SECTION 3. REGULATIONS TO BE

ISSUED

.01 Removal of the DPL rules

Following the publication of the 2025 final regulations, the Treasury Department and the IRS received feedback recommending the removal of the DPL rules, focusing on the complexity, uncertainty, and costs of complying with the DPL rules and of unwinding existing structures in response to the DPL rules. The Treasury Department and the IRS share these concerns.

In addition, the feedback questioned the authority for the DPL rules, asserting that the DPL rules are a significant departure from longstanding principles of the Code, are inconsistent with the statute, and conflict with congressional intent. The comments stated that section 1503(d) is properly limited to regarded items and does not impose income inclusions as a result of disregarded payments. The feedback asserted that the regulations under section 7701 generally do not create income inclusions with respect to disregarded payments that do not otherwise exist under the Code.

In response to the feedback, the Treasury Department and the IRS have further considered the interaction of section 1503(d) and the regulations under section 7701(a) in the context of disregarded payments that are deductible under for

eign law. In light of this further consideration, the Treasury Department and the IRS are of the view that the interaction of these provisions should not be construed to cause such disregarded payments to give rise to income inclusions as set forth under the DPL rules. Accordingly, the Treasury Department and the IRS intend to issue proposed regulations that would remove the DPL rules. In furtherance of the removal of the DPL rules, the proposed regulations would also include an exception to the anti-avoidance rule of §1.1503(d)-1(f) so that the rule does not apply to structures that would have been addressed by the DPL rules.

.02 Removal of the modifications to the deemed ordering rule

The 2025 final regulations revised the deemed ordering rule under §1.1503(d)-3(c)(3), in part, to coordinate the application of the DPL and DCL rules, and such coordination will no longer be necessary once the DPL rules are withdrawn. Further, the Treasury Department and the IRS are studying the application and scope of the deemed ordering rule (including in connection with the study of the treatment of disregarded payments discussed in section 5 of this notice). Thus, the forthcoming proposed regulations will propose to remove the revisions to the deemed ordering rule in the 2025 final regulations.

.03 Extension of transition relief on application of DCL rules to GloBE Model Rules

The Treasury Department and the IRS are of the view that an extension of the transition relief with respect to the interaction of the DCL rules and the GloBE Model Rules is appropriate to allow for further consideration of comments received in response to the 2024 proposed regulations, to allow for consideration of further developments at the OECD, and to provide taxpayers more certainty. Accordingly, the forthcoming proposed regulations will propose to further extend the relief set forth in proposed §1.1503(d)-8(b)(12) to apply with respect to DCLs incurred in taxable years beginning before January 1, 2028.

.04 Applicability dates

The proposed regulations to be issued removing the DPL rules described in section 3.01 of this notice would apply to taxable years beginning on or after January 1, 2026. The proposed regulations to be issued removing the changes to the deemed ordering rule described in section 3.02 of this notice would apply to DCLs incurred in taxable years beginning on or after January 1, 2026.