Part I

T.D. 10026

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301

Rules Regarding Certain Disregarded Payments and Dual Consolidated Losses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains final regulations regarding certain disregarded payments that give rise to deductions for foreign tax purposes and avoid the application of the dual consolidated loss (“DCL”) rules. The final regulations affect domestic corporate owners that make or receive such payments. This document also announces additional transition relief for the application of the DCL rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax.

DATES: Effective date: These regulations are effective on January 10, 2025.

Applicability dates: For dates of applicability, see §§ 1.1503(d)-8(b)(11), (15), (17), and (18), and 301.7701-2(e)(10).

FOR FURTHER INFORMATION CONTACT: Andrew L. Wigmore at (202) 317-5443 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

This document contains amendments to 26 CFR parts 1 and 301 (the “final regulations”) under sections 1503(d) and 7701 of the Internal Revenue Code (the

“Code”). The final regulations are issued pursuant to the express delegations of authority under section 7805(a), which authorizes the Secretary of the Treasury (the “Secretary”) to “prescribe all needful rules and regulations for the enforcement” of the Code, section 1503(d)(2)(B), which authorizes the Secretary to provide exceptions to the term “dual consolidated loss,” and section 1503(d)(3), which authorizes the Secretary to address losses of “separate units.”

Background

On December 11, 2023, the Department of Treasury (“Treasury Department”) and the IRS released Notice 202380, 2023-52 IRB 1583, which, among other things, described the interaction of the DCL rules with model rules published by the OECD/G20 Inclusive Framework on BEPS (the “GloBE Model Rules”) ¹ and requested comments on such interaction. The notice also announced limited transition relief from the application of the DCL rules to the GloBE Model Rules for “legacy DCLs,” which in general are DCLs incurred before the effective date of the GloBE Model Rules.

On August 7, 2024, the Treasury Department and the IRS published proposed regulations (REG-105128-23) in the Federal Register (89 FR 64750) under sections 1502, 1503(d), and 7701 of the Code, with a correction published in the Federal Register on September 3, 2024 (89 FR 71214) (the “2024 proposed regulations”), that would address certain issues arising under the DCL rules. In general, the 2024 proposed regulations would clarify how the DCL rules interact with the intercompany transaction rules in § 1.1502-13, modify how items arising from stock ownership are taken into account when computing the amount of a DCL, and address the application of the DCL rules to foreign taxes that are based on the GloBE Model Rules. The 2024 proposed regulations also included disregarded payment loss (“DPL”) rules, under which

domestic corporations would be required to include amounts in income in certain cases involving disregarded payments. Further, the 2024 proposed regulations included an anti-avoidance rule applicable for both DCL and DPL purposes.

This document finalizes certain rules from the 2024 proposed regulations. These rules and related comments received in response to the 2024 proposed regulations are discussed in the Summary of Comments and Explanation of Revisions section of this preamble. All comments are available at https :// www . regulations . gov or upon request. A public hearing was held on the 2024 proposed regulations on November 22, 2024, but the speaker requesting to testify did not attend the hearing. The Treasury Department and the IRS intend to finalize, in future guidance, the remaining rules from the 2024 proposed regulations.

This document also announces additional transition relief for the application of the DCL rules to foreign taxes that are based on the GloBE Model Rules. This relief is discussed in the Additional Transition Relief with respect to the GloBE Model Rules section of this preamble.

Summary of Comments and Explanation of Revisions

I. Scope

This document finalizes the rules from the 2024 proposed regulations that relate to DPLs, including portions that are also relevant for DCLs, such as the anti-avoidance rule and the deemed ordering rule. The document retains the basic approach and structure of these rules, with certain revisions.