This revenue procedure will update Rev. Proc. 2020-54, 2020-53 I.R.B. 1806, and identifies circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. This revenue procedure will apply to any income tax return filed on 2021 tax forms for a taxable year beginning in 2021 and to any income tax return filed in 2022 on 2021 tax forms for short taxable years beginning in 2022.

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.

(Also: Part 1, §§ 6662, 6694, 1.6662-4, 1.6694-2)

Notice 2021-65 provides guidance regarding the retroactive termination of the employee retention credit under IRC section 3134 in the fourth calendar quarter of 2021 for employers who are not recovery startup businesses. This notice applies to employers that paid wages after September 30, 2021 and received an advance payment of the employee retention credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth calendar quarter of 2021, but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth calendar quarter of 2021.

Revocation of IRC 501(c)(3) Organizations for failure to meet the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A).

These proposed regulations would provide that minimum essential coverage does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the Families First Coronavirus Response Act, would provide an automatic extension of time for providers of minimum essential coverage to furnish individual statements regarding such coverage, and would provide an alternative method for furnishing individual statements when the shared responsibility payment amount is zero. Additionally, the proposed regulations would provide an automatic extension of time for applicable large employers to furnish statements relating to health insurance that the employer offers to its full-time employees.

This revenue procedure provides safe harbors for when an obligation described in § 42(h)(4)(A) of the Internal Revenue Code or an allocation of a low-income housing credit dollar amount is more than de minimis for purposes of the associated revenue ruling providing guidance on whether the 4 percent applicable percentage under § 42(b)(3) applies to certain low-income buildings.

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.

(Also §§ 42, 141, 142, and 146, and 26 CFR 1.42-8, 1.42-13, and 1.150-1.)

Rev. Proc. 2021-53 provides temporary guidance regarding the treatment of certain stock distributions by publicly offered real estate investment trusts (REITs) and publicly offered regulated investment companies (RICs). Specifically, in recognition of the need for liquidity as a result of the impact of the COVID-19 pandemic, this Rev. Proc. modifies the safe harbor provided in Rev. Proc. 2017-45, 2017-35 I.R.B. 216, by temporarily reducing the minimum required aggregate amount of cash that distributee shareholders may receive to not less than 10 percent of the total distribution in order for § 301 of the Code, by reason of § 305(b) of the Code, to apply to such distribution. This temporary modification is effective solely with respect to distributions declared by a publicly offered REIT or publicly offered RIC on or after November 1, 2021, and on or before June 30, 2022.

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)

This revenue ruling provides guidance regarding whether the 4 percent applicable percentage (4 percent floor) under § 42(b)(3) of the Internal Revenue Code applies to the low-income buildings described in the revenue ruling. This revenue ruling holds that a draw-down bond that is issued prior to 2021 (with draws occurring in a subsequent year), a de minimis § 42(h)(4)(A) obligation issued after December 31, 2020, or a de minimis allocation of low-income housing credit dollar amount occurring after December 31, 2020, do not cause a building to be subject to the minimum 4 percent floor under § 42(b)(3).

(Also §§ 141, 142, and 146, and 26 CFR 1.42-8, 1.42-13, and 1.150-1).

(1) Does the minimum 4 percent applicable percentage (4 percent floor) under § 42(b)(3) of the Internal Revenue Code (Code) apply to the building in Situation 1, which is financed in part with a draw-down exempt facility bond issue that was issued in 2020 and on which one or more draws are taken after December 31, 2020?

(2) Does the 4 percent floor under § 42(b)(3) of the Code apply to the building in Situation 2, which is financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with proceeds of a different exempt facility bond issue that is issued in a de minimis amount after December 31, 2020?

(3) Does the 4 percent floor under § 42(b)(3) of the Code apply to the building in Situation 3, which receives an allocation of housing credit dollar amount in 2020 and a de minimis additional allocation after December 31, 2020?

Situation 1: Draw-down loan with issue date in 2020. Agency is a State agency with authority to issue exempt facility bonds to support qualified residential rental projects within the meaning of § 142(d) of the Code. Taxpayer X (Conduit Borrower¹) and Agency entered into an agreement that Agency would provide exempt facility bond financing to the Conduit Borrower to construct a new building for a qualified residential rental project. In 2020, Agency borrowed pursuant to a draw-down loan that qualifies as an issue of exempt facility bonds (the Loan), and the proceeds of the Loan are to be used by the Conduit Borrower to construct the building. Agency plans to make multiple draws under the Loan over the course of the construction, depending on the Conduit Borrower’s financing needs at the time. In 2020, Agency drew an amount under the Loan that exceeded the lesser of $50,000 or 5 percent of the issue price. In subsequent years, Agency draws, and the Conduit Borrower uses, the remaining amounts available under the issue to construct the building. All of the draws on the Loan (that is, the bonds of the issue) are taken into account in applying the volume cap for private activity bonds set forth in § 146 of the Code. The qualified low-income building is placed in service after December 31, 2020. Any low-income housing credits earned with respect to the building meet the requirements of § 42(h)(4)(A) for not counting against the State’s housing credit ceiling.

Situation 2: Post-2020 issuance of a de minimis amount of exempt facility bonds. The facts are the same as in Situation 1, except that instead of borrowing pursuant to a draw-down loan that qualifies as an issue of exempt facility bonds, Agency issued an issue of exempt facility bonds in 2020 to finance the Conduit Borrower’s construction of the new building for the qualified residential rental project. In a subsequent year, Agency issues a different issue of exempt facility bonds (not pursuant to a draw-down loan), in a de minimis amount, that the Conduit Borrower similarly uses to finance construction of the building.

Situation 3: Additional allocation of a de minimis housing credit dollar amount after 2020. Agency is a housing credit agency that allocates housing credit dollar amounts under § 42(h). In 2020, Agency and Taxpayer Y entered into a binding agreement. Under the agreement, Agency agreed to allocate to Y a housing credit dollar amount for the acquisition of an existing building and an additional housing credit dollar amount for the rehabilitation of the building into a qualified low-income building. In 2020, Agency made allocations both of the amount related to the acquisition and of the additional amount related to the rehabilitation. Each allocation qualified for an exception under § 42(h)(1)(E), and thus each was a valid carryover allocation. As a result of those qualifications for an exception under § 42(h)(1)(E), the State’s housing credit ceiling for 2020 was reduced by the amounts of the two carryover allocations. Y completes the acquisition and rehabilitation of the building into a qualified low-income building and places the building in service after December 31, 2020. After 2020, but before the building is placed in service, Agency makes an additional allocation of housing credit dollar amount related to the acquisition of the existing building. The amount of this additional allocation is de minimis and reduces Agency’s ceiling for housing credit dollar amounts for the year after 2020 in which the allocation is made.

Section 42(a) provides that the amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building.

Section 42(b)(1) provides rules to determine the applicable percentage. Section 42(b)(1)(A) defines the term “applicable percentage” with respect to any building as the appropriate percentage prescribed by the Secretary of the Treasury or her delegate (Secretary) for the earlier of (i) the month in which the building is placed in service, or (ii) at the election of the taxpayer—(I) the month in which the taxpayer and the housing credit agency enter into an agreement with respect to the building (which is binding on the agency, the taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building, or (II) in the case of any building to which § 42(h)(4)(B) applies, the month in which the tax-exempt obligations are issued. A month may be elected under § 42(b)(1)(A)(ii) only if the election is made not later than the fifth day after the close of such month. Such an election, once made, is irrevocable.

Section 42(b)(2), which was enacted by section 3002(a)(1) of the Housing Assistance Tax Act of 2008 (2008 Act), Division C of the Housing and Economic Recovery Act of 2008, Public Law 110-289, 122 Stat. 2654, 2879 (July 30, 2008), provides a minimum credit rate of 9 percent for new buildings that are not federally subsidized (9 percent floor). Section 3002(c) of the 2008 Act provides that the 9 percent floor under § 42(b)(2) applies to buildings placed in service after July 30, 2008.

Notice 2008-106, 2008-49 IRB 1239, provides guidance on application of the 9 percent floor. The notice clarifies that the 9 percent floor applies even if, before the 2008 Act, a taxpayer had made an irrevocable election under § 42(b)(1)(A)(ii) to apply to a building an applicable percentage that is less than 9 percent. The notice also concludes that: “Notwithstanding the application of the 9 percent floor, the housing credit dollar amount allocated to a project shall not exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period. See 42(m)(2).”

Section 201(a) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182, 3056 (December 27, 2020), added to the Code a new § 42(b)(3), which provides a 4 percent minimum credit rate for buildings to which the 9 percent floor in § 42(b)(2) does not apply and which are placed in service by the taxpayer after December 31, 2020. The amendments to § 42(b) made by section 201(a) of the Act “apply to (1) any building which receives an allocation of housing credit dollar amount after December 31, 2020, and (2) in the case of any building any portion of which is financed with an obligation described in section 42(h)(4)(A), any such building if any such obligation which so finances such building is issued after December 31, 2020.” Section 201(b)(1) and (2) of the Act.

Section 42(d)(2)(B) provides that, except as provided in § 42(f)(5), a credit is allowable under § 42(a) by reason of rehabilitation expenditures that are treated as a new building under § 42(e) with respect to the building. Section 42(e)(1) provides that if rehabilitation expenditures are paid or incurred by the taxpayer with respect to any building and if the expenditures meet the criteria in § 42(e)(2) and (3), those expenditures are treated as a separate new building.

Under § 42(h)(1), the amount of the credit determined under § 42(a) for any taxable year with respect to any building must not exceed the housing credit dollar amount allocated to the building. Section 42(h)(1)(E) provides general rules for carryover allocations of the low-income housing credit. A carryover allocation is defined in § 1.42-6(a)(1) as an allocation that meets the requirements of § 42(h)(1)(E) (relating to carryover allocations for single buildings) or § 42(h)(1)(F) (relating to carryover allocations for multiple-building projects).

Section 42(h)(4)(A) provides an exception to the requirement in § 42(h)(1). Thus, a building within the exception can earn low-income housing credits without having received any allocation. The exception applies to the portion of any credit allowed under § 42(a) that is attributable to a building’s eligible basis financed by an obligation the interest on which is exempt from tax under § 103 of the Code if: (i) the obligation is taken into account under § 146; and (ii) principal payments on the financing are applied within a reasonable period to redeem obligations the proceeds of which were used to provide such financing or such financing is refunded under § 146(i)(6).

Section 42(m)(2)(D) provides that § 42(h)(4) does not apply to any project unless the governmental unit which issued the bonds makes a determination under rules similar to the rules provided for in § 42(m)(2)(A) and (B). Section 42(m)(2)(A) provides that a housing credit dollar amount allocated to a project cannot exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified low-income housing credit project throughout the credit period. Under § 42(m)(2)(B) and § 1.42-17(a)(3), when a housing credit agency makes a determination under § 42(m)(2)(A), it must consider a number of factors including: (i) the sources and uses of funds and total financing planned for the project; (ii) any proceeds or receipts expected to be generated by reason of tax benefits; (iii) the percentage of housing credit dollar amount used for project costs other than the cost of intermediaries; and (iv) the reasonableness of the developmental and operational costs of the project.

Section 1.42-17(a)(4)(i) describes the timing of the housing credit agency determinations and certifications under § 1.42-17(a)(3). They must be made at (A) the time of the application for the housing credit dollar amount; (B) the time of the allocation of the housing credit dollar amount; and (C) the date the building is placed in service. Section 1.42-17(a)(5) provides that, for the determination at the time the building is placed in service, the taxpayer must submit a schedule of project costs. Section 1.42-17(a)(6), provides that a project qualifying under § 42(h)(4) (concerning bond-financed projects) is not entitled to any credit unless the governmental unit that issued the bonds, or the housing credit agency responsible for issuing the Form(s) 8609, Low-Income Housing Credit Allocation and Certification, to the project, makes determinations under rules similar to the rules in § 1.42-17(a)(3), (4), and (5).

Section 142 provides rules for exempt facility bonds. Section 142(a) provides that an exempt facility bond is any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to support certain categories of building projects, one of which is a qualified residential rental project. Section 142(d) generally defines a “qualified residential rental project” as any project for residential rental property if, at all times during the qualified project period and disregarding that part of the building in which such property is located that is used for purposes other than residential rental purposes, either (1) 20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income, or (2) 40 percent or more of the residential units in such project are occupied by individuals whose income is 60 percent or less of area median gross income.

Under § 1.150-1(c)(4)(i), bonds issued pursuant to a draw-down loan are treated as part of a single issue. The issue date of the issue is the first date on which the aggregate draws under the loan exceed the lesser of $50,000 or 5 percent of the issue price.

In a determination of whether the 4 percent floor applies, all the buildings described in the FACTS of this revenue ruling satisfy the requirement of § 42(b)(3) that a building be placed in service after 2020. Each of these three situations, however, raises the question whether the post-2020 events in that situation meet the relevant portions of the effective date provisions in section 201(b) of the Act, which require a post-2020 issuance of a tax-exempt obligation or a post-2020 allocation of housing credit dollar amount.

An evaluation of the effect of these post-2020 events must consider the apparent reasons for the requirement in section 201(b) of the Act of certain post-2020 actions by State or local governments. For example, when section 3002 of the 2008 Act added the 9 percent floor, the effective date required only that a building be placed in service after July 30, 2008, the applicable date of enactment. Section 42(b)(3) also expressly provides such a placed-in-service effective date for the 4 percent floor. However, section 201(b) of the Act adds an additional requirement—application of the 4 percent floor to a qualified low-income building is also dependent on the existence of some post-2020 government action with respect to the building. The apparent reason for the additional effective date criteria in section 201(b) of the Act can be inferred by comparing buildings that satisfy only the placed-in-service requirement with those satisfying both that requirement and section 201(b) of the Act.

Considered in this way, section 201(b) of the Act functions to prevent a windfall of credits in situations where, prior to enactment of the 4 percent floor, the taxpayer had substantially completed the structuring of the transaction. Governmental determinations of financial feasibility under § 42(m)(2)(A) must occur not later than an allocation of housing credit dollar amounts or an issuance of exempt facility bonds for a qualified residential rental project. Because the date of enactment of the Act occurred so late in 2020, absence of a post-2020 allocation or issuance means that the low-income building had been planned, and its financial feasibility had been assessed, without taking the 4 percent floor into account. Absent the restriction in section 201(b) of the Act, buildings would receive unnecessary and unanticipated credits on arrangements that had been structured and vetted to function without them. Thus, the requirements in section 201(b) of the Act seem to treat the possibility of those unplanned for credits as if they are a windfall to be avoided.

In Situation 1, the building is financed by a draw-down loan. Section 1.150-1(c)(4)(i) treats bonds issued pursuant to a draw-down loan as part of a single issue. Further, under § 1.150-1(c)(4)(i), the issue date of the issue in Situation 1 was in 2020 because amounts drawn exceeded the lesser of $50,000 or 5 percent of the issue price. This issue date of the issue in Situation 1 does not change under § 1.150-1(c)(4)(i) because a subsequent draw (that is, a bond) occurs after 2020.

The language of section 201(b)(2) of the Act refers to the issue date of the “obligation which so finances such building.” Thus, the question here is whether this language refers to the issue or to the individual draws. Interpreting the “obligation” as the issue rather than the draws is consistent with the apparent intent of the effective date provisions in the Act, as discussed above. Although individual draws occur at various times, the maximum amount of the financing provided by the Loan was finalized before 2021. For example, in Situation 1, if the financing structure had been finalized during September 2020, the applicable percentage for that month was 3.07 percent. See Table 4 of Rev. Rul. 2020-16, 2020-37 IRB 550, 551. Hence, this is a situation where the transaction was structured assuming an applicable percentage that is not increased by a 4 percent floor. Accordingly, if the post-2020 draws under the 2020 issue caused the 4 percent floor to apply, the result would be a windfall of credits that were not taken into account when the transaction was structured.

Thus, in Situation 1, because the Loan (that is, the draw-down issue of bonds) was issued in 2020, the applicable percentage of the building is determined without regard to the 4 percent floor. The applicable percentage of the building is the amount determined under § 42(b)(1)(B) and (C) for the month determined under § 42(b)(1)(A).

Unlike the circumstances with the Loan in Situation 1 (which was a draw-down loan), the post-2020 bond proceeds in Situation 2 were from a post-2020 issuance of an exempt facility bond issue, and each post-2020 bond is part of that post-2020 issue. Thus, the Situation 2 analysis does not depend on whether the language of section 201(b)(2) of the Act refers to the issue date of a bond issue or to the issue date of the individual bonds.

In Situation 2, the Conduit Borrower receives financing from two issues of exempt facility bonds—one issued in 2020 and one issued in a later year. The latter issue, however, is only a de minimis amount. See Rev. Proc. 2021-43, page 882 this bulletin, providing a safe harbor for determining whether an exempt facility bond issue that is issued after December 31, 2020, is more than de minimis for purposes of this revenue ruling. Because the building was placed in service after 2020, whether the 4 percent floor applies depends on the effect, if any, of the post-2020 de minimis issuance. That is, the determination of whether the 4 percent floor applies depends on whether the post-2020 de minimis issuance satisfies the effective date requirement in section 201(b)(2) of the Act that a building be financed by a § 42(h)(4)(A) obligation issued after December 31, 2020.

As discussed in connection with Situation 1, section 201(b) of the Act functions to prevent windfalls. It is necessary, therefore, to consider whether a de minimis post-2020 financing could create a windfall of tax credits. When an issue of exempt facility bonds is issued in a non-de-minimis amount after 2020, any concern over a windfall of credits is lessened. In those situations, because the post-2020 issuance is not de minimis, the transaction is less likely to have been entirely structured prior to the enactment of the 4 percent floor. Further, a greater portion of the total credits generated by applying the 4 percent floor to the building would be expected to result from basis financed by the post-2020 issuance. Thus, it is consistent with the apparent intent of section 201(b) for the 4 percent floor to apply to buildings whose financing includes both pre-2021 exempt facility bonds and a non-de-minimis amount of exempt facility bonds that are part of an issue that is issued after December 31, 2020.

The situation is different, however, if a de minimis amount of bonds constitute a building’s only exempt facility bonds issued as part of an issue issued after 2020. In this case, Situation 2 aligns more closely with a building whose only tax-exempt financing was issued before 2021 (even if it is placed in service after 2020). If a de minimis amount of post-2020 tax-exempt bond financing caused the project to qualify for the 4 percent floor, then that project would receive substantially more credit than an economically equivalent project all of whose tax-exempt financing was issued pre-2021.

Further, application of the 4 percent floor would produce an increase in credits not commensurate with the de minimis post-2020 financing. Except for the de minimis subsequent financing, the increased credit available by virtue of the 4 percent floor would be based on assets whose ability to yield low-income housing credits was the result of their pre-2021 financing. There is no indication that Congress contemplated such an incongruous result in drafting the effective date provisions in section 201(b) of the Act.

Moreover, the application of the 4 percent floor would create an undesirable incentive for taxpayers if a de minimis amount of post-2020 financing were held to satisfy section 201(b)(2) of the Act. Under this approach, taxpayers might seek nominal additional financing even in situations where the additional financing is not necessary for the financial feasibility of the building. Any such taxpayer efforts would increase complexity when housing credit agencies and bond issuers evaluate the financial feasibility of projects for purposes of § 42(m)(2)(D).

In addition, such a holding would undercut § 42(m)(2) and § 1.42-17, which guide housing credit agencies and bond issuers when they determine whether an amount is needed for the financial feasibility of a project. Those requirements reduce any incentive to seek de minimis amounts that are not necessary for the project’s financial feasibility. There is no indication that Congress meant to interpret the effective date requirement to incentivize taxpayers to seek unnecessary amounts. This result is avoided by interpreting section 201(b)(2) of the Act as describing only non-de-minimis post-2020 financing.

Thus, in Situation 2, the de minimis amount of exempt facility bonds that are part of an issue issued after 2020 fail to cause the 4 percent floor to apply to the building. See Rev. Proc. 2021-43, page 882 this bulletin, providing a safe harbor for determining whether an exempt facility bond issue that is issued after December 31, 2020, is more than de minimis for purposes of this revenue ruling. Because the 4 percent floor does not apply, the applicable percentage is the amount determined under § 42(b)(1)(B) and (C) for the month determined under § 42(b)(1)(A).

This analysis would be the same for a building that is financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with a portion of the proceeds of a different exempt facility bond issue that is issued in a non-de-minimis amount after December 31, 2020 (primarily to finance one or more other buildings) when the portion of the proceeds of the exempt facility bond issue issued after December 31, 2020, that finances the building represents a de minimis portion of the building’s overall exempt facility bond financing.

Finally, when the 4 percent floor applies to a building, it applies to any 30-percent-present-value applicable percentage used to compute low-income housing credits for the building. In these cases, therefore, it is irrelevant whether an election had been made under § 42(b)(1)(A)(ii) to use a pre-placed-in-service month for determining the applicable percentage. Cf. Notice 2008-106 (reaching a similar result when the 9 percent floor was enacted).

In Situation 3, Agency makes no more than a de minimis allocation of housing credit dollar amount after 2020. Although the acquisition of the building was completed after 2020, and the building was placed in service after 2020, the transaction was structured in 2020, and at that time, Y and Agency did not take the 4 percent floor into account. Arguably, the windfall effect with an allocation is less than in a building financed with exempt facility bonds. The credits in this context are limited to those allocated by a housing credit agency. By contrast, in projects financed by § 42(h)(4)(A) obligations, the credits are limited only by what the qualified basis can generate. Nevertheless, the requirements of section 201(b)(1) of the Act manifest the same legislative intent as section 201(b)(2) of the Act and should therefore be interpreted consistently. Thus, the principles that govern de minimis amounts of bonds are equally applicable to de minimis allocations. See Rev. Proc. 2021-43, page 882 this bulletin, providing a safe harbor for determining whether an allocation of housing credit dollar amounts that is made after December 31, 2020, is more than de minimis for purposes of this revenue ruling. Accordingly, the 4 percent floor does not apply to the building described in Situation 3. Y must use the applicable percentage determined under § 42(b)(1)(B) and (C) for the month determined under § 42(b)(1)(A).

As described above, when the 4 percent floor applies to a building, it applies to any 30-percent-present-value applicable percentage used to compute low-income housing credits for the building. In these cases, therefore, it is irrelevant whether an election had been made under § 42(b)(1)(A)(ii) to use a pre-placed-in-service month for determining the applicable percentage.

(1) Situation 1. The 4 percent floor under § 42(b)(3) does not apply to the building in Situation 1, which is financed in part with a draw-down exempt facility bond issue that was issued in 2020 and on which one or more draws are taken after December 31, 2020.

(2) Situation 2. The 4 percent floor under § 42(b)(3) does not apply to the building in Situation 2, which is financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with proceeds of a different exempt facility bond issue that is issued in a de minimis amount after December 31, 2020.

(3) Situation 3. The 4 percent floor under § 42(b)(3) does not apply to the building in Situation 3, which receives an allocation of housing credit dollar amount in 2020 and a de minimis additional allocation after December 31, 2020.

The analysis in this revenue ruling applies only for purposes of determining whether the 4 percent floor under § 42(b)(3) applies to a building.

The principal authors of this revenue ruling are Dillon Taylor and Michael Torruella Costa of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling, contact Dillon Taylor or Michael Torruella Costa at (202) 317-4137 (not a toll-free number).

¹ A governmental issuer may serve as a conduit between investors who buy bonds, such as exempt facility bonds, and a person (like Taxpayer X) that receives the bond proceeds and is solely responsible for debt service payments. That person is referred to as the “conduit borrower.” See § 1.150-1(b) of the Income Tax Regulations.

This notice modifies Notice 2021-49, 2021-34 IRB 316, and Notice 2021-24, 2021-18 IRB 1122, to implement statutory changes made by the Infrastructure Investment and Jobs Act (Infrastructure Act), Pub. L. 117-58, 135 Stat. 429 (2021), enacted November 15, 2021.

Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. 116-136, 134 Stat. 281 (2020), as originally enacted, provides for an employee retention credit for eligible employers, including tax-exempt organizations, that pay qualified wages, including certain health plan expenses, to some or all employees after March 12, 2020, and before January 1, 2021. Section 206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (2020), adopted retroactive amendments and technical changes to section 2301 of the CARES Act for qualified wages paid after March 12, 2020, and before January 1, 2021, primarily expanding eligibility for certain employers to claim the credit. Section 207 of the Relief Act, effective for calendar quarters beginning after December 31, 2020, further amended section 2301 of the CARES Act to extend the application of the employee retention credit to qualified wages paid after December 31, 2020, and before July 1, 2021, and to modify the calculation of the credit amount for qualified wages paid during that time. Section 9651 of the American Rescue Plan Act of 2021 (ARP), Pub. L. 117-2, 135 Stat. 4, enacted section 3134 of the Internal Revenue Code (Code), effective for calendar quarters beginning after June 30, 2021, and provides an employee retention credit for wages paid after June 30, 2021, and before January 1, 2022.

Prior to the enactment of section 3134, section 2301 of the CARES Act, as amended by sections 206 and 207 of the Relief Act, provided that an employer may be eligible for the employee retention credit with respect to a calendar quarter only if (i) the operation of the employer’s trade or business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 19 (COVID-19),¹ or (ii)(a) for calendar quarters in 2020, the employer experiences a significant decline in gross receipts, or (b) for calendar quarters in 2021, the employer experiences a decline in gross receipts.² Section 3134(c)(2) of the Code added “recovery startup businesses” as a third category of employers that are eligible for the employee retention credit for qualified wages paid in the third and fourth calendar quarters of 2021.

Section 3134 also modified the employee retention credit in other respects for qualified wages paid in the third and fourth calendar quarters of 2021. Section 3134(j)(2) limited the amount of the employee retention credit that could be advanced and which employers could request advance payments. In addition, section 3134(j)(3)(B) allows for the direct assessment of certain erroneous refunds of advanced portions of the credit. It provides that if a small eligible employer specified in section 3134(j)(2) receives excess advance payments of the credit, then the taxes imposed under section 3111(b), or so much of the taxes imposed under section 3221(a) as are attributable to the rate in effect under section 3111(b), as applicable, for the calendar quarter are increased by the amount of the excess advance payments. Section 3134(m)(3) provides that the Secretary will issue such forms, instructions, regulations, and other guidance as are necessary to prevent the avoidance of the purposes of the limitations under section 3134.

On March 31, 2020, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) issued Notice 2020-22, 2020-17 IRB 664, which provides penalty relief under section 6656 to employers entitled to certain refundable tax credits provided under the Families First Coronavirus Response Act (Families First Act), Pub. L. 116-127, 134 Stat. 178 (2020) and the CARES Act for an employer’s failure to timely deposit Employment Taxes³ with the IRS.⁴ On April 13, 2021, the Treasury Department and the IRS issued Notice 2021-24, which extended the penalty relief provided under Notice 2020-22 to employers claiming certain other credits under ARP, including the employee retention credit under section 3134. On August 4, 2021, the Treasury Department and the IRS issued Notice 2021-49, providing guidance on the employee retention credit under section 3134. Notice 2021-49 amplified Notice 2021-20,⁵ which provides guidance on the employee retention credit under section 2301 of the CARES Act, as amended by section 206 of the Relief Act, and Notice 2021-23,⁶ which provides guidance on the employee retention credit under section 2301 of the CARES Act, as amended by section 207 of the Relief Act.⁷

On September 10, 2021, the Treasury Department and the IRS published TD 9953, 86 FR 50,637, setting forth temporary regulations on the Recapture of Excess Employment Tax Credits under the American Rescue Plan Act of 2021. The temporary regulations, in part, authorize the assessment and collection of any erroneous refund of certain credits, including the employee retention credit under section 3134 of the Code, in the normal course of processing applicable employment tax returns.

Section 80604 of the Infrastructure Act amended section 3134(n) of the Code to provide that the employee retention credit under section 3134 shall apply only to wages paid after June 30, 2021, and before October 1, 2021 (or, in the case of wages paid by an eligible employer which is a recovery startup business, January 1, 2022). Additionally, effective for calendar quarters beginning after September 30, 2021, section 80604 of the Infrastructure Act amended the definition of recovery startup business under section 3134(c)(5) of the Code to remove the requirement that a recovery startup business not otherwise be an eligible employer due to a full or partial suspension of operations or a decline in gross receipts.

In accordance with the amendments made by section 80604 of the Infrastructure Act to section 3134(n) of the Code, employers, other than recovery startup businesses, are not entitled to the employee retention credit for wages paid on or after October 1, 2021. The Infrastructure Act amendments require the modification of guidance related to the employee retention credit for the fourth calendar quarter of 2021.

A. Termination of Employee Retention Credit for Employers other than Recovery Startup Businesses

Section I of Notice 2021-49 provides that the rules set forth in Notice 2021-20 and Notice 2021-23 addressing CARES Act provisions that are the same as those provided under section 3134 of the Code continue to apply for the third and fourth calendar quarters of 2021. Due to the amendments made by section 80604 of the Infrastructure Act, rules for determining whether an employer is an eligible employer due to a full or partial suspension of operations (section III.D. of Notice 2021-20) or a decline in gross receipts (section III.C. of Notice 2021-23) no longer apply for the fourth calendar quarter of 2021. Any rules based upon the determination that an employer is an eligible employer due to a full or partial suspension of operations or a decline in gross receipts, such as rules relating to “severely financially distressed employers” discussed in section III.E. of Notice 2021-49, also no longer apply for the fourth calendar quarter of 2021. Further, references in Notice 2021-49 to eligible employers claiming the employee retention credit for qualified wages paid in the fourth calendar quarter of 2021 no longer apply unless the employer is a recovery startup business.

The rules related to recovery startup businesses in section III.D. of Notice 2021-49 include the requirement that a recovery startup business not otherwise be an eligible employer due to a full or partial suspension of operations or a decline in gross receipts. Section 80604 of the Infrastructure Act removes this requirement for the fourth calendar quarter of 2021. Accordingly, this requirement no longer applies to recovery startup businesses in the fourth calendar quarter of 2021.

All other rules set forth in Notice 2021-20 and Notice 2021-23 addressing CARES Act provisions that are the same as those provided under section 3134 of the Code continue to apply for the fourth calendar quarter of 2021 to recovery startup businesses. Similarly, all other rules set forth in Notice 2021-49 continue to apply for the fourth calendar quarter of 2021 to recovery startup businesses.

B. Repayment of Advance Payments for Employers other than Recovery Startup Businesses

Employers may have requested advance payments of the employee retention credit for wages paid in the fourth calendar quarter of 2021 prior to the enactment of the Infrastructure Act. An advance payment of any portion of the employee retention credit to a taxpayer in excess of the amount to which the taxpayer is entitled is an erroneous refund that the employer must repay. Accordingly, if an employer requested and received an advance payment of the employee retention credit for wages paid in the fourth calendar quarter of 2021, and the employer is not a recovery startup business, the employer is not eligible for an employee retention credit and must repay the amount of the advance. Employers who need to repay these excess advance payments of the employee retention credit must do so by the due date for the applicable employment tax return that includes the fourth calendar quarter of 2021. Employers should refer to the instructions to the applicable employment tax form for additional information. Failure to repay the advance payment by the due date of the applicable employment tax return may result in the imposition of failure to pay penalties under section 6651.

C. Failure to Deposit Penalties for Employers other than Recovery Startup Businesses

Prior to the enactment of the Infrastructure Act, in accordance with the guidance provided in Notice 2021-24, employers may have reduced deposits of Employment Taxes by the amount of the employee retention credit the employer anticipated for the fourth calendar quarter of 2021 based on a full or partial suspension of operations or a decline in gross receipts. Due to the termination of the employee retention credit for wages paid in the fourth calendar quarter of 2021 for employers that are not recovery startup businesses, the IRS will no longer waive failure to deposit penalties for employers that reduce deposits in anticipation of the employee retention credit after December 20, 2021, unless the employer is a recovery startup business.

For deposits due on or before December 20, 2021, with respect to wages paid on or after October 1, 2021, but before January 1, 2022, an employer that is not a recovery startup business will not be subject to a penalty under section 6656 for failing to deposit Employment Taxes for the fourth calendar quarter of 2021 if—

If an employer does not qualify for relief under this Notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief pursuant to section 6656(a).

Notice 2021-49 is modified as provided in this notice. Notice 2021-24 is modified as provided in this notice.

Any collection of information associated with this notice has been submitted to the Office of Management and Budget for review under OMB control number 1545-0029 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). An agency may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a valid OMB control number.

The principal authors of this notice are Danchai Mekadenaumporn of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) and Michael A. Franklin of the Office of the Associate Chief Counsel (Procedure and Administration), although other Treasury Department and IRS officials participated in its development. For further information on the provisions of this notice, please contact Mr. Mekadenaumporn at 202-317-6798 (not a toll-free call) or Mr. Franklin at 202-317-6844 (not a toll-free number).

¹ The rules for determining whether an employer’s trade or business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 are set forth in section III.D. of Notice 2021-20, 2021-11 IRB 922 (guidance on the employee retention credit under section 2301 of the CARES Act, as amended by section 206 of the Relief Act).

² The rules for determining whether an employer experienced a significant decline in gross receipts in 2020 are set forth in section III.E. of Notice 2021-20. The rules for determining whether an employer experienced a decline in gross receipts in the first or second calendar quarters of 2021 are set forth in section III.C. of Notice 2021-23, 2021-16 IRB 1113 (guidance on the employee retention credit under section 2301 of the CARES Act, as amended by section 207 of the Relief Act).

³ For purposes of this notice, “Employment Taxes” means withheld income taxes, taxes under the Federal Insurance Contributions Act (FICA), and taxes under the Railroad Retirement Tax Act (RRTA).

⁴ Relief from the failure to deposit penalty imposed by section 6656 is provided to the extent the amounts not deposited are equal to or less than the anticipated amount of refundable tax credits to which the employer is entitled under the Families First Act and CARES Act and for which no advance payment was sought.

⁵ Supra note 1.

⁶ Supra note 2.

⁷ Notice 2021-49 also provides additional guidance on issues regarding the employee retention credit under both section 3134 and section 2301 of the CARES Act, as amended by sections 206 and 207 of the Relief Act.

⁸ If the amounts initially retained in anticipation of the employee retention credit total $100,000 or more with or without any additional liability on that date, then the employer is subject to the $100,000 One-Day rule of § 31.6302-1(c)(3) (also referred to as the “Next-Day Deposit Rule”).

This revenue procedure provides safe harbors for determining whether an exempt facility bond issue that is issued after December 31, 2020, or an allocation of a housing credit dollar amount that is made after December 31, 2020, is more than de minimis for purposes of Holdings 2 and 3 of Rev. Rul. 2021-20, page 875 this bulletin. That ruling addresses whether the minimum 4 percent applicable percentage (4 percent floor) under § 42(b)(3) of the Internal Revenue Code applies to a building.

.01 Section 42(a) provides that the amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building.

.02 Section 42(b) describes rules to determine the applicable percentage.

.03 Section 42(b)(2) provides a minimum credit rate of 9 percent for non-federally subsidized new buildings.

.04 Section 201(a) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182, 3056 (December 27, 2020), amended § 42(b) by redesignating § 42(b)(3) as § 42(b)(4) and adding a new § 42(b)(3).

.05 Section 42(b)(3), as added by section 201(a) of the Act, provides that in the case of any new or existing building to which § 42(b)(2) does not apply and which is placed in service by the taxpayer after December 31, 2020, the applicable percentage cannot be less than 4 percent. The amendments to § 42(b) in section 201(a) of the Act apply to (1) any building which receives an allocation of housing credit dollar amount after December 31, 2020, and (2) in the case of any building any portion of which is financed with an obligation described in § 42(h)(4)(A), any such building if any such obligation which so finances such building is issued after December 31, 2020.

.06 Rev. Rul. 2021–20 addresses three situations. Situation 2 of the ruling describes a building that is financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with proceeds of a different exempt facility bond issue that is issued in a de minimis amount in a subsequent year. (Generally, exempt facility bonds are bonds issued pursuant to § 142 of the Code, and the interest on these bonds is exempt from tax under § 103 of the Code provided certain requirements are met.) Situation 3 of the ruling describes a building that receives an allocation of housing credit dollar amount in 2020 and a de minimis additional allocation in a subsequent year.

.07 Holdings 2 and 3 of Rev. Rul. 2021–20 provide that a de minimis amount of exempt facility bonds issued, or a de minimis allocation made, after December 31, 2020, does not cause the 4 percent floor under § 42(b)(3) to apply to a building.

This revenue procedure applies to taxpayers with buildings that are eligible for the low-income housing credit under § 42 and that must determine whether the 4 percent floor under § 42(b)(3) applies to their buildings.

.01 For purposes of Situation 2 of Rev. Rul. 2021–20, an exempt facility bond issue issued after December 31, 2020, that finances the building in question is not de minimis if, as of the latest issue date of any such issue, the aggregate amount of the post-2020 obligations is at least 10 percent of the total amount of all § 42(h)(4)(A) obligations that finance the building. For this section 4.01, an issue is taken into account only to the extent that it finances the particular building in question (such as the building described in Situation 2 of Rev. Rul. 2021–20).

.02 For purposes of Situation 3 of Rev. Rul. 2021–20, an allocation of housing credit dollar amounts to a building made after December 31, 2020, is not de minimis if the allocation is at least 10 percent of the total allocations to the building that have been made on or before the date of the allocation in question. For this section 4.02, all allocations to a building of housing credit dollar amounts that reduce a State’s housing credit ceiling for one or more years after 2020 are treated as one allocation that was made to the particular building in question on the latest date of these post-2020 allocations.

This revenue procedure applies to buildings financed with exempt facility bond issues that are issued after December 31, 2020, and to buildings to which allocations of housing credit dollar amounts are made after December 31, 2020.

The principal authors of this revenue procedure are Dillon Taylor and Michael Torruella Costa, Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue procedure, please contact Dillon Taylor or Michael Torruella Costa on (202) 317-4137 (not a toll-free number).

This revenue procedure updates Rev. Proc. 2020-54, 2020-53 I.R.B. 1806, and identifies circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. This revenue procedure does not apply with respect to any other penalty provisions (including but not limited to the disregard provisions of the section 6662(b)(1) accuracy-related penalty, the section 6662(i) increased accuracy-related penalty in the case of nondisclosed noneconomic substance transactions, and the section 6662(b)(7) and (j) increased accuracy-related penalty in the case of undisclosed foreign financial asset understatements). If this revenue procedure does not include an item or position, disclosure is adequate with respect to that item or position only if made on a properly completed Form 8275 or 8275-R, as appropriate, attached to the return for the year or to a qualified amended return. See Treas. Reg. § 1.6664-2(c) for information about qualified amended returns.

This revenue procedure applies to any income tax return filed on 2021 tax forms for a taxable year beginning in 2021, and to any income tax return filed in 2022 on 2021 tax forms for short taxable years beginning in 2022.

The background section has been changed to state that the section 6662 penalty rate is generally 20 percent. The addition of “generally” acknowledges that the penalty rate is higher in some circumstances, although this revenue procedure does not apply in those circumstances. In addition, editorial changes have been made throughout this revenue procedure. Changes have been made in order to update the taxable years to which this revenue procedure applies. No substantive changes have been made.

.01 If section 6662 applies to any portion of an underpayment of tax required to be shown on a return, an amount generally equal to 20 percent of the portion of the underpayment is added to the tax. Under section 6662(b)(2), the penalty applies to the portion of any underpayment of tax that is attributable to a substantial understatement of income tax. The penalty rate increases to 40 percent in the case of gross valuation misstatements under section 6662(h), nondisclosed noneconomic substance transactions under section 6662(i), or undisclosed foreign financial asset understatements under section 6662(j).

.02 Generally, there is a substantial understatement of income tax if the amount of the understatement exceeds the greater of (i) 10 percent of the amount of tax required to be shown on the return for the taxable year or (ii) $5,000. Section 6662(d)(1). Section 6662(d)(1)(C) provides a special rule for taxpayers claiming a section 199A deduction. In the case of any taxpayer who claims any deduction allowed under section 199A for the taxable year, there is a substantial understatement of income tax if the amount of the understatement exceeds the greater of (i) 5 percent of the amount of tax required to be shown on the return for the taxable year or (ii) $5,000. Section 6662(d)(1)(B) provides a special rule for corporations. A corporation (other than an S corporation or a personal holding company) has a substantial understatement of income tax if the amount of the understatement exceeds the lesser of (i) 10 percent of the tax required to be shown on the return for a taxable year (or, if greater, $10,000) or (ii) $10,000,000. Generally, an understatement is the excess of the amount of tax required to be shown on the return for the taxable year over the amount of the tax that is shown on the return reduced by any rebate, where the excess is determined without regard to items to which the reportable transaction understatement penalty under section 6662A applies. Section 6662(d)(2)(A). For purposes of determining whether an understatement is substantial, the understatement determined under the general rule is increased by the aggregate amount of any reportable transaction understatements relating to the return. Section 6662A(e)(1)(A).

.03 In the case of an item not attributable to a tax shelter, if the taxpayer has a reasonable basis for the tax treatment of the item, the amount of the understatement is reduced by the portion of the understatement attributable to the item with respect to which the relevant facts affecting the item’s tax treatment are adequately disclosed in the return or in a statement attached to the return. Section 6662(d)(2)(B)(ii).

.04 Section 6694(a) imposes a penalty on a tax return preparer who prepares a return or claim for refund reflecting an understatement of liability due to an “unreasonable position” if the tax return preparer knew (or reasonably should have known) of the position. A position (other than a position with respect to a tax shelter or a reportable transaction to which section 6662A applies) is generally treated as unreasonable unless (i) there is or was substantial authority for the position, or (ii) the position was properly disclosed in accordance with section 6662(d)(2)(B)(ii)(I) and had a reasonable basis. If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is treated as unreasonable unless it is reasonable to believe that the position would more likely than not be sustained on the merits. See Notice 2009-5, 2009-3 I.R.B. 309, for interim penalty compliance rules for tax shelter transactions.

.05 In general, this revenue procedure provides guidance for determining when disclosure by return is adequate for purposes of section 6662(d)(2)(B)(ii) and section 6694(a)(2)(B). For purposes of this revenue procedure, the taxpayer must furnish all required information in accordance with the applicable forms and instructions, and the money amounts entered on these forms must be verifiable.

.06 This revenue procedure may apply to a return for a fiscal tax year that begins in 2021 and ends in 2022. This revenue procedure may also apply to a short year return for a period beginning in 2022 if the return is to be filed before the 2022 forms are available. (Note that individuals are generally not put in this position.) The most frequent situation in which a short year arises is when filing a decedent’s final return for a fractional part of a year. In that situation, the 2022 form will be available because the final return is due the fifteenth day of the fourth month following the close of the 12-month period that began with the first day of such fractional part of the year (meaning the due date is not accelerated). See Treas. Reg. § 1.6072-1(b). In the case of fiscal year and short year returns, the taxpayer must take into account any tax law changes that are effective for tax years beginning after December 31, 2021, even though these changes are not reflected on the form or instructions.

.07 This document does not take into account the effect of tax law changes effective for tax years beginning after December 31, 2021. If a line referenced in this revenue procedure is affected by such a change and requires additional reporting, a taxpayer may have to file Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, until the Service prescribes criteria for complying with the requirement.

.08 A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP, Uncertain Tax Position Statement, will be treated as if the corporation filed a Form 8275 or Form 8275-R regarding the tax position. The filing of a Form 8275 or Form 8275-R, however, will not be treated as if the corporation filed a Schedule UTP.

.01 General

(1) Additional disclosure of facts relevant to, or positions taken with respect to, issues involving any of the items set forth below is unnecessary for purposes of reducing any understatement of income tax under section 6662(d) (except as otherwise provided in section 4.02(3) concerning Schedules M-1 and M-3), provided that the forms and attachments are completed in a clear manner and in accordance with their instructions.

(2) The money amounts entered on the forms must be verifiable, and the information on the return must be disclosed in the manner described below. For purposes of this revenue procedure, a number is verifiable if, on audit, the taxpayer can prove the origin of the amount (even if that number is not ultimately accepted by the Service) and the taxpayer can show good faith in entering that number on the applicable form.

(3) The disclosure of an amount as provided in section 4.02 below is not adequate when the understatement arises from a transaction between parties who are related within the meaning of section 267(b). If an entry may present a legal issue or controversy because of a related-party transaction, then that transaction and the relationship must be disclosed on a Form 8275 or Form 8275-R.

(4) When the amount of an item is shown on a line that does not have a preprinted description identifying that item (such as on an unnamed line under an “Other Expense” category), the taxpayer must clearly identify the item by including the description on that line. For example, to disclose a bad debt for a sole proprietorship, the words “bad debt” must be written or typed on the line of Schedule C (Form 1040 or 1040SR) that shows the amount of the bad debt. Also, for Schedule M-3 (Form 1120), Part II, line 25, Other income (loss) items with differences, or Part III, line 38, Other expense/deduction items with differences, the entry must provide descriptive language; for example, “Cost of non-compete agreement deductible not capitalizable,” and the description must be provided on an attachment. Similarly, for other forms, if space limitations on a form do not allow for an adequate description, the description must be continued on an attachment.

(5) Although a taxpayer may literally meet the disclosure requirements of this revenue procedure, the disclosure will have no effect for purposes of the section 6662 accuracy-related penalty if the item or position on the return (1) does not have a reasonable basis as defined in Treas. Reg. § 1.6662-3(b)(3); (2) is attributable to a tax shelter item as defined in section 6662(d)(2)(C)(ii); or (3) is not properly substantiated or the taxpayer failed to keep adequate books and records with respect to the item or position.

(6) Disclosure also will have no effect for purposes of the section 6694(a) penalty as applicable to tax return preparers if the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies.

.02 Items

(1) Form 1040, Schedule A, Itemized Deductions:

(a) Medical and Dental Expenses: Complete lines 1 through 4, supplying all required information.

(b) Taxes: Complete lines 5 through 7, supplying all required information. Line 6 must list each type of tax and the amount paid.

(c) Interest Expenses: Complete lines 8 through 10, supplying all required information. This section 4.02(1)(c) does not apply to (i) amounts disallowed under section 163(d) unless Form 4952, Investment Interest Expense Deduction, is completed, or (ii) amounts disallowed under section 265.

(d) Charitable Contributions: Complete lines 11 through 14, supplying all required information and attaching all related forms required pursuant to statute or regulation.

(e) Casualty and Theft Losses: Complete Form 4684, Casualties and Thefts, and attach to the return. Each item or article for which a casualty or theft loss is claimed must be listed on Form 4684.

(2) Certain Trade or Business Expenses (including, for purposes of this section, the following six expenses as they relate to the rental of property):

(a) Casualty and Theft Losses: The procedure outlined in section 4.02(1)(e) must be followed.

(b) Legal Expenses: The amount claimed must be stated. This section does not apply, however, to amounts properly characterized as capital expenditures, personal expenses, or non-deductible lobbying or political expenditures, including amounts that are required to be (or that are) amortized over a period of years.

(c) Specific Bad Debt Charge-off: The amount written off must be stated.

(d) Officers’ Compensation: Complete Form 1125-E, Compensation of Officers, when its instructions require completion. You must express the “percent of time devoted to business” as a numerical percentage, rather than as a non-numerical description such as “part” or “as needed.” This section does not apply to “excess parachute payments,” as defined in section 280G. This section does not apply to the extent that remuneration paid or incurred exceeds an applicable employee-remuneration deduction limitation under section 162(m).

(e) Repair Expenses: The amount claimed must be stated. This section does not apply, however, to any amount properly characterized as capital expenditures or personal expenses.

(f) Taxes (other than foreign taxes): The amount claimed must be stated.

(3) Differences in book and income tax reporting:

For Schedule M-1 and all Schedules M-3, including those listed in (a)-(f) below, the information provided must reasonably apprise the Service of the potential controversy concerning the tax treatment of the item. If the information provided does not so apprise the Service, a Form 8275 or Form 8275-R must be used to adequately disclose the item (see Part II of the instructions for those forms).

Note: An item reported on a line with a pre-printed description, shown on an attached schedule or “itemized” on Schedule M-1, may represent the aggregate amount of several transactions producing that item (i.e., a group of similar items, such as amounts paid or incurred for supplies by a taxpayer engaged in business). In some instances, a potentially controversial item may involve a portion of the aggregate amount disclosed on the schedule. The Service will not be reasonably apprised of a potential controversy by the aggregate amount disclosed. In these instances, the taxpayer must use Form 8275 or Form 8275-R regarding that portion of the item.

Combining unlike items, whether on Schedule M-1 or Schedule M-3 (or on an attachment when directed by the instructions), will not constitute an adequate disclosure.

Additionally, taxpayers that file the Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, may be required to complete Schedule B (Form 1120), Additional Information for Schedule M-3 Filers. For further information, see Who Must File in the General Instructions for Schedule B (Form 1120). Taxpayers that file the Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships, may be required to complete Schedule C (Form 1065), Additional Information for Schedule M-3 Filers. For further information, see Who Must File in the General Instructions for Schedule C (Form 1065). When required, these schedules are necessary to constitute adequate disclosure:

(a) Form 1065. Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships:

(b) Form 1120. (i) Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return.

(ii) Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More:

(c) Form 1120-L. Schedule M-3 (Form 1120-L), Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or More:

(d) Form 1120-PC. Schedule M-3 (Form 1120-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More:

(e) Form 1120-S. Schedule M-3 (Form 1120-S), Net Income (Loss) Reconciliation for S Corporations With Total Assets of $10 Million or More:

(f) Form 1120-F. Schedule M-3 (Form 1120-F), Net Income (Loss) Reconciliation for Foreign Corporations With Reportable Assets of $10 Million or More:

(4) Foreign Tax Items:

(a) International Boycott Transactions: Transactions disclosed on Form 5713, International Boycott Report; Schedule A, International Boycott Factor (Section 999(c)(1)); Schedule B, Specifically Attributable Taxes and Income (Section 999(c)(2)); and Schedule C, Tax Effect of the International Boycott Provisions, must be completed when required by their instructions.

(b) Treaty-Based Return Position: Transactions and amounts under section 6114 or section 7701(b) as disclosed on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), must be completed when required by its instructions.

(5) Other:

(a) Moving Expenses: Complete Form 3903, Moving Expenses, and attach to the return.

(b) Employee Business Expenses: Complete Form 2106, Employee Business Expenses (for use only by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses), and attach to the return. This section does not apply to club dues or to travel expenses for any non-employee accompanying the taxpayer on the trip.

(c) Fuels Credit: Complete Form 4136, Credit for Federal Tax Paid on Fuels, and attach to the return.

(d) Investment Credit: Complete Form 3468, Investment Credit, and attach to the return.

This revenue procedure applies to any income tax return filed on a 2021 tax form for a taxable year beginning in 2021 and to any income tax return filed on a 2021 tax form in 2022 for a short taxable year beginning in 2022.

The principal author of this revenue procedure is Han Huang of the Office of the Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue procedure, contact Branch 2 of Procedure and Administration at (202) 317-6844 (not a toll free number).

This revenue procedure provides temporary guidance regarding the treatment of certain stock distributions by publicly offered real estate investment trusts (REITs) and publicly offered regulated investment companies (RICs) under the Internal Revenue Code (Code). Specifically, in recognition of the need for liquidity as a result of the impacts of the Coronavirus Disease 2019 (COVID-19) pandemic, this revenue procedure, like Rev. Proc. 2020-19, 2020-22 I.R.B. 871, modifies the safe harbor provided in Rev. Proc. 2017-45, 2017-35 I.R.B. 216, by temporarily reducing the minimum required aggregate amount of cash that distributee shareholders may receive to not less than 10 percent of the total distribution in order for § 301 of the Code, by reason of § 305(b) of the Code, to apply to such distribution. This temporary modification is effective solely with respect to distributions declared by a publicly offered REIT or publicly offered RIC on or after November 1, 2021, and on or before June 30, 2022.

.01 Rev. Proc. 2017-45 provides a safe harbor for Publicly Offered REITs and Publicly Offered RICs that make a distribution to their shareholders with respect to their stock to ensure that such distributions of stock pursuant to a distribution in which each shareholder may elect to receive up to all of the shareholder’s distribution in cash or stock of equivalent value are treated as distributions of property 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 (enumerating 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 Percentage 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 distributed to all shareholders as limited by the Publicly Offered REIT’s or Publicly Offered RIC’s declaration of the distribution, by (2) the amount of cash that would be distributed if each shareholder elected to receive solely cash under their respective Cash-or-Stock 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 distribution subject to the election either (1) in cash, or (2) in stock of the distributing corporation of equivalent value as determined 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 liquidity, Rev. Proc. 2020-19 temporarily allowed such REITs and RICs to further limit the amount of cash available to be distributed to their shareholders by reducing the Cash Limitation Percentage to 10 percent. Rev. Proc. 2020-19 applied to distributions declared on or after April 1, 2020, and on or before December 31, 2020.

.04 For the same reasons, this revenue procedure temporarily allows Publicly Offered REITs and Publicly Offered RICs to limit the amount of cash available to be distributed to their shareholders by reducing the Cash Limitation Percentage to 10 percent.

With respect to distributions declared by a Publicly Offered REIT or a Publicly Offered RIC on or after November 1, 2021, and on or before June 30, 2022, section 5.03 of Rev. Proc. 2017-45 is modified by striking “The Cash Limitation Percentage is not less than 20 percent” and inserting “The Cash Limitation Percentage is not less than 10 percent”.

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 November 1, 2021, and on or before June 30, 2022.

The principal author of this revenue procedure is Justin O. Kellar of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue procedure, contact Justin O. Kellar on (202) 317-6847 (not a toll-free number).

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986.

Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on December 20, 2021 and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking

SUMMARY: This document contains proposed regulations providing that “minimum essential coverage,” as that term is used in health insurance-related tax laws, does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the Families First Coronavirus Response Act. The proposed regulations also would provide an automatic extension of time for providers of minimum essential coverage (including health insurance issuers, self-insured employers, and government agencies) to furnish individual statements regarding such coverage and would provide an alternative method for furnishing individual statements when the shared responsibility payment amount is zero. Additionally, the proposed regulations would provide an automatic extension of time for “applicable large employers” (generally employers with 50 or more full-time or full-time equivalent employees) to furnish statements relating to health insurance that the employer offers to its full-time employees. The proposed regulations would affect some taxpayers who claim the premium tax credit; health insurance issuers, self-insured employers, government agencies, and other persons that provide minimum essential coverage to individuals; and applicable large employers.

DATES: Written or electronic comments and requests for a public hearing must be received by February 4, 2022. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section.

ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-109128-21) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Internal Revenue Service (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 submitted electronically, and to the extent practicable, on paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR (REG-109128-21), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, call Gerald Semasek, Office of Associate Chief Counsel (Income Tax and Accounting), (202) 317-7006 (not a toll-free number); concerning submissions of comments and requests for a public hearing, call Regina Johnson at (202) 317-5177 (not a toll-free number) or send an email to publichearings@irscounsel.treas.gov.

SUPPLEMENTARY INFORMATION: