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HIGHLIGHTS Bulletin No. 2020–21 OF THIS ISSUE May 18, 2020 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 obtained on a group basis for subordinate organizations af- filiated with and under the general supervision or control of a central organization. Rev. Proc. 2020-29, page 859. This procedure modifies Rev. Proc. 2020-1 temporarily to allow for the electronic submission of requests for letter INCOME TAX rulings, closing agreements, determination letters, and information letters issued by the Associate Chief Counsel Notice 2020-32, page 837. (Corporate), Associate Chief Counsel (Financial Institutions This notice provides guidance regarding the nonde- and Products), Associate Chief Counsel (Income Tax and ductibility of costs that are the subject of loan for- Accounting), Associate Chief Counsel (International), Asso- giveness under section 1106 of the Coronavirus Aid, ciate Chief Counsel (Passthroughs and Special Industries), Associate Chief Counsel (Procedure and Administration), Relief, and Economic Security Act (CARES Act), Public and Associate Chief Counsel (Employee Benefits, Exempt Law 116-136, 134 Stat. 281 (March 27, 2020). Organizations, and Employment Taxes). This procedure also contains revised procedures for determination letters Notice 2020-34, page 838. issued by the IRS Large Business and International Division. This notice provides the applicable reference price for qual- ified natural gas production from qualified marginal wells during taxable years beginning in calendar year 2019 for EXEMPT ORGANIZATIONS the purpose of determining the marginal well production credit under §45I. The applicable reference price for taxable Notice 2020-36, page 840. years beginning in calendar year 2019 is $2.55 per 1,000 This notice contains a proposed revenue procedure that cubic feet. The notice also provides the credit amount used sets forth updated procedures under which recognition of for the purpose of determining the marginal well production exemption from federal income tax for organizations de- credit. The credit amount for taxable years beginning in cal- scribed in § 501(c) of the Internal Revenue Code may be endar year 2019 is $0.08 per 1,000 cubic feet. Finding Lists begin on page ii. The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and en- force the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument against reaching the same conclusions in other cases unless of the Commissioner of Internal Revenue for announcing of- the facts and circumstances are substantially the same. 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 The Bulletin is divided into four parts as follows: general interest. It is published weekly. Part I.—1986 Code. It is the policy of the Service to publish in the Bulletin all sub- This part includes rulings and decisions based on provisions stantive rulings necessary to promote a uniform application of the Internal Revenue Code of 1986. 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- Part II.—Treaties and Tax Legislation. wise indicated. Procedures relating solely to matters of inter- This part is divided into two subparts as follows: Subpart A, nal management are not published; however, statements of Tax Conventions and Other Related Items, and Subpart B, internal practices and procedures that affect the rights and Legislation and Related Committee Reports. duties of taxpayers are published. Part III.—Administrative, Procedural, and Miscellaneous. Revenue rulings represent the conclusions of the Service To the extent practicable, pertinent cross references to these on the application of the law to the pivotal facts stated in subjects are contained in the other Parts and Subparts. Also the revenue ruling. In those based on positions taken in rul- included in this part are Bank Secrecy Act Administrative ings to taxpayers or technical advice to Service field offices, Rulings. Bank Secrecy Act Administrative Rulings are issued identifying details and information of a confidential nature are by the Department of the Treasury’s Office of the Assistant deleted to prevent unwarranted invasions of privacy and to Secretary (Enforcement). comply with statutory requirements. Part IV.—Items of General Interest. Rulings and procedures reported in the Bulletin do not have the This part includes notices of proposed rulemakings, disbar- force and effect of Treasury Department Regulations, but they ment and suspension lists, and announcements. 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 The last Bulletin for each month includes a cumulative index procedures, the effect of subsequent legislation, regulations, for the matters published during the preceding months. These court decisions, rulings, and procedures must be considered, monthly indexes are cumulated on a semiannual basis, and are and Service personnel and others concerned are cautioned 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 18, 2020 Bulletin No. 2020–21 Part III Notice 2020-32 the 8-week “covered period” beginning on II. Deductibility of Eligible Section 1106 the covered loan’s origination date (each, Expenses an eligible section 1106 expense): (1) pay- PURPOSE roll costs, (2) any payment of interest on Neither section 1106(i) of the CARES any covered mortgage obligation, (3) any Act nor any other provision of the CARES This notice provides guidance regard- payment on any covered rent obligation, Act addresses whether deductions other- ing the deductibility for Federal income and (4) any covered utility payment. See wise allowable under the Code for pay- tax purposes of certain otherwise deduct- section 1106(a) (defining the terms “cov- ments of eligible section 1106 expenses ible expenses incurred in a taxpayer’s ered period”, “covered mortgage obliga- by a recipient of a covered loan are al- trade or business when the taxpayer re- tion,” “covered rent obligation,” “covered lowed if the covered loan is subsequent- ceives a loan (covered loan) pursuant to utility payment,” and “payroll costs”), (b) ly forgiven under section 1106(b) of the the Paycheck Protection Program under (regarding eligibility for covered loan for- CARES Act as a result of the payment of section 7(a)(36) of the Small Business giveness), and (g) (regarding covered loan those expenses. This Notice addresses the Act (15 U.S.C. 636(a)(36)). Specifically, forgiveness decisions). However, section effect of covered loan forgiveness on the this notice clarifies that no deduction is 1106(d) of the CARES Act provides that deductibility of payments of eligible sec- allowed under the Internal Revenue Code the amount of the covered loan forgive- tion 1106 expenses. (Code) for an expense that is otherwise ness is reduced if, during the covered pe- deductible if the payment of the expense riod, (1) the average number of full-time III. Summary of Relevant Law results in forgiveness of a covered loan equivalent employees of the recipient is pursuant to section 1106(b) of the Corona- reduced as compared to the number of Section 161 of the Code provides that, virus Aid, Relief, and Economic Security full-time employees in a specified base in computing taxable income under sec- Act (CARES Act), Public Law 116-136, period, or (2) the salary or wages of cer- tion 63 of the Code, there shall be allowed 134 Stat. 281, 286-93 (March 27, 2020) tain employees is reduced by more than 25 as deductions the items specified in part and the income associated with the for- percent as compared to the last full quar- VI, subchapter B, chapter 1 of the Code giveness is excluded from gross income ter before the covered period. In addition, (for example, sections 162 and 163). How- for purposes of the Code pursuant to sec- pursuant to an interim final rule issued by ever, section 161 of the Code provides tion 1106(i) of the CARES Act. the Small Business Administration, no that the allowance of these deductions is more than 25 percent of the amount for- subject to the exceptions provided in part BACKGROUND given can be attributable to non-payroll IX, subchapter B, chapter 1 of the Code. costs. See Q&A 2.o. in Part III of the in- These exceptions include section 265 of I. Paycheck Protection Program terim final rule, Business Loan Program the Code. See also section 261. Temporary Changes; Paycheck Protection In general, section 162 of the Code The Paycheck Protection Program was Program, Docket No. SBA-2020-0015, 85 provides for a deduction for all ordinary established by section 1102 of the CARES Fed. Reg. 20811, 20813-20814 (April 15, and necessary expenses paid or incurred Act. Under the Paycheck Protection Pro- 2020). during the taxable year in carrying on any gram, a recipient of a covered loan may Section 1106(i) of the CARES Act ad- trade or business. Covered rent obliga- use the proceeds to pay (1) payroll costs, dresses certain Federal income tax con- tions, covered utility payments, and pay- (2) certain employee benefits relating to sequences resulting from covered loan roll costs consisting of wages and benefits healthcare, (3) interest on mortgage obli- forgiveness. Specifically, that subsection paid to employees comprise typical trade gations, (4) rent, (5) utilities, and (6) inter- provides that, for purposes of the Code, or business expenses for which a deduc- est on any other existing debt obligations.

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