Treasury releases final and proposed Section 245A regulations

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August 2020

Overview

On August 21, Treasury and the IRS released final regulations and 2020 proposed regulations under Sections 245A, 954, and 6038. Treasury and the IRS, on June 18, 2019, had published temporary regulations and cross-referenced proposed regulations under those Sections. The 2019 proposed regulations are finalized, and the temporary regulations are removed. The 2020 proposed regulations provide for the coordination of the extraordinary disposition rules under the final regulations and the disqualified basis rules under the 2019 final global intangible low-taxed income (GILTI) regulations.

The final regulations contain 58 pages of preamble language and 49 pages of regulatory text, including nine examples. The regulations are effective as of the date of publication in the Federal Register (scheduled for August 27, 2020). The 2020 proposed regulations contain 57 pages of preamble language and 50 pages of regulatory text, including five examples. Comments are requested within 60 days of publication in the Federal Register (scheduled for August 27, 2020). The final regulations apply for tax years ending on or after June 14, 2019. The 2020 proposed regulations are proposed to apply for tax years of foreign corporations beginning on or after the date of publication of final regulations in the Federal Register. Both the final and 2020 proposed regulations allow for retroactive application, provided the respective regulations are applied consistently. 

A forthcoming PwC Insight will discuss the final and 2020 proposed regulations in more detail.

The takeaway

The Section 245A final regulations provide clarification of and revisions to certain rules in the 2019 temporary and proposed regulations. For those taxpayers subject to the ED rules, the 2020 proposed regulations should be evaluated in detail to determine whether any potential reductions to ED accounts or disqualified basis in specified property may be available.

See also

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Doug McHoney

International Tax Services Leader, PwC US

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