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Highlights of proposed Section 861 regulations – Cloud computing

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August 2019


Treasury and the IRS on August 9, released 44-page proposed regulations (the Proposed Regulations) under Section 861, regarding the classification of cloud transactions and transactions involving digital content.  The regulations generally are proposed to apply to tax years beginning on or after the date final regulations are published. Comments on the Proposed Regulations are due by November 12, 2019.  

Specifically, the Proposed Regulations (i) include Prop. Reg. sec. 1.861-19, which provides guidance, under certain (but not all) provisions of the Code, on the treatment of income from transactions involving on-demand network access to computing and other similar resources; and (ii) extend the computer program classification rules of Treas. Reg. sec. 1.861-18 to apply also to transfers of digital content other than computer programs. This expands the number of provisions to which the computer program (now digital content) rules apply.

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Jonathan Swerling

Jonathan Swerling

US Tax Marketing Leader, PwC US

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