IRS Publishes Proposed Regs on Base Erosion and Antiabuse Tax

IRS Publishes Proposed Regs on Base Erosion and Antiabuse Tax

Internal Revenue Service

The IRS has published proposed regulations (<a href="//s3.amazonaws.com/pdfs.taxnotes.com/2018/2018-48898_TNTIRSdocs_reg-104259-18.pdf">REG-104259-18</a>) that provide guidance on the tax on base erosion payments of corporations with substantial gross receipts that make payments to foreign related parties and on the applicable reporting requirements. Comments and public hearing requests are due by February 19, 2019. The Tax Cuts and Jobs Act (<a href="/lr/resolve//1xftl">P.L. 115-97</a>) added <a href="/research/federal/usc26/59A" resolve="/lr/resolve/59a/cqrh" title="59A">section 59A</a>, which imposes a tax equal to the base erosion minimum tax amount for the tax year. The TCJA also added reporting obligations for that tax for 25 percent foreign-owned corporations subject to <a href="/research/federal/usc26/6038A" resolve="/lr/resolve/6038a/cqn5" title="6038A">section 6038A</a> and foreign corporations subject to <a href="/research/federal/usc26/6038C" resolve="/lr/resolve/6038c/cpvd" title="6038C">section 6038C</a>. The proposed regs provide rules for determining if a taxpayer is an applicable taxpayer on which the base erosion and antiabuse tax may be imposed. Under the regs, an applicable taxpayer is a corporation (other than a regulated investment company, a real estate investment trust, or an S corporation) that satisfies the gross receipts test and the base erosion percentage test. For purposes of those tests, the taxpayer and some other related corporations are aggregated. The regs provide rules for determining the aggregate group and for applying those tests, and rules for applying the tests on an aggregate group basis when members of the aggregate group have different tax years. The regs also provide rules for computing the base erosion percentage for a taxpayer with deductions taken into account under a mark-to-market method of accounting. The proposed regs provide rules for determining the amount of a base erosion payment, defined under the regs as a payment or accrual by a taxpayer to a foreign related party that is described in one of four categories. The regs provide operating rules for some specific types of base erosion payments and some exceptions to the definition of a base erosion payment. The regs also provide rules for determining base erosion tax benefits arising from base erosion payments. Generally, a base erosion tax benefit, as defined under the regs, is the amount of any deduction for a base erosion payment that is allowed for the tax year. <a href="/research/federal/usc26/59A" resolve="/lr/resolve/59a/cqrh" title="59A">Section 59A</a> imposes a tax on each applicable taxpayer equal to the base erosion minimum tax amount, which is determined based on an applicable taxpayer’s modified taxable income. The proposed regs provide rules for determining the amount of modified taxable income, which is computed in part by reference to a taxpayer’s base erosion tax benefits and base erosion percentage of any net operating loss deduction. The regs also provide rules for computing the base erosion minimum tax amount. The proposed regs address the application of section 59A to partnerships (applying an aggregate approach to base erosion payments) and provide guidance for banks, registered securities dealers, and insurance companies. The regs establish antiabuse rules to prevent taxpayers from taking measures to inappropriately avoid section 59A. The regs provide guidance on the general application of the BEAT to consolidated groups and address limitations on a loss corporation’s items under <a href="/research/federal/usc26/382" resolve="/lr/resolve/382/cnnl" title="382">sections 382</a> and <a href="/research/federal/usc26/383" resolve="/lr/resolve/383/cp8l" title="383">383</a> in the context of the BEAT. The regs also describe the applicable reporting and recordkeeping requirements. In general, the regs are proposed to apply to tax years beginning after December 31, 2017.

Related IRS news release, <a href="/lr/resolve//28pf3">IR-2018-250</a>.

The IRS has published proposed regulations (REG-104259-18) that provide guidance on the tax on base erosion payments of corporations with substantial gross receipts that make payments to foreign related parties and on the applicable reporting requirements.

The IRS has published proposed regulations (REG-104259-18) that provide guidance on the tax on base erosion payments of corporations with substantial gross receipts that make payments to foreign related parties and on the applicable reporting requirements. Comments and public hearing requests are due by February 19, 2019. The Tax Cuts and Jobs Act (P.L. 115-97) added section 59A, which imposes a tax equal to the base erosion minimum tax amount for the tax year. The TCJA also added reporting obligations for that tax for 25 percent foreign-owned corporations subject to section 6038A and foreign corporations subject to section 6038C. The proposed regs provide rules for determining if a taxpayer is an applicable taxpayer on which the base erosion and antiabuse tax may be imposed. Under the regs, an applicable taxpayer is a corporation (other than a regulated investment company, a real estate investment trust, or an S corporation) that satisfies the gross receipts test and the base erosion percentage test. For purposes of those tests, the taxpayer and some other related corporations are aggregated. The regs provide rules for determining the aggregate group and for applying those tests, and rules for applying the tests on an aggregate group basis when members of the aggregate group have different tax years. The regs also provide rules for computing the base erosion percentage for a taxpayer with deductions taken into account under a mark-to-market method of accounting. The proposed regs provide rules for determining the amount of a base erosion payment, defined under the regs as a payment or accrual by a taxpayer to a foreign related party that is described in one of four categories. The regs provide operating rules for some specific types of base erosion payments and some exceptions to the definition of a base erosion payment. The regs also provide rules for determining base erosion tax benefits arising from base erosion payments. Generally, a base erosion tax benefit, as defined under the regs, is the amount of any deduction for a base erosion payment that is allowed for the tax year. Section 59A imposes a tax on each applicable taxpayer equal to the base erosion minimum tax amount, which is determined based on an applicable taxpayer’s modified taxable income. The proposed regs provide rules for determining the amount of modified taxable income, which is computed in part by reference to a taxpayer’s base erosion tax benefits and base erosion percentage of any net operating loss deduction. The regs also provide rules for computing the base erosion minimum tax amount. The proposed regs address the application of section 59A to partnerships (applying an aggregate approach to base erosion payments) and provide guidance for banks, registered securities dealers, and insurance companies. The regs establish antiabuse rules to prevent taxpayers from taking measures to inappropriately avoid section 59A. The regs provide guidance on the general application of the BEAT to consolidated groups and address limitations on a loss corporation’s items under sections 382 and 383 in the context of the BEAT. The regs also describe the applicable reporting and recordkeeping requirements. In general, the regs are proposed to apply to tax years beginning after December 31, 2017.

Sec. 59A Tax on base erosion payments of taxpayers with substantial gross receipts

Sec. 383 Special limitations on certain excess credits, etc.

Sec. 1502 Regulations

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IRS Publishes Proposed Regs on Base Erosion and Antiabuse Tax