Highlights of the final regulations on disregarded payment losses

January 15, 2025

In brief

What happened?

Treasury and the IRS on January 10 released regulations that finalize, with modifications, the portions of proposed regulations issued in August 2024 (2024 proposed regulations) that address disregarded payment losses (DPL), and the dual consolidated loss (DCL) and DPL anti-avoidance rules. The final regulations affect domestic corporate owners that own disregarded payment entities (DPEs) and that make or receive certain disregarded payments.

Why is it relevant?

The regulations finalize certain 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 ordering rule. The final regulations retain the basic approach and structure of the 2024 proposed regulations, with revisions to defer the application of the DPL rules, allow for a suspended deduction in certain fact patterns, provide limited exceptions to narrow the scope of the application of the DPL rules, and clarify the interaction of the DPL and DCL rules.

The final regulations do not contain the provisions that address the interaction of the DCL rules with the GloBE Model Rules, however forthcoming final regulations are expected to provide that the DCL rules will apply without taking into account taxes imposed in foreign jurisdictions based on the GloBE Model Rules incurred in tax years beginning before August 31, 2025. Treasury and the IRS generally indicated an intent to finalize the remaining rules from the 2024 proposed regulations.

Actions to consider

Taxpayers may rely on the guidance for the additional transition relief for the interaction of the DCL and GloBE Model rules until final regulations are published in the Federal Register. The transition relief is limited to an additional year to reduce potential double deduction outcomes. Taxpayers should continue to monitor the outstanding portions of the 2024 regulations and, further, the incoming Trump administration’s response to the final regulations.