Tax insight

IRS to withdraw disregarded payment loss rules

Insight
5 minute read
August 22, 2025

What happened?

Treasury and the IRS on August 20, 2025, released Notice 2025-44 (the Notice), announcing their intention to propose regulations that would remove the disregarded payment loss (DPL) rules and related modifications to the dual consolidated loss (DCL) rules that were finalized in January 2025.

The Notice also announced that future proposed regulations would extend the transition relief with respect to the interaction of the DCL rules and the GloBE Model Rules such that the DCL rules would generally be applied to losses incurred in tax years beginning before January 1, 2028, without regard to qualified domestic minimum top-up taxes (QDMTTs) and top-up taxes.

Why is it relevant?

Withdrawal of the DPL rules would affect domestic corporate owners that own disregarded payment entities (DPEs) and that make or receive certain disregarded payments. The proposed removal of the DPL rules is significant as it indicates a policy reversal on the DPL rules, which were finalized earlier this year. Treasury and the IRS agreed with concerns about the rules’ complexity, uncertainty, and compliance costs. They also gave credence to feedback that questioned the authority for the DPL rules, asserting that they are inconsistent with longstanding principles of the Code and congressional intent.

The transition relief extension is welcome for taxpayers that incur DCLs in jurisdictions applying the GloBE Model Rules. By preventing QDMTTs and top-up taxes from being considered in the application of the DCL rules for DCLs incurred in pre-2028 tax years, Treasury and the IRS give taxpayers more certainty and additional time to adjust to international developments.

Actions to consider

Taxpayers with DCLs or potential exposure under the DPL rules should closely monitor these developments, as taxpayers may rely on the guidance provided in the Notice until proposed regulations are published in the Federal Register.

Taxpayers also should consider responding to Treasury and the IRS’s request for comments on related issues: potential revisions to the ‘all or nothing’ principle and the treatment of disregarded items under the DCL provisions. Comments are due by October 21, 2025.