The annual IRS priority guidance plan (PGP) sets forth guidance priorities for Treasury and the IRS. Comparing the guidance priorities in the 2019-2020 PGP with those in the 2020-2021 PGP yields clues about what to expect in 2021.
The 2020-2021 PGP, released on November 17, lists 191 guidance projects that will receive Treasury and IRS focus between July 1, 2020, and June 30, 2021 (referred to as the plan year). According to the 2020-2021 PGP, 57 guidance items have been released between June 30 and September 30. The 2019-2020 PGP, released on October 8, 2019, listed 203 projects to receive focus between July 1, 2019, and June 30, 2020, 31 of which were released between June 30 and September 30, 2019.
Generally, the PGP is published annually in the fall and is referred to as the initial PGP. It contains a list of priority guidance projects that will receive focus through the following June 30. Each PGP has three quarterly updates leading up to the following year’s initial PGP. The initial PGP functions as a first-quarter update because it includes a list of guidance released or published during the three-month period between the previous June 30 (the previous initial PGP’s plan year-end) and September 30 (the end of the current initial PGP’s first quarter).
The second-quarter update adds the guidance released or published between September 30 and December 31 of the previous calendar year. The third-quarter update adds guidance released or published between December 31 of the previous calendar year and March 31 of the current year. The fourth-quarter update adds guidance released or published between March 31 and June 30 of the current calendar year. The next initial PGP issued in the fall completes the 12-month cycle and includes a first-quarter update.
The following is a release timeline of the 2019-2020 initial PGP, its quarterly updates, and the
2020-2021 initial PGP:
October 8, 2019: release of the 2019-2020 initial PGP (includes 31 guidance items released or published between June 30, 2019, and September 30, 2019);
March 6: second-quarter update (includes 40 guidance items released or published between September 30, 2019, and December 31, 2019);
June 11: third-quarter update (includes 25 guidance items released or published between December 31, 2019, and March 31, 2020);
September 2: fourth-quarter update (includes 53 guidance items released or published between March 31 and June 30); and
November 17: release of the 2020-2021 initial PGP (includes 57 guidance items released or published between June 30 and September 30).
The PGPs and the updates together list a total of 206 guidance items released between June 30, 2019 and September 30. The IRS website offers a running list of guidance as it is published or released. Guidance published or released after September 30 and before December 31 will also appear in the second-quarter update expected in early 2021. To date, the international second quarter guidance releases include two final reg packages issued in November, and one proposed and one final reg package issued in December, all of which are Tax Cuts and Jobs Act-related.
The PGP generally consists of six parts, each containing a list of numbered projects; four of the parts (1, 2, 3, and 6) contain international guidance. The 2019-2020 initial PGP contained a total of 29 international items, which had grown to 33 by its fourth-quarter update. At 29, the
2020-2021 initial PGP has fewer total international items than the prior plan year fourth-quarter update, most of which also appear in the
2019-2020 PGP. This article will focus on international guidance issued in 2020 (including guidance issued in the prior plan year).
Part 1 has prioritized guidance implementing the TCJA for the last three cycles, as the 2017-2018 PGP (released October 20, 2017) was updated on December 31, 2017, to reflect the TCJA’s enactment on December 22, 2017. The 2020-2021 PGP continues this practice, but may be the last initial PGP to do so.
Part 1: Implementing the TCJA
According to the 2020-2021 PGP, the issuance of timely published guidance under the TCJA has been a priority for the past three years. Also, the 2020-2021 PGP predicts that virtually all published guidance necessary to implement the TCJA will be issued by December 31 and will comprise 59 final regs, 42 revenue procedures, and 59 notices.
There were 52 total TCJA projects in the 2019-2020 initial PGP, but only 38 in the 2020-2021 PGP. The 2019-2020 PGP had 12 international TCJA projects as of its fourth-quarter update, while the 2020-2021 PGP has nine. All the 2020-2021 PGP’s international TCJA-related projects also appeared in the TCJA-related part 1 of the 2019-2020 PGP. However, four of the TCJA-related projects that appear in part 1 of the 2019-2020 PGP were moved to part 6 of the 2020-2021 PGP.
The TCJA international projects include the following in the order that they appear in the 2020-2021 PGP, along with the item numbers assigned to them. Final regs for all the 2020-2021 PGP’s international TCJA-related projects were issued in the first and second quarter of its plan year.
3. Both PGPs prioritize regs under section 59A concerning the base erosion and antiabuse tax. Proposed regs (REG-104259-18) were issued on December 24, 2018. Final regs (T.D. 9885) and additional proposed regs (REG-112607-19) were published on December 6, 2019. Additional final regs (T.D. 9910) were released on September 1.
14. Both PGPs prioritize regs concerning the participation exemption under sections 245A, 1248(j) and (k), and 91. Temporary (T.D. 9865) and proposed (REG-106282-18) regs were published on June 18, 2019. Final (T.D. 9909) and proposed (REG-124737-19) regs were released on August 21 that remove the temporary regs and propose rules to coordinate the extraordinary distribution rule in section 245A with the disqualified basis rule in section 951A. Final regs to that effect (T.D. 9934) were published in the plan year’s second quarter on November 25.
15. Both PGPs prioritize final regs and other guidance under section 250 for the foreign-derived intangible income and global intangible low-taxed income deductions. Proposed regs were published on March 6, 2019 (REG-104464-18). Final regs (T.D. 9901) were released on July 9.
17. Both PGPs prioritize final regs and other guidance under sections 245A(e) and 267A addressing related-party amounts in hybrid transactions among hybrid entities and hybrid deduction accounts, with proposed regs published on December 28, 2018 (REG-104352-18). Final regs (T.D. 9896) and proposed regs (REG-106013-19) were published simultaneously on April 8. Additional final regs (T.D. 9922) were released on September 29.
25. Both PGPs prioritize regs under sections 863(b) and 865(e)(2) regarding the source of personal property sales. Proposed regs (REG-100956-19) were published on December 30, 2019. Preliminary final regs (T.D. 9921) were released on September 29, and the official version was published December 10.
26. Both PGPs prioritize final regs under sections 864(c)(8) and 1446(f) on gain or loss to foreign persons from the sale or exchange of an interest in a partnership engaged in a U.S. trade or business. Proposed regs under section 864(c)(8) were published on December 27, 2018 (REG-113604-18), and under section 1446(f) on May 13, 2019 (REG-105476-18). Preliminary section 864 final regs (T.D. 9919) were released on September 21, and the official version was published November 5. Final section 1446 regs (T.D. 9926) were published in the plan year’s second quarter on November 27.
27. Both PGPs prioritize final regs and other guidance on foreign tax credit issues under sections 901 and 960 and related provisions, including sections 78, 861, 904, and 905, including regs on the allocation and apportionment of interest and other expenses and determining foreign branch income. Proposed regs were published on December 7, 2018 (REG-105600-18). On December 17, 2019, the IRS published T.D. 9882 adopting these proposed regs. The same day, the IRS published proposed regs (REG-105495-19) that provide additional guidance on FTC issues. Preliminary final regs (T.D. 9922) were published September 29, and the official version was published in the plan year’s second quarter on November 2.
28. Both PGPs prioritize final regs and other guidance on section 951A’s GILTI provisions. Proposed regs were published on June 21, 2019 (REG-101828-19), and Notice 2019-46, 2019-37 IRB 695, was released on August 22, 2019. Final regs (T.D. 9902) were released on July 20 and corrected on December 11. Additional GILTI provisions were included in the final FTC regs (T.D. 9922) published on September 29.
31. Both PGPs prioritize regs under sections 1295, 1297, and 1298 governing passive foreign investment companies, including regs addressing when foreign insurance income is excluded from passive income under section 1297(f). Proposed regs were published on July 11, 2019 (REG-105474-18). Preliminary versions of final (T.D. 9936) and proposed regs (REG-111950-20) were released in the plan year’s second quarter on December 4.
Parts 2 and 3: Burden Reduction
Parts 2 and 3 of both PGPs address burden reduction. Part 2 specifically calls for identifying and reducing regulatory burdens under Executive Order 13789, while part 3 lists more general burden reduction projects. Both PGPs have the same five international burden reduction projects.
Part 2: Executive Order 13789
1. Both PGPs prioritize the delay, proposed removal, and review of various final, temporary, and proposed regs under the section 385 inversion rules that were published on October 21, 2016 (T.D. 9790 and REG-130314-16). Proposed regs to that effect were published on September 24, 2018 (REG-130244-17). Final (T.D. 9880) and proposed (REG-123112-19) regs were published on November 4, 2019. Final regs (T.D. 9897) were published on May 14.
2. Both PGPs propose modification of section 987 final regs on income and currency gains or losses of qualified business units that were published on December 8, 2016 (T.D. 9794), and May 13, 2019 (T.D. 9857). Notice 2017-57, 2017-42 IRB 324; Notice 2018-57, 2018-26 IRB 774; and Notice 2019-65, 2019-52 IRB 1, have all delayed the applicability date of the regs, most recently to years beginning after December 7, 2020. Notice 2020-73, 2020-41 IRB 886, released on September 17, further delays the applicability date to tax years beginning after December 7, 2021.
Part 3: General Burden Reduction
12. Both PGPs call for regs under section 871(m) to include guidance on withholding on dividend equivalent amounts in non-delta-one transactions (in which the ratio of the value of a contract to the value of the referenced asset is not one). Final and temporary regs (T.D. 9815) have been outstanding since January 19, 2017, and Notice 2018-72, 2018-40 IRB 522, published on October 1, 2018, delayed the applicability date of some of the final regs through 2020. On December 17, 2019, the IRS issued final regs (T.D. 9887) on dividend equivalent amounts that also withdrew temporary regs. Notice 2020-2, 2020-3 IRB 327, published on January 13, extended the transition relief two years through 2022.
13. Both PGPs prioritize burden reduction guidance under section 954 on the use of foreign statement reserves to measure qualified insurance income under section 954(i). No guidance was issued on this project.
16. Both PGPs call for finalizing the remaining portions of withholding regs proposed under chapter 3 (sections 1441-1446) and chapter 4 (sections 1471-1474), addressing withholding agent obligations, withholding on gross proceeds, foreign passthrough payments and insurance premiums, the definition of an investment entity, and withholding agents’ due diligence requirements. These proposed regs have been outstanding since December 18, 2018 (REG-132881-17). Portions of the proposed regs were finalized (T.D. 9890), published on January 2, and corrected on March 6.
Part 6: General Guidance
Part 6 of the PGPs contains general guidance. Its projects are grouped in 14 subject matter categories, one of which is international.
However, both PGPs contain an international guidance project in a separate category for corporations and their shareholders. Item 2 calls for revising final regs under reg. section
1.337(d)-7, published on August 2, 2013 (T.D. 9626) that address the treatment of foreign corporations engaging in property transactions.
Part 6’s international category is further broken into seven subcategories, A-G. The
2019-2020 initial PGP had 11 international projects, which had grown to 16 by its fourth-quarter update. The 2020-2021 PGP has 14 international projects in part 6, four of which appeared in the 2019-2020 initial PGP’s TCJA-related part 1.
A. Deemed Inclusions
1. New to the 2020-2021 PGP is finalizing regs under section 954 on application of the high-tax exception. Proposed regs (REG-127732-19) were released on July 20.
2. Both PGPs prioritize regs addressing modifications to subpart F, including coordination with section 951A (GILTI), the repeal of section 958(b)(4) (downward ownership attribution) and the modification of section 951(b). This guidance item appeared in the 2019-2020 PGP’s TCJA-related part 1. Proposed regs were published on June 21, 2019 (REG-101828-19), and October 2, 2019 (REG-104223-18). Final (T.D. 9908) and proposed (REG-110059-20) regs were published on September 22. Additional final regs (T.D. 9936) were published in the second quarter on December 4.
3. Also new to the 2020-2021 PGP are regs and other guidance addressing the treatment of foreign entities owned by domestic partnerships and S corporations under sections 951, 958, and 1291-1298 clarifying the definition of qualified business asset investment under sections 250 and 951A. This guidance item appeared in the 2019-2020 PGP’s TCJA-related part 1. Notice 2020-69, 2020-39 IRB 604, was released September 1, and proposed regs (REG-101657-20) were released on September 29. Final regs (T.D. 9936) were published in the second quarter on December 4.
4. Both PGPs call for regs under sections 959 and 961 concerning previously taxed earnings and profits under subpart F. This guidance item appeared in the 2019-2020 PGP’s TCJA-related part 1. Notice 2019-01, 2019-3 IRB 275, has been outstanding since January 7, 2019.
B. Inbound Transactions
1. Both PGPs call for final regs under sections 897 and 1445 related to changes in the Protecting Americans From Tax Hikes Act of 2015. Proposed regs were published on June 7, 2019
(REG-109826-17).
2. New to the 2020-2021 PGP is a priority on final regs related to the definition of a financing transaction under reg. section 1.881-3. Proposed regs (REG-106013-19) were published on April 8, and final regs (T.D. 9922) were released on September 29.
The 2019-2020 PGP called for relief for nonresident individuals who would not have been in the United States long enough during 2020 to be considered residents but for COVID-19-related disruptions. Rev. Proc. 2020-20, 2020-20 IRB 801, was released on April 22, and this item does not appear in the 2020-2021 PGP.
C. Outbound Transactions
The 2019-2020 PGP had two projects under this subcategory, neither of which appears in the 2020-2021 PGP. Both projects received guidance in 2020 during the prior plan year.
The 2019-2020 PGP prioritized final regs on transfers of partnerships with related foreign partners and controlled transactions involving partnerships. Temporary (T.D. 9814) and proposed (REG-127203-15) regs were published on January 19, 2017. Final regs (T.D. 9891) were published on January 23.
The 2019-2020 PGP prioritized guidance on whether activities temporarily conducted in a foreign country because of COVID-19-related travel disruptions give rise to a foreign branch separate unit for purposes of the dual consolidated loss rules under section 1503(d) or an obligation to file Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs).” Rev. Proc. 2020-30, 2020-22 IRB 873, was released May 9.
D. Foreign Tax Credits
1. Both PGPs prioritize regs related to the FTC, including allocation and apportionment of interest expense, the definition of a foreign income tax, and the timing of when foreign taxes accrue and may be claimed as a credit. Proposed regs (REG-101657-20) were released on September 29.
The 2019-2020 PGP prioritized final regs under section 901(m) on covered asset acquisitions. Temporary (T.D. 9800) and proposed (REG-129128-14) regs were published on December 7, 2016. Final regs (T.D. 9895) were published on March 23. This project does not appear in the 2020-2021 PGP.
E. Transfer Pricing
1. The Annual Report on the Advance Pricing Agreement Program, Announcement 2020-2, 2020-15 IRB 609, was published April 6.
2. Both PGPs prioritize regs under sections 367 and 482 addressing the TCJA changes to sections 367(d) and 482 that require the Secretary to value intangible property. This guidance item appeared in the 2019-2020 PGP’s TCJA-related part 1.
Pre-TCJA temporary (T.D. 9738) and proposed (REG-139483-13) regs have been outstanding since late 2015.
F. Sourcing and Expense Allocation
1. Both PGPs call for regs on sourcing and expense allocations under section 861, including character and source of income from transactions involving intellectual property and digital goods and services, with proposed regs published on August 14, 2019 (REG-130700-14).
2. New to the 2020-2021 PGP are regs under section 864(f) regarding an election to allocate interest and other deductions on a worldwide basis.
G. Other
1. Both PGPs call for regs under section 1256(g)(2) on the definition of a foreign currency contract after the decision in Wright v. Commissioner, 809 F.3d 877 (6th Cir. 2016). That decision held that over-the-counter currency options are section 1256 foreign currency contracts, in contrast to legislative history, Tax Court decisions, and IRS guidance.
2. Both PGPs call for final regs and other guidance under chapters 3 and 4, including regs on due diligence, taxpayer identification numbers, and qualified intermediaries. Previous guidance was issued throughout 2017 in the form of temporary (T.D. 9809) and proposed (REG-103477-14) regs; Notice 2017-46, 2017-41 IRB 275; and Rev. Proc. 2017-15, 2017-3 IRB 437. Final regs (T.D. 9890) were published on January 2.
3. Both PGPs call for guidance under sections 6039F, 6048, and 6677 on foreign trust reporting and reporting on foreign gifts and regs under sections 643(i) and 679 relating to specific transactions between U.S. persons and foreign trusts. Rev. Proc. 2020-17, 2020-12 IRB 539, was released on March 2.
The 2019-2020 PGP prioritized guidance under chapter 61, including rules to require payers that are financial institutions and that maintain financial accounts at U.S. branches or offices to report information on specific account holders. Rev. Proc. 2019-23, 2019-38 IRB 725, was released on August 27, 2019. Rev. Proc. 2020-15, 2020-23 IRB 905, published on June 1. This project does not appear in the 2020-2021 PGP.
The 2019-2020 PGP prioritizes announcements related to income tax treaty references to the North American Free Trade Agreement in light of NAFTA’s replacement by the United States-Mexico-Canada Agreement. Announcement 2020-6, 2020-23 IRB 911, was released on May 22. This project does not appear in the 2020-2021 PGP.
As TCJA-related guidance priorities are completed, so that TCJA-related part 1 of the 2020-2021 PGP fades into the background, some of the long-standing priorities that have received little or no guidance over the past three years may get some attention in 2021. These include the burden reduction projects calling for guidance under sections 987, 871(m), and 954(i), and the general international projects calling for guidance under sections 337(d), 897, 1445, 367(d), 482, and 1256(g)(2).
However, President-elect Joe Biden will take office with his own regulatory priorities and may even preside over another round of tax reform. The 2020-2021 PGP could evolve significantly over the next three quarters.