[Federal Register Volume 85, Number 88 (Wednesday, May 6, 2020)]
[Rules and Regulations]
[Pages 27098-27101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07110]
[[Page 27098]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 1, 12, 25, 29, and 52
[FAC 2020-06; FAR Case 2016-013; Item III; Docket No. FAR-2016-0013;
Sequence No. 1]
RIN 9000-AN38
Federal Acquisition Regulation; Tax on Certain Foreign
Procurement
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to withhold a 2 percent tax on
contract payments made by the United States Government to foreign
persons pursuant to certain contracts. This rule applies to Federal
Government contracts for goods or services that are awarded to foreign
persons.
DATES: Effective: June 5, 2020.
FOR FURTHER INFORMATION CONTACT: Ms. Zenaida Delgado, Procurement
Analyst, at 202-969-7207 or [email protected] for clarification
of content. For information pertaining to status or publication
schedules, contact the Regulatory Secretariat Division at 202-501-4755.
Please cite FAC 2020-06, FAR Case 2016-013.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule on September 20, 2019,
at 84 FR 49498, to implement the Department of the Treasury final
regulations published in the Federal Register at 81 FR 55133 on August
18, 2016, under section 5000C of the Internal Revenue Code relating to
the 2 percent tax on payments made by the United States (U.S.)
Government to foreign entities pursuant to certain contracts. This
final rule only addresses the collection of the section 5000C tax from
contract payments on certain foreign contracts by withholding up to 2
percent of the payment. The agency merely withholds the tax for the
Internal Revenue Service (IRS). All substantive issues regarding the
underlying section 5000C tax, e.g., the imposition of, and exemption
from the tax, are matters under the jurisdiction of the IRS. FAR 29.204
and 29.402-3 give more information on the contracts that are covered,
and exemptions or exceptions that might apply. No public comments were
submitted in response to the proposed rule.
On January 2, 2011, section 301 of the James Zadroga 9/11 Health
and Compensation Act of 2010, Public Law 111-347 (the Act), added
section 5000C to the Internal Revenue Code (Code). Title 26 U.S.C.
5000C, Imposition of tax on certain foreign procurement, and its
implementing regulations at 26 CFR 1.5000C-1 through 1.5000C-7,
imposed, unless exempted, a 2 percent excise tax on the amount of a
specified Federal procurement payment on any foreign person receiving
such payment. Title 26 CFR 1.5000C-1(c) defines the term specified
Federal procurement payment as any payment made pursuant to a contract
with the U.S. Government for goods or services if the goods are
manufactured or produced, or the services are provided, in any country
that is not a party to an international procurement agreement with the
United States (see FAR 25.003 for the definitions of ``World Trade
Organization Government Procurement Agreement (WTO GPA) country'' and
``Free Trade Agreement country'', per the IRS definition at Sec.
1.5000C-1(a)(8)). Section 301(a)(3) of the Act provides that section
5000C applies to payments received pursuant to contracts entered into
on and after the date of enactment of the Act, January 2, 2011.
Additionally, section 301(c) of the Act states that this section and
the amendments made by it must be applied in a manner consistent with
U.S. obligations under international agreements. Section 5000C(d)(1)
provides that the amount deducted and withheld under chapter 3 shall be
increased by the amount of tax imposed under 26 U.S.C. 5000C.
DoD, GSA, and NASA issued a final rule under FAR Case 2011-011,
Unallowability of Costs Associated With Foreign Contractor Excise Tax,
amending the FAR to disallow the cost associated with the 2 percent
excise tax on certain foreign procurements. The final rule was
published in the Federal Register at 78 FR 6189 on January 29, 2013.
II. Discussion and Analysis
There are no changes from the proposed rule made in the final rule.
Acquiring agencies are required to withhold the excise tax under 26
U.S.C. 5000C. The exemptions from the withholding in the IRS
regulations at 26 CFR 1.5000C-1(d)(1) through (4) are captured under
the new provision prescription at FAR 29.402-3(a). If any of the
conditions listed at FAR 29.402-3(a) are met, the payments under the
contract will not be subject to the withholding. The remaining
exemptions in that paragraph (d), at 26 CFR 1.5000C-1(d)(5) through
(7), must be claimed by the offeror by submitting an IRS Form W-14 with
the offer. If no exemption applies or is claimed, contractors will be
subject to the tax and will be required to complete IRS Form W-14, and
submit this form with each voucher or invoice for the agency to
withhold the tax as appropriate.
This FAR final rule covers withholding, not the imposition of the
tax, which was implemented in the IRS regulation.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold and for Commercial Items, Including Commercially Available
Off-the-Shelf (COTS) Items
Pursuant to 41 U.S.C. 1905-1907, a provision of law is not
applicable to: Contracts or subcontracts in amounts not greater than
the simplified acquisition threshold (SAT)(as defined in FAR 2.101);
and the acquisition of commercial items, including COTS items. However,
the provision of law is applicable when the law (i) contains criminal
or civil penalties; (ii) specifically refers to 41 U.S.C. 1905-1907 and
states that the law applies to contracts or subcontracts in amounts not
greater than the SAT, or the acquisition of commercial items including
COTS items; (iii) the FAR Council makes a written determination that it
is not in the best interest of the Federal Government to exempt
contracts or subcontracts at or below the SAT and for acquisition of
commercial items; or the Administrator for Federal Procurement Policy
makes a written determination that it would not be in the best interest
of the Federal Government to exempt contracts for the procurement of
COTS items from this law. United States tax laws in Title 26 of the
United States Code contain criminal and civil penalties; thus,
commercial items, including commercially available off-the-shelf items,
are subject to the new provision and clause unless otherwise exempted.
The new provision and clause are not applicable to acquisitions
using simplified acquisition procedures that do not exceed the
simplified acquisition threshold because the IRS regulations at 26 CFR
1.5000C-1(d)(1) exempted them from the tax--see the prescriptions at
FAR 29.402-3(a)(1) and (b)(1).
[[Page 27099]]
IV. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is not a significant regulatory action and, therefore, this rule
was not subject to review under section 6(b) of E.O. 12866, Regulatory
Planning and Review, dated September 30, 1993. This rule is not a major
rule under 5 U.S.C. 804.
V. Executive Order 13771
This rule is not an E.O. 13771 regulatory action, because this rule
is not significant under E.O. 12866.
VI. Regulatory Flexibility Act
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5
U.S.C. 601, et seq. The FRFA is summarized as follows:
This rule is required to implement a final rule issued by the
Department of the Treasury (published at 81 FR 55133) that
implements section 301 of the James Zadroga 9/11 Health and
Compensation Act of 2010, Public Law 111-347 (the Act), adding
section 5000C to the Internal Revenue Code (Code). 26 U.S.C. 5000C,
Imposition of tax on certain foreign procurement, and its
implementing regulations at 26 CFR 1.5000C-1 through 1.5000C-7,
imposed, unless exempted, a 2 percent excise tax of the amount of a
specified Federal procurement payment on any foreign person
receiving such payment.
There were no significant issues raised by the public in
response to the initial regulatory flexibility analysis.
The rule will apply to Federal Government contracts that are
awarded to foreign persons for goods or services, if the goods are
manufactured or produced or the services are provided in any country
that is not a party to an international procurement agreement with
the United States (see FAR 25.003 for the definitions of ``World
Trade Organization Government Procurement Agreement (WTO GPA)
country'' and ``Free Trade Agreement country''). Federal Procurement
Data System data for FY 2018 was obtained for contracts valued over
$250,000 awarded to foreign vendors. There were 7,518 total awards,
7,349 were to large vendors; 169 were to small vendors. Of these,
1,358 were unique large foreign entities while 10 were unique small
foreign entities for a total of 1,368 unique foreign entities.
Accordingly, the rule is not expected to have a significant economic
impact on a substantial number of small entities based in the United
States.
The rule contains an information collection requirement that
requires the approval of the Office of Management and Budget (OMB)
under the Paperwork Reduction Act (44 U.S.C. chapter 35). However,
the paperwork burden was previously approved for the IRS regulations
under OMB Control Number 1545-2263, Tax on Certain Foreign
Procurement.
There are no available alternatives to the rule to accomplish
the desired objective of the statute.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat Division. The Regulatory Secretariat Division
has submitted a copy of the FRFA to the Chief Counsel for Advocacy of
the Small Business Administration.
VII. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. Chapter 35) does apply.
However, these changes to the FAR do not impose additional information
collection requirements to the paperwork burden previously approved for
the IRS, Department of the Treasury regulations under the Office of
Management and Budget Control Number 1545-2263, Tax on Certain Foreign
Procurement (see 80 FR 22449, April 22, 2015 and 82 FR 41310 at 41312,
August 30, 2017).
List of Subjects in 48 CFR Parts 1, 12, 25, 29, and 52
Government procurement.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 1, 12, 25, 29, and
52 as set forth below:
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1. The authority citation for 48 CFR parts 1, 12, 25, 29, and 52
continues to read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM
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2. In section 1.106, amend the table by adding entries for ``52.229-
11'' and ``52.229-12'' in numerical order to read as follows: 1.106 OMB
approval under the Paperwork Reduction Act.
* * * * *
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OMB control
FAR segment No.
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* * * * *
52.229-11............................................... 1545-2263
52.229-12............................................... 1545-2263
* * * * *
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PART 12--ACQUISITION OF COMMERCIAL ITEMS
0
3. Amend section 12.301 by redesignating paragraph (d)(12) as paragraph
(d)(13) and adding a new paragraph (d)(12) to read as follows:
12.301 Solicitation provisions and contract clauses for the
acquisition of commercial items.
* * * * *
(d) * * *
(12) Insert the provision at 52.229-11, Tax on Certain Foreign
Procurements--Notice and Representation, in solicitations as prescribed
in 29.402-3(a). The representation in the provision at 52.229-11 is not
in the System for Award Management.
* * * * *
PART 25--FOREIGN ACQUISITION
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4. Add section 25.1003 to read as follows:
25.1003 Tax on certain foreign procurements.
See 29.204 for the imposition of the tax on certain foreign
procurements pursuant to the James Zadroga 9/11 Health and Compensation
Act of 2010 (Pub. L. 111-347), 26 U.S.C. 5000C, and its implementing
regulations at 26 CFR 1.5000C-1 through 1.5000C-7.
PART 29--TAXES
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5. Add section 29.204 to read as follows:
29.204 Federal excise tax on specific foreign contract payments.
(a) Title 26 U.S.C. 5000C and its implementing regulations at 26
CFR 1.5000C-1 through 1.5000C-7 require acquiring agencies to collect
this excise tax via withholding on applicable contract payments (see
29.402-3, 31.205-41(b)(8)). Agencies merely withhold the tax (section
5000C tax) for the Internal Revenue Service (IRS). All substantive
issues regarding the underlying section 5000C tax, e.g., the imposition
of, and exemption from the tax, are matters under the jurisdiction of
the IRS. The contracting officer will refer all questions relating to
the interpretation of the IRS regulations to https://www.irs.gov/help/tax-law-questions.
(b) In accordance with the clause 52.229-12, Tax on Certain Foreign
Procurements, contractors that are subject to the section 5000C tax
will complete IRS Form W-14, Certificate of Foreign Contracting Party
Receiving Federal Procurement Payments, and submit this form with each
voucher or
[[Page 27100]]
invoice. In the absence of a completed IRS Form W-14 accompanying a
payment request, the default withholding percentage is 2 percent for
the section 5000C withholding for that payment request. Information
about IRS Form W-14 is available via the internet at www.irs.gov/w14.
(c)(1) Exemptions from the withholding in the IRS regulations at 26
CFR 1.5000C-1(d)(1) through (4) are captured under the provision
prescription at 29.402-3(a) (i.e., the contracting officer will not
include the provision when one of the 29.402-3(a) exceptions applies).
(2) The exemptions at 26 CFR 1.5000C-1(d)(5) through (7) must be
claimed by the offeror when it submits an IRS Form W-14 with the offer.
If not submitted with the offer, exemptions will not be applied to the
contract.
(3) Any exemption claimed and self-certified on the IRS Form W-14
is subject to audit by the IRS. Any disputes regarding the imposition
and collection of the section 5000C tax are adjudicated by the IRS as
the section 5000C tax is a tax matter, not a contract issue.
(d) The exemptions in 29.201 through 29.302 do not apply to this
section 5000C tax.
(e) Additional information about this excise tax on specific
foreign contract payments is available via the internet at https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments.
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6. Add section 29.402-3 to read as follows:
29.402-3 Tax on certain foreign procurements.
(a) Insert the provision at 52.229-11, Tax on Certain Foreign
Procurements--Notice and Representation, in solicitations, including
solicitations using FAR part 12 procedures for the acquisition of
commercial items, unless one of the following exceptions applies:
(1) Acquisitions using simplified acquisition procedures that do
not exceed the simplified acquisition threshold (as defined in 2.101).
(2) Emergency acquisitions using the emergency acquisition
flexibilities defined in part 18.
(3) Acquisitions using the unusual and compelling urgency authority
per 6.302-2.
(4) Contracts with a single individual for personal services that
will not exceed the simplified acquisition threshold on an annual
calendar year basis for all years of the contract.
(5) Acquisitions if the requiring activity identifies that the
requirement is for certain foreign humanitarian assistance contracts
which are payments made by the U.S. Government agencies pursuant to a
contract with a foreign contracting party to obtain goods or services
described in or authorized under 7 U.S.C. 1691, et seq., 22 U.S.C.
2151, et seq., 22 U.S.C 2601 et seq., 22 U.S.C. 5801 et seq., 22 U.S.C.
5401 et seq., 10 U.S.C. 402, 10 U.S.C. 404, 10 U.S.C. 407, 10 U.S.C.
2557, and 10 U.S.C. 2561.
(b) Insert the clause at 52.229-12, Tax on Certain Foreign
Procurements, in--
(1) Solicitations that contain the provision at 52.229-11, Tax on
Certain Foreign Procurements--Notice and Representation; and
(2) Resultant contracts in which the contractor has indicated that
it was a foreign person in solicitation provision 52.229-11, Tax on
Certain Foreign Procurements--Notice and Representation.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
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7. Amend section 52.212-5 by redesignating paragraphs (b)(55) through
(62) as paragraphs (b)(56) through (63) and adding a new paragraph
(b)(55) to read as follows:
52.212-5 Contract Terms and Conditions Required To Implement Statutes
or Executive Orders--Commercial Items.
* * * * *
(b) * * *
___ (55) 52.229-12, Tax on Certain Foreign Procurements (JUN 2020).
* * * * *
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8. Add sections 52.229-11 and 52.229-12 to read as follows:
52.229-11 Tax on Certain Foreign Procurements--Notice and
Representation.
As prescribed in 29.402-3(a), insert the following provision:
Tax on Certain Foreign Procurements--Notice and Representation (JUN
2020)
(a) Definitions. As used in this provision--
Foreign person means any person other than a United States
person.
Specified Federal procurement payment means any payment made
pursuant to a contract with a foreign contracting party that is for
goods, manufactured or produced, or services provided in a foreign
country that is not a party to an international procurement
agreement with the United States. For purposes of the prior
sentence, a foreign country does not include an outlying area.
United States person as defined in 26 U.S.C. 7701(a)(30) means--
(1) A citizen or resident of the United States;
(2) A domestic partnership;
(3) A domestic corporation;
(4) Any estate (other than a foreign estate, within the meaning
of 26 U.S.C. 701(a)(31)); and
(5) Any trust if--
(i) A court within the United States is able to exercise primary
supervision over the administration of the trust; and
(ii) One or more United States persons have the authority to
control all substantial decisions of the trust.
(b) Unless exempted, there is a 2 percent tax of the amount of a
specified Federal procurement payment on any foreign person
receiving such payment. See 26 U.S.C. 5000C and its implementing
regulations at 26 CFR 1.5000C-1 through 1.5000C-7.
(c) Exemptions from withholding under this provision are
described at 26 CFR 1.5000C-1(d)(5) through (7). The Offeror would
claim an exemption from the withholding by using the Department of
the Treasury Internal Revenue Service Form W-14, Certificate of
Foreign Contracting Party Receiving Federal Procurement Payments,
available via the internet at www.irs.gov/w14. Any exemption claimed
and self-certified on the IRS Form W-14 is subject to audit by the
IRS. Any disputes regarding the imposition and collection of the 26
U.S.C. 5000C tax are adjudicated by the IRS as the 26 U.S.C. 5000C
tax is a tax matter, not a contract issue. The IRS Form W-14 is
provided to the acquiring agency rather than to the IRS.
(d) For purposes of withholding under 26 U.S.C. 5000C, the
Offeror represents that--
(1) It [_]is [_]is not a foreign person; and
(2) If the Offeror indicates ``is'' in paragraph (d)(1) of this
provision, then the Offeror represents that--I am claiming on the
IRS Form W-14 [__] a full exemption, or [__] partial or no exemption
[Offeror shall select one] from the excise tax.
(e) If the Offeror represents it is a foreign person in
paragraph (d)(1) of this provision, then--
(1) The clause at FAR 52.229-12, Tax on Certain Foreign
Procurements, will be included in any resulting contract; and
(2) The Offeror shall submit with its offer the IRS Form W-14.
If the IRS Form W-14 is not submitted with the offer, exemptions
will not be applied to any resulting contract and the Government
will withhold a full 2 percent of each payment.
(f) If the Offeror selects ``is'' in paragraph (d)(1) and
``partial or no exemption'' in paragraph (d)(2) of this provision,
the Offeror will be subject to withholding in accordance with the
clause at FAR 52.229-12, Tax on Certain Foreign Procurements, in any
resulting contract.
(g) A taxpayer may, for a fee, seek advice from the Internal
Revenue Service (IRS) as to the proper tax treatment of a
transaction. This is called a private letter ruling. Also, the IRS
may publish a revenue ruling, which is an official interpretation by
the IRS of the Internal Revenue Code, related statutes, tax
treaties, and regulations. A revenue ruling is the conclusion of the
IRS on how the law is applied to a specific set of facts. For
questions relating to the interpretation of the IRS regulations go
to https://www.irs.gov/help/tax-law-questions.
(End of provision)
[[Page 27101]]
52.229-12 Tax on Certain Foreign Procurements.
As prescribed in 29.402-3(b), insert the following clause:
Tax on Certain Foreign Procurements (JUN 2020)
(a) Definitions. As used in this clause--
Foreign person means any person other than a United States
person.
United States person, as defined in 26 U.S.C. 7701(a)(30),
means--
(1) A citizen or resident of the United States;
(2) A domestic partnership;
(3) A domestic corporation;
(4) Any estate (other than a foreign estate, within the meaning
of 26 U.S.C. 7701(a)(31)); and
(5) Any trust if--
(i) A court within the United States is able to exercise primary
supervision over the administration of the trust; and
(ii) One or more United States persons have the authority to
control all substantial decisions of the trust.
(b) This clause applies only to foreign persons. It implements
26 U.S.C. 5000C and its implementing regulations at 26 CFR 1.5000C-1
through 1.5000C-7.
(c)(1) If the Contractor is a foreign person and has only a
partial or no exemption to the withholding, the Contractor shall
include the Department of the Treasury Internal Revenue Service Form
W-14, Certificate of Foreign Contracting Party Receiving Federal
Procurement Payments, with each voucher or invoice submitted under
this contract throughout the period in which this status is
applicable. The excise tax withholding is applied at the payment
level, not at the contract level. The Contractor should revise each
IRS Form W-14 submission to reflect the exemption (if any) that
applies to that particular invoice, such as a different exemption
applying. In the absence of a completed IRS Form W-14 accompanying a
payment request, the default withholding percentage is 2 percent for
the section 5000C withholding for that payment request. Information
about IRS Form W-14 and its separate instructions is available via
the internet at www.irs.gov/w14.
(2) If the Contractor is a foreign person and has indicated in
its offer in the provision 52.229-11, Tax on Certain Foreign
Procurements--Notice and Representation, that it is fully exempt
from the withholding, and certified the full exemption on the IRS
Form W-14, and if that full exemption no longer applies due to a
change in circumstances during the performance of the contract that
causes the Contractor to become subject to the withholding for the 2
percent excise tax then the Contractor shall--
(i) Notify the Contracting Officer within 30 days of a change in
circumstances that causes the Contractor to be subject to the excise
tax withholding under 26 U.S.C. 5000C; and
(ii) Comply with paragraph (c)(1) of this clause.
(d) The Government will withhold a full 2 percent of each
payment unless the Contractor claims an exemption. If the Contractor
enters a ratio in Line 12 of the IRS Form W-14, the result of Line
11 divided by Line 10, the Government will withhold from each
payment an amount equal to 2 percent multiplied by the contract
ratio. If the Contractor marks box 9 of the IRS Form W-14 (rather
than completes Lines 10 through 12), the Contractor must identify
and enter the specific exempt and nonexempt amounts in Line 15 of
the IRS Form W-14; the Government will then withhold 2 percent only
from the nonexempt amount. See the IRS Form W-14 and its
instructions.
(e) Exemptions from the withholding under this clause are
described at 26 CFR 1.5000C-1(d)(5) through (7). Any exemption
claimed and self-certified on the IRS Form W-14 is subject to audit
by the IRS. Any disputes regarding the imposition and collection of
the 26 U.S.C. 5000C tax are adjudicated by the IRS as the 26 U.S.C.
5000C tax is a tax matter, not a contract issue.
(f) Taxes imposed under 26 U.S.C. 5000C may not be--
(1) Included in the contract price; nor
(2) Reimbursed.
(g) A taxpayer may, for a fee, seek advice from the Internal
Revenue Service (IRS) as to the proper tax treatment of a
transaction. This is called a private letter ruling. Also, the IRS
may publish a revenue ruling, which is an official interpretation by
the IRS of the Internal Revenue Code, related statutes, tax
treaties, and regulations. A revenue ruling is the conclusion of the
IRS on how the law is applied to a specific set of facts. For
questions relating to the interpretation of the IRS regulations go
to https://www.irs.gov/help/tax-law-questions.
(End of clause)
[FR Doc. 2020-07110 Filed 5-5-20; 8:45 am]
BILLING CODE 6820-EP-P