request for employer-spon-
sored health coverage, health FSAs, and
dependent care assistance programs for
reasons related to the COVID-19 public
health emergency.
B. Health FSAs and Dependent Care
Assistance Programs
Under the carryover rule, a § 125 cafe-
teria plan may permit the carryover of un-
used amounts remaining in a health FSA
as of the end of a plan year to pay or re-
imburse a participant for medical care ex-
penses incurred during the following plan
year, subject to the carryover limit (cur-
rently $550). See Notice 2013-71, 2013-
47 IRB 532, and Notice 2020-33, 2020-
22 IRB 868. Under the grace period rule,
a § 125 cafeteria plan may permit a par-
ticipant to apply unused amounts (includ-
ing amounts remaining in a health FSA
or dependent care assistance program)
at the end of a plan year to pay expenses
incurred for those same qualified benefits
during the period of up to two months
and 15 days immediately following the
end of the plan year. See Notice 2005-42,
2005-1 C.B. 1204, and Prop. Treas. Reg.
§ 1.125-1(e). For a health FSA, a § 125
cafeteria plan may adopt a carryover or
a grace period (or neither), but may not
adopt both features. See Notice 2013-71.
Due to the nature of the public health
emergency posed by COVID-19, in par-
ticular unanticipated changes in the
availability of certain medical care and
dependent care, employees may be more
likely to have unused health FSA amounts
or dependent care assistance program
amounts (or have larger unused health
FSA amounts or dependent care assis-
tance program amounts) as of the end of
plan years, or grace periods, ending in
2020 and may wish to have an extended
period during which to apply their unused
health FSA amounts or dependent care as-
sistance program amounts to pay or reim-
burse medical care expenses or dependent
care expenses.
C. Impact of Health FSA
Reimbursements on Eligibility to
Contribute to an HSA
Section 223 permits eligible individ-
uals to establish and contribute to health
savings accounts (HSAs). Pursuant to
§ 223(c)(1)(A), an eligible individual is,
with respect to any month, any individual
if (i) such individual is covered under an
HDHP as of the first day of such month,
and (ii) such individual is not, while cov-
ered under an HDHP, covered under any
health plan which is not an HDHP, and
which provides coverage for any benefit
which is covered under the HDHP. An
HDHP is a health plan that satisfies the
minimum annual deductible requirement
and maximum out-of-pocket expenses re-
quirement under § 223(c)(2)(A).
Coverage by a general purpose health
FSA is coverage by a health plan that dis-
qualifies an otherwise eligible individual
from contributing to an HSA, although
coverage by a limited purpose health FSA
would not do so.
2
See Rev. Rul. 2004-45,
2004-1 C.B. 971. Similarly, a telemedicine
arrangement generally constitutes a health
plan or insurance that provides coverage
before the minimum annual deductible
is met, and provides coverage that is not
disregarded coverage or preventive care,
which would generally disqualify an oth-
erwise eligible individual from contrib-
uting to an HSA. However, section 3701
of the CARES Act amended § 223 of the
Code to temporarily allow HSA-eligible
HDHPs to cover telehealth and other re-
mote care services. See section IV.B. of
this notice for more details.
III. RELIEF
A. Elections Under a § 125 Cafeteria
Plan
This notice provides temporary flex-
ibility for § 125 cafeteria plans to per-
mit employees to make certain pro-
spective mid-year election changes for
employer-sponsored health coverage,
health FSAs, and dependent care assis-
tance programs during calendar year 2020
that the plan chooses to permit. Specifi-
cally, an employer, in its discretion, may
amend one or more of its § 125 cafeteria
plans (including limiting the period during
which election changes may be made) to
allow each employee who is eligible to
make salary reduction contributions un-
der the plan to make prospective election
changes (including an initial election)
during calendar year 2020 regarding
employer-sponsored health coverage, a
health FSA, or a dependent care assistance
program, regardless of whether the basis
for the election change satisfies the crite-
ria set forth in Treas. Reg. § 1.125-4. In
particular, an employer may amend one or
more of its § 125 cafeteria plans to allow
employees to: (1) make a new election for
employer-sponsored health coverage on a
prospective basis, if the employee initial-
ly declined to elect employer-sponsored
health coverage; (2) revoke an existing
election for employer-sponsored health
coverage and make a new election to en-
roll in different health coverage sponsored
by the same employer on a prospective
basis (including changing enrollment
from self-only coverage to family cover-
age); (3) revoke an existing election for
employer-sponsored health coverage on
a prospective basis, provided that the em-
ployee attests in writing that the employee
is enrolled, or immediately will enroll, in
other health coverage not sponsored by the
employer; (4) revoke an election, make a
new election, or decrease or increase an
existing election regarding a health FSA
on a prospective basis; and (5) revoke an
election, make a new election, or decrease
2
Notice 2005-86, 2005-49 IRB 1075 clarifies that coverage by a general purpose health FSA during a grace period is health coverage that disqualifies an otherwise eligible individual from
contributing to an HSA during that period. However, Notice 2005-86 provides methods an employer can use to amend the health FSA for the grace period so it does not disqualify employees
from contributing to an HSA during that period.

May 26, 2020 866 Bulletin No. 2020–22
or increase an existing election regarding
a dependent care assistance program on a
prospective basis.
To accept an employee’s revocation of
an existing election for employer-spon-
sored health coverage, the employer
must receive from the employee an at-
testation in writing that the employee is
enrolled, or immediately will enroll, in
other comprehensive health coverage
not sponsored by the employer. The em-
ployer may rely on the written attestation
provided by the employee, unless the
employer has actual knowledge that the
employee is not, or will not be, enrolled
in other comprehensive health coverage
not sponsored by the employer. The fol-
lowing is an example of an acceptable
written attestation:
Name: _______________________
(and other identifying information re-
quested by the employer for adminis-
trative purposes).
I attest that I am enrolled in, or immedi-
ately will enroll in, one of the following
types of coverage: (1) employer-spon-
sored health coverage through the
employer of my spouse or parent; (2)
individual health insurance coverage
enrolled in through the Health Insur-
ance Marketplace (also known as the
Health Insurance Exchange); (3) Med-
icaid; (4) Medicare; (5) TRICARE; (6)
Civilian Health and Medical Program
of the Department of Veterans Affairs
(CHAMPVA); or (7) other coverage
that provides comprehensive health
benefits (for example, health insurance
purchased directly from an insurance
company or health insurance provided
through a student health plan).
Signature: ______________________
An employer utilizing this relief un-
der § 125 is not required to provide un-
limited election changes but may, in its
discretion, determine the extent to which
such election changes are permitted and
applied, provided that any permitted elec-
tion changes are applied on a prospective
basis only, and the changes to the plan’s
election requirements do not result in fail-
ure to comply with the nondiscrimination
rules applicable to § 125 cafeteria plans.
In determining the extent to which elec-
tion changes are permitted and applied,
an employer may wish to consider the po-
tential for adverse selection of health cov-
erage by employees. To prevent adverse
selection of health coverage, an employ-
er may wish to limit elections to circum-
stances in which an employee’s coverage
will be increased or improved as a result
of the election (for example, by electing
to switch from self-only coverage to fam-
ily coverage, or from a low option plan
covering in-network expenses only to a
high option plan covering expenses in or
out of network). Changes to the plan may
also implicate other applicable laws, such
as notice requirements under Title I of
the Employee Retirement Income Securi-
ty Act of 1974, with which any changes
should comply. With respect to mid-year
election changes for employer-sponsored
coverage, this relief applies to both em-
ployers sponsoring self-insured plans and
employers sponsoring insured plans. With
respect to health FSAs, this relief applies
to all health FSAs, including limited pur-
pose health FSAs compatible with HSAs.
In addition, with respect to health FSAs
and dependent care assistance programs,
employers are permitted to limit mid-year
elections to amounts no less than amounts
already reimbursed.
This relief may be applied retroactive-
ly to periods prior to the issuance of this
notice and on or after January 1, 2020, to
address a § 125 cafeteria plan that, prior to
the issuance of this notice, permitted mid-
year election changes for employer-spon-
sored health coverage, health FSAs, or
dependent care assistance programs that
otherwise are consistent with the require-
ments for the relief provided in this notice.
B. Extended Claims Period for Health
FSAs and Dependent Care Assistance
Programs
This notice also provides flexibility
for a § 125 cafeteria plan to provide an
extended period to apply unused amounts
remaining in a health FSA or dependent
care assistance program to pay or re-
imburse medical care expenses or de-
pendent care expenses. Specifically, an
employer, in its discretion, may amend
one or more of its § 125 cafeteria plans
to permit employees to apply unused
amounts remaining in a health FSA or a
dependent care assistance program as of
the end of a grace period ending in 2020
or a plan year ending in 2020 to pay or
reimburse expenses incurred for the same
qualified benefit through December 31,
2020. For example, if an employer spon-
sors a § 125 cafeteria plan with a health
FSA that has a calendar year plan year
and provides for a grace period ending
on March 15 immediately following the
end of each plan year, the employer may
amend the plan to permit employees to
apply unused amounts remaining in an
employee’s health FSA as of March 15,
2020, to reimburse the employee for
medical care expenses incurred through
December 31, 2020.
3
This relief applies
to all health FSAs, including limited
purpose health FSAs compatible with
HSAs. However, health FSA amounts
may only be used for medical care ex-
penses, and dependent care assistance
program amounts may only be used for
dependent care expenses. The extension
of time for incurring claims is available
both to § 125 cafeteria plans that have a
grace period, and plans that provide for a
carryover, notwithstanding Notice 2013-
71, which otherwise continues in effect
and provides that health FSAs can either
adopt a grace period or provide for a car-
ryover amount but cannot have both. The
following examples illustrate how a plan
with a July 1 plan year that allows a $500
carryover would implement the extended
period for incurring claims allowed by
this notice:
Example 1. Employer provides a health FSA
under a § 125 cafeteria plan that allows a $500 carry-
over for the 2019 plan year (July 1, 2019 to June 30,
2020). Pursuant to this notice and Notice 2020-33,
Employer amends the plan to adopt a $550 (indexed)
carryover beginning with the 2020 plan year, and
also amends the plan to adopt the temporary extend-
ed period for incurring claims with respect to the
2019 plan year, allowing for claims incurred prior to
January 1, 2021, to be paid with respect to amounts
from the 2019 plan year.
Employee A has a remaining balance in his
health FSA for the 2019 plan year of $2,000 on
June 30, 2020, because a scheduled non-emergency
3
Certain plans would not need the relief provided in this notice. For example, a plan with a plan year ending on or after October 31, 2020, continues to be able to provide a grace period of up
to two months and 15 days, which would allow the reimbursement of claims incurred after December 31, 2020.

Bulletin No. 2020–22 867 May 26, 2020
procedure was postponed. For the 2020 plan year be-
ginning July 1, 2020, Employee A elects to contrib-
ute $2,000 to his health FSA. Employee A is able to
reschedule the procedure before December 31, 2020
and, between July 1, 2020 and December 31, 2020,
incurs $1,900 in medical care expenses. The health
FSA may reimburse Employee A $1,900 from the
$2,000 remaining in his health FSA at the end of the
2019 plan year, leaving $100 unused from the 2019
plan year. Under the plan terms that provide for a
carryover, Employee A is allowed to use the remain-
ing $100 in his health FSA until June 30, 2021, to
reimburse claims incurred during the 2020 plan year.
Employee A may be reimbursed for up to $2,100
($2,000 contributed to the health FSA for the 2020
plan year plus $100 carryover from the 2019 plan
year) for medical care expenses incurred between
January 1, 2021 and June 30, 2021. In addition,
Employee A may carry over to the 2021 plan year
beginning July 1, 2021 up to $550 of any remain-
ing portion of that $2,100 after claims are processed
for the 2020 plan year that began July 1, 2020. A
grace period is not available for the plan year ending
June 30, 2021.
Example 2. Same facts as Example 1, except
that Employee B has a remaining balance in his
health FSA for the 2019 plan year of $1,250 on
June 30, 2020. For the 2020 plan year beginning
July 1, 2020, Employee B elects to contribute
$1,200 to his health FSA. Between July 1, 2020 and
December 31, 2020, Employee B incurs $600 in
medical care expenses. The health FSA may reim-
burse Employee B $600 from the $1,250 remaining
in his health FSA at the end of the 2019 plan year,
leaving $650 unused from the 2019 plan year. Un-
der the plan terms, Employee B is allowed to use
$500
4
of the $650 unused amount from the 2019
plan year to reimburse claims incurred during the
2020 plan year, and the remaining $150 will be for-
feited. Employee B may be reimbursed for up to
$1,700 ($1,200 contributed to the health FSA for
the 2020 plan year plus $500 carryover from the
2019 plan year) for medical care expenses incurred
between January 1, 2021 and June 30, 2021. In ad-
dition, Employee B may carry over to the 2021 plan
year beginning July 1, 2021 up to $550 of any re-
maining unused portion of that $1,700 after claims
are processed for the 2020 plan year that began
July 1, 2020. A grace period is not available for the
plan year ending June 30, 2021.
The extension of the period for incur-
ring claims that may be reimbursed by
the health FSA is an extension of cover-
age by a health plan that is not an HDHP
for purposes of determining whether an
eligible individual qualifies to make con-
tributions to an HSA (except in the case
of an HSA-compatible health FSA, such
as a limited purpose health FSA). See sec-
tion II.C. of this notice. Thus, an individ-
ual who had unused amounts remaining
at the end of a plan year or grace period
ending in 2020 and who is allowed an
extended period to incur expenses under
a health FSA pursuant to a plan amend-
ed in accordance with this notice will not
be eligible to contribute to an HSA during
the extended period (except in the case of
an HSA-compatible health FSA, includ-
ing a health FSA that is amended to be
HSA-compatible).
The relief set forth in this notice may
be applied on or after January 1, 2020 and
on or before December 31, 2020, provid-
ed that any elections made in accordance
with this notice apply only on a prospec-
tive basis.
C. Plan Amendments
An employer that decides to amend
one or more of its § 125 cafeteria plans
to provide for mid-year election changes
for employer-sponsored health coverage,
health FSAs, or dependent care assistance
programs in a manner consistent with this
notice or to provide for an extended period
to apply unused amounts remaining in a
health FSA or a dependent care assistance
program to pay or reimburse medical care
expenses or dependent care expenses in a
manner consistent with this notice must
adopt a plan amendment. In addition, an
employer that decides to amend its health
FSA to provide for an increase in the
carryover of unused amounts to the fol-
lowing year in a manner consistent with
Notice 2020-33, for the 2020 plan year or
plan years thereafter, must adopt a plan
amendment.
An amendment for the 2020 plan year
must be adopted on or before Decem-
ber 31, 2021, and may be effective retro-
actively to January 1, 2020, provided that
the § 125 cafeteria plan operates in accor-
dance with this notice or Notice 2020-33
or both, as applicable, and the employer
informs all employees eligible to partic-
ipate in the § 125 cafeteria plan of the
changes to the plan. Any amendment ad-
opted pursuant to this notice must apply
only to mid-year elections made during
calendar year 2020, or to an extended pe-
riod to apply unused health FSA amounts
or dependent care assistance program
amounts for the payment or reimburse-
ment of medical care expenses or depen-
dent care expenses incurred through De-
cember 31, 2020.
IV. MISCELLANEOUS
A. HDHPs and Application of Notice
2020-15
Notice 2020-15 provides that a health
plan that otherwise satisfies the require-
ments to be an HDHP under § 223(c)(2)
(A) will not fail to be an HDHP merely
because the health plan provides medical
care services and items purchased related
to testing for and treatment of COVID-19
prior to the satisfaction of the applicable
minimum deductible. This notice clarifies
that the relief provided in Notice 2020-15
regarding HDHPs and expenses related to
testing for and treatment of COVID-19
applies with respect to reimbursements of
expenses incurred on or after January 1,
2020. This notice further clarifies that the
panel of diagnostic testing for influenza
A & B, norovirus and other coronavirus-
es, and respiratory syncytial virus (RSV)
and any items or services required to be
covered with zero cost sharing under
section 6001 of the Families First Coro-
navirus Response Act (P.L. 116-127, 134
Stat. 178 (March 18, 2020)), as amended
by the CARES Act, are part of testing and
treatment for COVID-19 for purposes of
Notice 2020-15.
B. HDHPs and Application of Section
3701 of the CARES Act
Section 3701 of the CARES Act amends
§ 223(c) of the Code to provide a tempo-
rary safe harbor for providing coverage for
telehealth and other remote care services.
As added by the CARES Act, § 223(c)
(2)(E) of the Code allows HSA-eligible
HDHPs to cover telehealth and other re-
4
The maximum unused amount remaining in a health FSA from a plan year beginning in 2019 allowed to be carried over to the immediately following plan year beginning in 2020 is $500,
whereas the maximum unused amount remaining in a health FSA from a plan year beginning in 2020 allowed to be carried over to the immediately following plan year beginning in 2021 is
$550 (20 percent of $2,750, the indexed 2020 limit under § 125(i)). See Notice 2020-33.

May 26, 2020 868 Bulletin No. 2020–22
mote care services without a deductible
or with a deductible below the minimum
annual deductible otherwise required by
§ 223(c)(2)(A) of the Code. Section 3701
of the CARES Act also amends § 223(c)
(1)(B)(ii) of the Code to include telehealth
and other remote care services as catego-
ries of coverage that are disregarded for
purposes of determining whether an indi-
vidual who has other health plan coverage
in addition to an HDHP is an eligible in-
dividual who may make tax-favored con-
tributions to his or her HSA under § 223
of the Code. Thus, an otherwise eligible
individual with coverage under an HDHP
may also receive coverage for telehealth
and other remote care services outside the
HDHP and before satisfying the deduct-
ible of the HDHP and still contribute to
an HSA. The amendments to § 223 of the
Code under section 3701 of the CARES
Act are effective March 27, 2020, and ap-
ply to plan years beginning on or before
December 31, 2021. This notice provides
that treatment of telehealth and other re-
mote care services under section 3701 of
the CARES Act applies with respect to
services provided on or after January 1,
2020, with respect to plan years beginning
on or before December 31, 2021. There-
fore, for example, an otherwise eligible
individual with coverage under an HDHP
who also received coverage beginning
February 15, 2020 for telehealth and oth-
er remote care services under an arrange-
ment that is not an HDHP and before sat-
isfying the deductible for the HDHP will
not be disqualified from contributing to an
HSA during 2020.
V. DRAFTING INFORMATION
The principal author of this notice is
Jennifer Solomon of the Office of Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes), though other Treasury Depart-
ment and IRS officials participated in its
development. For further information on
the provisions of this notice, contact Jen-
nifer Solomon at (202) 317-5500 (not a
toll-free number).
Section 125 Cafeteria
Plans - Modification of
Permissive Carryover
Rule for Health Flexible
Spending Arrangements
and Clarification Regarding
Reimbursements
of Premiums by
Individual Coverage
Health Reimbursement
Arrangements
Notice 2020-33
I. PURPOSE
This notice modifies Notice 2013-71,
2013-47 IRB 532, to increase the car-
ryover limit (currently $500) of unused
amounts remaining as of the end of a
plan year in a health Flexible Spending
Arrangement (health FSA) under a § 125
cafeteria plan that may be carried over to
pay or reimburse a participant for medical
care expenses incurred during the follow-
ing plan year. The increase in the amount
that can be carried over from one plan year
to the next reflects indexing for inflation,
and this indexing parallels the indexing
applicable to the limit on salary reduction
contributions under § 125(i) of the Inter-
nal Revenue Code (Code). Second, this
notice clarifies the ability of a health plan
to reimburse individual insurance policy
premium expenses incurred prior to the
beginning of the plan year for coverage
provided during the plan year. This clarifi-
cation will assist with the implementation
of individual coverage health reimburse-
ment arrangements (individual coverage
HRAs).
II. BACKGROUND
Section 125(d)(1) defines a § 125 cafe-
teria plan as a written plan maintained by
an employer under which all participants
are employees, and all participants may
choose among two or more benefits con-
sisting of cash and qualified benefits. Sub-
ject to certain exceptions, § 125(f) defines
a qualified benefit as any benefit which,
with the application of § 125(a), is not
includable in the gross income of the em-
ployee by reason of an express provision
of the Code. Qualified benefits include
employer-provided accident and health
plans excludable from gross income under
§§ 106 and 105(b), but exclude long term
care insurance and certain qualified health
plans offered through an Exchange (also
referred to as a Marketplace) established
under § 1311 of the Patient Protection and
Affordable Care Act (the Act).
5
Qualified health and accident benefits
provided under a § 125 cafeteria plan and
reimbursements of medical care expens-
es by an HRA or any other accident and
health plan are subject to the rules for
the exclusions from gross income under
§§ 105 and 106. An amount generally will
be treated as received under an accident
and health plan only if the employee was
covered by the plan on the date the em-
ployee became sick or injured. Treas. Reg.
§ 1.105-5. Thus, only reimbursements
for medical care expenses incurred by a
participant during the plan year may be
excluded from income and wages under
§§ 105 and 106.
Section 125(i) provides that, beginning
in 2013, a health FSA is not treated as a
qualified benefit unless the § 125 cafe-
teria plan limits each employee’s salary
reduction contribution to the health FSA
to no more than $2,500 per taxable year
(as indexed for cost-of-living adjustments,
$2,750 for 2020).
6
Notice 2012-40, 2012-
26 IRB 1046, clarifies that the term “tax-
able year” in § 125(i) refers to the plan
year of the § 125 cafeteria plan, so that
the limit is applicable beginning with the
first day of the first plan year beginning
in 2013.
A. The permissive carryover rule
Pursuant to § 125(d)(2)(A), a § 125
cafeteria plan generally does not include
any plan that provides for deferred com-
pensation. Consistent with this statutory
rule, proposed regulations under § 125
(that predate the enactment of the Act and
provide that taxpayers may rely upon them
5
Public Law 111-148 (124 Stat. 1029 (2010)), amended by §§ 10104 and 10203 of the Act.
6
Revenue Procedure 2019-44, 2019-47 IRB 1093.

Bulletin No. 2020–22 869 May 26, 2020
pending further guidance) generally pro-
hibit participants from using contributions
made for one plan year to purchase a ben-
efit that will be provided in a subsequent
plan year because using contributions in
this manner would result in a deferral of
compensation. To satisfy the statutory
requirement, and in reliance on the pro-
posed regulations, plans adopted a “use-
or-lose” rule under which unused benefits
or contributions remaining as of the end
of the plan year (referred to in this notice
as “unused amount(s)”) are forfeited. See
Prop. Treas. Reg. §§ 1.125-1(c)(7)(C),
1.125-1(o), and 1.125-5(c). To address the
need for a period after the end of the plan
year during which participants may sub-
mit documentation for expenses incurred
throughout the entire plan year, the pro-
posed regulations provide for a “run-out
period.” A “run-out period” is a period im-
mediately following the end of a plan year
during which a participant can submit a
claim for reimbursement of expenses in-
curred for qualified benefits during the
plan year or, in the case of a plan using the
grace period rule (described in the follow-
ing paragraph), such a period immediate-
ly following the end of the grace period.
See Prop. Treas. Reg. § 1.125-1(f). Plans
commonly rely on this rule to calculate the
unused amounts as of the end of a health
FSA’s plan year. The unused amounts are
calculated as the amounts that remain af-
ter medical care expenses have been re-
imbursed at the end of the plan’s run-out
period for that plan year.
In 2005, the Department of the Trea-
sury (Treasury Department) and the In-
ternal Revenue Service (IRS) liberalized
the use-or-lose rule by providing a grace
period rule. Under the grace period rule, a
§ 125 cafeteria plan may permit a partic-
ipant to apply unused amounts (including
amounts remaining in a health FSA) to
pay expenses incurred for certain quali-
fied benefits during the period of up to two
months and 15 days immediately follow-
ing the end of the plan year. See Notice
2005-42, 2005-1 C.B. 1204, and Prop.
Treas. Reg. § 1.125-1(e). This exception is
based on other Code provisions and Trea-
sury regulations that do not treat certain
compensation arrangements as providing
for deferred compensation if the compen-
sation is paid no later than the fifteenth day
of the third month after the taxable year
in which the services are performed. See,
e.g., Treas. Reg. § 1.404(b)-1T, Q&A-2.
Notice 2013-71 provided a further lib-
eralization permitting a § 125 cafeteria
plan to allow up to $500 of any unused
amount in a participant’s health FSA as
of the end of a plan year to be paid or re-
imbursed to the participant for medical
care expenses incurred in the immediately
following plan year (the “permissive car-
ryover” rule). In addition to the unused
amounts of up to $500 that a plan may per-
mit a participant to carry over to the next
year, the plan may also permit the partic-
ipant to elect up to the maximum amount
of contributions through salary reduction
permitted under § 125(i) for that year.
Thus, under the liberalization provided
through Notice 2013-17, the carryover of
up to $500 does not count against, or oth-
erwise affect, the indexed $2,500 limit on
salary reduction contributions applicable
to each plan year. Although the maximum
unused amount allowed to be carried over
in any plan year is $500, the plan may
specify a lower amount as the permissible
maximum carryover (and the plan sponsor
has the option of not permitting any carry-
over at all).
Notice 2013-71, in permitting a carry-
over of $500, specified that a plan adopt-
ing a carryover provision is not permitted
to also provide a grace period with respect
to health FSAs. Nor is the plan, for any
plan year, permitted to allow a participant
to elect a salary reduction contribution for
health FSA benefits of more than the in-
dexed $2,500 limit, or permitted to reim-
burse claims incurred during the plan year
that exceed the applicable indexed $2,500
salary reduction contribution limit (and
any nonelective employer contributions,
often referred to as flex credits), plus the
carryover amount of up to $500. If an em-
ployer adopts a carryover provision, the
same carryover limit must apply to all plan
participants. Also, a § 125 cafeteria plan is
not permitted to allow unused amounts re-
lating to a health FSA to be cashed out or
converted to any other taxable or nontax-
able benefit as this would result in deferral
of compensation prohibited by § 125(a)
(2)(A). Rather, unused amounts relating
to a health FSA may be used only to pay
or reimburse certain § 213(d) medical care
expenses (excluding health insurance,
long-term care services, or long-term care
insurance). See Prop. Treas. Reg. § 1.125-
1(q).
With respect to a participant, the
amount that may be carried over to the
following plan year is equal to the lesser
of (1) any unused amounts from the im-
mediately preceding plan year, or (2) $500
(or a lower amount specified in the plan).
To prevent deferral of compensation, any
unused amount in excess of $500 (or a
lower amount specified in the plan) as of
the end of the run-out period for the plan
year is forfeited. Any unused amount in a
participant’s health FSA as of termination
of employment also is forfeited (unless, if
applicable, the participant elects COBRA
continuation coverage with respect to the
health FSA).
When Notice 2013-71 was issued,
$500 represented 20 percent of the max-
imum allowed salary reduction amount
under § 125(i). While the $2,500 maxi-
mum allowed salary reduction amount is
indexed for inflation under § 125(i)(2),
Notice 2013-71 did not provide for any
adjustment to the maximum $500 carry-
over amount. The indexed amount under
§ 125(i) for 2020 is $2,750.
On June 24, 2019, President Trump is-
sued Executive Order 13877,
7
“Improving
Price and Quality Transparency in Amer-
ican Healthcare to Put Patients First,”
which included an order that the Secre-
tary of Treasury, to the extent consistent
with law, issue guidance to increase the
amount of funds that can carry over with-
out penalty at the end of the year for flex-
ible spending arrangements. In response
to Executive Order 13877, the Treasury
Department and the IRS are issuing this
notice.
B.Timing of reimbursements by health
plans
On October 12, 2017, President Trump
issued Executive Order 13813,
8
“Promot-
ing Healthcare Choice and Competition
7
84 FR 30849 (June 24, 2019).
8
82 FR 48385 (Oct. 17, 2017).

May 26, 2020 870 Bulletin No. 2020–22
Across the United States,” which included
directions to the Secretaries of the Trea-
sury, Labor, and Health and Human Ser-
vices (the Departments) to “consider pro-
posing regulations or revising guidance, to
the extent permitted by law and supported
by sound policy, to increase the usability
of HRAs, to expand employers’ ability to
offer HRAs to their employees, and to al-
low HRAs to be used in conjunction with
nongroup coverage.” In response to Ex-
ecutive Order 13813, the Departments is-
sued regulations allowing HRAs to be “in-
tegrated” with individual health insurance
coverage or Medicare if certain conditions
are satisfied.
9
These HRAs are referred to
as individual coverage HRAs
10
and gener-
ally are designed to reimburse employees
for substantiated premiums for individual
health insurance coverage and other med-
ical care expenses.
Individual coverage HRAs are, none-
theless, employer-sponsored health plans
and the exclusion from employees’ gross
income of reimbursements by these
HRAs is subject to the requirements of
§§ 105 and 106 and the underlying reg-
ulations. These requirements include the
general rule that only payment or reim-
bursement for medical care expenses in-
curred by an employee during the plan
year may be excluded from income and
wages under §§ 105 and 106. Notwith-
standing this general rule, as well as the
rule prohibiting the deferral of compen-
sation in a § 125 cafeteria plan, the Trea-
sury Department and the IRS recognized
certain practical difficulties and proposed
a rule of administrative convenience that
would permit amounts contributed by
salary reduction from the last month of
one plan year of a § 125 cafeteria plan
to be applied to pay accident and health
insurance premiums for insurance during
the first month of the immediately fol-
lowing plan year, if done on a uniform
and consistent basis with respect to
all participants. See Prop. Treas. Reg.
§ 1.125-1(p)(5)(i) (upon which taxpayers
may rely pending further guidance).
The restriction that a health plan may
reimburse only medical care expenses in-
curred during the plan year raises analo-
gous administrative issues in the case of
an individual coverage HRA to the extent
that a participant must pay, prior to the
first day of a plan year, all or part of the
premiums for individual health insur-
ance coverage or Medicare during that
plan year. Notice 2017-67, 2017-47 IRB
517, addresses these issues in the con-
text of qualified small employer HRAs
(QSEHRAs) under § 9831(d), which are
arrangements similar to individual cov-
erage HRAs. In particular, Q&A-52 of
Notice 2017-67 provides that, notwith-
standing a general rule that a QSEHRA
may not reimburse medical care expens-
es incurred before the eligible employee
is provided the QSEHRA, a QSEHRA is
permitted to treat a premium expense for
a period of coverage as incurred on (1)
the first day of each month of coverage
on a pro rata basis, (2) the first day of the
period of coverage, or (3) the date the
premium is paid.
III. GUIDANCE - FSA CARRYOVER
AMOUNTS
A. Indexing of maximum carryover
amount
As discussed in section II.A., this no-
tice expands the exception to the pro-
hibition on providing deferral of com-
pensation through a § 125 cafeteria plan
described in Notice 2013-71, which pro-
vides that a § 125 cafeteria plan may allow
up to $500 of unused amounts in a partic-
ipant’s health FSA as of the end of a plan
year to be carried over to pay or reimburse
the participant for medical care expens-
es incurred in the immediately following
plan year. Specifically, this notice increas-
es the maximum $500 carryover amount
for a plan year to an amount equal to 20
percent of the maximum salary reduction
contribution under § 125(i) for that plan
year. Because, by statute, the increase to
the § 125(i) limit is rounded to the next
lowest multiple of $50, increases to the
maximum carryover amount, as the result
of that indexing, will be in multiples of
$10 (20 percent of any $50 increase to the
§ 125(i) limit). Thus, the maximum un-
used amount from a plan year starting in
2020 allowed to be carried over to the im-
mediately following plan year beginning
in 2021 is $550 (20 percent of $2,750, the
indexed 2020 limit under § 125(i)).
B. Deadline for a written § 125 cafeteria
plan amendment to implement indexing
of maximum carryover amount for 2020
(or a later year)
As a general rule, an amendment to a
§ 125 cafeteria plan to increase the carry-
over limit must be adopted on or before
the last day of the plan year from which
amounts may be carried over and may
be effective retroactively to the first day
of that plan year, provided that the § 125
cafeteria plan operates in accordance with
the guidance under this notice and informs
all employees eligible to participate in the
plan of the carryover provision. Because
§ 125(d)(1) provides that a § 125 cafete-
ria plan must be a written plan,
11
a § 125
cafeteria plan offering a health FSA may
not utilize the increased carryover amount
permitted under this notice for a plan year
that begins in 2020 (or a later year) un-
less the plan is written in a manner that
incorporates the increase by reference or
the plan is timely amended to set forth
the increased amount. Accordingly, a plan
may be amended to adopt the increased
carryover amount for a plan year that
begins in 2021, for example, at any time
on or before the last day of the plan year
that begins in 2021; see section III.C. for
a special amendment timing rule for the
2020 plan year. The ability to amend a
plan to increase the carryover limit does
not include the ability to allow employees
to make new elections under the plan (but
see relief for the 2020 plan year in section
III.C.).
C. Extended period for employee
elections for 2020
The final and proposed regulations un-
der § 125 set forth a framework for the
timing and amendments of participant
elections that ensure the plan meets the
requirements of the Code, including that
9
84 FR 28888 (June 20, 2019).
10
Treas. Reg. § 54.9802-4.
11
See also Prop. Treas. Reg. § 1.125-1(c).

Bulletin No. 2020–22 871 May 26, 2020
the plan not provide for deferred compen-
sation. Generally, under those regulations,
an individual must make § 125 cafeteria
plan elections before the start of the plan
year, and those plan elections must be irre-
vocable during the plan year, with limited
exceptions that include certain changes in
status to prevent the elections from consti-
tuting a deferral of compensation in con-
travention of § 125(d)(2)(A). See Treas.
Reg. § 1.125-4 and Prop. Treas. Reg.
§ 1.125-2. As a result, an individual would
be unable to modify his or her election for
a health FSA on or after the first day of
the 2020 plan year of the § 125 cafeteria
plan, notwithstanding that the § 125 caf-
eteria plan is being amended to adopt the
increased carryover amount for the 2020
plan year.
However, the Treasury Department
and the IRS are simultaneously issuing a
notice that, among other things, for the
remainder of 2020, allows employers to
permit mid-year elections under a § 125
cafeteria plan regarding a health FSA, in-
cluding the ability to make an initial elec-
tion to fund a health FSA, provided the
changes are applied only prospectively.
See Notice 2020-29, 2020-22 IRB 864.
Although Notice 2020-29 permits this
flexibility temporarily in response to the
public health emergency posed by the
2019 Novel Coronavirus, Notice 2020-29
does not limit the relief to individuals af-
fected by the pandemic. Accordingly, indi-
viduals who, during 2020, wish to increase
their health FSA contributions, or begin to
make health FSA contributions, as a result
of the increased carryover amount per-
mitted under this notice may do so in ac-
cordance with Notice 2020-29. Although
only future salary may be reduced under
the revised election, amounts contributed
to the health FSA after the revised election
may be used for any medical care expense
incurred during the first plan year that be-
gins on or after January 1, 2020.
With respect to the requirement to
amend the written plan, Notice 2020-29
provides that an amendment under this
notice for the 2020 plan year must be ad-
opted on or before December 31, 2021,
and may be effective retroactively to Jan-
uary 1, 2020, provided that the employer
informs all individuals eligible to partic-
ipate in the § 125 cafeteria plan of the
changes to the plan.
IV. GUIDANCE - TIMING FOR
REIMBURSEMENTS BY HEALTH
PLANS
As discussed in section II.B. of this
notice, a health plan, including a premi-
um-reimbursement plan in a § 125 cafe-
teria plan or an individual coverage HRA,
may not reimburse medical care expenses
incurred before the beginning of the plan
year and qualify for exclusion from in-
come and wages under §§ 105 and 106.
Medical care expenses are treated as in-
curred when the covered individual is pro-
vided the medical care that gives rise to
the expense, and not when the amount is
billed or paid. This notice provides that a
plan is permitted to treat an expense for a
premium for health insurance coverage as
incurred on (1) the first day of each month
of coverage on a pro rata basis, (2) the first
day of the period of coverage, or (3) the
date the premium is paid. Thus, for ex-
ample, an individual coverage HRA with
a calendar year plan year may immedi-
ately reimburse a substantiated premium
for health insurance coverage that begins
on January 1 of that plan year, even if the
covered individual paid the premium for
the coverage prior to the first day of the
plan year.
V. EFFECT ON OTHER DOCUMENTS
Notice 2013-71 is modified to increase
the annual maximum carryover amount
allowed for a health FSA consistent with
the guidance described above.
VI. INTENT TO REVISE EXISTING
REGULATIONS; RELIANCE
The Treasury Department and the
IRS intend to revise Prop. Treas. Reg.
§§ 1.125-1(o) and 1.125-5(c) to reflect the
guidance in this notice. Until the proposed
regulations are so revised, taxpayers may
rely upon the guidance provided in this
notice, which is favorable to taxpayers.
VII. DRAFTING INFORMATION
The principal author of this notice is
Christopher Dellana of the Office of Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
this notice, contact Christopher Dellana at
(202) 317-5500 (not a toll-free number).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also: Part I, §§ 301, 305, 852, 857; 1.305-1, 1.305-
2)
Revenue Procedure 2020-
19
SECTION 1. PURPOSE
This revenue procedure provides tem-
porary guidance regarding the treatment
of certain stock distributions by public-
ly offered real estate investment trusts
(REITs) and publicly offered regulated
investment companies (RICs) under the
Internal Revenue Code (Code). Specif-
ically, in recognition of the need for en-
hanced liquidity during the current period
of economic disruption, this revenue pro-
cedure modifies the safe harbor provided
in Rev. Proc. 2017-45, 2017-35 I.R.B.
216, by temporarily reducing the mini-
mum required aggregate amount of cash
that distributee shareholders may receive
to not less than 10 percent of the total dis-
tribution in order for § 301 of the Code, by
reason of § 305(b) of the Code, to apply
to such distribution. This temporary mod-
ification is effective solely with respect
to distributions declared by a publicly of-
fered REIT or publicly offered RIC on or
after April 1, 2020, and on or before De-
cember 31, 2020.
SECTION 2. BACKGROUND
.01 Rev. Proc. 2017-45 provides a safe
harbor for Publicly Offered REITs and
Publicly Offered RICs that make a distri-
bution to their shareholders with respect
to their stock to ensure that such distribu-
tions of stock pursuant to a distribution
in which each shareholder may elect to
receive up to all of the shareholder’s dis-
tribution in cash or stock of equivalent
value are treated as distributions of prop-
erty to which § 301 applies by reason of
§ 305(b). See generally Rev. Proc. 2017-
45, section 3.12 (defining Publicly Offered
REIT), section 3.13 (defining Publicly
Offered RIC), and section 5 (enumerat-

May 26, 2020 872 Bulletin No. 2020–22
ing safe harbor requirements). Rev. Proc.
2017-45 allows a Publicly Offered REIT
or Publicly Offered RIC to eliminate C
corporation earnings and profits in order
to satisfy the REIT or RIC distribution
requirements while maintaining sufficient
liquidity. If each condition set forth in
sections 5.01 through 5.07 of Rev. Proc.
2017-45 is met, (1) the Internal Revenue
Service will treat the stock distribution as
a distribution of property under § 301 by
reason of § 305(b), and (2) the value of the
stock received by any shareholder in lieu
of cash will be considered to be equal to
the amount of cash which could have been
received instead.
.02 Section 5.03 of Rev. Proc. 2017-45
requires that the Cash Limitation Percent-
age be at least 20 percent. Section 3.05
of Rev. Proc. 2017-45 defines the Cash
Limitation Percentage as the percentage
obtained by dividing (1) the maximum
aggregate amount of cash to be distrib-
uted to all shareholders as limited by the
Publicly Offered REIT’s or Publicly Of-
fered RIC’s declaration of the distribu-
tion, by (2) the amount of cash that would
be distributed if each shareholder elected
to receive solely cash under their respec-
tive Stock-or-Cash Election. Section 3.06
of Rev. Proc. 2017-45 generally defines
a Cash-or-Stock Election as an election
each shareholder may make to receive up
to all of the shareholder’s entire distribu-
tion subject to the election either (1) in
cash, or (2) in stock of the distributing
corporation of equivalent value as deter-
mined under section 5.07 of Rev. Proc.
2017-45.
.03 To enable Publicly Offered REITs
and Publicly Offered RICs to conserve
capital and thereby enhance their liquid-
ity, this revenue procedure temporarily
allows such REITs and RICs to further
limit the amount of cash available to be
distributed to their shareholders by re-
ducing the Cash Limitation Percentage to
10 percent.
SECTION 3. TEMPORARY
REDUCTION OF CASH
LIMITATION PERCENTAGE
Section 5.03 of Rev. Proc. 2017-45 is
modified by striking “The Cash Limita-
tion Percentage is not less than 20 per-
cent” and inserting “The Cash Limitation
Percentage is not less than 10 percent”.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
This revenue procedure modifies Rev.
Proc. 2017-45 solely with respect to dis-
tributions declared by a Publicly Offered
REIT or Publicly Offered RIC on or after
April 1, 2020, and on or before December
31, 2020.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Justin O. Kellar of the Of-
fice of Associate Chief Counsel (Corpo-
rate). For further information regarding
this revenue procedure, contact Justin O.
Kellar on (202) 317-6847 (not a toll-free
number).
26 CFR 601.601 Rules and regulations.
(Also: §§ 147, 1.147(f)-1)
Rev. Proc. 2020-21
SECTION 1. PURPOSE
This revenue procedure provides
temporary guidance regarding the pub-
lic approval requirement under § 147(f)
of the Internal Revenue Code (Code)
for tax-exempt qualified private activity
bonds. Specifically, in light of the Coro-
navirus Disease 2019 (COVID-19) pan-
demic, this revenue procedure provides
that hearings held by teleconference as
described in section 4.01 of this revenue
procedure will be treated as held in a
location that, based on the facts and cir-
cumstances, is convenient for residents
of the approving governmental unit for
the purpose of § 1.147(f)-1(d)(2) of the
Income Tax Regulations.
SECTION 2. BACKGROUND
.01 Pursuant to § 147(f), tax-exempt
qualified private activity bonds are subject
to a public approval requirement. Except
for refunding bonds described in § 147(f)
(2)(D), a bond issue must be approved by
the governmental unit issuing the bonds
(or on behalf of which such bonds are is-
sued) and by the governmental unit hav-
ing jurisdiction over the area in which any
facility to be financed by the issue is lo-
cated. Under § 147(f)(2)(B), an issue will
be treated as having been approved by any
governmental unit if the issue is approved
by the applicable elective representative
of the governmental unit after a public
hearing following reasonable public no-
tice, or by voter referendum of the gov-
ernmental unit.
.02 Section 1.147(f)-1(d)(1) provides
that public hearing means a forum pro-
viding a reasonable opportunity for inter-
ested individuals to express their views,
orally or in writing, on the proposed is-
sue of bonds and the location and nature
of the proposed project to be financed.
Section 1.147(f)-1(d)(2) provides that
the public hearing must be held in a lo-
cation that, based on the facts and cir-
cumstances, is convenient for residents
of the approving governmental unit.
The location is presumed convenient for
residents of the governmental unit if it
is located in the approving governmen-
tal unit’s capital or seat of government.
Further, if more than one governmental
unit is required to hold a public hearing,
the hearings may be combined as long
as the combined hearing affords the res-
idents of all of the participating govern-
mental units a reasonable opportunity to
be heard. The location of any combined
hearing is presumed convenient for res-
idents of each participating governmen-
tal unit if it is no farther than 100 miles
from the seat of government of each
participating governmental unit beyond
whose geographic jurisdiction the hear-
ing is conducted.
.03 In light of the COVID-19 pandem-
ic, state and local governmental units are
currently seeking alternatives to in-person
hearings held to meet the public approval
requirement. Comments received by the
Internal Revenue Service have requested
guidance on the use of telephone or in-
ternet-based meeting technology to hold
hearings. Section 4 of this revenue proce-
dure provides this guidance.
SECTION 3. SCOPE
This revenue procedure applies to hear-
ings held telephonically for the purpose of

Bulletin No. 2020–22 873 May 26, 2020
satisfying the public approval requirement
under § 147(f).
SECTION 4. APPLICATION
.01 Telephonic hearings permitted.
A hearing conducted during the period
described in section 4.02 of this revenue
procedure that is held by teleconference
accessible to the residents of the approv-
ing governmental unit by calling a toll-
free telephone number will be treated as
held in a location that, based on the facts
and circumstances, is convenient for resi-
dents of the approving governmental unit
for the purpose of § 1.147(f)-1(d)(2). Pro-
vided the requirements of the preceding
sentence are satisfied, governmental units
are not precluded from offering additional
access to the hearing by other telephone
numbers or by internet-based meeting
technology.
.02 Time period. The period described
in this section 4.02 is the period beginning
on May 4, 2020 and ending on December
31, 2020.
.03 Supplemental public notice. Sole-
ly for a public hearing for which public
notice that meets the requirements of §
1.147(f)-1(d)(4) was provided on or be-
fore May 11, 2020, the public notice will
continue to meet the requirements of
§ 1.147(f)-1(d)(4) if (1) the hearing is held
in the manner described in section 4.01 of
this revenue procedure and (2) the toll-free
telephone number required under section
4.01 of this revenue procedure is provided
at least 48 hours prior to the hearing by a
governmental website posting that meets
the requirements of § 1.147(f)-1(d)(4)(iii).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
May 4, 2020. Issuers may apply this rev-
enue procedure retroactively to public
hearings held telephonically before May
4, 2020, in response to the COVID-19
pandemic.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Johanna Som de Cerff of
the Office of the Associate Chief Counsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure, contact Ms. Som de Cerff at
202-317-6980 (not a toll-free number).
26 CFR 601.602: Tax forms and instructions.
(Also: Part I, §§1503(d); 1.1503(d)-1)
Rev. Proc. 2020-30
SECTION 1. PURPOSE
As a result of travel restrictions and
disruptions resulting from the global out-
break of the virus that causes COVID-19
(the “COVID-19 Emergency”), individ-
uals may temporarily conduct activities
in a country other than the United States
or in a territory of the United States (any
such country or territory, a “foreign coun-
try”) that would not otherwise have been
conducted there. Absent guidance such as
this revenue procedure, there may be un-
certainty regarding whether these activi-
ties give rise to a foreign branch separate
unit for purposes of the dual consolidated
loss rules under section 1503(d) or an ob-
ligation to file Form 8858 (“Information
Return of U.S. Persons With Respect to
Foreign Disregarded Entities (FDEs) and
Foreign Branches (FBs)”). This revenue
procedure provides that certain activities
are not taken into account for either of
these purposes.
SECTION 2. BACKGROUND
.01 Travel disruptions resulting from
the COVID-19 Emergency. Restric-
tions and other measures in response
to, and disruptions resulting from, the
COVID-19 Emergency may significantly
restrict the cross-border movement of an
individual, including an individual who
intended to return to the United States
from a foreign country. See generally
Rev. Proc. 2020-20, section 2.01 (dis-
cussing restrictions and disruptions that
may restrict the ability of an individual
to leave the United States). These trav-
el disruptions (collectively, “COVID-19
Emergency Travel Disruptions”) may
include transportation disruptions, shel-
ter-in-place orders, quarantines, border
closures, and recommendations to imple-
ment social distancing and limit exposure
to public spaces.
.02 Dual consolidated loss rules. In
general, the dual consolidated loss rules
under section 1503(d) limit the ability
of a domestic corporation to use a “dual
consolidated loss,” which is defined to in-
clude a net loss attributable to a “foreign
branch separate unit.” See §§1.1503(d)-
1(b)(4) and (5) and 1.1503(d)-4(b). A
foreign branch separate unit generally
means a business operation outside the
United States that, if carried on by a U.S.
person, would constitute a foreign branch
as defined in §1.367(a)-6T(g)(1). See
§1.1503(d)-1(b)(4)(i)(A).
.03 Form 8858. Form 8858 (“Informa-
tion Return of U.S. Persons With Respect
to Foreign Disregarded Entities (FDEs)
and Foreign Branches (FBs)”) is used by
certain U.S. persons that directly or indi-
rectly operate a foreign branch. Form 8858
and related schedules are used to satisfy the
reporting requirements of sections 6011,
6012, 6031, and 6038, and related regula-
tions. For purposes of Form 8858, a foreign
branch means a foreign branch as defined
in §1.367(a)-6T(g)(1), as well as a qualified
business unit as defined in §1.989(a)-1(b)
(2)(ii) (generally providing that activities
qualify as a qualified business unit if the
activities constitute a trade or business and
a separate set of books and records is main-
tained with respect to the activities). See
Instructions for Form 8858.
.04 Foreign branch definition. Sec-
tion 1.367(a)-6T(g)(1) defines a foreign
branch as activities that, based on all the
facts and circumstances, constitute an in-
tegral business operation carried on by a
U.S. person outside the United States. For
this purpose, evidence of the existence of a
foreign branch includes, but is not limited
to, the existence of a separate set of books
and records and the existence of an office
or other fixed place of business used by
employees or officers of the U.S. person
in carrying out business activities outside
the United States. Id. Further, activities
outside the United States are deemed to
constitute a foreign branch if the activities
constitute a permanent establishment un-
der the terms of a treaty between the Unit-
ed States and the foreign country in which
the activities are carried out. Id. Whether
a taxpayer has a permanent establishment
in a foreign country is determined under
the rules of the relevant U.S. income tax
treaty.

May 26, 2020 874 Bulletin No. 2020–22
SECTION 3. ACTIVITIES NOT
TAKEN INTO ACCOUNT IN
DETERMINING A FOREIGN
BRANCH SEPARATE UNIT OR
FORM 8858 FILING OBLIGATION
.01 In general. “Temporary activities,”
as defined in section 3.02 of this revenue
procedure, will not be taken into account
for purposes of determining whether a do-
mestic corporation has a foreign branch
separate unit, or whether a U.S. person is
required to file a Form 8858. As a result,
temporary activities will not give rise to a
foreign branch separate unit under section
1503(d). In addition, for purposes of Form
8858, temporary activities will not give rise
to a foreign branch (that is, either a foreign
branch as defined in §1.367(a)-6T(g)(1)
or a qualified business unit as defined in
§1.989(a)-1(b)(2)(ii)). Thus, temporary ac-
tivities will not give rise to an obligation of
a U.S. person to file a Form 8858, including
an obligation to file a Form 8858 by attach-
ing the Form 8858 to a Form 5471 with re-
spect to a controlled foreign corporation or
to a Form 8865 with respect to a controlled
foreign partnership.
.02 Temporary activities. The term
temporary activities means activities of
a taxpayer conducted by one or more in-
dividuals in a foreign country during any
single consecutive period of up to 60 cal-
endar days selected by the taxpayer within
calendar year 2020, to the extent that the
individual or individuals were temporarily
present in the foreign country during the
period and the activities would not have
been conducted in the foreign country but
for COVID-19 Emergency Travel Disrup-
tions with respect to the individual or indi-
viduals. For example, if an individual em-
ployed by or acting on behalf of a domestic
corporation traveled to a foreign country on
March 1, 2020, and as a result of restric-
tions implemented by, or recommenda-
tions of, the U.S. government or a foreign
government in response to the COVID-19
Emergency remained in the foreign coun-
try until April 27, 2020, then any activities
conducted by the individual on behalf of
the domestic corporation during such pe-
riod would constitute temporary activities,
to the extent that, but for the restrictions or
recommendations, the individual would
have left, and would not have conducted
the activities in, the foreign country.
.03 Documentation. A domestic corpo-
ration that for purposes of section 1503(d),
or a U.S. person that for purposes of Form
8858, treats activities as temporary activ-
ities should retain contemporaneous doc-
umentation to establish that the activities
are temporary activities (including to es-
tablish the up-to-60-day period described
in section 3.02 of this revenue procedure
during which the activities occur), and
should be prepared to provide the docu-
mentation to the Internal Revenue Service
upon request.
.04 No inference. No inference should
be drawn from this revenue procedure as
to whether activities of a taxpayer that are
conducted by one or more individuals in
a foreign country during calendar year
2020 and that would be temporary activ-
ities without regard to the 60-day limit
described in section 3.02 of this revenue
procedure give rise to a foreign branch as
defined in §1.367(a)-6T(g)(1) or a quali-
fied business unit as defined in §1.989(a)-
1(b)(2)(ii).
SECTION 4. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Shane McCarrick of the Of-
fice of Associate Chief Counsel (Interna-
tional). For further information regarding
this revenue procedure, contact Mr. Mc-
Carrick at (202) 317-6937 (not a toll-free
number).

Bulletin No. 2020–22 875 May 26, 2020
Part IV
Notice of Proposed
Rulemaking
Effect of Section 67(g) on
Trusts and Estates
REG-113295-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations clarifying that the
following deductions allowed to an es-
tate or non-grantor trust are not miscel-
laneous itemized deductions: costs paid
or incurred in connection with the ad-
ministration of an estate or non-grantor
trust that would not have been incurred
if the property were not held in the es-
tate or trust, the personal exemption of
an estate or non-grantor trust, the distri-
bution deduction for trusts distributing
current income, and the distribution de-
duction for estates and trusts accumulat-
ing income. Therefore, these deductions
are not affected by the suspension of the
deductibility of miscellaneous itemized
deductions for taxable years beginning
after December 31, 2017, and before Jan-
uary 1, 2026. The proposed regulations
also provide guidance on determining
the character, amount, and allocation of
deductions in excess of gross income
succeeded to by a beneficiary on the
termination of an estate or non-grantor
trust. These proposed regulations affect
estates, non-grantor trusts (including the
S portion of an electing small business
trust), and their beneficiaries.
DATES: Written or electronic comments
and requests for a public hearing must be
received by June 25, 2020.
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-113295-18) 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
limited personnel available to process
public comments that are submitted on
paper through mail. Until further notice,
any comments submitted on paper will be
considered to the extent practicable. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comment submit-
ted electronically, and to the extent practi-
cable on paper, to its public docket.
Send paper submissions to: CC:PA:LP-
D:PR (REG-113295-18), room 5203, In-
ternal Revenue Service, PO Box 7604,
Ben Franklin Station, Washington, D.C.
20044.
Requests for a public hearing must be sub-
mitted as prescribed in the “Comments
and Requests for a Public Hearing”
section.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Margaret Burow, (202) 317-
5279; concerning submissions of com-
ments and/or requests for a public hearing,
Regina Johnson, (202) 317-5177 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under sections 67
and 642 of the Internal Revenue Code
(Code).
I. Section 67(g)
Section 67(g) was added to the Code on
December 22, 2017, by section 11045(a)
of the Tax Cuts and Jobs Act, Public Law
115-97, 131 Stat. 2054, 2088 (2017) (Act).
Section 67(g) prohibits individual taxpay-
ers from claiming miscellaneous itemized
deductions for any taxable year beginning
after December 31, 2017, and before Jan-
uary 1, 2026.
For purposes of subtitle A of the Code,
an individual’s adjusted gross income is
defined in section 62(a) as gross income
minus the deductions listed in section
62(a)(1) through (21). Individuals then
may subtract itemized deductions from
adjusted gross income to arrive at taxable
income. See section 63(a). Section 63(d)
defines itemized deductions as deductions
allowable under chapter 1 of subtitle A of
the Code, other than (1) deductions allow-
able in arriving at adjusted gross income,
(2) deductions for personal exemptions
provided by section 151, and (3) the de-
duction under section 199A. A subset of
these itemized deductions, identified as
miscellaneous itemized deductions, are
subject to special rules. Prior to the Act,
miscellaneous itemized deductions were
allowable for any taxable year only if the
sum of such deductions exceeded two per-
cent of adjusted gross income. See section
67(a). Section 67(b) defines miscella-
neous itemized deductions as itemized de-
ductions other than those listed in section
67(b)(1) through (12).
II. Section 67(e)
Section 67(e) provides that an estate or
trust computes its adjusted gross income
in the same manner as that of an individ-
ual, except that the following addition-
al deductions are treated as allowable in
arriving at adjusted gross income: (1) the
deductions for costs which are paid or
incurred in connection with the admin-
istration of the estate or trust and which
would not have been incurred if the prop-
erty were not held in such estate or trust,
and (2) deductions allowable under sec-
tion 642(b) (concerning the personal ex-
emption of an estate or non-grantor trust),
section 651 (concerning the deduction for
trusts distributing current income), and
section 661 (concerning the deduction for
trusts accumulating income). According-
ly, section 67(e) removes the deductions
in section 67(e)(1) and (2) from the defi-
nition of itemized deductions under sec-
tion 63(d), and thus from the definition of
miscellaneous itemized deductions under

May 26, 2020 876 Bulletin No. 2020–22
section 67(b), and treats them as deduc-
tions allowable in arriving at adjusted
gross income under section 62(a). Section
67(e) further provides regulatory authority
to make appropriate adjustments in the ap-
plication of part I of subchapter J of chap-
ter 1 of the Code to take into account the
provisions of section 67.
On July 13, 2018, the Treasury Depart-
ment and the IRS issued Notice 2018-61,
2018-31 I.R.B. 278, announcing that pro-
posed regulations would be issued con-
cerning the effect of section 67(g) on the
deductibility of certain expenses described
in section 67(b) and (e) incurred by estates
and non-grantor trusts. The notice states
that regulations would clarify that expens-
es described in section 67(e) remain de-
ductible in determining the adjusted gross
income of an estate or non-grantor trust
during the taxable years in which section
67(g) applies.
III. Section 642(h)
Section 642(h) provides that if, on the
termination of an estate or trust, the estate
or trust has: (1) a net operating loss car-
ryover under section 172 or a capital loss
carryover under section 1212, or (2) for
the last taxable year of the estate or trust,
deductions (other than the deductions al-
lowed under section 642(b) (relating to
the personal exemption) or section 642(c)
(relating to charitable contributions)) in
excess of gross income for such year, then
such carryover or such excess shall be al-
lowed as a deduction, in accordance with
the regulations prescribed by the Secre-
tary of the Treasury or his delegate, to the
beneficiaries succeeding to the property of
the estate or trust.
Net operating loss and capital loss car-
ryovers under section 642(h)(1) are used
to compute adjusted gross income on the
return of a beneficiary, formerly referred
to as an above-the-line deduction. See
§1.642(h)-1. The excess deduction under
section 642(h)(2) is not, however, used
to compute adjusted gross income on the
return of a beneficiary. Instead, §1.642(h)-
2(a) provides that the section 642(h)(2)
excess deduction is “allowed only in com-
puting taxable income and must be taken
into account in computing the items of
tax preference of beneficiaries; it is not
allowed in computing adjusted gross in-
come.” As a result, under the existing reg-
ulations, excess deductions on termination
of an estate or trust are treated as a single
miscellaneous itemized deduction (sec-
tion 642(h)(2) excess deduction) of the
beneficiary subject to disallowance under
section 67(g). See also sections 63(d) and
67(b).
The section 642(h)(2) excess deduc-
tion may be comprised of several types
of deductions including: (1) those de-
ductions allowable in arriving at adjust-
ed gross income under sections 62 and
67(e); (2) itemized deductions under
section 63(d) allowable in computing
taxable income; and (3) miscellaneous
itemized deductions currently disallowed
under section 67(g). See section 67(b).
Notice 2018-61 explained that the Trea-
sury Department and the IRS were study-
ing whether section 67(e) deductions,
as well as other deductions not subject
to the limitations imposed by sections
67(a) and (g) in the hands of the estate
or trust, should continue to be treated as
miscellaneous itemized deductions when
included as a section 642(h)(2) excess
deduction.
Notice 2018-61 requested comments
regarding the effect of section 67(g) on
the ability of the beneficiary to deduct
amounts comprising the section 642(h)(2)
excess deduction on the termination of an
estate or trust considering section 642(h)
and §1.642(h)-2(a) and expressed the in-
tent to address this issue in regulations.
The Treasury Department and the IRS
requested comments regarding whether
the separate deductions comprising the
section 642(h)(2) excess deduction, such
as section 67(e) deductions, should be an-
alyzed separately when applying section
67.
The Treasury Department and the IRS
received comments addressing issues con-
cerning section 67(e), as well as excess
deductions on termination of an estate or
trust under section 642(h), as discussed in
more detail in the Explanation of Provi-
sions section of this preamble. All com-
ments were considered and are available
for public inspection. The Treasury De-
partment and the IRS continue to study is-
sues related to sections 67 and 642 that are
beyond the scope of these proposed regu-
lations and may discuss those comments
in future guidance.
Explanation of Provisions
I. Section 1.67-4
Commenters agreed with the state-
ments in Notice 2018-61 that deductions
described in section 67(e)(1) and (2) are
not miscellaneous itemized deductions
subject to disallowance by section 67(g)
and asked that the language in §1.67-
4 be amended to clarify this position.
This document contains proposed regu-
lations amending §1.67-4 to clarify that
section 67(g) does not deny an estate or
non-grantor trust (including the S portion
of an electing small business trust) a de-
duction for expenses described in section
67(e)(1) and (2) because such deductions
are allowable in arriving at adjusted gross
income and are not miscellaneous item-
ized deductions under section 67(b).
One commenter asked that the regu-
lations address the treatment of expenses
and deductions described in section 67(e)
(1) and (2) in determining an estate or
non-grantor trust’s income for alternative
minimum tax (AMT) purposes. The com-
menter requested that regulations provide
that such expenses and deductions con-
tinue to be deductible for AMT purposes.
The treatment of expenses and deductions
described in section 67(e) for purposes of
determining AMT is outside the scope of
these proposed regulations concerning the
effects of section 67(g); therefore, these
proposed regulations do not address the
AMT.
II. Regulations Under Section 642(h)
A. Character and Amount of the Excess
Deductions
Commenters opined that the Treasury
Department and the IRS have and should
exercise their regulatory authority not to
treat the section 642(h)(2) excess deduc-
tion as a single miscellaneous itemized
deduction. Commenters noted that the
regulations under §1.642(h)-2 were writ-
ten before the concept of miscellaneous
itemized deductions was added to the
Code and need to be updated.
In response to the request for comments
in Notice 2018-61 concerning analysis
of the separate deductions that comprise
the section 642(h)(2) excess deduction,

Bulletin No. 2020–22 877 May 26, 2020
commenters stated that the Treasury De-
partment and the IRS should provide reg-
ulations for the segregation of the section
642(h)(2) excess deduction into its com-
ponents to determine the character, com-
putation, and deductibility of costs. One
commenter said that failure to provide
for such segregation could result in either
the prolonged administration of estates or
trusts, or the sale of assets, to fully utilize
deductible costs at the estate or trust level.
Another commenter stated that the portion
of the section 642(h)(2) excess deduction
that qualifies as section 67(e)(1) expens-
es should remain deductible in arriving
at a beneficiary’s adjusted gross income
and that the remaining section 642(h)(2)
excess deduction should be treated as a
single itemized deduction, which would
avoid having to further separate out the
individual costs comprising the excess
deduction to determine deductibility at
the beneficiary level. Other commenters
proposed treating the section 642(h)(2)
excess deduction as allowable in full in
arriving at the beneficiary’s adjusted gross
income similar to the treatment of a sec-
tion 67(e) deduction.
Another commenter requested more
specific guidance on the character of the
excess deductions. The commenter rec-
ommended that the fiduciary be required
to separate deductions into at least three
categories: (1) deductions allowed in
arriving at adjusted gross income, (2)
non-miscellaneous itemized deductions,
and (3) miscellaneous itemized deduc-
tions. This commenter stated that the char-
acter of the deductions should not change
when succeeded to by the beneficiaries
on termination of the estate or trust. Fur-
ther, the commenter suggested that regu-
lations require that deductions subject to
limitation when claimed by a beneficia-
ry be separately identified (for example,
the limitation on state and local property
and income tax deductions under section
164(b)(6)). The commenter also request-
ed guidance on how each item of deduc-
tion offsets items of income of the estate
or trust in the final year of administration
for purposes of determining the character
of the excess deductions. The character of
the excess deductions will vary based on
how an executor or trustee allocates de-
ductions against the income of the estate
or trust. The same commenter suggested
that the rules under §1.652(b)-3, which
are used for determining the character of
distributable net income to beneficiaries
under sections 652 and 662, be used as a
model to determine how deductions are
allocated to offset income in the final year
of administration of the estate or trust for
purposes of determining the character of
the section 642(h)(2) excess deduction.
The Treasury Department and the IRS
adopt the more specific suggestion from
commenters of preserving the tax char-
acter of the three categories of expenses,
rather than the suggestion of grouping all
non-section 67(e) expenses together, to
allow for such expenses to be separately
stated and to facilitate reporting to bene-
ficiaries. Thus, under these proposed reg-
ulations, each deduction comprising the
section 642(h)(2) excess deduction retains
its separate character, specifically: as an
amount allowed in arriving at adjusted
gross income; a non-miscellaneous item-
ized deduction; or a miscellaneous item-
ized deduction. The character of these de-
ductions does not change when succeeded
to by a beneficiary on termination of the
estate or trust. Further, these proposed
regulations require that the fiduciary sep-
arately state (that is, separately identi-
fy) deductions that may be limited when
claimed by the beneficiary as provided in
the instructions to Form 1041, U.S. Income
Tax Return for Estates and Trusts and the
Schedule K-1 (Form 1041), Beneficiary’s
Share of Income, Deductions, Credit, etc.
The proposed regulations adopt the
suggestion that the principles under
§1.652(b)-3 be used to allocate each item
of deduction among the classes of income
in the year of termination for purposes
of determining the character and amount
of the excess deductions under section
642(h)(2). Section 1.652(b)-3(a) provides
that deductions directly attributable to one
class of income are allocated to that in-
come. Any remaining deductions that are
not directly attributable to a specific class
of income, as well as any deductions that
exceed the amount of directly attributable
income, may be allocated to any item of
income (including capital gains), but a
portion must be allocated to tax-exempt
income, if any. See §1.652(b)-3(b) and (d).
The proposed regulations provide that the
character and amount of each deduction
remaining after application of §1.652(b)-
3 comprises the excess deductions avail-
able to the beneficiaries succeeding to the
property as provided under section 642(h)
(2).
These proposed regulations incorpo-
rate a new example to illustrate the rule
for determining the character of excess
deductions in proposed §1.642(h)-2. The
proposed regulations also update the cur-
rent example in §1.642(h)-5 to account for
changes in the Code since this example
was last modified on June 16, 1965, in
T.D. 6828, 1965-2 C.B. 264.
B. Allocation of the Excess Deduction
Among Beneficiaries
One commenter requested guidance on
allocating the excess deductions among
multiple beneficiaries and suggested that
the allocation could be made generally, in
proportion to the entire amount of deduc-
tions, or specifically, based on the burden
the beneficiary bears as to each deduction.
The commenter noted, however, that a
specific allocation may increase fiduciary
reporting and IRS administrative burdens
and may not be worth the added complex-
ity.
Existing regulations under §1.642(h)-4
provide that carryovers and excess deduc-
tions to which section 642(h) applies are
allocated among the beneficiaries succeed-
ing to the property of an estate or trust pro-
portionately according to the share of each
in the burden of the loss or deduction. A
person who qualifies as a beneficiary suc-
ceeding to the property of an estate or trust
with respect to one amount and who does
not qualify with respect to another amount
is a beneficiary succeeding to the property
of the estate or trust as to the amount with
respect to which the beneficiary qualifies.
These proposed regulations do not change
the allocation method among beneficiaries
set forth in §1.642(h)-4.
One commenter asked that the Trea-
sury Department and the IRS address the
treatment of suspended deductions on the
termination of a trust, such as those under
section 163(d) for investment interest, and
asked that such suspended deductions be
treated in the same manner as the excess
deduction under section 642(h). While
the Treasury Department and the IRS ac-
knowledge the comment, addressing sus-
pended deductions under section 163(d)

May 26, 2020 878 Bulletin No. 2020–22
and other Code sections is beyond the
scope of these proposed regulations.
Proposed Applicability Date
These proposed regulations apply to
taxable years beginning after the date
these regulations are published as final
regulations in the Federal Register.
However, estates, non-grantor trusts,
and their beneficiaries may rely on these
proposed regulations under section 67
for taxable years beginning after De-
cember 31, 2017, and on or before the
date these regulations are published as
final regulations in the Federal Regis-
ter. Taxpayers may also rely on the pro-
posed regulations under section 642(h)
for taxable years of beneficiaries be-
ginning after December 31, 2017, and
on or before the date these regulations
are published as final regulations in the
Federal Register in which an estate or
trust terminates.
One commenter asked that the Trea-
sury Department and the IRS clarify that
expenses incurred during an estate’s fiscal
year beginning before January 1, 2018,
which properly are characterized as mis-
cellaneous itemized deductions, remain
deductible as such even if some of the
costs were paid after January 1, 2018.
Section 67(g) applies to taxable years be-
ginning after December 31, 2017; there-
fore section 67(g) would not apply to an
estate’s or trust’s taxable years beginning
before that date.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Treasury Department and the Office of
Management and Budget regarding re-
view of tax regulations. Therefore, a reg-
ulatory impact assessment is not required.
Pursuant to the Regulatory Flexibili-
ty Act (5 U.S.C. chapter 6), it is hereby
certified that these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that the
amount of time necessary to report the re-
quired information will be minimal in that
it requires fiduciaries of estates and trusts
to provide information already maintained
and reported to the IRS on Form 1041, on
the Schedule K-1 (Form 1041) issued to
beneficiaries. Moreover, it should take an
estate or trust no more than 2 hours to sat-
isfy the information requirement in these
regulations. Pursuant to section 7805(f) of
the Code, this notice of proposed rulemak-
ing has been submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its impact
on small businesses.
Paperwork Reduction Act
The collection of information relat-
ed to these proposed regulations under
section 642(h) is reported on Schedule
K-1 (Form 1041), Beneficiary’s Share
of Income, Deductions, Credits, etc.,
and has been reviewed in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) and approved by the Of-
fice of Management and Budget under
control number 1545-0092. Comments
concerning the collection of information
and the accuracy of estimated average
annual burden and suggestions for re-
ducing this burden should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Reg-
ulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Ser-
vice, IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the burden associ-
ated with this collection of information
must be received by July 10, 2020.
The collection of information in these
proposed regulations is in proposed
§1.642(h)-2(b)(1). The IRS requires this
information to ensure that excess deduc-
tions on an estate’s or trust’s termination
that are subject to additional applicable
limitations retain their character when tak-
en into account by beneficiaries on their
returns. The respondents will be estates,
trusts, and their fiduciaries.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information
unless it displays a valid control number
assigned by the Office of Management
and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by section 6103.
Comments and Requests for Public
Hearing
Before these proposed amendments
to the regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
to the IRS as prescribed in the preamble
under the “ADDRESSES” section. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. Any electronic comments
submitted, and to the extent practicable
any paper comments submitted, will be
made available at www.regulations.gov or
upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal 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 author of these pro-
posed regulations is Margaret Burow of
the Office of Associate Chief Counsel
(Passthroughs and Special Industries).
Other personnel from the Treasury De-
partment and the IRS, however, partici-
pated in their development.
Statement of Availability of IRS
Documents
The IRS notice cited in this document
is published in the Internal Revenue Bulle-
tin and available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at http://www.irs.
gov.

Bulletin No. 2020–22 879 May 26, 2020
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:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.67-4 and an entry for §§1.642(h)-2 and
1.642(h)-5 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.67-4 also issued under 26
U.S.C. 67(e).
* * * * *
Sections 1.642(h)-2 and 1.642(h)-5
also issued under 26 U.S.C. 642(h).
* * * * *
Par. 2. Section 1.67-4 is amended by
revising paragraph (a) and the heading of
paragraph (d) and adding a sentence at the
end of paragraph (d) to read as follows:
§1.67-4. Costs paid or incurred by es-
tates or non-grantor trusts.
(a) In general—(1) Section 67(e) de-
ductions. (i) An estate or trust (including
the S portion of an electing small business
trust) not described in §1.67-2T(g)(1)(i) (a
non-grantor trust) shall compute its adjust-
ed gross income in the same manner as an
individual, except that the following de-
ductions (Section 67(e) deductions) are al-
lowed in arriving at adjusted gross income:
(A) Costs that are paid or incurred in
connection with the administration of the
estate or trust, which would not have been
incurred if the property were not held in
such estate or trust; and
(B) Deductions allowable under sec-
tion 642(b) (relating to the personal ex-
emption) and sections 651 and 661 (relat-
ing to distributions).
(ii) Section 67(e) deductions are not
itemized deductions under section 63(d)
and are not miscellaneous itemized deduc-
tions under section 67(b). Therefore, sec-
tion 67(e) deductions are not disallowed
under section 67(g).
(2) Deductions subject to 2-percent
floor. A cost is not a section 67(e) deduc-
tion and thus is subject to both the 2-per-
cent floor in section 67(a) and section
67(g) to the extent that it is included in the
definition of miscellaneous itemized de-
ductions under section 67(b), is incurred
by an estate or non-grantor trust (includ-
ing the S portion of an electing small busi-
ness trust), and commonly or customarily
would be incurred by a hypothetical indi-
vidual holding the same property.
* * * * *
(d) Applicability date. * * * Paragraph
(a) of this section applies to taxable years
beginning after [date these regulations are
published as final in the Federal Register].
Par. 3. Section 1.642(h)-2 is amended
by:
1. Revising paragraph (a).
2. Redesignating paragraph (b) as para-
graph (d) and adding a heading for newly
redesignated paragraph (d).
3. Redesignating paragraph (c) as para-
graph (e) and adding a heading for newly
redesignated paragraph (e).
4. Adding new paragraphs (b), (c), and
(f).
The revisions and additions read as fol-
lows:
§1.642(h)-2 Excess deductions on ter-
mination of an estate or trust.
(a) In general. If, on the termination
of an estate or trust, the estate or trust has
for its last taxable year deductions (other
than the deductions allowed under section
642(b) (relating to the personal exemp-
tion) or section 642(c) (relating to chari-
table contributions)) in excess of gross in-
come, the excess deductions are allowed
under section 642(h)(2) as items of deduc-
tion to the beneficiaries succeeding to the
property of the estate or trust.
(b) Character and amount of excess
deductions—(1) Character. The character
and amount of the excess deductions on
termination of an estate or trust will be de-
termined as provided in this paragraph (b).
Each deduction comprising the excess de-
ductions under section 642(h)(2) retains,
in the hands of the beneficiary, its charac-
ter (specifically, as allowable in arriving at
adjusted gross income, as a non-miscella-
neous itemized deduction, or as a miscel-
laneous itemized deduction) while in the
estate or trust. An item of deduction suc-
ceeded to by a beneficiary remains subject
to any additional applicable limitation un-
der the Code and must be separately stated
if it could be so limited, as provided in the
instructions to Form 1041, U.S. Income
Tax Return for Estates and Trusts and the
Schedule K-1 (Form 1041), Beneficiary’s
Share of Income, Deductions, Credit, etc.,
or successor forms.
(2) Amount. The amount of the excess
deductions in the final year is determined
as follows:
(i) Each deduction directly attributable
to a class of income is allocated in accor-
dance with the provisions in §1.652(b)-
3(a);
(ii) To the extent of any remaining in-
come after application of paragraph (b)(2)
(i) of this section, deductions are allocat-
ed in accordance with the provisions in
§1.652(b)-3(b) and (d); and
(iii) Deductions remaining after the
application of paragraph (b)(2)(i) and (ii)
of this section comprise the excess deduc-
tions on termination of the estate or trust.
These deductions are allocated to the ben-
eficiaries succeeding to the property of
the estate of or trust in accordance with
§1.642(h)-4.
(c) Year of termination—(1) In general.
The deductions provided for in paragraph
(a) of this section are allowable only in the
taxable year of the beneficiary in which or
with which the estate or trust terminates,
whether the year of termination of the es-
tate or trust is of normal duration or is a
short taxable year.
(2) Example. Assume that a trust dis-
tributes all its assets to B and terminates on
December 31, Year X. As of that date, it has
excess deductions of $18,000, all charac-
terized as allowable in arriving at adjusted
gross income under section 67(e). B, who
reports on the calendar year basis, could
claim the $18,000 as a deduction allowable
in arriving at B’s adjusted gross income for
Year X. However, if the deduction (when
added to B’s other deductions) exceeds B’s
gross income, the excess may not be car-
ried over to any year subsequent to Year X.
(d) Net operating loss carryovers. * * *
(e) Items included in net operating loss
or capital loss carryovers. * * *
(f) Applicability date. Paragraphs (a)
and (b) of this section apply to taxable
years beginning after [date these regula-
tions are published as final in the Federal
Register].
Par. 4. Section 1.642(h)-5 is revised to
read as follows:

May 26, 2020 880 Bulletin No. 2020–22
§1.642(h)-5 Examples.
The following examples illustrate the
application of section 642(h).
(a) Example 1. Computations under section
642(h) when an estate has a net operating loss—
(1) Facts. On January 31, 2020, A dies leaving a
will that provides for the distribution of all of A’s
estate equally to B and an existing trust for C. The
period of administration of the estate terminates on
December 31, 2020, at which time all the property
of the estate is distributed to B and the trust. For tax
purposes, B and the trust report income on a calen-
dar year basis. During the period of administration,
the estate has the following items of income and
deductions:
Table 1 to Paragraph (a)(1)
Income
Taxable interest .....................................................................$2,500
Business income .....................................................................3,000
Total income ................................................................5,500
Table 2 to Paragraph (a)(1)
Deductions
Business expenses (including administrative expense allocable to
business income) .....................................................................5,000
Administrative expenses not allocable to business income that
would not have been incurred if property had not been held in
a trust or estate (section 67(e) deductions) ................................................9,800
Total deductions ............................................................14,800
(2) Computation of net operating loss. (i) Under
section 642(h)(1), B and the trust are each allocated
$1,000 of the $2,000 unused net operating loss car-
ryover of the terminated estate in the taxable year,
with the allowance of any net operating loss and loss
carryover to B and the trust determined under section
172. The amount of the net operating loss carryover
is computed as follows:
Table 3 to Paragraph (a)(2)(i)
Gross income ......................................................................$5,500
Total deductions ....................................................................14,800
Less adjustment under section 172(d)(4) (allowable
non-business expenses ($9,800) limited to
non-business income ($2,500)) .......................................................7,300
Deductions as adjusted ................................................................7,500
Net operating loss ............................................................2,000
(ii) Neither B nor the trust can carry back any of
the net operating loss of A’s estate made available to
them under section 642(h)(1).
(3) Section 642(h)(2) excess deductions. The
$7,300 of deductions not taken into account in deter-
mining the net operating loss of the estate are excess
deductions on termination of the estate under section
642(h)(2). Under §1.642(h)-2(b)(1), such deductions
retain their character as section 67(e) deductions.
Under §1.642(h)-4, B and the trust each are allocated
$3,650 of excess deductions based on B’s and the
trust’s respective shares of the burden of each cost.
(4) Consequences for C. The net operating loss
carryovers and excess deductions are not allowable
directly to C, the trust beneficiary. To the extent the
distributable net income of the trust is reduced by the
carryovers and excess deductions, however, C may
receive an indirect benefit from the carryovers and
excess deductions.
(b) Example 2. Computations under section
642(h)(2)—(1) Facts. D dies in 2019 leaving an es-
tate of which the residuary legatees are E (75%) and
F (25%). The estate’s income and deductions in its
final year are as follows:
Table 4 to Paragraph (b)(1)
Income
Dividends .........................................................................$3,000
Taxable Interest ........................................................................500
Rents ..............................................................................2,000
Capital Gain ........................................................................1,000
Total Income ................................................................6,500
Table 5 to Paragraph (b)(1)
Deductions
Section 67(e) deductions:
Probate fees .........................................................................1,500
Estate tax preparation fees .............................................................8,000
Legal fees ..........................................................................4,500
Total Section 67(e) deductions .................................................14,000
Itemized deductions:
Real estate taxes on rental property ......................................................3,500
Total deductions .............................................................17,500

Bulletin No. 2020–22 881 May 26, 2020
(2) Determination of character. Pursuant to
§1.642(h)-2(b)(2), the character and amount of the ex-
cess deductions is determined by allocating the deduc-
tions among the estate’s items of income as provided
under §1.652(b)-3. Under §1.652(b)-3(a), $2,000 of real
estate taxes is allocated to the $2,000 of rental income.
In the exercise of the executor’s discretion pursuant to
§1.652(b)-3(b) and (d), D’s executor allocates $4,500 of
section 67(e) deductions to the remaining $4,500 of in-
come. As a result, the excess deductions on termination
of the estate are $11,000, consisting of $9,500 of section
67(e) deductions and $1,500 of itemized deductions.
(3) Allocations among beneficiaries. Pursuant
to §1.642(h)-4, the excess deductions are allocated
in accordance with E’s (75 percent) and F’s (25 per-
cent) interests in the residuary estate. E’s share of the
excess deductions is $8,250, consisting of $7,125 of
section 67(e) deductions and $1,125 of real estate
taxes. F’s share of the excess deductions is $2,750,
consisting of $2,375 of section 67(e) deductions and
$375 of real estate taxes. The real estate taxes on
rental property must be separately stated as provided
in §1.642(h)-2(b)(1).
(c) Applicability date. This section is
applicable to taxable years beginning after
[date these regulations are published as
final in the Federal Register].
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on May
7, 2020, 4:15 p.m., and published in the issue of the
Federal Register for May 11, 2020, 85 F.R. 27693)

Bulletin No. 2020–22 i May 26, 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.

May 26, 2020 ii Bulletin No. 2020–22
Numerical Finding List
1
Bulletin 2020–22
AOD:
2020-1, 2020-12 I.R.B. 521
2020-2, 2020-14 I.R.B. 558
2020-3, 2020-17 I.R.B. 663
Announcements:
2020-1, 2020-5 I.R.B. 552
2020-2, 2020-15 I.R.B. 609
2020-3, 2020-15 I.R.B. 655
2020-4, 2020-17 I.R.B. 667
2020-5, 2020-19 I.R.B. 796
Notices:
2020-1, 2020-2 I.R.B. 290
2020-2, 2020-3 I.R.B. 327
2020-3, 2020-3 I.R.B. 330
2020-4, 2020-4 I.R.B. 380
2020-5, 2020-4 I.R.B. 380
2020-6, 2020-7 I.R.B. 411
2020-7, 2020-7 I.R.B. 411
2020-8, 2020-7 I.R.B. 415
2020-9, 2020-7 I.R.B. 417
2020-10, 2020-10 I.R.B. 456
2020-11, 2020-11 I.R.B. 492
2020-12, 2020-11 I.R.B. 495
2020-13, 2020-11 I.R.B. 502
2020-14, 2020-13 I.R.B. 555
2020-15, 2020-14 I.R.B. 559
2020-16, 2020-14 I.R.B. 559
2020-17, 2020-15 I.R.B. 590
2020-18, 2020-15 I.R.B. 590
2020-19, 2020-15 I.R.B. 591
2020-20, 2020-16 I.R.B. 660
2020-21, 2020-16 I.R.B. 660
2020-22, 2020-17 I.R.B. 664
2020-23, 2020-18 I.R.B. 742
2020-26, 2020-18 I.R.B. 744
2020-27, 2020-19 I.R.B. 778
2020-28, 2020-19 I.R.B. 781
2020-30, 2020-19 I.R.B. 781
2020-31, 2020-19 I.R.B. 783
2020-32, 2020-21 I.R.B. 837
2020-34, 2020-21 I.R.B. 838
2020-36, 2020-21 I.R.B. 840
2020-25, 2020-22 I.R.B. 863
2020-29, 2020-22 I.R.B. 864
2020-33, 2020-22 I.R.B. 868
Proposed Regulations:
REG-107431-19, 2020-3 I.R.B. 332
REG-122180-18, 2020-3 I.R.B. 342
REG-100956-19, 2020-4 I.R.B. 383
Proposed Regulations:—Continued
REG-125710-18, 2020-5 I.R.B. 554
REG-132741-17, 2020-10 I.R.B. 458
REG-100814-19, 2020-12 I.R.B. 542
REG-132529-17, 2020-12 I.R.B. 667
REG-106013-19, 2020-18 I.R.B. 757
REG-117138-17, 2020-19 I.R.B. 796
REG-106864-18, 2020-20 I.R.B. 805
REG-113295-18, 2020-22 I.R.B. 875
Revenue Procedures:
2020-1, 2020-01 I.R.B. 1
2020-2, 2020-01 I.R.B. 107
2020-3, 2020-01 I.R.B. 131
2020-4, 2020-01 I.R.B. 148
2020-5, 2020-01 I.R.B. 241
2020-7, 2020-01 I.R.B. 281
2020-9, 2020-02 I.R.B. 294
2020-10, 2020-02 I.R.B. 295
2020-11, 2020-06 I.R.B. 406
2020-8, 2020-08 I.R.B. 447
2020-12, 2020-11 I.R.B. 511
2020-13, 2020-11 I.R.B. 515
2020-17, 2020-12 I.R.B. 539
2020-18, 2020-15 I.R.B. 592
2020-14, 2020-16 I.R.B. 661
2020-22, 2020-18 I.R.B. 745
2020-23, 2020-18 I.R.B. 749
2020-24, 2020-18 I.R.B. 750
2020-26, 2020-18 I.R.B. 753
2020-25, 2020-19 I.R.B. 785
2020-28, 2020-19 I.R.B. 792
2020-20, 2020-20 I.R.B. 801
2020-27, 2020-20 I.R.B. 803
2020-29, 2020-21 I.R.B. 859
2020-19, 2020-22 I.R.B. 871
2020-21, 2020-22 I.R.B. 872
2020-30, 2020-22 I.R.B. 873
Revenue Rulings:
2020-1, 2020-3 I.R.B. 296
2020-2, 2020-3 I.R.B. 298
2020-3, 2020-3 I.R.B. 409
2020-4, 2020-4 I.R.B. 444
2020-5, 2020-5 I.R.B. 454
2020-6, 2020-11 I.R.B. 490
2020-7, 2020-12 I.R.B. 522
2020-9, 2020-15 I.R.B. 563
2020-10, 2020-15 I.R.B. 565
2020-8, 2020-19 I.R.B. 775
2020-11, 2020-19 I.R.B. 776
Treasury Decisions:
9886, 2020-2 I.R.B. 285
9887, 2020-3 I.R.B. 302
9888, 2020-3 I.R.B. 306
Treasury Decisions:— Continued
9891, 2020-8 I.R.B. 419
9892, 2020-8 I.R.B. 439
9893, 2020-9 I.R.B. 449
9895, 2020-15 I.R.B. 565
9896, 2020-18 I.R.B. 681
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2020–22 iii May 26, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–22
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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