Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 3085 

States because this amount is 

attributable to tangible property located 

within the United States. Based on Corp 

A’s relative gross income from Program 

Y and software platform Z transactions 

in the taxable year, Corp A reasonably 

allocates $90x to software platform Z, of 

which $60x is from sources within the 

United States and $90x to Program Y, of 

which $60x is from sources within the 

United States. 

(F) The sum of the intangible property 

factor ($250x), the personnel factor 

($140x), and the tangible property factor 

($90x) is equal to $480x. The sum of 

these factors from sources within the 

United States is $450x ($250x with 

respect to the intangible property factor, 

$140x with respect to the personnel 

factor, and $60x with respect to the 

tangible property factor). Accordingly, 

Corp A’s $800x of gross income from 

providing software platform Z to 

customers for the taxable year is 

multiplied by the quotient of $450x/ 

$480x pursuant to paragraph (d)(1) of 

this section to determine that $750x is 

from sources within the United States. 

Pursuant to paragraph (d)(1) of this 

section, the remaining $50x 

($800x¥$750x) is from sources without 

the United States. 

(f) Applicability date—(1) In general. 

Except as otherwise provided in this 

paragraph (f), this section applies to 

taxable years beginning on or after 

January 14, 2025. Paragraphs (d) and 

(e)(12) and (13) of this section apply to 

taxable years beginning on or after the 

date of publication of the Treasury 

decision adopting those paragraphs as 

final regulations in the Federal Register. 

(2) Early application. Except for 

paragraphs (d) and (e)(12) and (13) of 

this section, a taxpayer can apply this 

section to taxable years beginning on or 

after August 14, 2019 and all subsequent 

taxable years not described in paragraph 

(f)(1) (early application years) if— 

(i) The taxpayer also applies § 1.861– 

18 to the early application years; 

(ii) This section and § 1.861–18 are 

applied to the early application years by 

all persons related to the taxpayer 

(within the meaning of sections 267(b) 

and 707(b)); 

(iii) The period of limitations on 

assessment for each early application 

year of the taxpayer and all related 

parties (within the meaning of sections 

267(b) and 707(b)) is open under section 

6501; and 

(iv) The taxpayer would not be 

required under this section to change its 

method of accounting as a result of such 

election. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner. 

[FR Doc. 2024–31373 Filed 1–10–25; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–107895–24] 

RIN 1545–BR20 

Base Erosion and Anti-Abuse Tax 

Rules for Qualified Derivative 

Payments on Securities Lending 

Transactions 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations regarding the base 

erosion and anti-abuse tax imposed on 

certain large corporate taxpayers with 

respect to certain payments made to 

foreign related parties. The proposed 

regulations relate to how qualified 

derivative payments with respect to 

securities lending transactions are 

determined and reported. The proposed 

regulations would affect corporations 

with substantial gross receipts that make 

payments to foreign related parties. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by April 14, 2025. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–107895–24) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Requests for a Public 

Hearing’’ section. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted to the IRS’s public docket. 

Send paper submissions to: 

CC:PA:01:PR (REG–107895–24), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Sheila Ramaswamy at (202) 317–6938; 

concerning submissions of comments, 

requests for a public hearing, and access 

to a public hearing, Publications and 

Regulations Section at (202) 317–6901 

(not toll-free numbers) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains proposed 

additions and amendments to 26 CFR 

part 1 (Income Tax Regulations) under 

sections 59A and 6038A of the Internal 

Revenue Code (Code). The proposed 

additions and amendments are issued 

pursuant to the express delegations of 

authority to the Secretary of the 

Treasury (or her delegate) provided 

under sections 59A(i) and 6038A(b)(2). 

The proposed regulations are also 

issued under the express delegation of 

authority under section 7805(a) of the 

Code. 

Background 

I. Statutory Framework 

The base erosion and anti-abuse tax 

(‘‘BEAT’’) of section 59A imposes on 

each applicable taxpayer a tax equal to 

the base erosion minimum tax amount 

for the taxable year. For taxable years 

after 2018 and before 2026, the base 

erosion minimum tax amount for the 

taxable year is the excess of ten percent 

of the modified taxable income of the 

applicable taxpayer minus the 

applicable taxpayer’s regular tax 

liability under section 26(b) reduced 

(but not below zero) by certain credits. 

See section 59A(b)(1) and (2). To be an 

applicable taxpayer, generally the 

taxpayer must meet the following three 

requirements: (1) the taxpayer must be 

a corporation which is not a regulated 

investment company, a real estate 

investment trust, or an S corporation; (2) 

the taxpayer must have average annual 

gross receipts for the three-taxable-year 

period ending with the preceding 

taxable year that are at least $500 

million; and (3) the taxpayer generally 

must have a base erosion percentage for 

the taxable year of at least three percent 

(or two percent for banks and registered 

securities dealers). See section 59A(e). 

The applicable taxpayer determines 

its modified taxable income by 

computing its taxable income without 

regard to any base erosion tax benefit 

with respect to any base erosion 

payment or the base erosion percentage 

of any net operating loss deduction 

allowed under section 172 for the 

taxable year. See section 59A(c)(1). 

Generally, a base erosion payment is 

any deductible amount paid or accrued 

by an applicable taxpayer to a foreign 

person as defined in section 6038A(c)(3) 


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that is a related party of the applicable 

taxpayer. See section 59A(d)(1) and (f). 

The base erosion tax benefit is the 

deduction allowed under Chapter 1 for 

the taxable year for the base erosion 

payment. See section 59A(c)(2). 

Qualified derivative payments (‘‘QDPs’’) 

are not treated as base erosion payments 

if they are properly reported to the IRS. 

See section 59A(h)(1) and (h)(2)(B). 

II. Guidance Addressing the BEAT 

On December 6, 2019, the Treasury 

Department and the IRS published final 

regulations (TD 9885) under sections 

59A, 383, 1502, 6038A, and 6655 (the 

‘‘2019 final regulations’’) in the Federal 

Register (84 FR 66968). On October 9, 

2020, the Treasury Department and the 

IRS also published final regulations (TD 

9910) under sections 59A and 6031 in 

the Federal Register (85 FR 64346). In 

a series of notices, the Treasury 

Department and the IRS announced the 

intention to defer the applicability date 

of § 1.6038A–2(b)(7)(ix) (regarding the 

reporting requirements for QDPs) until 

taxable years beginning on or after 

January 1, 2027. See, e.g., Notice 2024– 

43, 2024–25 IRB 1737. 

Explanation of Provisions 

These proposed regulations provide 

guidance under section 59A that would 

modify the rules set forth in the final 

regulations relating to how to determine 

QDPs in connection with securities 

lending transactions. Part A of this 

Explanation of Provisions summarizes 

the QDP exception. Part B of this 

Explanation of Provisions explains the 

reporting requirements for QDPs, 

particularly with respect to securities 

lending and borrowing transactions. 

Part C of this Explanation of Provisions 

describes the proposed amendment to 

the reporting requirements for QDPs. 

A. Overview of Qualified Derivative 

Payments 

Section 59A and the final regulations 

thereunder provide a number of 

exceptions to base erosion payments. 

One exception relevant to these 

proposed regulations is in section 

59A(h), which provides that QDPs are 

not base erosion payments. Section 

59A(h)(2)(A) defines a QDP as any 

payment made by a taxpayer pursuant 

to a derivative with respect to which the 

taxpayer— 

(i) Recognizes gain or loss as if such 

derivative were sold for its fair market 

value on the last business day of the 

taxable year (and additional times as 

required under a statute or the 

taxpayer’s method of accounting), 

(ii) Treats any gain or loss recognized 

as ordinary, and 

(iii) Treats the character of all items 

of income, deduction, gain, or loss with 

respect to a payment pursuant to the 

derivative as ordinary. 

Section 59A(h)(2)(B) provides that a 

payment is not a QDP unless the 

taxpayer satisfies certain reporting 

requirements. Section 1.59A–6(b)(2)(i) 

provides that a payment is not a QDP 

unless the taxpayer reports the 

information required by § 1.6038A– 

2(b)(7)(ix), which includes: (a) the 

aggregate amount of QDPs for the 

taxable year and (b) a representation 

that all payments satisfy the 

requirements of § 1.59A–6(b)(2). The 

aggregate amount of QDPs is reported on 

the Form 8991, Tax on Base Erosion 

Payments of Taxpayers with Substantial 

Gross Receipts. Under § 1.59A– 

6(b)(2)(ii), if a taxpayer fails to satisfy 

the reporting requirement with respect 

to a payment, that payment is ineligible 

for the QDP exception to base erosion 

payment status, unless another 

exception applies. However, until 

§ 1.59A–6(b)(2)(i) is applicable, § 1.59A– 

6(b)(2)(ii) will not apply to a taxpayer 

who reports the aggregate amount of 

QDPs in good faith. § 1.59A–6(b)(2)(iv). 

Section 1.6038A–2(b)(7)(ix) initially 

applied to taxable years beginning on or 

after June 7, 2021, as a result of which 

§ 1.59A–6(b)(2)(i) did not apply until 

taxable years beginning on or after June 

7, 2021. § 1.6038A–2(g). Therefore, for 

taxable years beginning before June 7, 

2021, taxpayers could satisfy the 

reporting requirements for QDPs by 

reporting the aggregate amount of QDPs 

in good faith. §§ 1.59A–6(b)(2)(iv) and 

1.6038A–2(g). As described in more 

detail below, the Treasury Department 

and the IRS have announced the 

intention to defer the applicability date 

of § 1.6038A–2(b)(7)(ix) to taxable years 

beginning on or after January 1, 2027. 

See, e.g., Notice 2024–43, 2024–25 IRB 

1737. This means that § 1.59A–6(b)(2)(i) 

will not apply until taxable years 

beginning on or after January 1, 2027. 

Once § 1.6038A–2(b)(7)(ix) becomes 

applicable, the reporting requirements 

for QDPs will no longer be satisfied by 

reporting the aggregate amount of QDPs 

in good faith. Instead, taxpayers must 

correctly report the aggregate amount of 

QDPs on Form 8991 to satisfy the 

reporting requirements and only those 

payments for which the reporting 

requirements have been satisfied will 

qualify for the QDP exception. The 

Treasury Department and the IRS are 

considering requiring taxpayers to 

report additional information on the 

Form 8991 or a schedule thereto to 

assist the IRS in verifying that taxpayers 

have accurately reported the payments 

that qualify for the QDP exception. 

Before modifications are made to the 

information required to reported on 

Form 8991 or a schedule thereto, the 

IRS expects to make a draft available 

with the proposed changes so that 

taxpayers may submit comments. 

The aggregate amount of QDPs is 

defined under § 1.59A–6(b)(2)(iii) and 

(b)(3) to incorporate § 1.59A–2(e)(3)(vi) 

(the ‘‘BEAT Netting Rule’’). The BEAT 

Netting Rule provides that for any 

position with respect to which the 

taxpayer applies a mark-to-market 

method of accounting, the taxpayer 

must determine its gain or loss with 

respect to that position for any taxable 

year by combining all items of income, 

gain, loss, or deduction arising with 

respect to the position during the 

taxable year, such as from a payment, 

accrual, or mark. The BEAT Netting 

Rule was adopted to ensure that only a 

single deduction is claimed with respect 

to each transaction that is marked to 

market and to prevent distortions in 

deductions from being included in the 

denominator of the base erosion 

percentage, including as a result of the 

use of an accounting method that values 

a position more frequently than 

annually. See Preamble to the 2019 final 

regulations, 84 FR 66971. For example, 

when a taxpayer is a party to an interest 

rate swap with a foreign related party, 

the BEAT Netting Rule ensures that the 

periodic payments made by the taxpayer 

to the foreign related party give rise to 

only a single deduction in a taxable year 

regardless of whether the taxpayer 

marks to market the swap more 

frequently than annually. 

B. Reporting and Determining QDPs 

A comment recommended modifying 

the 2019 final regulation to provide that 

mark-to-market gains and losses with 

respect to the securities leg of a crossborder securities lending or borrowing 

transaction with a related party (an 

‘‘intercompany securities lending 

transaction’’) are not subject to the QDP 

reporting requirements. The Treasury 

Department and the IRS agree that markto-market gains and losses with respect 

to intercompany securities lending 

transactions should not be subject to the 

QDP reporting requirements; however, 

the Treasury Department and the IRS do 

not agree with the rationale suggested 

by the comment. Part B.1 of this 

Explanation of Provisions describes 

intercompany securities lending 

transactions and the QDP rules 

applicable to those transactions as 

provided by the 2019 final regulations. 

Part B.2 of this Explanation of 

Provisions summarizes the comment 

requesting changes to the QDP reporting 

requirements with respect to mark-toVerDate Sep<11>2014 16:10 Jan 13, 2025 Jkt 265001 PO 00000 Frm 00043 Fmt 4702 Sfmt 4702 E:\FR\FM\14JAP1.SGM 14JAP1

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market gains and losses on 

intercompany securities lending 

transactions. Part B.3 of this 

Explanation of Provisions describes the 

proposed modifications to the QDP 

reporting requirements and explains 

why the Treasury Department and the 

IRS disagree with the rationale generally 

offered in the comment. 

1. Application of QDP Reporting to 

Securities Lending or Borrowing 

Transactions 

After the publication of the 2019 final 

regulations, comments requested 

clarification as to how the QDP 

reporting requirements apply to markto-market gains and losses with respect 

to the securities leg of an intercompany 

securities lending transaction. The 

Treasury Department and the IRS 

subsequently issued three notices 

announcing the intent to defer the 

applicability date of the reporting rules 

of § 1.6038A–2(b)(7)(ix) while the 

Treasury Department and the IRS 

studied whether further guidance was 

appropriate regarding the interaction of 

the QDP exception, the BEAT Netting 

Rule, and the QDP reporting 

requirements with respect to 

intercompany securities lending 

transactions. See Notice 2021–36, 2021– 

26 IRB 1227; Notice 2022–30, 2022–28 

IRB 70. The most recent notice, Notice 

2024–43, announced the intent to defer 

the applicability date to taxable years 

beginning on or after January 1, 2027. 

Notice 2024–43, 2024–25 IRB 1737. 

In a typical intercompany securities 

borrowing transaction, a taxpayer may 

borrow securities, such as stock, from a 

foreign related party. The terms of the 

securities loan agreement will require 

the taxpayer to return identical 

securities to the foreign related party 

and to pay amounts equivalent to all 

interest, dividends, and other 

distributions that the foreign related 

party would be entitled to receive 

during the term of the lending 

transaction if it had not loaned the 

securities (substitute payments). The 

securities borrower may also be required 

to pay a separately stated borrow fee. 

Additionally, under normal market 

terms in the United States, the securities 

borrower will provide cash collateral 

and receive interest (the cash amount of 

which may be reduced by an embedded 

borrow fee) on that collateral. A 

taxpayer may also lend securities to a 

foreign related party under similar 

terms. For ease of discussion, both such 

transactions generally are referred to in 

this Explanation of Provisions as a 

securities lending transaction. Under a 

taxpayer’s method of accounting, 

intercompany securities lending 

transactions may be marked to market 

on the last business day of its taxable 

year. 

Section 1.59A–6(d) defines a 

derivative, for purposes of the QDP 

rules, as any contract the value of 

which, or any payment or transfer with 

respect to which, is determined by 

reference to, among other items, any 

share of stock of a corporation or any 

evidence of indebtedness. Special rules 

apply to securities lending transactions, 

pursuant to which a derivative does not 

include the cash collateral component 

of the transaction. § 1.59A– 

6(d)(2)(iii)(B). Accordingly, only the 

securities leg of a securities lending 

transaction—that is, the part of the 

contract providing for the borrowing 

and return of the securities, without 

regard to any obligation to provide cash 

collateral—may be treated as a 

derivative for purposes of the QDP 

rules. 

Like other derivatives, the amount of 

any QDP arising from a securities 

lending transaction is excluded from the 

numerator and the denominator of the 

base erosion percentage. Section 

59A(h)(1); § 1.59A–6(b)(3)(i). The 

aggregate amount of QDPs is determined 

as provided by the BEAT Netting Rule. 

§ 1.59A–6(b)(2)(iii). For intercompany 

securities lending transactions, 

however, the cash collateral component 

of a securities lending transaction, and 

the payment of interest thereon, are not 

taken into account for purposes of the 

BEAT Netting Rule. § 1.59A–6(b)(3)(ii) 

and (d)(2)(iii)(B). 

2. Comments Requesting Modifications 

to the QDP Reporting Requirements 

A comment on the QDP reporting 

requirements of the regulations 

discussed the treatment of gains and 

losses on the securities leg of 

intercompany securities lending 

transactions. When the taxpayer is the 

securities borrower, the securities leg 

can result in deductions with respect to 

substitute payments or other payments 

made to the securities lender and, if the 

taxpayer marks to market the securities 

lending transaction, deductions for 

mark-to-market losses on the obligation 

to return the borrowed securities if the 

value of the borrowed securities 

increases. A transaction in which a U.S. 

taxpayer lends securities to a foreign 

related party also can give rise to a 

deduction for mark-to-market losses on 

the right to the return of the loaned 

securities if the value of the loaned 

securities decreases. 

The comment agreed that substitute 

payments should be reported under the 

QDP reporting requirements but 

asserted that mark-to-market gains and 

losses on intercompany securities 

lending transactions should not be 

required to be reported. The comment 

noted that the language in the preamble 

to the 2019 final regulations stated that 

‘‘a mark-to-market loss arising from a 

deemed sale or disposition of a thirdparty security held by a taxpayer is not 

within the general definition of a base 

erosion payment because the loss is not 

attributable to any payment made to a 

foreign related party. Rather, the markto-market loss is attributable to a decline 

in the market value of the security.’’ See 

Preamble to the 2019 final regulations, 

84 FR 66972 (noting ‘‘that the BEAT 

Netting Rule will apply primarily for 

purposes of determining the amount of 

deductions that are taken into account 

in the denominator of the base erosion 

percentage’’). The comment viewed this 

statement as applicable not only to 

mark-to-market losses on third-party 

securities held by the taxpayer but also 

to mark-to-market losses on 

intercompany securities lending 

transactions. The comment asserted that 

that treatment would be correct as a 

legal matter, arguing that mark-tomarket losses on derivatives with a 

related party are not payments to a 

related party. The comment supported 

this conclusion on the basis of 

legislative history to section 475 stating 

that mark-to-market gains or losses on a 

security that is a contract with a related 

party are treated as arising from a sale 

to an unrelated party. 

The comment stated that mark-tomarket losses should not be captured by 

the QDP reporting requirement because 

these losses should not be considered 

base erosion payments, and the QDP 

exception is predicated on an amount 

being a base erosion payment. The 

comment noted that including mark-tomarket gains and losses on 

intercompany securities lending 

transactions in the amount of QDPs 

reported on Form 8991 could result in 

a QDP number that is either over- or 

under-inclusive of what the comment 

considered to be the correct aggregate 

QDP amount, depending upon the facts. 

For example, a taxpayer that has a markto-market gain for the year on an 

intercompany securities borrowing that 

exceeds the amount of substitute 

payments it makes would report no 

QDPs on the transaction by operation of 

the BEAT Netting Rule even though, in 

the view of the comment, the actual 

amount of QDPs should equal the 

amount of the substitute payments. The 

comment requested that the regulations 

under section 59A be revised to provide 

that mark-to-market gains and losses for 

the securities leg of an intercompany 


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securities transaction are not payments 

to foreign related parties and should not 

be included in QDP reporting. 

The same stakeholder also submitted 

a comment requesting that the 

applicability date of the reporting rules 

of § 1.6038A–2(b)(7)(ix) be deferred for 

another two years because financial 

institutions (a) do not have systems that 

maintain records of intercompany 

securities transactions from which 

mark-to-market gains or losses can be 

determined, including whether a 

particular securities lending transaction 

is cross-border; and (b) need certainty 

regarding the QDP reporting rules before 

building compliance systems. The 

stakeholder also commented that, while 

it believes mark-to-market amounts on 

other derivatives also are not base 

erosion payments, it is appropriate to 

apply the BEAT Netting Rule to the 

reporting of QDPs relating to those 

derivatives for practical reasons, 

including that taxpayers have the 

necessary information on their books 

and records to apply the BEAT Netting 

Rule to the QDP determination. 

3. Changes to the Rule for Determining 

QDPs 

While the Treasury Department and 

the IRS agree with the recommendation 

suggested by the comment, the Treasury 

Department and the IRS do not agree 

with the commenter’s more general 

assertion that mark-to-market payments 

on derivatives with a foreign related 

party are not, or should not be, treated 

as base erosion payments. Payments on 

derivatives made to a foreign related 

party are base erosion payments, unless 

they qualify as QDPs. Sections 59A(d)(1) 

and 59A(h). They must be taken into 

account for BEAT purposes either when 

paid or when otherwise taken into 

account for U.S. Federal income tax 

purposes. If the commenter’s position 

were correct, payments on derivatives to 

a foreign related party would be 

required to be taken into account for 

BEAT purposes when paid or accrued, 

which would deviate from when such 

payments are taken into account for 

other Federal income tax purposes for 

taxpayers that mark those payments to 

market. 

For derivatives, the effect of the BEAT 

Netting Rule generally is to aggregate all 

items of income, gain, loss, or deduction 

to ensure that a single deduction is 

claimed with respect to each transaction 

that is marked to market. Because a 

derivative must be marked-to-market for 

tax purposes in order for a payment on 

the derivative to qualify as a QDP, it is 

appropriate to determine the aggregate 

amount of QDPs by reference to the 

BEAT Netting Rule. Section 

59A(h)(2)(A)(i). 

The QDP exception eliminates most 

mark-to-market gain or loss from 

derivative transactions from being 

characterized as base erosion payments. 

In those situations for which the QDP 

exception does not apply, mark-tomarket losses on derivative contracts 

with foreign related parties generally are 

properly treated as base erosion 

payments. However, the Treasury 

Department and the IRS agree that it is 

appropriate to propose a special rule for 

mark-to-market losses (and gains) on 

intercompany securities lending 

transactions. Securities lending 

transactions have different 

characteristics from other derivative 

transactions such that it is appropriate 

to provide for a different treatment 

under the QDP rules. Unlike other 

derivative contracts such as forward 

contracts, options or notional principal 

contracts, securities lending 

transactions require the lender to 

transfer the securities to the borrower at 

the inception of the transaction and the 

borrower is required to return those 

securities (or identical securities) to the 

lender when the securities lending 

transaction is terminated. While other 

derivative transactions may provide 

either for physical delivery of a security 

or for cash settlement, those 

transactions typically function as a riskshifting mechanism, whereas securities 

lending transactions are generally 

entered into to temporarily acquire or 

lend the securities. Additionally, a loss 

recognized on the sale or transfer of 

property, including securities, that 

results in a deduction is generally not a 

base erosion payment. § 1.59A– 

3(b)(2)(ix). As stated in the preamble to 

the 2019 final regulations, a mark-tomarket loss from a deemed disposition 

of a third-party security is not a base 

erosion payment because the loss is not 

attributable to any payment made to a 

foreign related party; that loss is instead 

attributable to a decline in the market 

value of the security. 84 FR 66968, 

66972. If the taxpayer sold the stock or 

debt to a foreign related party, loss on 

sale of the stock or debt generally would 

not be a deduction that would cause the 

payment to be treated as a base erosion 

payment under § 1.59A–3(b)(2)(ix). 

If a taxpayer borrows securities from 

a foreign related party, and the security 

rises in value during the term of the 

intercompany securities lending 

transaction, the taxpayer has an 

economic loss on its contractual 

obligation to return the securities. In 

some cases (for example, if the 

intercompany securities lending 

transaction is part of a short sale 

transaction), the taxpayer also might 

have a tax loss when it returns the 

security to the foreign related party. 

Similarly, if a taxpayer lends securities 

to a foreign related party and the 

security falls in value, the taxpayer 

would have an economic loss on its 

contractual right to the return of the 

security. If the taxpayer sold the 

returned security, the taxpayer would 

recognize that loss for tax purposes. 

Marking to market the securities lending 

transaction in these circumstances 

accelerates the recognition of the tax 

loss attributable to the transaction. 

For example, assume that a taxpayer 

that applies mark-to-market accounting 

for U.S. Federal income tax purposes 

borrows stock from a foreign related 

party pursuant to an intercompany 

securities lending transaction on 

September 1, when the value of the 

stock is $100x. The taxpayer sells the 

stock for $100x on September 1. The 

intercompany securities lending 

transaction is outstanding on December 

31, when the value of the stock is $106x, 

and a $1x dividend is paid on the stock 

by the issuer after September 1 and 

prior to December 31. The taxpayer will 

make a $1x substitute dividend payment 

to the foreign related party. Under the 

BEAT Netting Rule, the taxpayer will 

have a $7x loss on this transaction ($7x) 

= (($100x¥$106x)¥$1x). The substitute 

dividend payment is a $1x base erosion 

payment on a stand-alone basis that is 

eligible for the QDP exception assuming 

all the requirements of section 59A and 

the regulations are met. The $6x markto-market loss on the securities leg of 

intercompany securities lending 

transaction is a loss on a derivative that 

requires the delivery of the stock at the 

termination of the transaction, and 

arises because the increase in value of 

the stock makes it more expensive for 

the taxpayer to satisfy its obligation to 

deliver the stock to the foreign related 

party. If, hypothetically, the 

intercompany securities lending 

transaction were not marked to market, 

and the taxpayer realized a $6x loss on 

the delivery of the stock to the foreign 

related party at the termination of the 

transaction, that $6x loss would not be 

a base erosion payment. 

Alternatively, if the value of the stock 

were $94x on December 31, the taxpayer 

would have a gain of $5x on the 

transaction $5x = (($100x¥$94x)¥$1x)) 

under the BEAT Netting Rule. The 

taxpayer would have a $6x mark-tomarket gain on the securities leg of the 

intercompany securities lending 

transaction, which would arise because 

the decrease in value of the stock makes 

it less expensive for the taxpayer to 

satisfy its obligation to deliver the stock 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 3089 

to the foreign related party. If, 

hypothetically, the intercompany 

securities lending transactions were not 

marked to market, and the taxpayer 

realized a $6x gain on the delivery of 

the stock to the foreign related party at 

the termination of the transaction, that 

$6x gain would not be a base erosion 

payment. The substitute dividend 

payment is a $1x base erosion payment 

that is eligible for the QDP exception 

assuming all the requirements of section 

59A and the regulations are met. 

Accordingly, the Treasury Department 

and the IRS are of the view that the 

BEAT regulations should be revised to 

provide that mark-to-market gains and 

losses on the securities leg of a 

securities lending transactions with a 

foreign related party are not treated as 

a QDP. Consequently, only substitute 

payments and other payments made to 

a foreign related party under an 

intercompany securities lending 

transaction that are not payments of 

cash collateral or interest thereon would 

be QDPs. 

The proposed regulations would 

provide that mark-to-market gains and 

losses on the securities leg of an 

intercompany securities lending 

transaction are not treated as QDPs and 

therefore are not netted with QDPs nor 

required to be included in QDP 

reporting. Proposed § 1.59A– 

6(b)(3)(iii)(A). Mark-to-market gains and 

losses on other derivative transactions 

(including other derivative transactions 

that provide for physical delivery) must 

be included in QDP reporting. The 

proposed regulations would not alter 

the rule that substitute payments and 

other payments to foreign related parties 

must be reported under §§ 1.59A– 

6(b)(2)(i) and 1.6038A–2(b)(7)(ix). Those 

amounts must be taken into account on 

a consistent basis when determining the 

amount of the taxpayer’s base erosion 

payment, for example on a cash, accrual 

or mark-to-market basis, in a manner 

that does not omit or duplicate any 

payment. Proposed § 1.59A– 

3(b)(2)(iv)(B). Furthermore, the 

proposed rule achieves the compliance 

objectives of the QDP reporting 

requirement without imposing 

additional burden on taxpayers to create 

new systems to track mark-to-market 

gains and loss with respect to 

intercompany securities lending 

transactions. 

Proposed § 1.59A–3(b)(2)(iv) would 

provide a conforming amendment to the 

definition of a base erosion payment in 

the context of the securities leg of a 

securities lending transaction to provide 

that the BEAT Netting Rule under 

§ 1.59A–2(e)(3)(vi) does not apply to net 

QDPs with mark-to-market gains and 

losses on securities lending 

transactions. Consequently, only 

amounts paid to a foreign related party 

under a securities lending transaction 

that do not qualify as a QDP will be 

taken into account for purposes of the 

numerator of the base erosion perentage, 

such as in the case where a taxpayer 

lends securities and pays or accrues 

interest to a foreign related party with 

respect to the cash leg of a securities 

lending transaction. The BEAT Netting 

Rule continues to apply to determine 

the deductions attributable to securities 

lending transactions for purposes of the 

denominator of the base erosion 

percentage. § 1.59A–2(e)(3)(vi). 

C. Rule for Determining the Recipient of 

a Substitute Payment 

Comments suggested that it may be 

challenging for a financial institution to 

determine whether it has borrowed a 

security from a foreign related party or 

an unrelated third-party customer. 

According to the comments, when a 

U.S. broker-dealer enters into securities 

lending transactions with third-party 

customers, the broker-dealer may 

borrow the securities required to 

execute the trade from a pool of 

available securities owned by other 

customers, some of which are U.S. 

customers, and some of which are 

foreign customers who have accounts 

with a foreign affiliate of the U.S. 

broker-dealer. If the borrowed security 

is owned by a foreign customer, the 

comments indicated that the U.S. 

broker-dealer may be treated as having 

entered into a securities borrowing 

transaction with its foreign affiliate who 

has the relationship with the foreign 

customer, who in turn borrowed the 

security from its foreign customer. 

However, the U.S. broker-dealer may 

not determine from which specific 

customer it has borrowed a security or 

whether it has entered into an 

intercompany securities borrowing 

transaction with its foreign affiliate. The 

U.S. broker-dealer may determine its 

counterparty only when a substitute 

dividend is required to be paid (for 

example, on the dividend record date), 

and only for purposes of determining 

the recipient of the substitute payment 

for U.S. Federal income or withholding 

tax purposes. 

To address this concern, the proposed 

regulations would provide that a 

taxpayer may report the amount actually 

paid to foreign related parties for QDP 

reporting purposes if the taxpayer can 

associate the substitute payment on 

securities borrowed and other payments 

made pursuant to a securities loan (such 

as borrow fees) with a specific recipient. 

The ‘‘lottery’’ method of § 1.6045– 

2(f)(2)(ii) is not applicable for this 

purpose. In response to the challenges 

that may exist in determining whether 

the recipient of a substitute payment 

and other payments is a foreign related 

party of the taxpayer, proposed § 1.59A– 

6(b)(3)(iv) would provide an alternative 

rule that treats the substitute payments 

that a taxpayer pays with respect to 

borrowed securities as having been paid 

first to foreign related parties (but not in 

excess of the amount of the payments 

received by the foreign related parties). 

Proposed Applicability Date 

Proposed §§ 1.59A–3(b)(2)(iv) 

(application of BEAT netting rule to 

securities lending transactions) and 

1.59A–6(b)(3)(iii) and (iv) (QDP rules 

relating to securities lending 

transactions) would apply to taxable 

years beginning on or after the date that 

final regulations are filed with the 

Federal Register. Proposed § 1.6038A– 

2(b)(7)(ix) (rules relating to QDP 

reporting) would apply to payments 

made in taxable years beginning on or 

after January 1, 2027. 

Special Analysis 

I. Regulatory Planning and Review— 

Economic Analysis 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

These proposed regulations do not 

impose any additional information 

collection requirements in the form of 

reporting, recordkeeping requirements, 

or third-party disclosure statements. 

However, a taxpayer will continue to be 

required to report on Form 8991, Tax on 

Base Erosion Payments of Taxpayers 

with Substantial Gross Receipts, the 

aggregate amount of QDPs. 

For purposes of the Paperwork 

Reduction Act, the reporting burden 

associated with the collections of 

information with respect to section 59A 

will be reflected in the Paperwork 

Reduction Act Submission associated 

with Form 8991 (OMB control number 

1545–0123). The overall burden 

estimates associated with the OMB 

control number 1545–0123 is an 

aggregate number related to the entire 

package of forms associated with the 

applicable OMB control number and 

will include, but not isolate, the 

estimated burden of the tax forms that 


khammond on DSK9W7S144PROD with PROPOSALS
3090 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

will be created or revised as a result of 

these proposed regulations. These 

numbers are therefore not specific to 

any burden imposed by these proposed 

regulations. The burdens have been 

reported for other income tax 

regulations that rely on the same 

information collections and the 

Treasury Department and the IRS urge 

readers to recognize that these numbers 

are duplicates and to guard against 

overcounting the burdens imposed by 

tax provisions before Tax Cuts and Jobs 

Act, Public Law 115–97 (2017) (the 

‘‘Act’’). No burden estimates specific to 

the forms affected by the proposed 

regulations are currently available. For 

the OMB control number discussed in 

this paragraph, the Treasury Department 

and the IRS estimate PRA burdens on a 

taxpayer-type-basis rather than a 

provision-specific basis. Those 

estimates capture both changes made by 

the Act and those that arise out of 

discretionary authority exercised in the 

proposed regulations (when final) and 

other regulations that affect the 

compliance burden for that form. 

The Treasury Department and the IRS 

request comments on all aspects of 

information collection burdens related 

to the proposed regulations, including 

estimates for how much time it would 

take to comply with the paperwork 

burdens described above for each 

relevant form and ways for the IRS to 

minimize paperwork burden. In 

addition, when available, drafts of IRS 

forms are posted at https://

www.irs.govdraft-tax-forms, and 

comments may be submitted at https:// 

www.irs.gov/forms-pubs/comment-ontax-forms-and-publications. Final IRS 

forms are available at https://

www.irs.gov/forms-instructions. Forms 

will not be finalized until after they 

have been approved by OMB under the 

PRA. 

III. Regulatory Flexibility Act 

Generally, the proposed regulations 

affect only aggregate groups of 

corporations with average annual gross 

receipts of at least $500 million and that 

make payments to foreign related 

parties. Generally, only large businesses 

have both substantial gross receipts and 

make payments to foreign related 

parties. In accordance with the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.) the Secretary hereby certifies 

that these proposed regulations will not 

have a significant economic impact on 

a substantial number of small entities. 

IV. Section 7805(f) 

Pursuant to section 7805(f) of the 

Code, these proposed regulations will be 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business. 

V. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. The proposed 

regulations do not include any Federal 

mandate that may result in expenditures 

by State, local, or Tribal governments, or 

by the private sector in excess of that 

threshold. 

VI. Executive Order 13132: Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial, direct compliance costs on 

State and local governments, and is not 

required by statute, or preempts State 

law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive order. The 

proposed regulations do not have 

federalism implications and do not 

impose substantial direct compliance 

costs on State and local governments or 

preempt State law within the meaning 

of the Executive order. 

Comments and Request for Public 

Hearing 

Before these proposed amendments to 

the final regulations are adopted as final 

regulations, consideration will be given 

to comments that are submitted timely 

to the IRS as prescribed in this preamble 

under the ADDRESSES heading. Any 

comments submitted will be made 

available at https://www.regulations.gov 

or upon request. A public hearing will 

be scheduled if requested in writing by 

any person who timely submits written 

comments. Requests for a public hearing 

are also encouraged to be made 

electronically. If a public hearing is 

scheduled, notice of the date and time 

for the public hearing will be published 

in the Federal Register. 

Drafting Information 

The principal authors of the proposed 

regulations are D. Peter Merkel and 

Sheila Ramaswamy of the Office of 

Associate Chief Counsel (International). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and IRS propose to amend 26 CFR part 

1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

■ Par. 2. Section 1.59A–2 is amended 

by removing the language ‘‘§ 1.59A– 

3(b)(2)(iii)’’ from the last sentence of 

paragraph (e)(3)(vi) and adding the 

language ‘‘§ 1.59A–3(b)(2)(iv)’’ in its 

place. 

■ Par. 3. Section 1.59A–3 is amended 

by revising paragraph (b)(2)(iv) to read 

as follows: 

§ 1.59A–3 Base erosion payments and 

base erosion tax benefits. 

* * * * * 

(b) * * * 

(2) * * * 

(iv) Amounts paid or accrued with 

respect to mark-to-market position—(A) 

In general. For any transaction with 

respect to which the taxpayer applies 

the mark-to-market method of 

accounting for U.S. Federal income tax 

purposes, the rules set forth in § 1.59A– 

2(e)(3)(vi) apply to determine the 

amount of the base erosion payment. 

(B) Application of BEAT netting rule 

to securities lending transactions. 

Notwithstanding paragraph (b)(2)(iv)(A) 

of this section, mark-to-market gains 

and losses from a securities lending 

transaction described in §§ 1.861–2(a)(7) 

and 1.861–3(a)(6) are not taken into 

account when applying § 1.59A– 

2(e)(3)(vi) for purposes of determining 

the amount of a taxpayer’s base erosion 

payment. When determining the amount 

of the taxpayer’s base erosion payment, 

substitute payments and other amounts 

that relate to the securities lending 

transaction must be taken into account 

on a consistent basis that does not result 

in the duplication or omission of these 

amounts. For purposes of the 

immediately preceding sentence, the 

term ‘‘other amounts that relate to the 

securities lending transaction’’ does not 

include delivery of the securities to, or 

receipt of securities from, the lender. 

This paragraph (b)(2)(iv)(B) applies to a 

taxpayer that is either the borrower or 

lender with respect to the securities 

lending transaction. 

* * * * * 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 3091 

■ Par. 4. Section 1.59A–6 is amended 

by adding paragraphs (b)(3)(iii) and (iv) 

to read as follows: 

§ 1.59A–6 Qualified derivative payment. 

* * * * * 

(b) * * * 

(3) * * * 

(iii) Special rule for mark-to-market 

gains and losses on the securities leg of 

a securities lending transaction—(A) In 

general. The amount of any qualified 

derivative payment with respect to the 

securities leg component of a securities 

lending transaction as defined in 

§§ 1.861–2(a)(7) and 1.861–3(a)(6) that is 

excluded from the denominator of the 

base erosion percentage is determined 

under § 1.59A–3(b)(2)(iv)(B). Gains and 

losses on a security leg of a securities 

lending transaction are not included in 

determining the amount of the qualified 

derivative payment with respect to that 

security. The gain or loss with respect 

to the security leg for purposes of 

determining the amount of the qualified 

derivative payment is determined by 

combining only other items of income, 

gain, loss, or deduction during the 

taxable year, such as substitute 

payments and borrow fees, that arise 

from a payment or accrual to a foreign 

related party. 

(B) The following examples illustrate 

the application of this paragraph 

(b)(3)(iii). 

(1) Example 1: Securities loan—(i) 

Facts. Foreign Parent (FP) is a foreign 

corporation that owns all of the stock of 

domestic corporation (DC). FP is a 

foreign related party of DC under 

§ 1.59A–1(b)(12). DC is a registered 

securities dealer. On September 1 of 

year 1, DC enters into a securities 

lending transaction with FP in which it 

borrows stock from FP. DC provides 

cash collateral for the loan and receives 

interest on that collateral from FP. On 

September 1, year 1, the stock has a 

value of $100x. On November 1, year 1, 

a dividend of $1x is paid by the issuer 

on the stock. DC pays a substitute 

dividend of $1x to FP on November 1, 

year 1 under the terms of the security 

loan. There are no other payments made 

or received in year 1. On December 31, 

year 1, the stock has a value of $106x. 

DC is required to mark-to-market the 

securities leg of securities lending 

transaction for U.S. Federal income tax 

purposes. DC is a calendar year 

taxpayer. 

(ii) Analysis. DC has a deduction of 

$1x as a result of the substitute dividend 

it pays to FP. Assuming that the 

securities lending transaction otherwise 

meets the requirements of this section 

(including reporting the information 

required by § 1.6038A–2(b)(7)(ix)), the 

amount of DC’s qualified derivative 

payment with respect to the securities 

lending transaction is $1x. Payments 

with respect to the cash collateral are 

not treated as part of the securities 

lending transaction. See paragraph 

(d)(2)(iii)(B) of this section. With respect 

to the securities leg of the securities 

lending transaction, DC has a mark-tomarket loss of ($6x). Under paragraph 

(b)(3)(iii)(A) of this section, the amount 

of this mark-to-market loss is not 

included when determining the amount 

of the qualified derivative payment. 

Under § 1.59A–3(b)(2)(iv)(B), DC’s ($6x) 

mark-to-market loss on the securities leg 

of the securities lending transaction also 

is not taken into account in determining 

the base erosion tax benefit amount for 

purposes of the numerator of the base 

erosion percentage. The ($6x) loss is 

taken into account in the denominator 

of the base erosion percentage, while the 

$1x substitute dividend payment is not 

taken into account for that purpose 

because it is a qualified derivative 

payment. See § 1.59A–2(e)(3)(vi) and 

(e)(3)(ii)(C). 

(2) Example 2: Securities loan. The 

facts are the same as in paragraph 

(b)(3)(iii)(B)(1) of this section (Example 

1) except that on December 31, year 1, 

the stock has a value of $94x. With 

respect to the securities leg of the 

securities lending transaction, DC has a 

mark-to-market gain of $6x. Under 

paragraph (b)(3)(iii)(A) of this section, 

the amount of this mark-to-market gain 

is not included when determining the 

amount of the qualified derivative 

payment. DC has a deduction of $1x as 

a result of the substitute dividend 

payment it makes to FP. Assuming that 

the securities lending transaction 

otherwise meets the requirements of this 

section (including reporting the 

information required by § 1.6038A– 

2(b)(7)(ix)), the amount of DC’s qualified 

derivative payment with respect to the 

securities lending transaction is $1x. 

Neither the $6x gain nor the $1x 

substitute dividend payment, which is a 

qualified derivative payment, are taken 

into account in the denominator of the 

base erosion percentage. 

(iv) Rule for determining the amount 

of substitute payments and other 

payments paid to foreign related parties 

with respect to a securities lending 

transaction—(A) In general. When a 

taxpayer makes a substitute payment or 

other payment with respect to a 

securities lending transaction, the 

taxpayer must determine whether the 

substitute payment or other payment 

paid with respect to the securities 

lending transaction is paid to a foreign 

related party. The amount of substitute 

payments or other payments paid by the 

taxpayer to a foreign related party is 

determined under paragraph 

(b)(3)(iv)(B) or (C) of this section. 

(B) Specific identification method. 

The taxpayer may determine the amount 

of substitute payments or other 

payments that it has paid to a foreign 

related party by using the amount 

actually paid by the taxpayer to the 

foreign related party if the taxpayer can 

specifically identify each recipient of 

the substitute payment or other 

payment. 

(C) Alternative method. If the taxpayer 

has paid substitute payments or other 

payments but cannot determine the 

recipients of those payments, the 

taxpayer must use the methodology 

provided in this paragraph (b)(3)(iv)(C) 

to determine whether the recipient is a 

foreign related party. 

(1) Step 1: Determining the total 

amount of substitute payments and 

other payments received by foreign 

related parties. The taxpayer must 

determine the total amount of substitute 

payments and other payments described 

in paragraph (b)(3)(iii) of this section 

received by all foreign related parties of 

the taxpayer during the taxable year. 

(2) Step 2: Determining the total 

amount of substitute payments and 

other payments paid by taxpayer. The 

taxpayer must determine the total 

amount of substitute payments and 

other payments described in paragraph 

(b)(3)(iii) of this section paid by the 

taxpayer during the taxable year. 

(3) Step 3: Determining the amount of 

substitute payments and other payments 

paid by taxpayer to foreign related 

parties. The amount of substitute 

payments and other payments described 

in paragraph (b)(3)(iii) of this section 

paid by the taxpayer is treated as being 

paid first to foreign related parties of the 

taxpayer up to the total amount of 

substitute payments and other payments 

received by foreign related parties. Any 

amount of substitute payments and 

other payments paid by the taxpayer 

that exceeds the amount of substitute 

payments and other payments received 

by foreign related parties is treated as 

paid to unrelated parties for purposes of 

this paragraph (b)(3)(iv)(C)(3). 

* * * * * 

■ Par. 5. Section 1.59A–10 is amended 

by revising paragraph (a) and adding 

paragraph (c) to read as follows: 

§ 1.59A–10 Applicability date. 

(a) General applicability date. 

Sections 1.59A–1 through 1.59A–9, 

other than the provisions described in 

the first sentence of paragraph (b) of this 

section or in paragraph (c) of this 

section, apply to taxable years ending 

on or after December 17, 2018. However, 


khammond on DSK9W7S144PROD with PROPOSALS
3092 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

1Under § 1.401(k)–1(a)(2)(i), a CODA generally is 

an arrangement providing for an election by an 

employee to have the employer provide either 

contributions to a plan described in section 401(a) 

or payments directly in cash. 

taxpayers may apply these regulations 

in their entirety for taxable years 

beginning after December 31, 2017, and 

ending before December 17, 2018. In 

lieu of applying the regulations referred 

to in the first sentence of this paragraph 

(a), taxpayers may apply the provisions 

matching §§ 1.59A–1 through 1.59A–9 

from the Internal Revenue Bulletin (IRB) 

2019–02 (https://www.irs.gov/irb/2019- 

02_IRB) in their entirety for all taxable 

years beginning after December 31, 

2017, and ending on or before December 

6, 2019. 

* * * * * 

(c) Additional applicability dates. 

Sections 1.59A–3(b)(2)(iv) and 1.59A– 

6(b)(3) (iii) through (iv) apply to taxable 

years beginning on or after January 10, 

2025. 

■ Par. 6. Section 1.6038A–2 is amended 

by revising the third sentence of 

paragraph (g) to read as follows: 

§ 1.6038A–2 Requirement of return. 

* * * * * 

(g) * * * Paragraph (b)(7)(ix) of this 

section applies to payments made in 

taxable years beginning on or after 

January 1, 2027. * * * 

Douglas W. O’Donnell, 

Deputy Commissioner. 

[FR Doc. 2025–00186 Filed 1–10–25; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–100669–24] 

RIN 1545–BR08 

Automatic Enrollment Requirements 

Under Section 414A 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document sets forth 

proposed regulations that would 

provide guidance with respect to the 

automatic enrollment requirements that 

apply to certain retirement plans. The 

proposed regulations reflect statutory 

changes made by the SECURE 2.0 Act of 

2022 requiring that certain cash or 

deferred arrangements and salary 

reduction agreements be eligible 

automatic contribution arrangements 

that satisfy additional specified 

requirements. The proposed regulations 

would affect participants in, 

beneficiaries of, employers maintaining, 

and administrators of certain retirement 

plans that include cash or deferred 

arrangements or annuity contracts 

purchased under salary reduction 

agreements and other retirement plans 

that include eligible automatic 

contribution arrangements. This 

document also provides notice of a 

public hearing. 

DATES: Written or electronic comments 

must be received by March 17, 2025. A 

public hearing on this proposed 

regulation has been scheduled for April 

8, 2025, at 10 a.m. ET. Requests to speak 

and outlines of topics to be discussed at 

the public hearing must be received by 

March 17, 2025. If no outlines are 

received by March 17, 2025, the public 

hearing will be cancelled. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at 

www.regulations.gov (indicate IRS and 

REG–100669–24) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Public Hearing’’ 

section. Once submitted to the Federal 

eRulemaking Portal, comments cannot 

be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comment 

submitted electronically or on paper to 

its public docket on 

www.regulations.gov. Send paper 

submissions to: CC:PA:01:PR (REG– 

100669–24), Room 5203, Internal 

Revenue Service, P.O. Box 7604, Ben 

Franklin Station, Washington, DC 

20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

call Christina M. Cerasale at (202) 317– 

4102 or Kara M. Soderstrom at (202) 

317–6799; concerning submission of 

comments, the hearing, and the access 

code to attend the hearing by telephone, 

call the Publications and Regulations 

Section at (202) 317–6901 (not toll-free 

numbers) or email publichearings@

irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Authority 

These proposed regulations are 

promulgated under section 7805(a) of 

the Internal Revenue Code (Code), 

which provides that ‘‘the Secretary shall 

prescribe all needful rules and 

regulations for the enforcement of [the 

Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ In 

addition, section 341 of the SECURE 2.0 

Act of 2022 (SECURE 2.0 Act), enacted 

on December 29, 2022, as Division T of 

the Consolidated Appropriations Act, 

2023, Public Law 117–328, 136 Stat. 

4459 (2022), instructs the Secretaries of 

the Treasury and Labor (or their 

delegates) to adopt regulations related to 

the consolidation of notices required for 

defined contribution plans under the 

Code and the Employee Retirement 

Income Security Act of 1974, Public 

Law 93–406, 88 Stat. 829, as amended 

(ERISA). 

Background 

This notice of proposed rulemaking 

sets forth a proposed regulation under 

section 414A of the Code that would be 

added to the Income Tax Regulations 

(26 CFR part 1). Section 414A, which 

was added to the Code by section 101 

of the SECURE 2.0 Act, provides that 

certain retirement plans must 

automatically enroll employees. 

In addition to adding a new regulation 

under section 414A of the Code, this 

notice of proposed rulemaking sets forth 

proposed amendments to the 

regulations under section 414(w). These 

amendments to § 1.414(w)–1 would 

reflect the application of section 414A 

and the exception to the notice 

requirements for unenrolled 

participants set forth in section 414(bb), 

as added to the Code by section 320 of 

the SECURE 2.0 Act. The proposed 

amendments to § 1.414(w)–1 also would 

address section 402A(e)(5)(C) of the 

Code, which was added to the Code by 

section 127 of the SECURE 2.0 Act, as 

well as section 341 of the SECURE 2.0 

Act. Section 402A(e)(5)(C) of the Code 

and section 341 of the SECURE 2.0 Act 

permit the consolidation of certain 

notices required under the Code and 

ERISA. 

I. In General 

A. Cash or Deferred Arrangements and 

Salary Reduction Agreements 

Section 401(k)(1) provides that a 

profit-sharing, stock bonus, pre-ERISA 

money purchase, or rural cooperative 

plan will not fail to qualify under 

section 401(a) merely because it 

includes a cash or deferred arrangement 

(CODA) 1 that is a qualified CODA. 

Under section 401(k)(2), a CODA is a 

qualified CODA only if it satisfies 

certain requirements. These 

requirements include that elective 

contributions under the CODA are 

subject to the section 401(k)(2)(B) 


khammond on DSK9W7S144PROD with PROPOSALS