Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 3003 

the primary benefit or value of the 

transaction to the customer, if it is 

reasonably ascertainable. However, Corp 

A cannot reasonably ascertain the 

primary benefit or value derived by a 

specific customer from access to Corp 

A’s database. In such situations, 

§ 1.861–18(b)(3)(ii) provides that the 

predominant character of a transaction 

may be determined based on the 

primary benefit or value to a typical 

customer of a substantially similar 

transaction. This primary benefit or 

value to a typical customer can be 

identified through actual data about use 

or access pursuant to § 1.861– 

18(b)(3)(ii)(A), or if that data is not 

available, by using other evidence 

indicative of the primary benefit or 

value to a typical customer pursuant to 

§ 1.861–18(b)(3)(ii)(B). Corp A has data 

that shows that the typical customer 

views movies by streaming rather than 

download. Accordingly, under 

paragraph (c)(2) of this section, the 

predominant character of the 

transaction is a cloud transaction 

because the primary benefit or value a 

typical customer receives is access to 

stream movies on Corp A’s website. 

Under paragraph (c)(1) of this section, 

the cloud transaction is classified as the 

provision of services. 

(10) Example 10: Reseller of software 

as a service—(i) Facts. Corp A owns the 

copyright to software (Program S). Corp 

A hosts Program S on its servers. 

Customers access Program S only 

through an internet connection. Corp A 

grants Corp B, a foreign corporation 

wholly owned by Corp A, the right to 

sell access to Program S to Corp B’s 

customers that are located in Corp B’s 

country. Corp B is responsible for 

managing the purchase/sale interaction 

with Corp B’s customers, including 

invoicing and collections. Corp A is 

responsible for providing customers 

with access to Program S. Corp B does 

not perform any functions to provide 

access to Program S. 

(ii) Analysis. (A) The transaction 

between Corp A and Corp B is treated 

as Corp A providing on-demand access 

to Program S to Corp B even though 

Corp B resells that access. This 

transaction is a cloud transaction with 

one element. Under paragraph (c)(1) of 

this section, the cloud transaction is 

classified as the provision of services. 

The transaction does not involve the 

transfer of any copyright rights 

described in § 1.861–18(c)(2), and 

therefore is governed solely by this 

section. 

(B) The transaction between Corp B 

and its customers is the provision of ondemand access to Program S by Corp B, 

which is a cloud transaction with one 

element. Under paragraph (c)(1) of this 

section, the cloud transaction is 

classified as the provision of services. 

The transaction does not involve the 

transfer of any copyright rights 

described in § 1.861–18(c)(2), and 

therefore is governed solely by this 

section. 

(11) Example 11: Computer game with 

online functionality and in-game 

purchases—(i) Facts. Corp A owns the 

copyright to a computer game (Game X). 

Customers can purchase Game X for a 

one-time fee and download it onto their 

computers. A customer may play certain 

aspects of Game X while not connected 

to the internet, but most of the core 

functionality of Game X is available 

only when the customer is connected to 

the internet, including the ability to 

play with other customers. In order to 

access the additional online 

functionality specific to Game X, 

customers must pay a monthly fee to 

Corp A. The additional functionality of 

Game X is hosted on servers owned by 

Corp A. Customers may also pay a onetime fee to access an in-game item that 

can be utilized only when playing Game 

X online. 

(ii) Analysis. (A) There are three 

transactions between Corp A and a 

customer. The first transaction is the 

transfer of a copy of Game X, which is 

a digital content transaction with one 

element because a customer receives 

from Corp A access only to offline 

content in exchange for purchasing a 

copy of the game. Therefore, this 

transaction is treated solely as a transfer 

of a copyrighted article under § 1.861– 

18. 

(B) The second transaction between 

Corp A and a customer is the payment 

of a monthly fee to play Game X online 

on Corp A’s servers, which is a cloud 

transaction with one element. Therefore, 

this transaction is treated solely as a 

cloud transaction, and is classified as 

the provision of services under 

paragraph (c)(1) of this section. 

(C) The third transaction between 

Corp A and a customer is the payment 

of a one-time fee in exchange for an ingame item. Because a customer can 

utilize the item only when playing 

Game X through an internet connection, 

the transaction is a cloud transaction 

with one element. Therefore, this 

transaction is treated solely as a cloud 

transaction, and is classified as the 

provision of services under paragraph 

(c)(1) of this section. 

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

This section applies to taxable years 

beginning on or after January 14, 2025. 

(2) Early application. 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 (e)(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. 

(f) Change in method of accounting 

required by this section. In order to 

comply with this section, a taxpayer 

may be required to change its method of 

accounting. If so required, the taxpayer 

must secure the consent of the 

Commissioner in accordance with the 

requirements of § 1.446–1(e) and the 

applicable administrative procedures for 

obtaining the Commissioner’s consent 

under section 446(e) for voluntary 

changes in methods of accounting. 

§ 1.937–3 [Amended] 

■ Par. 5. Section 1.937–3 is amended by 

removing Examples 4 and 5 from 

paragraph (e). 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 18, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–31372 Filed 1–10–25; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 301 

[TD 10026] 

RIN 1545–BQ72 

Rules Regarding Certain Disregarded 

Payments and Dual Consolidated 

Losses 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final rule. 

SUMMARY: This document contains final 

regulations regarding certain 

disregarded payments that give rise to 

deductions for foreign tax purposes and 


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3004 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

1See OECD/G20, Tax Challenges Arising from the 

Digitalisation of the Economy Global Anti-Base 

Erosion Model Rules (Pillar Two). As the context 

requires, references to the GloBE Model Rules 

include references to a foreign jurisdiction’s 

legislation implementing the GloBE Model Rules. 

Capitalized terms used in this preamble, but not 

defined herein, have the meanings ascribed to such 

terms under the GloBE Model Rules. 

avoid the application of the dual 

consolidated loss (‘‘DCL’’) rules. The 

final regulations affect domestic 

corporate owners that make or receive 

such payments. This document also 

announces additional transition relief 

for the application of the DCL rules to 

certain foreign taxes that are intended to 

ensure that multinational enterprises 

pay a minimum level of tax. 

DATES: 

Effective date: These regulations are 

effective on January 10, 2025. 

Applicability dates: For dates of 

applicability, see §§ 1.1503(d)–8(b)(11), 

(15), (17), and (18), and 301.7701– 

2(e)(10). 

FOR FURTHER INFORMATION CONTACT: 

Andrew L. Wigmore at (202) 317–5443 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains amendments 

to 26 CFR parts 1 and 301 (the ‘‘final 

regulations’’) under sections 1503(d) 

and 7701 of the Internal Revenue Code 

(the ‘‘Code’’). The final regulations are 

issued pursuant to the express 

delegations of authority under section 

7805(a), which authorizes the Secretary 

of the Treasury (the ‘‘Secretary’’) to 

‘‘prescribe all needful rules and 

regulations for the enforcement’’ of the 

Code, section 1503(d)(2)(B), which 

authorizes the Secretary to provide 

exceptions to the term ‘‘dual 

consolidated loss,’’ and section 

1503(d)(3), which authorizes the 

Secretary to address losses of ‘‘separate 

units.’’ 

Background 

On December 11, 2023, the 

Department of Treasury (‘‘Treasury 

Department’’) and the IRS released 

Notice 2023–80, 2023–52 IRB 1583, 

which, among other things, described 

the interaction of the DCL rules with 

model rules published by the OECD/ 

G20 Inclusive Framework on BEPS (the 

‘‘GloBE Model Rules’’) 1 and requested 

comments on such interaction. The 

notice also announced limited transition 

relief from the application of the DCL 

rules to the GloBE Model Rules for 

‘‘legacy DCLs,’’ which in general are 

DCLs incurred before the effective date 

of the GloBE Model Rules. 

On August 7, 2024, the Treasury 

Department and the IRS published 

proposed regulations (REG–105128–23) 

in the Federal Register (89 FR 64750) 

under sections 1502, 1503(d), and 7701 

of the Code, with a correction published 

in the Federal Register on September 3, 

2024 (89 FR 71214) (the ‘‘2024 proposed 

regulations’’), that would address 

certain issues arising under the DCL 

rules. In general, the 2024 proposed 

regulations would clarify how the DCL 

rules interact with the intercompany 

transaction rules in § 1.1502–13, modify 

how items arising from stock ownership 

are taken into account when computing 

the amount of a DCL, and address the 

application of the DCL rules to foreign 

taxes that are based on the GloBE Model 

Rules. The 2024 proposed regulations 

also included disregarded payment loss 

(‘‘DPL’’) rules, under which domestic 

corporations would be required to 

include amounts in income in certain 

cases involving disregarded payments. 

Further, the 2024 proposed regulations 

included an anti-avoidance rule 

applicable for both DCL and DPL 

purposes. 

This document finalizes certain rules 

from the 2024 proposed regulations. 

These rules and related comments 

received in response to the 2024 

proposed regulations are discussed in 

the Summary of Comments and 

Explanation of Revisions section of this 

preamble. All comments are available at 

https://www.regulations.gov or upon 

request. A public hearing was held on 

the 2024 proposed regulations on 

November 22, 2024, but the speaker 

requesting to testify did not attend the 

hearing. The Treasury Department and 

the IRS intend to finalize, in future 

guidance, the remaining rules from the 

2024 proposed regulations. 

This document also announces 

additional transition relief for the 

application of the DCL rules to foreign 

taxes that are based on the GloBE Model 

Rules. This relief is discussed in the 

Additional Transition Relief with 

respect to the GloBE Model Rules 

section of this preamble. 

Summary of Comments and 

Explanation of Revisions 

I. Scope 

This document finalizes the 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 deemed 

ordering rule. The document retains the 

basic approach and structure of these 

rules, with certain revisions. 

Part II of the Summary of Comments 

and Explanation of Revisions 

summarizes the DPL rules, including 

the purposes and general approach of 

the rules under the 2024 proposed 

regulations, and discusses related 

comments and revisions. Part III 

discusses comments and revisions 

related to rules applicable to both DCLs 

and DPLs. Part IV discusses 

applicability dates of the final 

regulations. 

II. DPL Rules 

A. Overview 

The DPL rules are a component of the 

entity classification regulations under 

§§ 301.7701–1 through 301.7701–3 (the 

‘‘check-the-box regulations’’). The 

check-the-box regulations were 

intended to bring simplicity and 

administrability to entity classifications 

under section 7701. They permit certain 

business entities to be classified for U.S. 

tax purposes as entities disregarded as 

separate from their owners. The 

classification may be determined either 

pursuant to default rules or by election. 

However, the application of these 

regulations to foreign entities, 

particularly where a foreign entity is 

treated as a disregarded entity, has led 

to unintended tax consequences, 

including avoidance of international 

provisions of the Code. The purpose of 

the DPL rules is to prevent certain 

arrangements involving disregarded 

entity classifications from avoiding the 

DCL rules. 

As an example, when a domestic 

corporation borrows from a bank and 

on-lends the loan proceeds to its foreign 

disregarded entity, the single economic 

borrowing could give rise to deductions 

under both U.S. tax law (for interest 

payments to the bank) and foreign tax 

law (for interest payments to the 

domestic corporation). As a result, if the 

U.S. deduction is used to offset U.S. 

income that is not subject to foreign tax, 

and the foreign tax deduction generates 

a foreign loss that is used to offset 

foreign income that is not subject to U.S. 

tax (for example under a consolidation 

regime), then the single economic 

borrowing would give rise to a double 

deduction outcome. Such double 

deduction outcome, however, would not 

be addressed by the existing DCL rules 

because the loss of the disregarded 

entity would not be recognized for U.S. 

tax purposes. Conversely, if the 

disregarded entity’s interest payments 

were regarded for U.S. tax purposes (for 

example, if the arrangement involved 

direct financing of the disregarded 

entity by the bank), the loss would be 

subject to the existing DCL rules. This 

avoidance of the DCL rules is an 

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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 3005 

2The final regulations also clarify that the DPL 

rules address the avoidance of the DCL rules, which 

has been described differently in prior guidance. 

See, for example, REG–104352–18, 83 FR 67612, 

67624 (noting that the DCL regulations do not apply 

to DPL structures, and that such structures give rise 

to outcomes similar to ‘‘D/NI outcomes . . . and 

double-deduction outcomes . . .’’) and REG– 

105128–23, 89 FR 64750, 64762 (noting that an 

income inclusion under the proposed DPL rules 

‘‘generally neutralizes the D/NI outcome’’). 

3See OECD/G20, Neutralising the Effects of 

Hybrid Mismatch Arrangements, Action 2: 2015 

Final Report (October 2015) (‘‘Hybrid Mismatch 

Report’’) and OECD/G20, Neutralising the Effects of 

Branch Mismatch Arrangements, Action 2: 

Inclusive Framework on BEPS (July 2017) (‘‘Branch 

Mismatch Report’’). 

the-box regulations which, as noted 

above, were issued for the simplification 

and administrability of entity 

classification determinations. 

The DPL rules are intended to address 

these concerns by (i) tracking whether 

certain payments involving a 

disregarded entity and its owner give 

rise to potential double deduction 

outcomes, and (ii) neutralizing any 

resulting double deduction outcome 

through an income inclusion similar to 

the one that that the owner would have 

had with respect to the payments had 

the payments been regarded for U.S. tax 

purposes (that is, had the classification 

as a disregarded entity under the checkthe-box regulations not been taken into 

account). As revised under the final 

regulations, the DPL rules also treat the 

income inclusion as giving rise to a 

deduction, the use of which is 

suspended until the entity takes into 

account certain disregarded income, 

with the result that the rules are 

consistent with what would have 

occurred if certain disregarded 

payments were regarded for U.S. tax 

purposes (as discussed in part II.F of the 

Summary of Comments and Explanation 

of Revisions). In this way, the check-thebox regulations continue to permit 

certain entities to be disregarded for 

U.S. tax purposes (including by 

election), but such classifications are 

subject to new (targeted) rules that 

prevent the classifications from giving 

rise to avoidance of the DCL rules. 

Alternative approaches to addressing 

these concerns would include more 

broadly restricting disregarded entity 

classifications (for example, by 

requiring a foreign entity to be classified 

as an association for U.S. tax purposes 

if the entity is a foreign tax resident, or 

classifying single-owner foreign entities 

as associations in all cases). 

Under the 2024 proposed regulations, 

the DPL rules would apply with respect 

to a domestic corporation and a 

disregarded entity of the domestic 

corporation (or a disregarded entity in 

which the domestic corporation 

indirectly owns an interest) if 

transactions involving the entity and 

domestic corporation are deductible 

under a foreign tax law, such as where 

the entity is a tax resident of a foreign 

country. See proposed § 301.7701– 

3(c)(4). In these cases, the 2024 

proposed regulations described the 

domestic corporation as consenting to 

such application of the DPL rules 

(generally by reason of the entity’s 

check-the-box election) and generally 

referred to the disregarded entity and 

the domestic corporation as a 

disregarded payment entity (‘‘DPE’’) and 

specified domestic owner, respectively. 

See proposed §§ 1.1503(d)–1(d)(1) and 

301.7701–3(c)(4). This document retains 

the nomenclature of the 2024 proposed 

regulations, with certain simplifications 

or other modifications, such as referring 

to a specified domestic owner as a DPE 

owner and eliminating references to 

consent (discussed in part II.B.2 of the 

Summary of Comments and Explanation 

of Revisions).2

Under the proposed DPL rules, the 

DPE owner would monitor whether the 

DPE incurs a DPL or derives disregarded 

payment income (‘‘DPI’’). See proposed 

§ 1.1503(d)–1(d)(1). A DPL or DPI would 

be determined by taking into account 

only certain items under the relevant 

foreign tax law (generally interest or 

royalties) that are not regarded for U.S. 

tax purposes. See proposed § 1.1503(d)– 

1(d)(6)(ii). The DPE would have a DPL 

to the extent that, under the foreign tax 

law, its deductions for such items 

exceed its income from such items, and 

it would have DPI to the extent the 

reverse is true. See id. Under the 2024 

proposed regulations, a DPE’s 

cumulative amounts of DPL and DPI 

would be tracked in the DPE’s ‘‘DPL 

cumulative register’’ through negative 

and positive adjustments, respectively, 

to the register. See proposed 

§ 1.1503(d)–1(d)(5)(ii). 

In the case of a DPL, the DPE owner 

generally would disclose the DPL on an 

initial certification statement and file 

annual certifications for a 60-month 

period affirming that the DPL has not 

been put to a foreign use. See proposed 

§ 1.1503(d)–1(d)(1). A failure to comply 

with this certification requirement, or a 

foreign use of the DPL within the 

certification period (each, a ‘‘triggering 

event’’), would require the DPE owner 

to include in gross income the DPL 

inclusion amount. See proposed 

§ 1.1503(d)–1(d)(1) and (3). The DPL 

inclusion amount would be equal to the 

amount of the DPL, reduced by the 

positive balance (if any) in the DPL 

cumulative register. See proposed 

§ 1.1503(d)–1(d)(2) through (5). 

Requiring the DPL inclusion amount in 

the year of the triggering event (rather 

than the year in which the DPL is 

incurred) would be consistent with the 

approach under the current DCL rules 

and avoids any administrative or 

compliance burdens that could result by 

instead requiring taxpayers to extend 

the statute of limitations and amend tax 

returns upon a triggering event of the 

DPL. 

B. Rulemaking Authority 

1. In General 

Comments asserted that the DPL rules 

do not reflect a proper exercise of the 

Treasury Department and the IRS’s 

rulemaking authority for a variety of 

reasons. Some comments claimed that 

Congress has not expressed a concern 

with deduction/no inclusion outcomes 

arising from disregarded payments 

because those types of outcomes are not 

explicitly described in sections 245A(e), 

267A, or 1503(d), the Code’s anti-hybrid 

provisions. These comments asserted 

that the DPL rules in effect implement 

the recommendations from the OECD 

reports 3 relating to disregarded 

payments but noted that Congress has 

not adopted those recommendations— 

whereas Congress did adopt other OECD 

recommendations in enacting sections 

245A(e) and 267A. The comments 

accordingly argued that the 2024 

proposed regulations inappropriately 

circumvent Congress by implementing 

OECD policies that Congress has 

rejected. 

Other comments asserted that the DPL 

rules have no basis in section 1503(d), 

because section 1503(d) operates by 

disallowing a domestic corporation’s net 

operating loss. These comments 

contended that the DPL rules go beyond 

what section 1503(d) permits because 

they impose an income inclusion (rather 

than deny a loss) based on disregarded 

transactions that cannot give rise to a 

net operating loss (which is computed 

by reference to regarded items only). 

Comments similarly argued that section 

7701 provides no basis for the DPL rules 

because section 7701 pertains to an 

entity’s tax classification and does not 

authorize income inclusions. One 

comment also contended that the 

Treasury Department and the IRS 

cannot rely on section 7805(a)’s general 

grant of rulemaking authority for the 

DPL rules because section 7805(a) 

authorizes the Secretary to issue 

regulations ‘‘for the enforcement’’ of the 

Code, and, according to the comment, 

the DPL rules do not relate to any Code 

provision. 

Another set of comments argued that 

the DPL rules are arbitrary and 

capricious. According to the comments, 


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the DPL rules address the erosion of 

foreign tax bases and thus are not in 

furtherance of any recognized U.S. tax 

policy, which, one comment stated, has 

historically permitted taxpayers to 

reduce their foreign tax liability. One 

comment further argued that taxpayers 

have a reliance interest on the certainty 

afforded by the check-the-box 

regulations, which, according to the 

comment, Congress has impliedly 

endorsed by leaving the regulations 

undisturbed since their issuance in 

1996. The comment stated that the 

Treasury Department and the IRS 

cannot upset those reliance interests by 

adding the DPL rules to the check-thebox regime and asserted that changes to 

the regime to address hybridity-related 

concerns should not be made absent 

direction from Congress. The comment 

referred to Notice 98–11, 1998–1 C.B. 

433, and the temporary and proposed 

regulations issued under the notice that 

treated a disregarded entity that engaged 

in certain transactions as a foreign 

corporation for purposes of subpart F of 

the Code. The Senate Finance 

Committee proposed a six-month 

moratorium on implementing the 

regulations to provide Congress time to 

consider the issues. See S. Rept. 105– 

174, at 107–110 (1998). 

The Treasury Department and the IRS 

disagree with these comments. The DPL 

rules prevent certain disregarded entity 

classifications from giving rise to 

avoidance of the DCL rules (as 

discussed in part II.A of the Summary 

of Comments and Explanation of 

Revisions). Because these classifications 

arise under the check-the-box 

regulations, revising the regulations to 

prevent abuse, other misuse, or 

unintended consequences that only 

arise due to the classification rules 

under the check-the-box regime is an 

appropriate exercise of the authority 

underlying the regulations, including 

the express delegation of authority 

under section 7805(a) of the Code. 

These revisions generally produce 

outcomes consistent with what would 

have occurred if certain disregarded 

payments were regarded for U.S. tax 

purposes (as discussed in part II.F of the 

Summary of Comments and Explanation 

of Revisions). 

As a limitation on disregarded entity 

classifications, the DPL rules are 

consistent with other special rules in 

the check-the-box regulations that 

regard an entity for certain limited 

purposes, while generally retaining the 

entity’s disregarded entity classification. 

For example, disregarded entity status is 

not respected for purposes of certain 

rules related to banking, federal tax 

liabilities, and employment and excise 

taxes. See § 301.7701–2(c)(2)(ii) through 

(v). Similarly, § 301.7701–2(c)(2)(vi) 

treats certain domestic disregarded 

entities as corporations for purposes of 

section 6038A to provide the IRS with 

access to information to satisfy its 

obligations under international 

agreements and strengthen the 

enforcement of U.S. tax laws. 

When the check-the-box regulations 

were issued, the preamble made clear 

that additional rules may be required to 

prevent inappropriate outcomes. TD 

8697 (61 FR 66584, 66585) (describing 

that, in light of the increased flexibility 

under an elective regime for entity 

classifications, the Treasury Department 

and the IRS will monitor for, and take 

appropriate action to address, results 

that are inconsistent with the policies 

and rules of particular Code provisions). 

Further, the history of Notice 98–11 and 

the regulations issued thereunder do not 

support the conclusion that the 

Treasury Department and the IRS lack 

authority for the DPL rules. In fact, the 

Senate report specifically stated that the 

proposed moratorium on the regulations 

described in Notice 98–11 should not be 

interpreted as the Treasury Department 

and the IRS lacking authority to impose 

limitations on disregarded entity 

classifications. See S. Rept. 105–174, at 

110 (1998). 

Moreover, the DPL rules are a 

reasonable response to significant policy 

concerns resulting from the check-thebox regulations. Addressing these 

concerns by requiring an income 

inclusion (that neutralizes the double 

deduction outcome by, in effect, 

offsetting the related deduction that 

would otherwise be allowed for U.S. tax 

purposes) prevents taxpayers from 

circumventing the DCL rules through 

the artifice of causing payments to be 

disregarded. The approach in this 

rulemaking maintains the simplicity 

and flexibility (including the electivity 

component) of the check-the-box 

regulations while preventing 

inappropriate outcomes through new 

rules with narrow application. Further, 

taxpayers that prefer to avoid the 

application of the DPL rules can do so 

by restructuring to avoid these 

inappropriate outcomes, as illustrated in 

§ 1.1503(d)–7(c)(45) (Example 45). See 

also parts II.D.1, II.D.2, II.F, and G.1 of 

the Summary of Comments and 

Explanation of Revisions (discussing 

certain revisions in response to 

comments, which have the effect of 

further narrowing and deferring the 

application of the DPL rules). Thus, by 

preventing the check-the-box 

regulations from enabling inappropriate 

outcomes, the DPL rules are a 

reasonable modification of the 

regulations. Furthermore, the Treasury 

Department and the IRS disagree that 

DPL rules inappropriately promote the 

policy underlying the OECD 

recommendations to address double 

non-taxation resulting from hybridity. 

Instead, the DPL rules promote the U.S. 

tax policy underlying section 1503(d), 

which was enacted in 1986 (and 

modified in a technical correction in 

1988), to prevent double deduction 

outcomes; the OECD policy that was set 

forth in the Hybrids Mismatch Report 

and Branch Mismatch Report, issued in 

2015 and 2017, respectively, is simply 

consistent with the existing, 

longstanding U.S. policy. 

Finally, the Treasury Department and 

the IRS have consistently raised the 

concern that the check-the-box 

regulations could expand the use of 

hybrid structures. This concern was 

identified in Notice 95–14, 1995–14 IRB 

7, which first announced that an 

elective entity classification regime was 

under consideration and solicited 

comments on the propriety of extending 

an elective regime to foreign entities, 

noting the increased potential for hybrid 

entities. Since then, the check-the-box 

regime has increased the prevalence of 

hybrid structures to an extent not 

initially foreseen, and many of these 

structures are designed for tax 

avoidance. The Treasury Department 

and the IRS have addressed this 

avoidance through targeted rules where 

feasible. See, for example, § 1.894– 

1(d)(2)(ii) and TD 8999 (67 FR 40157) 

(relating to the use of domestic reverse 

hybrid entities to obtain inappropriate 

treaty benefits); §§ 1.1503(d)–1(c) and 

301.7701–3(c)(3) (relating to the use of 

domestic reverse hybrid entities to 

obtain double-deduction outcomes). 

Taxpayers therefore should not have an 

expectation that a disregarded entity 

classification can be used to circumvent 

the DCL rules, and in any case, the 

Treasury Department and the IRS are of 

the view that any such expectations 

would not constitute a significant 

reliance interest that would caution 

against this rulemaking, given the 

limited extent to which the DPL rules 

impose a condition on certain payments 

involving disregarded entities. Reliance 

interests, if any, are significantly 

outweighed by the need to prevent 

inappropriate results. 

2. Default Disregarded Entity Status and 

Non-Consolidated DPE Owners 

Comments also asserted that the 

Treasury Department and the IRS do not 

have authority to apply the DPL rules in 

specific fact patterns. According to these 

comments, the DPL rules should not 

apply where no entity classification 


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election is made under § 301.7701–3, 

such as where a foreign entity defaults 

to disregarded entity classification, 

because in these cases there is no 

affirmative act by reason of which the 

taxpayer consents to the application of 

the DPL rules. Another comment 

claimed that the DPL rules should not 

apply where the DPE owner is not part 

of a group that files a consolidated 

return, asserting that sections 1502 and 

1503(d) cannot apply to a corporation 

that is not a member of a consolidated 

group. 

The Treasury Department and the IRS 

disagree with these comments. As 

discussed in part II.B.1 of the Summary 

of Comments and Explanation of 

Revisions, the DPL rules are a 

component of the check-the-box regime. 

Under the check-the-box regulations, 

promulgated in 1996, the Treasury 

Department and the IRS permit certain 

entities with a single owner to choose 

whether or not to be treated as 

disregarded as separate from their 

owner for most federal income tax 

purposes. However, even entities that 

choose to be disregarded as separate 

from their owner for most federal 

income tax purposes are not disregarded 

for all purposes. For example, these 

entities are regarded for purposes of 

federal income tax liability, excise taxes, 

and employment taxes. See § 301.7701– 

2(c)(2). The treatment of an entity as 

disregarded for some purposes and 

regarded for other purposes under 

§ 301.7701–2(c)(2) does not depend on 

whether the entity is treated as 

disregarded pursuant to the default 

rules or by election. 

Like the other rules in § 301.7701– 

2(c)(2) and as discussed in part II.F of 

the Summary of Comments and 

Explanation of Revisions, the DPL 

regulations effectively provide that a 

DPE is regarded for purposes of 

recognizing certain interest and royalty 

payments between a DPE and its owner 

or between a DPE and other disregarded 

entities. However, for purposes of 

administrability, these rules do not 

regard the payment more broadly or 

require the filing of amended returns to 

reflect the revocation of a disregarded 

entity classification. 

Further, the check-the-box regime is 

an elective regime that allows eligible 

entities to choose their entity 

classification. The check-the-box 

regulations provide default 

classification rules that aim to match 

taxpayers’ expectations and thus reduce 

the number of elections that taxpayers 

must file to select their entity 

classification of choice. See TD 8797 (61 

FR 66584). Thus, through the check-thebox regulations, an eligible entity 

chooses to be classified as a disregarded 

entity, regardless of whether that choice 

occurs by accepting the default 

classification (that is, by choosing not to 

elect an alternative treatment) or by 

filing an election; it is merely the 

mechanics of obtaining a disregarded 

entity classification that differ. On the 

other hand, absent regulations under 

section 7701, no foreign business entity 

would generally be treated as a 

disregarded entity. 

Moreover, applying the DPL rules 

without regard to whether disregarded 

entity classification is obtained by 

election or pursuant to the default rules 

ensures consistency. Otherwise, 

similarly situated taxpayers could have 

different outcomes based solely on 

whether the entity they choose to use is 

an entity that satisfies the default rule to 

be treated as a disregarded entity rather 

than requiring an election to achieve 

that result. 

Lastly, the DPL rules are not issued 

under section 1502 authority (and 

section 1503(d) is not limited in 

application to consolidated groups). The 

DPL rules are issued under the authority 

of sections 1503(d), 7701, and 7805(a) 

and are located under section 1503(d) 

because the rules leverage concepts 

from, and prevent the avoidance of, the 

DCL rules. 

C. Integration of DPL and DCL Regimes 

As discussed in part II.C of the 

Explanation of Provisions of the 2024 

proposed regulations, the DPL rules 

operate independently of the DCL rules. 

For example, only items that are 

regarded for U.S. tax purposes are taken 

into account in computing a DCL (or the 

DCL cumulative register), and only 

items that are disregarded for U.S. tax 

purposes would be taken into account 

in computing a DPL (or the DPL 

cumulative register). The view of the 

Treasury Department and the IRS as 

expressed in the 2024 proposed 

regulations was that integrating the two 

regimes would result in considerable 

complexity and administrative burden. 

For example, fully integrating the 

regimes would likely require a 

significantly broader scope of the DPL 

rules to take into account all 

disregarded payments (consistent with 

the scope of the DCL rules, which take 

into account all regarded payments) and 

to take into account all of the triggering 

events that apply with respect to DCLs 

(rather than only two triggering events 

that apply under the DPL rules). 

Comments requested integration or 

coordination of the DPL rules and DCL 

rules, suggesting that an integrated or 

coordinated set of rules could ensure 

consistent treatment of similar 

transactions (regardless of whether 

regarded or disregarded for U.S. tax 

purposes) and simplify compliance. For 

example, one comment proposed 

withdrawing the DPL rules and revising 

the DCL rules to ignore disregarded and 

intercompany transactions (as defined 

in § 1.1502–13(b)(1)) in calculating the 

amount of a DCL, while at the same time 

taking such transactions into account 

under a modified DCL register. 

Specifically, under this approach, a 

separate unit would calculate its income 

or loss both with and without 

disregarded and intercompany 

transaction items that offset in amount, 

with the smaller amount of income 

being dual income and thus increasing 

the DCL register, or with the smaller 

amount of loss being a dual loss and 

thus a DCL. The difference between the 

with-and-without calculation in a year 

would be tracked as an attribute—excess 

income or excess loss—for purposes of 

applying the with-and-without 

calculation in subsequent years. The 

comment stated that this approach 

would provide parity between 

disregarded and intercompany 

transactions, parity between calculation 

of a DCL register and the amount of a 

DCL, and parity between different types 

of items. 

The final regulations do not adopt 

these comments because the Treasury 

Department and the IRS remain of the 

view that integration or other 

coordination would result in 

considerable complexity and 

administrative burden. Additionally, the 

with-and-without approach proposed by 

a comment would not address the 

double deduction outcome arising from 

a disregarded entity classification in a 

prototypical case involving a DPL 

arising from back-to-back financing 

where the disregarded entity does not 

also incur a DCL—that is, the excess 

loss carried forward for purposes of the 

with-and-without calculation would be 

relevant only to the extent that the 

disregarded entity’s regarded items of 

deduction or loss in a year exceed the 

regarded items of income or gain in that 

year. 

Another comment suggested that the 

DPL rules be replaced with an approach 

that would treat a disregarded entity as 

a regarded pass-through entity (for 

example, a one-partner partnership) 

solely for purposes of the DCL rules, 

citing section 1503(d) as authority for 

such an approach. The comment noted 

that the application of the DPL rules to 

a disregarded entity can be avoided by 

introducing another owner (thereby 

converting the entity to a partnership) 

and that the suggested approach avoids 

the administrative complexity of this 


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4References to interest throughout this preamble 

include a reference to a structured payment, as the 

context requires. 

type of restructuring. The final 

regulations do not adopt this approach 

because it would require broader 

changes to check-the-box regulations 

(for example, by creating a new type of 

regarded pass-through entity), and it 

could increase complexity and 

compliance or administrative burden as 

a result of regarding items that are 

outside the scope of the DPL rules, such 

as payments for services and property 

transactions giving rise to ordinary 

income or loss. 

Lastly, a comment suggested that 

because the DPL rules were issued as 

part of a notice of proposed rulemaking 

that also addresses the DCL rules and 

those would operate independently of 

each other, the DPL rules should be 

withdrawn and issued as a standalone 

notice of proposed rulemaking. 

According to the comment, this 

approach would afford taxpayers a more 

adequate notice-and-comment period 

and more clearly signal to affected 

taxpayers the standalone nature of the 

DPL rules. The Treasury Department 

and the IRS have determined that 

finalizing the DPL rules is appropriate 

regardless of whether the proposed 

version of the rules was included in a 

notice of proposed rulemaking that 

included other concepts and that the 

proposed version of the rules provided 

sufficient notice-and-comment, 

including about the standalone nature of 

the DPL rules. 

D. Scope of DPL Rules 

1. In General 

Under the 2024 proposed regulations, 

the DPL or DPI of a DPE would be 

determined by taking into account only 

items that both (i) give rise to 

deductions or income of the DPE under 

a foreign tax law (in the case of 

deductions, determined with regard to 

any application of foreign hybrid 

mismatch rules), and (ii) are disregarded 

for U.S. tax purposes but would be 

interest, structured payments, or 

royalties if the items were regarded.4 See 

proposed § 1.1503(d)–1(d)(6)(ii) and 

(d)(7)(v). This limited application of the 

DPL rules would address transactions 

that are likely structured to avoid the 

DCL rules. 

Comments suggested narrowing the 

scope of the DPL rules in several 

respects (and not expanding the rules to 

cover other payments such as for 

disregarded services), so that the rules 

better address transactions likely to give 

rise to double non-taxation and 

minimize compliance burden. Some 

comments suggested that the DPL rules 

not apply to royalties, or at least 

royalties paid pursuant to a license 

executed before the date of the 2024 

proposed regulations. A comment 

asserted that most foreign entities enter 

into intercompany licensing 

arrangements for non-tax business 

reasons and that restructuring these 

licenses is not always easy or feasible, 

including because of legal restrictions or 

foreign tax costs. Other comments 

asserted that the licenses generally 

create substantial dual inclusion income 

(either through exploiting the intangible 

property or sub-licenses) and, therefore, 

do not give rise to double non-taxation; 

one of these comments, however, noted 

that absent at least partial integration of 

the DCL and DPL regimes, the dual 

inclusion income attributable to a 

license agreement could be double 

counted by both reducing a DPL and a 

DCL. 

Comments also suggested not 

applying the DPL rules to payments that 

are subject to tax in another foreign 

country (for example, payments 

between DPEs that are tax residents of 

different foreign countries), or possibly 

only to the extent that the other foreign 

country has a sufficiently high statutory 

or effective tax rate. A comment noted 

that an effective tax rate analysis for 

purposes of such an exception could 

rely on existing methods, like the GloBE 

Model Rules or the GILTI high-tax 

exception in § 1.951A–2(c)(7) but 

acknowledged resulting compliance and 

administrative burdens. Comments also 

suggested not applying the DPL rules if 

the disregarded entity has net income 

for foreign tax purposes (for example 

where the DPE’s net regarded income or 

net disregarded services income exceeds 

its DPL), asserting that, absent such an 

exception, the entity classification 

regime would be more complex to 

administer and taxpayers would be 

incentivized to restructure in a manner 

that is adverse to U.S. tax policy and 

results in additional foreign tax and, in 

turn, additional foreign tax credits. 

Further, comments recommended not 

applying the DPL rules to payments 

subject to hybrid mismatch rules in the 

payor jurisdiction, contending that such 

jurisdiction has taken the necessary 

steps to address erosion of its tax base. 

The final regulations generally do not 

adopt these specific comments. The 

Treasury Department and the IRS have 

determined that excluding all royalties 

from the DPL rules could incentivize 

new licensing structures intended to 

give rise to avoidance of the DCL rules 

given the ease with which licenses can 

be put in place. 

The Treasury Department and the IRS 

have also determined that a deduction 

in both the United States and a foreign 

country is not adequately neutralized by 

an income inclusion in another foreign 

country. Additionally, to the extent that 

taxpayers generally minimize payments 

from entities in low-tax countries to 

related entities in high-tax countries, an 

exception for payments taxed at a 

sufficiently high tax rate would likely 

have limited effect while adding 

significant complexity. 

Further, the Treasury Department and 

the IRS have determined that an 

exception under which the DPL rules do 

not apply if the disregarded entity has 

net income for foreign tax purposes 

would be contrary to the approach of 

maintaining separate DCL and DPL 

rules, and give rise to inappropriate 

results, as discussed in parts II.C and 

III.B of the Summary of Comments and 

Explanation of Revisions, respectively. 

Also, taking into account the 

application of foreign hybrid mismatch 

rules in determining a DPL or DPI will 

in many cases limit the application of 

the DPL rules to DPEs subject to foreign 

hybrid mismatch rules. Moreover, if 

there is no foreign use of a DPL and 

annual certification requirements are 

satisfied, the DPL rules have no further 

effect. The Treasury Department and the 

IRS remain of the view that the filing of 

certification requirements is necessary, 

even in situations where there may not 

be a net loss for foreign tax purposes in 

that particular year, to ensure that any 

deduction or loss composing a DPL is 

not put to a foreign use during the 

certification period. Moreover, this 

approach is consistent with the 

requirement in the DCL rules that a 

domestic use agreement be filed (to put 

a DCL to a domestic use) even in cases 

where it may be unlikely that a DCL can 

be put to a foreign use in a particular 

year, such as due to disregarded income 

that is not taken into account for DCL 

purposes. 

Finally, structures involving hybridity 

that produce double deduction 

outcomes are contrary to the U.S. tax 

policies underlying section 1503(d). 

Consistent with the current DCL rules, 

the DPL rules apply even in 

circumstances where the absence of DPL 

rules could reduce the amount of 

foreign income tax that would otherwise 

be creditable for U.S. tax purposes or 

where the adoption of such rules may 

cause some taxpayers to restructure in a 

manner that increases the amount of 

creditable foreign income tax. 

However, in response to these 

comments, the final regulations provide 

a de minimis exception and (consistent 

with a comment) do not apply the DPL 


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rules to royalties paid pursuant to a 

license agreement executed before the 

date of the 2024 proposed regulations. 

See § 1.1503(d)–1(d)(5)(ii)(E) and 

(d)(6)(vii). Together, these modifications 

are intended to further limit application 

of the DPL rules to cases that are likely 

structured to produce double deduction 

outcomes. The Treasury Department 

and the IRS have determined that this 

approach strikes an appropriate balance 

between that goal and considerations 

like those discussed in the preceding 

paragraphs, while also eliminating 

compliance burden in certain cases. 

Under the de minimis exception, a 

DPL with respect to a DPE and a foreign 

taxable year is deemed to be zero if it 

is incurred in connection with the 

conduct of an active trade or business 

(based on rules set forth under 

§ 1.367(a)–2(d)), and the amount of the 

DPL is less than the lesser of $3 million 

or 10 percent of the aggregate amount of 

all items of the DPE that are deductible 

under a foreign tax law. See § 1.1503(d)– 

1(d)(6)(vii). This de minimis threshold 

is determined based on the foreign tax 

law and, therefore, takes into account 

items regardless of whether regarded or 

disregarded for U.S. tax purposes. 

2. Types of DPEs and Minority Interests 

In addition to certain disregarded 

entities, the 2024 proposed regulations 

would treat certain foreign branches and 

dual resident corporations as DPEs. See 

proposed § 1.1503(d)–1(d)(1). This is 

because a payment treated as made by 

a foreign branch of a domestic 

corporation, including a dual resident 

corporation, under foreign tax law to a 

disregarded entity of the corporation 

could give rise to a deduction for foreign 

tax purposes without an inclusion for 

U.S. tax purposes, and any resulting 

double deduction generally would not 

occur if the payee were regarded for 

U.S. tax purposes. Further, where a DPE 

is owned through a partnership, the DPL 

rules would apply as to a DPE owner on 

a proportionate basis, based on the 

percentage of interests (by value) of the 

DPE that the DPE owner indirectly 

owns. See proposed § 1.1503(d)– 

1(d)(7)(ii). 

Comments expressed concerns about 

applying the DPL rules to minority 

interests in DPEs, contending that such 

interests do not present the same 

related-party tax structuring concerns 

that the DPL rules are intended to 

address, and noting that a foreign use 

triggering event under the DPL rules 

requires a use by a person related to the 

DPE owner. The comments further 

noted that the DPE combination rule 

would exacerbate these concerns 

because, for example, a DPE owner’s 

inability to comply with certification 

requirements with respect to a minority 

interest in a DPE could cause a 

triggering event with respect to a DPL 

attributable to that DPE and other DPEs 

in the same foreign country. 

Accordingly, the comments 

recommended applying the DPL rules 

with respect to a DPE owner and DPE 

only if the entities are related 

(determined under section 954(d)(3), for 

instance). A comment also asserted that 

applying the DPL rules on a 

proportionate basis by reference to the 

value of a partnership interest is 

burdensome because it requires an 

annual valuation of the partnership, and 

the comment suggested retaining this 

approach only to the extent that other 

partnership rules require similar 

valuations. 

The Treasury Department and the IRS 

agree that the DPL rules should not 

apply to minority interests. 

Accordingly, the final regulations revise 

the DPE definition to exclude entities 

that are not related, within the meaning 

of section 954(d)(3), to a DPE owner. See 

§ 1.1503(d)–1(d)(5)(i). In addition, 

where a DPE owner indirectly owns less 

than all the interests (but more than a 

minority interest) in a DPE, the final 

regulations remove the requirement in 

the 2024 proposed regulations that 

would apply the DPL rules on a 

proportionate basis based on value, 

because the Treasury Department and 

the IRS have determined that a DPE 

owner’s proportionate interest can be 

determined under other reasonable 

methods. 

Further, the final regulations clarify 

that a foreign branch owned by a 

domestic corporation through one or 

more partnerships may be a DPE. See 

§ 1.1503(d)–1(d)(5)(i)(B). Thus, if a 

partnership makes a payment to a 

disregarded entity of the partnership 

and the payment is attributed to a 

foreign branch under foreign tax law, 

then (because the foreign branch may be 

a DPE) a domestic corporate partner’s 

proportionate share of a resulting 

deduction under the foreign tax law can 

give rise to a DPL. See § 1.1503(d)– 

1(d)(6)(ii). Similarly, to address 

deductions arising under foreign tax law 

by reason of the partnership being a tax 

resident of a foreign country (rather than 

by reason of the partnership having a 

foreign branch), the final regulations 

provide that an entity that is treated as 

a partnership for U.S. tax purposes, but 

is a foreign tax resident, may be a DPE. 

See § 1.1503(d)–1(d)(5)(i)(C). 

3. ‘‘True’’ Foreign Branches 

Because the DPL rules are a 

component of the check-the-box rules, 

the rules do not apply with respect to 

deductions resulting under a foreign tax 

law from payments treated as made 

between a ‘‘true’’ foreign branch (that is, 

a foreign taxable presence not 

conducted through a disregarded entity) 

and its owner. One comment expressed 

concerns with disparate treatment 

resulting from this limitation, asserting 

that it would incentivize structures 

involving true foreign branches. 

The Treasury Department and the IRS 

have determined that this concern does 

not detract from the utility of the DPL 

rules. To the extent disregarded entity 

classifications facilitate structures 

intended to give rise to avoidance of the 

DCL rules, addressing those structures 

through new rules is appropriate 

regardless of whether the new rules 

would also address structures that are 

less common or more burdensome to 

implement. 

E. Foreign Use Issues 

1. ‘‘All or Nothing’’ Principle 

Under the 2024 proposed regulations, 

a foreign use of a DPL would be 

determined under the principles of the 

rules determining the foreign use of a 

DCL, which are in § 1.1503(d)–3. See 

proposed § 1.1503(d)–1(d)(3)(i). Thus, 

for example, under the so-called ‘‘made 

available’’ standard, a foreign use of a 

DPL would occur if any portion of a 

deduction taken into account in 

computing the DPL is made available 

under a relevant foreign tax law to offset 

an item of income that, for U.S. tax 

purposes, is an item of income of a 

foreign corporation that is related to the 

DPE owner. Generally, a foreign use of 

a DPL (or DCL) would occur as a result 

of structures intended to avoid the 

application of the DCL rules. 

The concept of the entirety of a DPL 

(or DCL) being put to a foreign use by 

reason of the availability under a 

relevant foreign tax law of any portion 

of a deduction composing the DPL (or 

DCL) is, in conjunction with the ‘‘made 

available’’ standard, referred to as the 

‘‘all or nothing’’ principle. See TD 9315 

(72 FR 12902, 12910–11). As indicated 

in the preamble to the 2024 proposed 

regulations, the all or nothing principle 

addresses a concern of the Treasury 

Department and the IRS that alternative 

approaches, such as treating a foreign 

use as occurring only to the extent that 

a deduction actually offsets income of a 

foreign corporation, would lead to 

significant administrative complexity 

and the need for detailed ordering rules. 

A comment recommended against the 

all or nothing principle, asserting that 

the administrability concerns 

underlying the principle in the DCL 


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context are not applicable in the DPL 

context because a DPL is defined only 

by reference to certain deductions 

existing for foreign tax purposes and, 

thus, the DPL rules do not require an 

analysis of whether an item that exists 

for U.S. tax purposes composes an item 

that exists for, and has been made 

available for use under, a foreign tax 

law. Additionally, the comment stated 

that the all or nothing principle is 

inconsistent with OECD reports and can 

give rise to inappropriate outcomes. 

The Treasury Department and the IRS 

remain of the view that departing from 

the all or nothing principle in the DPL 

context would (like in the DCL context) 

give rise to significant administrability 

and compliance concerns. See also TD 

9315, 72 FR 12902, 12911 (‘‘The IRS and 

Treasury Department continue to 

believe that, even under the approaches 

suggested by these commentators, 

departing from the all or nothing 

principle would lead to substantial 

administrative complexity.’’) For 

example, specific rules would be 

needed to address a situation where 

portions of each of a DPL and a non-DPL 

loss are shared through foreign tax 

consolidation or a similar regime, as 

well as a situation where a foreign 

corporation has a net operating loss that 

forms part of a net operating loss 

carryforward that includes the DPL. 

Additionally, the Treasury Department 

and the IRS have determined that 

consistency is needed between the DCL 

rules and DPL rules because the DPL 

rules are intended to prevent the 

avoidance of the DCL rules. 

Accordingly, the final regulations do not 

adopt the comment. 

2. Carrybacks and Carryforwards of 

Losses Under Foreign Tax Law 

A comment stated that a foreign use 

of a DPL can occur only if, under a 

foreign tax law, deductions composing a 

DPL are included in a net operating loss 

that is carried forward or carried back to 

another taxable year, and the comment 

suggested that the DPL certification 

rules should be limited to monitoring 

whether such a carryover occurs. 

According to the comment, the 

scenarios presenting the risk of a foreign 

use of a DPL are more limited than the 

scenarios presenting the risk of a foreign 

use of a DCL because, unlike DCLs, 

DPLs do not give rise to timing 

differences between U.S. and foreign tax 

systems. 

The Treasury Department and the IRS 

agree that a foreign use of a DPL may 

occur through carryforwards or 

carrybacks of losses but have 

determined that a foreign use would 

more commonly occur in the year in 

which the DPL is incurred. A foreign 

use could also result from a merger or 

similar transaction (such as the transfer 

of the interests in the DPE that incurs 

the DPL to a related CFC). Accordingly, 

the final regulations do not adopt this 

comment. 

3. Mirror Legislation Rule 

The final regulations narrow the 

definition of a foreign use for DPL 

purposes by excluding the deemed 

foreign use that may occur under the 

mirror legislation rule. See § 1.1503(d)– 

3(e)(4). This exception, which is 

consistent with the exception in 

§ 1.1503(d)–3(e)(3) for domestic 

consenting corporations, clarifies that 

any denial of a deduction for a 

disregarded payment under foreign 

hybrid mismatch rules is not treated as 

giving rise to a DPL or a foreign use of 

a DPL. See also § 1.1503(d)–1(d)(6)(v) 

(coordination with foreign hybrid 

mismatch rules). 

F. DPL Cumulative Register and 

Deduction for a DPL Inclusion 

The 2024 proposed regulations would 

provide that a DPL cumulative register 

with respect to a DPE is, for each foreign 

taxable year of the DPE, increased by the 

DPE’s DPI or decreased by its DPL. See 

proposed § 1.1503(d)–1(d)(5)(ii). When a 

DPL of the DPE is triggered, any positive 

balance in the cumulative register 

would be applied to the DPL and, 

accordingly, would reduce the amount 

that the DPE owner must include in 

income with respect to the DPE under 

the DPL rules. See proposed 

§ 1.1503(d)–1(d)(2) and (5). 

Comments recommended that the 

DPL cumulative register be adjusted to 

include a DPL inclusion amount that 

has been included in the DPE owner’s 

gross income. The comments noted that, 

without such an adjustment, a single 

DPL could be included in the DPE 

owner’s income more than once. 

Comments also recommended treating a 

DPL inclusion as giving rise to a 

deduction (or similar offset) of the DPE 

owner in subsequent taxable years to 

prevent the DPL rules from permanently 

increasing U.S. taxable income. These 

comments suggested allowing such a 

deduction (or similar offset) once the 

DPE has sufficient DPI or ‘‘dual 

inclusion income’’ (determined as the 

lesser of certain foreign taxable income 

and certain U.S. taxable income) in 

subsequent years. Further, a comment 

recommended treating the deduction as 

having the same U.S. tax characteristics 

(for example, character and source) as 

the DPL inclusion. 

The Treasury Department and the IRS 

agree with these comments. The final 

regulations thus modify the 

determination of a DPL cumulative 

register so that a DPL does not decrease 

the register, thereby preventing a 

negative balance in the register. See 

§ 1.1503(d)–1(d)(2)(iii); see also 

§ 1.1503(d)–7(c)(42) (example 

illustrating this rule). This approach 

generally achieves the same outcomes as 

those recommended by comments, 

while also facilitating the application of 

any positive register balance to a 

triggered DPL in cases where there are 

multiple DPLs but not all the DPLs are 

triggered. 

Additionally, to reflect a DPL 

inclusion (and consistent with 

comments), the final regulations provide 

the DPE owner a deduction (not to 

exceed the DPL inclusion) to the extent 

that the DPE derives DPI in a year 

following the year of the DPL inclusion. 

See § 1.1503(d)–1(d)(1) and (d)(2)(ii). 

Regardless of the extent to which the 

DPI is derived from interest or royalties, 

the deduction has the same character 

and source as the DPL inclusion to 

which it relates. See § 1.1503(d)– 

1(d)(2)(iv)(B). In this way, the DPE 

owner’s items of income and deduction 

under the DPL rules are similar to the 

items that the DPE owner would have 

had if the payments composing the DPL 

were regarded for U.S. tax purposes. To 

illustrate, consider a case where a 

disregarded entity makes a payment to 

its domestic corporate owner and the 

payment gives rise to an interest 

deduction under foreign tax law that is 

put to a foreign use in the current year. 

If the payment were instead regarded for 

U.S. tax purposes (for example, if the 

payment were instead a § 1.1502–13 

intercompany transaction), the payment 

would give rise to an income inclusion 

in the current year and a deduction, the 

use of which generally would be 

suspended under the DCL rules until 

there is sufficient income in subsequent 

years. The DPL rules produce a similar 

outcome. 

Finally, to prevent a single DPL from 

giving rise to more than one DPL 

inclusion, the final regulations 

terminate the certification period with 

respect to a DPL as a result of a DPL 

inclusion. See § 1.1503(d)–1(d)(6)(iii). 

G. Computation of a DPL or DPI for 

Partial-Year DPE Status 

Comments requested clarification on 

how to compute a DPL or DPI for the 

first foreign taxable year in which an 

entity or branch is treated as a DPE of 

a DPE owner. In such a case, some 

comments suggested a rule pursuant to 

which the DPL or DPI would be 

computed without regard to items 

incurred (or allocable to, including 


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under the principles of § 1.1502–76(b)) 

during the portion of the foreign taxable 

year that precedes the first day that the 

DPL rules apply with respect to the DPE 

owner and DPE. 

The Treasury Department and the IRS 

agree with these comments, and the 

final regulations therefore clarify that 

items incurred or derived in the portion 

of a foreign taxable year that an entity 

or foreign branch is not a DPE are not 

taken into account for purposes of 

calculating DPI or DPL. See § 1.1503(d)– 

1(d)(5)(ii). On the other hand, if an 

entity or foreign branch is a DPE at all 

times during the foreign taxable year, 

this pro-ration rule does not apply even 

though the DPE owner’s U.S. taxable 

year may differ from the DPE’s foreign 

taxable year. 

H. Additional Reporting and 

Documentation 

One comment supported the DPL 

rules, noting that closing this existing 

loophole and providing clarity is 

important to ensure tax fairness, prevent 

abuse, and provide consistency. The 

comment also suggested that the rules 

provide detailed guidance on the 

documentation and reporting 

requirements for disregarded payments, 

such as specifying that taxpayers must 

maintain detailed records and submit 

these records as part of their tax filings. 

The Treasury Department and the IRS 

have determined that the 

documentation and reporting 

requirements in the proposed 

regulations, as modified in these final 

regulations (such as to require 

additional reporting in § 1.1503(d)– 

1(d)(4)(iv) related to the suspended 

deduction), are sufficient for the IRS to 

administer the rules effectively. Further, 

the IRS may request additional 

information regarding DPLs on audit, as 

necessary. Accordingly, this comment is 

not adopted. 

III. Rules That Apply to Both DCLs and 

DPLs 

A. Anti-Avoidance Rule 

The 2024 proposed regulations would 

include an anti-avoidance rule that 

applies with respect to both DCLs and 

DPLs. This rule generally would provide 

that appropriate adjustments may be 

made with respect to a transaction, 

series of transactions, plan, or 

arrangement that is engaged with a view 

to avoid the purposes of section 1503(d) 

and the regulations thereunder. See 

proposed § 1.1503(d)–1(f). The preamble 

to the 2024 proposed regulations noted 

that the anti-avoidance rule could 

address new avoidance structures or 

interpretations, rather than continuing 

to address these transactions on a caseby-case basis through the adoption of 

new rules. See part I.C. of the 

Explanation of Provisions of the 2024 

proposed regulations. 

Some comments asserted that the 

application of the anti-avoidance rule is 

unclear and should therefore be 

withdrawn. Other comments requested 

that, rather than applying the antiavoidance rule based on whether there 

is ‘‘a view’’ to avoid the purposes of 

section 1503(d) and the regulations 

thereunder, it should apply based on the 

more common principal purpose-based 

standard, or if the taxpayer is attempting 

to ‘‘evade’’ the purposes of section 

1503(d). Comments also requested 

additional examples illustrating the 

application or nonapplication of the 

anti-avoidance rule, including examples 

that would clarify that the antiavoidance rule does not apply if 

taxpayers restructure their operations to 

avoid the application of the DPL rules. 

Finally, one comment requested that, 

consistent with the general approach in 

the DCL rules to calculate the amount of 

a DCL based on U.S. tax items, the antiavoidance rule should be revised to 

ignore the treatment of items under 

foreign law. 

In response to the comments, the antiavoidance rule is modified to make clear 

that the purpose of section 1503(d) and 

the regulations thereunder is to prevent 

double deduction and similar outcomes. 

Thus, if taxpayers restructure their 

arrangements to avoid the application of 

the DPL rules or the DCL rules, such as 

by converting disregarded payments 

into regarded payments or terminating 

agreements that give rise to disregarded 

payments, the anti-avoidance rule does 

not apply if the restructured 

arrangement does not give rise to the 

potential for two deductions—one for 

foreign tax purposes, and one for US. 

tax purposes. See § 1.1503(d)–1(f). The 

final regulations also provide additional 

examples that illustrate the application, 

and nonapplication, of the antiavoidance rule. See § 1.1503(d)–7(c)(44) 

and (45). The Treasury Department and 

the IRS continue to study how the 

intercompany transaction rules of 

§ 1.1502–13 would apply to the facts 

such as those presented in the example 

in § 1.1503(d)–7(c)(44). 

The final regulations add certain 

exceptions to the application of the antiavoidance rule, as it applies to DCLs, for 

transactions or interpretations that 

would be addressed by rules in the 2024 

proposed regulations. See § 1.1503(d)– 

1(f)(2). For example, the anti-avoidance 

rule does not apply to structures that 

may reduce or eliminate a DCL by 

reason of items of income arising from 

the ownership of stock and taken into 

account under § 1.1503(d)–5(b)(1) or 

(c)(4)(iv) (the ‘‘stock ownership rule’’). 

This exception is intended to make clear 

that the anti-avoidance rule does not 

apply in such a case even though the 

2024 proposed regulations would 

eliminate the stock ownership rule 

(other than with respect to certain 

portfolio interests) and the preamble to 

the 2024 regulations states that 

taxpayers may be affirmatively 

structuring into the rules to produce 

inappropriate double-deduction 

outcomes. The Treasury Department 

and the IRS have determined that the 

anti-avoidance rule should not apply in 

such cases at this time, despite the 

policy concerns underlying the 

transactions, because the substantive 

rules that would address the 

transactions have not yet been finalized. 

These exceptions to the anti-avoidance 

rule would be removed or modified if, 

after taking into account comments, the 

corresponding rules in the 2024 

proposed regulations are finalized in a 

subsequent guidance project. The nonapplication of the anti-avoidance rule in 

these cases does not affect the potential 

application of other rules or judicial 

doctrines, such as the substance-overform or step-transaction doctrines. The 

Treasury Department and the IRS 

request comments on the modification 

or removal of these exceptions upon 

finalization of the corresponding 

proposed rules. 

In light of the additional certainty and 

clarity provided by the modification to 

the rule and the additional examples, 

these final regulations do not adopt the 

recommendations to withdraw the antiavoidance rule or employ a new 

standard based on a principal purpose 

or evasion. Finally, because the antiavoidance rule applies with respect to 

the DPL rules, which are premised on 

the treatment of items under foreign 

law, these final regulations do not adopt 

the recommendation to ignore foreign 

law treatment in applying the antiavoidance rule. 

B. Deemed Ordering Rule 

In determining the foreign use of a 

DPL, the 2024 proposed regulations 

would provide that the principles of the 

exceptions in § 1.1503(d)–3(c) apply, 

which include the deemed ordering rule 

under § 1.1503(d)–3(c)(3). See proposed 

§ 1.1503(d)–1(d)(3)(i). This rule 

generally would provide that if losses or 

deductions are available under foreign 

law both to offset income that would 

constitute a foreign use and income that 

would not constitute a foreign use, and 

the foreign law does not provide 

applicable rules for determining which 


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5The Qualified Domestic Minimum Top-up Tax 

(‘‘QDMTT’’), IIR (also referred to as the income 

inclusion rule), and UTPR (also referred to as the 

under-taxed profits rule) are defined in Article 10 

of the GloBE Model Rules. 

income is offset by the losses or 

deductions, then the losses or 

deductions are first deemed to be 

available to offset the income that 

would not constitute a foreign use, to 

the extent thereof, before being 

considered to be made available to offset 

the income that would constitute a 

foreign use. See § 1.1503(d)–3(c)(3). 

In cases where a DPE has both a DPL 

and income that is not DPI, such as 

items of income other than interest and 

royalties that are disregarded for U.S. 

tax purposes or income that is regarded 

for U.S. tax purposes, comments 

asserted that the application of the 

deemed ordering rule is unclear, and 

that income that is not DPI should be 

taken into account in determining 

whether the exception prevents a 

foreign use of the DPL (or, alternatively, 

prevents the creation of a DPL). Under 

this approach, a DPL would be treated 

as first offsetting the DPE’s income 

under the foreign tax law, regardless of 

whether that income is regarded or 

disregarded. Accordingly, no foreign use 

of a DPL would generally occur if the 

DPE has net positive income under the 

foreign tax law. 

The Treasury Department and the IRS 

disagree with these comments. The 

deemed ordering rule is related to, and 

therefore must apply in a manner 

consistent with, the rules that calculate 

a DCL or DPL and related cumulative 

register. Thus, because the calculation 

of a DCL and DCL cumulative register 

only takes into account regarded items, 

the deemed ordering rule as applied to 

DCLs also must only take into account 

such items. Similarly, because the 

calculation of a DPL and DPL 

cumulative register only takes into 

account disregarded interest and 

royalties, so too should the deemed 

ordering rule only take such items into 

account. This consistent approach 

promotes coordinated outcomes, 

ensures that all relevant items are 

appropriately taken into account, and 

avoids double-counting concerns. A 

partial integration of the DCL and DPL 

rules only in the deemed ordering rule 

would not be appropriate without 

providing comprehensive rules to 

address, for example, the opposite fact 

pattern where regarded items of 

deduction or loss could be viewed as 

offsetting disregarded interest and 

royalty income and thereby creating or 

increasing the amount of a DPL that is 

put to a foreign use. 

One comment requested clarification 

regarding the condition that the deemed 

ordering rule applies only if the laws of 

the foreign country do not provide 

applicable rules for determining which 

income is offset by the losses or 

deductions. The comment noted, as an 

example, that such uncertainty can arise 

in connection with the steps required in 

applying the GloBE Model Rules. It has 

also been observed that the method by 

which the foreign country takes into 

account items that would, or would not, 

give rise to a foreign use likely would 

not change the arithmetic result of 

determining taxable income under 

foreign law or otherwise have economic 

significance. Further, there is no similar 

condition in the rules that determine a 

DCL or DPL, or the related cumulative 

registers, and as noted above these 

regimes should operate in a consistent 

manner. As a result, the final 

regulations eliminate this condition 

from the deemed ordering rule for 

purposes of both the DPL and DCL 

rules. See § 1.1503(d)–3(c)(3). 

IV. Applicability Dates 

A. DPL Rules 

The 2024 proposed regulations would 

apply the DPL rules as of the date those 

regulations were filed with the Federal 

Register (August 6, 2024), subject to a 

one-year delay for certain entities in 

existence on that date. See proposed 

§ 301.7701–3(c)(4)(vi). Comments 

requested a deferred application of the 

DPL rules, with some suggesting 

specific dates (such as taxable years 

beginning after publication of final 

regulations) and others generally 

suggesting additional time for taxpayers 

to implement new processes and 

systems or undertake restructurings to 

avoid the application of the DPL rules. 

Comments also requested clarification 

on when the DPL rules would apply in 

cases like one where a domestic 

corporation owns multiple disregarded 

entities that are tax residents of foreign 

countries, with some (but not all) 

formed or acquired after August 6, 2024, 

but before August 6, 2025. 

The Treasury Department and the IRS 

agree with the suggestions to defer 

application of the DPL rules. 

Accordingly, the final regulations apply 

the DPL rules to taxable years of DPE 

owners beginning on or after January 1, 

2026. See §§ 1.1503(d)–8(b)(11) and 

301.7701–2(e)(10). This use of a single 

applicability date obviates the need for 

additional rules clarifying application of 

the DPL rules in cases like ones where 

a domestic corporation owns multiple 

disregarded entities. 

B. Other Rules 

The final regulations apply the antiavoidance rule to DCLs incurred in 

taxable years ending on or after August 

6, 2024, consistent with the approach in 

the 2024 proposed regulations. See 

§ 1.1503(d)–8(b)(15). Further, consistent 

with the applicability date of the DPL 

rules, the anti-avoidance rule applies to 

DPLs for taxable years beginning on or 

after January 1, 2026. See id. 

Additionally, the final regulations apply 

revisions to the deemed ordering rule in 

§ 1.1503(d)–3(c)(3) to DCLs incurred in 

taxable years beginning on or after 

January 1, 2026, and to DPLs in taxable 

years beginning on or after January 1, 

2026 (each consistent with the 

applicability date of the DPL rules). See 

§ 1.1503(d)–8(b)(17). Finally, the final 

regulations apply the rule regarding the 

non-application of the sixty-month 

limitation for an entity that, absent an 

election to change its classification, 

would become a DPE as of August 6, 

2024. See § 301.7701–2(e)(10). 

Additional Transition Relief With 

Respect to the GloBE Model Rules 

As noted in the Background of this 

preamble, the 2024 proposed 

regulations would address the 

application of the DCL rules to the 

GloBE Model Rules. For example, the 

2024 proposed regulations would 

provide that an IIR or QDMTT may be 

an income tax for purposes of the DCL 

rules.5 The 2024 proposed regulations 

also would address the effect of an IIR 

or a QDMTT on certain entities and 

foreign business operations, the 

application of the DCL rules to the 

Transitional CbCR Safe Harbour, and 

the interaction of the duplicate loss 

arrangement rules with the mirror 

legislation rule under § 1.1503(d)–3(e). 

In addition, the 2024 proposed 

regulations would extend and broaden, 

the transition relief announced in 

Notice 2023–80 such that the DCL rules 

(including the DPL rules) would 

generally apply without taking into 

account QDMTTs or Top-up Taxes 

collected under an IIR or UTPR with 

respect to losses incurred in taxable 

years beginning before August 6, 2024. 

See proposed § 1.1503(d)–8(b)(12). This 

extension, and broadening, would 

provide taxpayers more certainty, allow 

for further consideration of the 

proposed regulations and related 

comments, and allow for consideration 

of further developments at the OECD. 

Several comments requested 

additional transition relief for the 

application of the DCL rules and DPL 

rules to the GloBE Model Rules. For 

example, comments suggested that the 

applicability date be delayed until 

taxable years beginning on or after 


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January 1, 2025, or through 2026; 

another comment suggested that the 

rules not apply until there are final DCL 

rules and final GloBE Model Rules. 

Some comments requested additional 

transition relief because the GloBE 

Model Rules are still evolving, and relief 

would allow for additional time to take 

into account additional OECD guidance 

and legislation enacted by jurisdictions 

to incorporate the GloBE Model Rules. 

One comment stated that if the DCL 

rules and DPL rules apply with respect 

to UTPRs that transition relief be 

provided for such application for at 

least 2025. Finally, one comment 

requested clarification that the 

transition relief is also available with 

respect to DPLs. 

The Treasury Department and the IRS 

agree that additional transitional relief 

is warranted. As some comments noted, 

such relief would allow additional time 

to consider future OECD guidance and 

legislation enacted by foreign 

jurisdictions that would implement the 

GloBE Model Rules. Accordingly, when 

the 2024 proposed regulations 

addressing the application of the DCL 

rules to the GloBE Model Rules are 

finalized, the applicability date set forth 

in the 2024 proposed regulations will be 

modified. The final regulations will 

provide that the DCL rules will apply 

without taking into account QDMTTs or 

Top-up Taxes collected under an IIR or 

UTPR incurred in taxable years 

beginning before August 31, 2025. The 

additional transition relief does not 

affect the application of the DPL rules 

because the DPL rules do not apply 

until taxable years beginning on or after 

January 1, 2026. Taxpayers may rely on 

the guidance described in this 

paragraph until final regulations are 

published in the Federal Register. The 

transition relief is limited to an 

additional year to minimize the double 

deduction outcomes that may result. 

Special Analyses 

I. Regulatory Planning and Review 

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 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) (‘‘PRA’’) requires 

that a Federal agency obtain the 

approval of the OMB before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. Section 

1.1503(d)–1(d)(4) of these regulations 

requires the collection of information. 

As discussed in part II.B.3 of the 

Explanation of Provisions of the 2024 

proposed regulations, to avoid or reduce 

a DPL inclusion amount certain 

taxpayers are required to make 

certifications, for example, that no 

foreign use has occurred with respect to 

a disregarded payment loss. The IRS 

will use this information to determine 

the extent to which these taxpayers 

need to recognize income under these 

final regulations. 

The reporting burden associated with 

this collection of information will be 

reflected in the PRA submissions 

associated with Form 1120 (OMB 

control number 1545–0123). The 

Treasury Department and the IRS do not 

have readily available data to determine 

the number of taxpayers affected by this 

collection of information because no 

reporting module currently identifies 

these types of disregarded payments. 

III. Regulatory Flexibility Act 

When an agency issues a rulemaking 

proposal, the Regulatory Flexibility Act 

(5 U.S.C. chapter 6) (‘‘RFA’’) requires 

the agency to prepare and make 

available for public comment an initial 

regulatory flexibility analysis that will 

describe the impact of the proposed rule 

on small entities. See 5 U.S.C. 603(a). 

Section 605 of the RFA provides an 

exception to this requirement if the 

agency certifies that the proposed 

rulemaking will not have a significant 

economic impact on a substantial 

number of small entities. A small entity 

is defined as a small business, small 

nonprofit organization, or small 

governmental jurisdiction. See 5 U.S.C. 

601(3) through (6). 

The Treasury Department and the IRS 

do not expect that these final 

regulations will have a significant 

economic impact on a substantial 

number of small entities. However, 

because there is a possibility of 

significant economic impact on a 

substantial number of small entities, an 

initial regulatory flexibility analysis was 

provided in the 2024 proposed 

regulations. No comments were received 

in response to the request for comments 

concerning the number of small entities 

that may be impacted and whether that 

impact will be economically significant. 

A. Reasons Why Action Is Being 

Considered 

As explained in part II.A of the 

Explanation of Provisions of the 2024 

proposed regulations, the disregarded 

payment loss rules in these final 

regulations address certain hybrid 

payments that can give rise to double 

deduction outcomes. 

B. Objectives of, and Legal Basis for, the 

2024 Proposed Regulations 

The disregarded payment loss rules in 

these final regulations require an 

income inclusion for U.S. tax purposes 

to prevent the avoidance of the DCL 

rules that would otherwise arise from 

certain disregarded payments. Sections 

1503(d)(2)(B) and (d)(3), 7701, and 7805 

of the Code are the legal basis for these 

regulations. 

C. Small Entities to Which These 

Regulations Will Apply 

Because an estimate of the number of 

small businesses affected is not 

currently feasible, this regulatory 

flexibility analysis assumes that a 

substantial number of small businesses 

will be affected. The Treasury 

Department and the IRS do not expect 

that these final regulations will affect a 

substantial number of small nonprofit 

organizations or small governmental 

jurisdictions. 

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The final regulations impose a 

certification requirement that is filed 

with a domestic corporation’s tax 

return, and to comply with that 

requirement the domestic corporation 

may need to keep records such as its 

DPL cumulative register as defined in 

§ 1.1503(d)–1(d)(2)(iii). See § 1.1503(d)– 

1(d)(4)(iii). 

E. Duplicate, Overlapping, or Relevant 

Federal Rules 

The Treasury Department and the IRS 

are not aware of any Federal rules that 

duplicate, overlap, or conflict with these 

final regulations. 

F. Alternatives Considered 

These final regulations address policy 

concerns that are similar to the concerns 

underlying the enactment of section 

1503(d), which applies uniformly to 

large and small business entities. The 

Treasury Department and the IRS have 

determined that these final regulations 

should generally apply without regard 

to the size of the corporation—a small 

business exception would undermine 

the anti-hybridity policies underlying 

these regulations. Accordingly, there is 

no viable alternative to these final 

regulations for small entities. The 

Treasury Department and the IRS expect 

that the revisions in these final 

regulations to apply a de minimis 

threshold, and exclude royalties from 


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pre-August 6, 2024, licenses and 

minority interests, will reduce any 

economic impact that the regulations 

could have on small entities. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 

(‘‘UMRA’’) 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 final rules 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. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (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 

Executive Order 13132. The final rules 

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 Executive Order 

13132. 

Effect on Other Documents 

Section 3 of Notice 2023–80 (2023–52 

IRB 1583) is obsolete as of August 6, 

2024. 

Statement of Availability of IRS 

Documents 

IRS Revenue Procedures, Revenue 

Rulings, Notices, and other guidance 

cited in this document are published in 

the Internal Revenue Bulletin or 

Cumulative Bulletin and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is Andrew L. Wigmore of the 

Office of the Associate Chief Counsel 

(International). However, other 

personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and recordkeeping 

requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS amend 26 CFR parts 1 and 

301 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by removing the 

entry for § 1.1503(d) and adding entries 

for §§ 1.1503(d)–1 through 1.1503(d)–8 

in numerical order to read as follows: 

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

* * * * * 

Sections 1.1503(d)–1 through 8 also issued 

under 26 U.S.C. 953(d), 1502, 1503(d) and 

(d)(2)(B), (d)(3), and (d)(4), and 7701. 

* * * * * 

■ Par. 2. Section 1.1503(d)–1 is 

amended by: 

■ 1. Revising the section heading; 

■ 2. Revising and republishing 

paragraph (a); 

■ 3. Redesignating paragraph (d) as 

paragraph (e); 

■ 4. Adding a new paragraph (d); 

■ 5. Revising the paragraph heading for 

newly redesignated paragraph (e); 

■ 6. In newly redesignated paragraphs 

(e)(1) through (3), removing the 

language ‘‘section 1503(d) and these 

regulations’’ in each place it appears 

and adding the language ‘‘this section 

and §§ 1.1503(d)–2 through 1.1503(d)– 

8’’ in its place; and 

■ 7. Adding paragraph (f). 

The revisions and additions read as 

follows: 

§ 1.1503(d)–1 Definitions, special rules, 

and filings. 

(a) In general. This section and 

§§ 1.1503(d)–2 through 1.1503(d)–8 

provide rules concerning the 

determination and use of dual 

consolidated losses pursuant to section 

1503(d). Paragraph (b) of this section 

provides definitions that apply for 

purposes of this section and 

§§ 1.1503(d)–2 through 1.1503(d)–8. 

Paragraph (c) of this section provides 

rules for a domestic consenting 

corporation. Paragraph (d) of this 

section provides rules for disregarded 

payment losses. Paragraph (e) of this 

section provides relief for certain 

compliance failures due to reasonable 

cause, and a signature requirement for 

filings. Paragraph (f) of this section 

provides an anti-avoidance rule. 

* * * * * 

(d) Disregarded payment loss (DPL) 

rules—(1) In general. The disregarded 

payment loss rules of this paragraph (d) 

only apply to a domestic corporation 

(including a dual resident corporation) 

that directly or indirectly owns an 

interest in a disregarded entity, 

regardless of whether the disregarded 

entity is domestic or foreign (such a 

domestic corporation, a disregarded 

payment entity owner, or DPE owner). If 

these rules apply to a DPE owner, then 

the DPE owner determines disregarded 

payment income or disregarded 

payment loss of its disregarded payment 

entities (if any) described in paragraph 

(d)(5)(i)(A), (B), (C), or (D) of this section 

in accordance with paragraph (d)(5)(ii) 

of this section and, in the case of a 

disregarded payment loss for which a 

triggering event occurs under paragraph 

(d)(3) of this section, includes an 

amount equal to the DPL inclusion 

amount in gross income and establishes 

a suspended deduction in accordance 

with paragraph (d)(2) of this section. 

The inclusion required under this 

paragraph (d)(1) and paragraph (d)(2)(i) 

of this section is included in the taxable 

year of the DPE owner in which the 

triggering event occurs, and the 

corresponding suspended deduction 

under this paragraph (d)(1) and 

paragraph (d)(2)(ii) of this section is 

established in the subsequent taxable 

year of the DPE owner. See § 1.1503(d)– 

7(c)(42) for an example illustrating the 

application of the disregarded payment 

loss rules. 

(2) DPL amounts—(i) DPL inclusion 

amount. A DPL inclusion amount 

means, with respect to a disregarded 

payment loss as to which a triggering 

event occurs during the DPL 

certification period, an amount equal to 

the disregarded payment loss. Such 

amount is reduced (but not below zero) 

to the extent of the balance in the DPL 

cumulative register of the disregarded 

payment entity if the certification 

requirement under paragraph (d)(4)(iii) 

of this section is satisfied. 

(ii) Suspended deduction. With 

respect to a DPL inclusion amount, a 

DPE owner establishes a suspended 

deduction in an amount equal to the 

DPL inclusion amount. The suspended 

deduction is allowed as a deduction 

under the principles of § 1.1503(d)– 

6(h)(6) by treating the suspended 

deduction as if it were a reconstituted 

net operating loss that becomes 

deductible only to the extent of 


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disregarded payment income derived in 

the taxable year in which the suspended 

deduction is established or subsequent 

taxable years (as measured by the 

disregarded payment entity’s DPL 

cumulative register), provided that the 

certification requirement under 

paragraph (d)(4)(iv) of this section is 

satisfied. 

(iii) DPL cumulative register. The term 

DPL cumulative register means, with 

respect to the disregarded payment 

entity, an account the balance of which 

is computed at the end of each foreign 

taxable year of the entity, and which 

is— 

(A) Increased by the amount of 

disregarded payment income of the 

entity for the foreign taxable year, and 

then, after determining the DPL 

inclusion amount for the year, 

(B) Decreased by the amount of the 

cumulative register balance that is used 

under paragraph (d)(2)(i) or (ii) of this 

section. 

(iv) Character and source—(A) DPL 

inclusion amount. A DPE owner’s 

income inclusion for a DPL inclusion 

amount is, for all U.S. tax purposes, 

treated as ordinary income, and 

characterized and sourced, including for 

purposes of sections 904(d) and 907, in 

the same manner as if the disregarded 

payment entity were a foreign 

corporation and the amount were 

interest or royalty income paid by the 

foreign corporation (taking into account, 

for example, section 904(d)(3) if such 

foreign corporation would be a 

controlled foreign corporation). For 

these purposes, the DPL inclusion 

amount is considered comprised of 

interest or royalty income based on the 

proportion of interest or royalty 

deductions taken into account, 

respectively, in computing the 

disregarded payment loss relative to all 

the deductions taken into account in 

computing the disregarded payment 

loss. Further, for these purposes, a 

deduction attributable to a structured 

payment or a deduction with respect to 

equity is treated as an interest 

deduction. 

(B) Suspended deduction. A DPE 

owner’s deduction with respect to a 

suspended deduction is, for all U.S. tax 

purposes, characterized and sourced in 

the same manner as the income for the 

DPL inclusion amount to which it 

relates. If the income from the DPL 

inclusion amount is assigned to 

multiple statutory and residual 

groupings, the deduction is allocated 

and apportioned to each grouping in the 

same proportions as the DPL inclusion 

amount. 

(3) Triggering events. An event 

described in paragraph (d)(3)(i) or (ii) of 

this section is a triggering event with 

respect to a disregarded payment loss of 

a disregarded payment entity. 

(i) Foreign use. A foreign use of the 

disregarded payment loss. For this 

purpose, a foreign use is determined 

under the principles of § 1.1503(d)–3 

(including the exceptions in 

§ 1.1503(d)–3(c)), by treating the 

disregarded payment loss as a dual 

consolidated loss, treating the 

disregarded payment entity as a separate 

unit (or, in the case of a disregarded 

payment entity that is a dual resident 

corporation, by treating the disregarded 

payment entity as a dual resident 

corporation), and, in § 1.1503(d)– 

3(a)(1)(i) and (ii), only taking into 

account a person that is related to the 

DPE owner of the disregarded payment 

entity. Thus, for example, a foreign use 

of a disregarded payment loss occurs if, 

under a relevant foreign tax law, any 

portion of the foreign law deduction 

taken into account in computing the 

disregarded payment loss is made 

available (including by reason of a 

foreign consolidation regime or similar 

regime, or a sale, merger, or similar 

transaction) to offset an item of income 

that, for U.S. tax purposes, is an item of 

a foreign corporation, but only if such 

foreign corporation is related to the DPE 

owner of the disregarded payment 

entity. When applying the principles of 

the deemed ordering rule in 

§ 1.1503(d)–3(c)(3), items of income or 

gain are taken into account only to the 

extent such items are described in 

paragraph (d)(5)(ii)(D) of this section; 

thus, for example, such items include 

items of income that are or would be 

taken into account in determining the 

amount of disregarded payment loss or 

disregarded payment income, and 

exclude items that are regarded for U.S. 

tax purposes. 

(ii) Failure to comply with 

certification requirements. A failure by 

the DPE owner of the disregarded 

payment entity to comply with the 

certification requirements of paragraphs 

(d)(4)(i) and (ii) of this section. 

(4) Certification requirements. Except 

as otherwise provided in publications, 

forms, instructions, or other guidance, a 

DPE owner of a disregarded payment 

entity is subject to the certification 

requirements of this paragraph (d)(4) 

with respect to a disregarded payment 

loss of the disregarded payment entity. 

(i) For its taxable year that includes 

the date on which the foreign taxable 

year in which a disregarded payment 

loss is incurred ends, the DPE owner 

must attach with its timely filed tax 

return a certification labeled ‘‘Initial 

Disregarded Payment Loss Certification 

Under Section 1503(d),’’ which must 

contain— 

(A) The information set forth in 

§ 1.1503(d)–6(c)(2)(ii) (determined by 

substituting the phrase ‘‘disregarded 

payment entity’’ for the phrase 

‘‘separate unit’’); 

(B) A statement of the amount of the 

disregarded payment loss; and 

(C) A statement that a foreign use of 

the disregarded payment loss has not 

occurred during the DPL certification 

period. 

(ii) During the DPL certification 

period, for each of its taxable years after 

the taxable year described in paragraph 

(d)(4)(i) of this section that includes a 

date on which a foreign taxable year 

ends, the DPE owner must attach with 

its timely filed tax return a certification 

labeled ‘‘Annual Disregarded Payment 

Loss Certification Under Section 

1503(d)’’ and satisfying the 

requirements of this paragraph (d)(4)(ii). 

Certifications with respect to multiple 

disregarded payment losses may be 

combined in a single certification, but 

each disregarded payment loss must be 

separately identified. To satisfy the 

requirements of this paragraph (d)(4)(ii), 

the certification must— 

(A) Identify the disregarded payment 

loss to which it pertains by setting forth 

the foreign taxable year in which the 

disregarded payment loss was incurred 

and the amount of such disregarded 

payment loss; 

(B) State that there has been no 

foreign use of the disregarded payment 

loss; and 

(C) Warrant that arrangements have 

been made to ensure that there will be 

no foreign use of the disregarded 

payment loss and that the DPE owner 

will be informed of any such foreign 

use. 

(iii) If a disregarded payment entity 

has a balance in its DPL cumulative 

register upon a DPL triggering event and 

the DPE owner includes in gross income 

a DPL inclusion amount that is less than 

the amount of the disregarded payment 

loss, the DPE owner of the disregarded 

payment entity must attach a statement 

labeled ‘‘Reduction of Disregarded 

Payment Loss Amount Under Section 

1503(d)’’ to its income tax return for the 

taxable year in which the triggering 

event occurs and provide any other 

information as requested by the 

Commissioner. The statement must 

show the disregarded payment income 

or disregarded payment loss of the 

disregarded payment entity for each 

foreign taxable year (other than a foreign 

taxable year where the entity or branch 

is not a disregarded payment entity) up 

to and including the foreign taxable year 


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with respect to which the triggering 

event occurs. 

(iv) If a DPE owner claims an allowed 

deduction with respect to a suspended 

deduction, the DPE owner must attach 

a statement labeled ‘‘Release of 

Suspended Deduction Under Section 

1503(d)’’ to the income tax return for the 

taxable year in which the deduction is 

allowed and provide any other 

information as requested by the 

Commissioner, including in regulations, 

forms, instructions or other guidance. 

The statement must describe the DPE 

owner’s DPL inclusion amount to which 

the suspended deduction relates and 

show the disregarded payment income 

or disregarded payment loss of the 

disregarded payment entity for each 

foreign taxable year up to and including 

the foreign taxable year during which 

the deduction is allowed. 

(5) Definitions. The following 

definitions apply for purposes of this 

paragraph (d). 

(i) The term disregarded payment 

entity means, with respect to a DPE 

owner, any entity, foreign branch, or 

dual resident corporation described in 

paragraph (d)(5)(i)(A), (B), (C) or (D) of 

this section. 

(A) A disregarded entity that is a 

foreign tax resident and related to the 

DPE owner, provided that the DPE 

owner directly or indirectly owns 

interests in the disregarded entity. 

(B) A foreign branch of the DPE owner 

and a foreign branch of an entity that is 

related to the DPE owner and in which 

the DPE owner directly or indirectly 

owns an interest. 

(C) An entity that is treated as a 

partnership for U.S. tax purposes that is 

a foreign tax resident and related to the 

DPE owner, provided that the DPE 

owner directly or indirectly owns an 

interest in the entity. 

(D) The DPE owner itself if it is a dual 

resident corporation. 

(ii) The terms disregarded payment 

income and disregarded payment loss 

have the meanings set forth in this 

paragraph (d)(5)(ii). For purposes of 

computing the disregarded payment 

income or disregarded payment loss of 

a disregarded payment entity, a DPE 

owner takes into account the 

disregarded payment income or 

disregarded payments loss of each 

disregarded payment entity for each 

foreign taxable year that ends with or 

within its U.S. taxable year and an item 

is taken into account only if it gives rise 

to income or a deduction under the 

relevant foreign tax law during the 

portion of the foreign taxable year in 

which the entity or foreign branch is a 

disregarded payment entity; for 

purposes of allocating an item to a 

period, the principles of § 1.1502–76(b) 

apply. Thus, for example, if a DPE 

owner with a calendar U.S. taxable year 

becomes subject to the disregarded 

payment loss rules for the U.S. taxable 

year beginning on January 1, 2026, the 

disregarded payment income or 

disregarded payment loss of a 

disregarded payment entity of the DPE 

owner with a foreign taxable year 

ending on June 30, 2026, excludes items 

allocated (under the principles of 

§ 1.1502–76(b)) to the pre-January 1, 

2026, portion of that foreign taxable 

year. Items taken into account in 

computing disregarded payment income 

or disregarded payment loss are 

calculated in the currency used to 

determine tax under the relevant foreign 

tax law. See § 1.1503(d)–7(c)(46) for an 

example illustrating items that are taken 

into account in determining disregarded 

payment income or disregarded 

payment loss. 

(A) Disregarded payment income. 

Disregarded payment income means, 

with respect to a disregarded payment 

entity and a foreign taxable year of the 

entity, the excess (if any) of the sum of 

the items described in paragraph 

(d)(5)(ii)(D) of this section over the sum 

of the items described in paragraph 

(d)(5)(ii)(C) of this section. 

(B) Disregarded payment loss. Subject 

to the de minimis rule set forth in 

paragraph (d)(6)(vii) of this section, a 

disregarded payment loss means, with 

respect to a disregarded payment entity 

and a foreign taxable year of the entity, 

the excess (if any) of the sum of the 

items described in paragraph 

(d)(5)(ii)(C) of this section over the sum 

of the items described in paragraph 

(d)(5)(ii)(D) of this section. 

(C) Items of deduction. With respect 

to a disregarded payment entity and a 

foreign taxable year of the entity, an 

item is described in this paragraph 

(d)(5)(ii)(C) to the extent that it satisfies 

all of the requirements set forth in 

paragraphs (d)(5)(ii)(C)(1) through (3) of 

this section. In addition, an item of a 

disregarded payment entity described in 

paragraph (d)(5)(i)(A) of this section is 

described in this paragraph (d)(5)(ii)(C) 

if, under the relevant foreign tax law, it 

is a deduction with respect to equity 

(including deemed equity) allowed to 

the entity in such taxable year (for 

example, a notional interest deduction) 

or a deduction for an imputed interest 

payment with respect to a debt 

instrument (such as a deduction for an 

imputed interest payment with respect 

to an interest-free loan). 

(1) Under the relevant foreign tax law, 

the disregarded payment entity is 

allowed a deduction in such taxable 

year for the item. 

(2) The payment, accrual, or other 

transaction giving rise to the item is 

disregarded for U.S. tax purposes as a 

transaction between a disregarded entity 

and its tax owner or between 

disregarded entities with the same tax 

owner (for example, a payment by a 

disregarded entity to its tax owner or to 

another disregarded entity owned by its 

tax owner, a payment from a dual 

resident corporation or partnership to a 

disregarded entity it owns, or a payment 

from the home office of a foreign branch 

to a disregarded entity the home office 

owns that is attributable to the foreign 

branch). 

(3) If the payment, accrual, or other 

transaction were regarded for U.S. tax 

purposes, it would be interest, a 

structured payment, or a royalty within 

the meaning of § 1.267A–5(a)(12), 

(b)(5)(ii), or (a)(16), respectively. 

(D) Items of income. With respect to 

a disregarded payment entity and a 

foreign taxable year of the entity, an 

item is described in this paragraph 

(d)(5)(ii)(D) to the extent that it satisfies 

all of the requirements set forth in 

paragraphs (d)(5)(ii)(D)(1) through (3) of 

this section. 

(1) Under the relevant foreign tax law, 

the disregarded payment entity includes 

the item in income in such taxable year. 

(2) The payment, accrual, or other 

transaction giving rise to the item is 

disregarded for U.S. tax purposes as a 

transaction between a disregarded entity 

and its tax owner or between 

disregarded entities with the same tax 

owner (for example, because it is a 

payment to a disregarded entity from 

the disregarded entity’s tax owner or 

from another disregarded entity of its 

tax owner, a payment to a dual resident 

corporation or partnership from a 

disregarded entity it owns, or a payment 

from a disregarded entity to the home 

office of a foreign branch that is 

attributable to the foreign branch). 

(3) If the payment, accrual, or other 

transaction were regarded for U.S. tax 

purposes, it would be interest, a 

structured payment, or a royalty with 

the meaning of § 1.267A–5(a)(12), 

(b)(5)(ii), or (a)(16), respectively. 

(E) Translation into U.S. dollars. The 

amount of disregarded payment income 

or disregarded payment loss with 

respect to a foreign taxable year of a 

disregarded payment entity is translated 

into U.S. dollars using the yearly 

average exchange rate (within the 

meaning of § 1.987–1(c)(2)) for that 

foreign taxable year. 

(F) Royalties under pre-August 6, 

2024 licenses excluded. Royalties paid 

or accrued pursuant to a license 

agreement entered into before August 6, 

2024, are not taken into account when 


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determining the amount of disregarded 

payment income or disregarded 

payment loss. The preceding sentence 

ceases to apply with respect to any such 

agreement upon the significant 

modification of any terms of the 

agreement, such as a change in the 

licensor or licensee or a significant 

modification of the rights in 

consideration for which the royalties are 

paid. In such case, any amounts paid or 

accrued on or after the date of the 

significant modification are taken into 

account when determining the amount 

of disregarded payment income or 

disregarded payment loss. Termination 

of a license agreement and re-entry into 

a license agreement between the same 

parties and with the same terms (other 

than the term governing the period 

covered by the agreement), an extension 

of the period covered by a license 

agreement without modification of other 

terms, or an alteration of a legal right or 

obligation that occurs by operation of 

the terms of the license agreement (for 

example, where the license agreement 

provides for updating the royalty based 

on updated transfer pricing studies), 

will not be considered a significant 

modification of the first license 

agreement. For purposes of this 

paragraph (d)(5)(ii)(F), a combined 

disregarded payment entity is treated as 

a single licensor or licensee, as the case 

may be. 

(iii) The term DPL certification period 

includes, with respect to a disregarded 

payment loss, the foreign taxable year in 

which the disregarded payment loss is 

incurred, any prior foreign taxable 

years, and, except as provided in 

paragraph (d)(6)(iii) of this section, the 

60-month period following the foreign 

taxable year in which the disregarded 

payment loss is incurred. 

(iv) The term foreign branch means a 

branch (within the meaning of 

§ 1.267A–5(a)(2)) that gives rise to a 

taxable presence under the tax law of 

the foreign country where the branch is 

located. 

(v) The term foreign taxable year 

means, with respect to a disregarded 

payment entity, the entity’s taxable year 

for purposes of a relevant foreign tax 

law. 

(vi) The term foreign tax resident 

means a tax resident (within the 

meaning of § 1.267A–5(a)(23)(i)) of a 

foreign country. 

(vii) The term related has the meaning 

provided in this paragraph (d)(5)(vii). A 

person is related to a DPE owner if the 

person is a related person within the 

meaning of section 954(d)(3) and the 

regulations thereunder, determined by 

treating the person as the ‘‘controlled 

foreign corporation’’ referred to in that 

section. In addition, for purposes of 

determining relatedness, a disregarded 

entity is treated as a corporation. 

(viii) The term relevant foreign tax 

law means, with respect to a disregarded 

payment entity, any tax law of a foreign 

country of which the entity is a tax 

resident (within the meaning of 

§ 1.267A–5(a)(23)(i)) or, in the case of a 

disregarded payment entity that is a 

foreign branch, the tax law of the foreign 

country where the branch is located. 

(ix) The term DPE owner has the 

meaning provided in paragraph (d)(1) of 

this section, and includes any successor 

to the corporation described paragraph 

(d)(1) of this section. 

(6) Special rules—(i) Disregarded 

payment entity combination rule. For 

purposes of this paragraph (d), 

disregarded payment entities for which 

the relevant foreign tax law is the same 

(for example, because the entities are tax 

residents of the same foreign country) 

are combined and treated as a combined 

disregarded payment entity under the 

principles of paragraph (b)(4)(ii) of this 

section, provided that the entities have 

the same foreign taxable year and are 

owned, or interests in which are directly 

or indirectly owned, either by the same 

DPE owner or by DPE owners that are 

members of the same consolidated 

group. However, this paragraph (d)(6)(i) 

does not apply with respect to a dual 

resident corporation treated as a 

disregarded payment entity pursuant to 

paragraph (d)(5)(i)(D) of this section. In 

determining the disregarded payment 

income or disregarded payment loss of 

a combined disregarded payment entity, 

the principles of § 1.1503(d)–5(c)(4)(ii) 

apply. Thus, for example, if multiple 

individual disregarded payment entities 

are treated as a combined disregarded 

payment entity pursuant to this 

paragraph (d)(6)(i), then the combined 

disregarded payment entity has either a 

single amount of disregarded payment 

income or a single amount of 

disregarded payment loss. 

(ii) Partial ownership of disregarded 

payment entity. If a DPE owner of a 

disregarded payment entity indirectly 

owns through a partnership less than all 

the interests in that disregarded 

payment entity, then the rules of this 

paragraph (d) are applied based on the 

DPE owner’s proportionate interest in 

the disregarded payment entity. In such 

a case, as to the DPE owner, only a 

proportionate share of the disregarded 

payment entity’s items of deduction or 

income are taken into account in 

computing disregarded payment income 

or disregarded payment loss of the 

entity. In addition, with respect to the 

disregarded payment loss as so 

computed, the DPE owner must comply 

with the certification requirements of 

paragraph (d)(4) of this section and, 

upon a triggering event, directly include 

in gross income an amount equal to the 

DPL inclusion amount. 

(iii) Termination of DPL certification 

period. With respect to a disregarded 

payment loss of a disregarded payment 

entity, the DPL certification period does 

not include any date after the end of the 

DPE owner’s taxable year during which 

the DPE owner, or a person related to 

the DPE owner, no longer owns directly 

or indirectly any of the interests in the 

disregarded payment entity, or, in the 

case of a disregarded payment entity 

that is a foreign branch, substantially all 

of the assets of the foreign branch. In 

such a case, the DPE owner ceases to be 

subject to the rules of paragraph (d) of 

this section with respect to the 

disregarded payment loss; thus, for 

example, after the end of such taxable 

year the DPE owner is not subject to the 

certification requirements of paragraph 

(d)(4)(ii) of this section with respect to 

the loss, and will not be required to 

include in gross income the DPL 

inclusion amount with respect to such 

loss. The DPL certification period will 

also terminate with respect to a 

disregarded payment loss upon a DPE 

owner’s inclusion of the DPL inclusion 

amount attributable to the disregarded 

payment loss. 

(iv) Agent for a consolidated group. If 

a DPE owner is a member of a 

consolidated group, see § 1.1502–77 for 

agent of the group rules (generally 

treating the common parent as the agent 

of its consolidated group). 

(v) Coordination with foreign hybrid 

mismatch rules. Whether a disregarded 

payment entity is allowed a deduction 

under a relevant foreign tax law is 

determined with regard to hybrid 

mismatch rules, if any, under the 

relevant foreign tax law. Thus, for 

example, if a relevant foreign tax law 

denies a deduction for an item to 

prevent a deduction/no-inclusion 

outcome (that is, a payment that is 

deductible for the payer jurisdiction and 

is not included in the ordinary income 

of the payee), the item is not taken into 

account for purposes of computing the 

amount of disregarded payment income 

or disregarded payment loss. For this 

purpose, the term hybrid mismatch 

rules has the meaning provided in 

§ 1.267A–5(a)(10). 

(vi) DPL inclusion amount and 

suspended deduction not taken into 

account for dual consolidated loss 

purposes. A DPL inclusion amount 

included in the gross income of a DPE 

owner, and any allowed amount of a 

suspended deduction attributable to a 

DPL inclusion amount, are not taken 


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into account for purposes of 

determining the income or dual 

consolidated loss of the dual resident 

corporation, or the income or dual 

consolidated loss attributable to the 

separate unit, under § 1.1503(d)–5(b) or 

(c). 

(vii) De minimis rule. A disregarded 

payment entity will be deemed to have 

no disregarded payment loss with 

respect to a foreign taxable year in 

which the conditions in paragraphs 

(d)(6)(vii)(A) and (B) of this section are 

satisfied. 

(A) The items that compose the 

disregarded payment loss are incurred 

in connection with the conduct of an 

active trade or business (within the 

meaning of § 1.367(a)–2(d)(2) and (3), 

but for this purpose treating the 

disregarded payment entity as the 

foreign corporation referenced therein) 

carried on by the disregarded payment 

entity. For purposes of the preceding 

sentence, the determination of whether 

items are incurred in connection with 

an active trade or business is made 

under § 1.367(a)–2(d)(5), but for this 

purpose by treating the property 

received by the disregarded payment 

entity pursuant to the arrangement that 

gave rise to the item (such as cash or the 

rights to use the intangible property) as 

the property described in such section. 

(B) The amount of the disregarded 

payment loss is less than the lesser of 

$3 million or 10 percent of the aggregate 

amount of all the items of the 

disregarded payment entity for the 

foreign taxable year that satisfy the 

condition described in paragraph 

(d)(5)(ii)(C)(1) of this section. For this 

purpose, the items of the disregarded 

payment entity may include, for 

example, items that are regarded for 

both U.S. and foreign tax purposes, or 

foreign law items that if regarded for 

U.S. tax purposes would not be treated 

as interest, a structured payment, or a 

royalty within the meaning of § 1.267A– 

5(a)(12), (b)(5)(ii), or (a)(16), 

respectively. 

* * * * * 

(e) Special rules for filings. * * * 

* * * * * 

(f) Anti-avoidance rule—(1) In 

general. Except to the extent provided 

in paragraph (f)(2) of this section, if a 

transaction, series of transactions, plan, 

or arrangement is engaged in with a 

view to avoid the purposes of the rules 

in this section and §§ 1.1503(d)–2 

through 1.1503(d)–8, then appropriate 

adjustments will be made. A 

transaction, series of transactions, plan, 

or arrangement (including an 

arrangement to reflect, or not reflect, 

items on books and records) is engaged 

in with a view to avoid the purposes of 

this section and §§ 1.1503(d)–2 through 

1.1503(d)–8 only if it results in a double 

deduction or similar outcome (for 

example, by putting an item of 

deduction or loss that composes (or 

would compose) a dual consolidated 

loss to both a domestic use and a foreign 

use (determined under §§ 1.1503(d)–2 

and 1.1503(d)–3, respectively) or 

putting a foreign law item of deduction 

or loss that is disregarded for U.S. tax 

purposes to a foreign use). The 

appropriate adjustments may include 

adjustments to disregard the transaction, 

series of transactions, plan, or 

arrangement, or adjustments to modify 

the items that are taken into account for 

purposes of determining the income or 

dual consolidated loss of or attributable 

to a dual resident corporation or a 

separate unit, or for purposes of 

determining income or loss of an 

interest in a transparent entity under 

§ 1.1503(d)–5. See § 1.1503(d)–7(c)(43) 

through (45) for examples illustrating 

the application of this paragraph (f). 

(2) Exceptions. The anti-avoidance 

rule in paragraph (f)(1) of this section 

does not apply to a reduction or 

elimination of a dual consolidated loss 

solely by reason of intercompany 

transactions as described in § 1.1502– 

13, items of income arising from the 

ownership of stock and taken into 

account under § 1.1503(d)–5(b)(1) or 

(c)(4)(iv), or the attribution to a hybrid 

entity separate unit or an interest in a 

transparent entity of items that have not 

been and will not be reflected on the 

entity’s books and records. The antiavoidance rule in paragraph (f)(1) of this 

section also does not apply with respect 

to the application of the dual 

consolidated loss rules to the GloBE 

Model Rules, or to cause a foreign use 

of a dual consolidated loss to occur 

solely in a period before the taxable year 

in which such loss was incurred. 

* * * * * 

■ Par. 3. Section 1.1503(d)–3 is 

amended by: 

■ 1. Revising and republishing 

paragraph (c)(3). 

■ 2. Adding paragraph (e)(4). 

The revision and addition read as 

follows: 

§ 1.1503(d)–3 Foreign use. 

* * * * * 

(c) * * * 

(3) Deemed ordering rule—(i) In 

general. This paragraph (c)(3) applies if 

the losses or deductions composing the 

dual consolidated loss are made 

available under the laws of a foreign 

country both in part to offset income or 

gain that would constitute a foreign use 

and in part to offset income or gain that 

would not constitute a foreign use. In 

such a case, the losses or deductions 

shall be deemed to be made available to 

offset the income or gain that does not 

constitute a foreign use, to the extent of 

such income or gain, before being 

considered to be made available to offset 

the income or gain that does constitute 

a foreign use. See § 1.1503(d)–7(c)(11) 

(Example 11). 

(ii) Limitation. For purposes of 

applying this paragraph (c)(3), items of 

income or gain are taken into account 

only to the extent such items are or 

would be taken into account in 

determining the amount of income or 

dual consolidated loss under 

§ 1.1503(d)–5(b) or (c). Thus, for 

example, this paragraph does not apply 

with respect to items of income or gain 

that are otherwise disregarded for U.S. 

tax purposes. But see § 1.1503(d)– 

1(d)(3)(i), which provides that when 

applying the principles of this rule for 

purposes of the disregarded payment 

loss rules, the only relevant items are 

those that are or would be taken into 

account for purposes of determining a 

disregarded payment loss or disregarded 

payment income. 

* * * * * 

(e) * * * 

(4) Exception for disregarded payment 

losses. Paragraph (e)(1) of this section 

will not apply so as to deem a foreign 

use of a disregarded payment loss 

(within the meaning of § 1.1503(d)– 

1(d)(5)(ii)(B)). 

■ Par. 4. Section 1.1503(d)–7 is 

amended by: 

■ 1. Adding a sentence after the first 

sentence in paragraph (c)(6)(iii)(B); 

■ 2. Revising the (c)(11) paragraph 

heading; 

■ 3. Removing the last sentence in 

paragraph (c)(11)(i); 

■ 4. In the first sentence of paragraph 

(c)(11)(ii), removing the language 

‘‘§ 1.1503(d)–3(c)(3)’’ and adding in its 

place the language ‘‘§ 1.1503(d)– 

3(c)(3)(i)’’. 

■ 5. Adding a sentence after the third 

sentence in paragraph (c)(23)(ii). 

■ 6. In paragraph (c)(25)(ii)(B), adding a 

sentence after the fifth sentence. 

■ 7. Adding paragraphs (c)(42) through 

(c)(46). 

The revisions and additions read as 

follows: 

§ 1.1503(d)–7 Examples. 

* * * * * 

(c) * * * 

(6) * * * 

(iii) * * * 

(B) * * * But see § 1.1503(d)–1(d), 

which takes into account certain 


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payments that are otherwise disregarded 

for purposes of section 1503(d) and the 

regulations thereunder. * * * 

* * * * * 

(11) Example 11. No foreign use— 

deemed ordering rule. *** 

* * * * * 

(23) * * * 

(ii) * * * But see § 1.1503(d)–1(d), 

which takes into account certain 

payments that are otherwise disregarded 

for purposes of section 1503(d) and the 

regulations thereunder. * * * 

* * * * * 

(25) * * * 

(ii) * * * 

(B) * * * But see § 1.1503(d)–1(d), 

which takes into account certain 

payments that are otherwise disregarded 

for purposes of section 1503(d) and the 

regulations thereunder. * * * 

* * * * * 

(42) Example 42. Disregarded 

payment loss rules—triggering event 

resulting in DPL inclusion amount and 

suspended deduction—(i) Facts. P owns 

DE1X, and DE1X owns FSX. In year 1, 

DE1X pays $100x to P pursuant to a 

note. For U.S. tax purposes, the 

payment is disregarded as a transaction 

between DE1X and P, but if the payment 

were regarded it would be interest 

within the meaning of § 1.267A– 

5(a)(12). Under Country X tax law, the 

$100x is interest for which DE1X is 

allowed a deduction in year 1. In year 

1, pursuant to a Country X group relief 

regime, DE1X’s $100x deduction is 

made available to offset income of FSX. 

At the end of year 1, DE1X extinguishes 

the note by repaying the outstanding 

principal. In year 2, P enters into a 

licensing arrangement with DE1X 

pursuant to which P makes a $60x 

payment to DE1X in each of years 2 and 

3. For U.S. tax purposes, the payment is 

disregarded as a transaction between 

DE1X and P, but if the payment were 

regarded it would be a royalty within 

the meaning of § 1.267A–5(a)(16). Under 

Country X tax law, the $60x is a royalty 

and included in the income of DE1X in 

years 2 and 3. 

(ii) Result.—(A) Year 1. Because P 

owns all of the interests in DE1X, a 

disregarded entity, P is a DPE owner. 

See § 1.1503(d)–1(d)(1). In addition, 

DE1X, a disregarded payment entity 

with respect to P, incurs a $100x 

disregarded payment loss with respect 

to its Country X taxable year for year 1. 

See § 1.1503(d)–1(d)(5)(i)(A) and 

(d)(5)(ii)(B). DE1X’s $100x deduction 

being made available to offset income of 

FSX pursuant to the Country X group 

relief regime constitutes a foreign use of, 

and thus a triggering event with respect 

to, the disregarded payment loss during 

the DPL certification period. See 

§ 1.1503(d)–1(d)(3)(i) and (d)(5)(iii). As a 

result, in year 1, P must include in gross 

income $100x, the DPL inclusion 

amount with respect to the disregarded 

payment loss. See § 1.1503(d)–1(d)(1) 

and (d)(2)(i). The $100x DPL inclusion 

amount is treated for U.S. tax purposes 

as ordinary interest income, the source 

and character of which is determined as 

if DE1X were a foreign corporation, and 

the amount were interest income paid 

by the foreign corporation to P. See 

§ 1.1503(d)–1(d)(2)(iv)(A). The result 

would be the same if DE1X recognized 

income in year 1 that was regarded for 

both U.S. and Country X tax purposes, 

or if P made payments (other than 

interest, structured payments, or 

royalties) to DE1X that were disregarded 

for U.S. tax purposes but regarded for 

Country X tax purposes. See 

§ 1.1503(d)–1(d)(3)(i) (describing the 

application of the principles of the 

deemed ordering rule in § 1.1503(d)– 

3(c)(3)). 

(B) Years 2 and 3. In year 2, P 

establishes a suspended deduction of 

$100x related to the year 1 DPL 

inclusion amount. See § 1.1503(d)– 

1(d)(1) and (d)(2)(ii). In each of years 2 

and 3, DE1X derives $60x of disregarded 

payment income with respect to its 

Country X taxable year. See § 1.1503(d)– 

1(d)(5)(ii)(A). For year 2, P is allowed a 

$60x deduction with respect to the 

suspended deduction, and $40x remains 

suspended. See § 1.1503(d)–1(d)(2)(ii). 

For year 3, P is allowed a $40x 

deduction with respect to the 

suspended deduction. See id. Thus, in 

years 2 and 3 P is allowed a $60x 

deduction and $40x deduction, 

respectively, with respect to the 

suspended deduction relating to the 

year 1 DPL inclusion amount. The 

deductions are treated as interest 

deductions the source and character of 

which are determined in the same 

manner as the income for the DPL 

inclusion amount to which they relate. 

See § 1.1503(d)–1(d)(2)(iv)(B). At the 

end of year 3, the DPL cumulative 

register is $20x (that is, the $120x of 

disregarded payment income for years 2 

and 3, less the $100 of DPL cumulative 

register that is used under § 1.1503(d)– 

1(d)(2)(ii) in years 2 and 3). See 

§ 1.1503(d)–1(d)(2)(iii). 

(43) Example 43. Income from U.S. 

business operations to avoid the 

purposes of the dual consolidated loss 

rules—(i) Facts. P owns DE1X. DE1X 

owns FSX. DE1X and FSX file a 

consolidated tax return for Country X 

tax purposes such that deductions and 

losses of DE1X are available to offset 

income of FSX. P conducts business 

operations in the United States that are 

expected to generate items of income or 

gain (U.S. business operations). With a 

view to avoid the purposes of the rules 

under §§ 1.1503(d)–1 through 

1.1503(d)–8 by eliminating what would 

otherwise be a dual consolidated loss 

and obtaining a double deduction 

outcome, P transfers the U.S. business 

operations to DE1X. But for P’s items of 

income or gain from the U.S. business 

operations (held indirectly through 

DE1X), there would be a dual 

consolidated loss attributable to P’s 

interest in DE1X and a foreign use of 

that dual consolidated loss (as a result 

of the Country X consolidation regime). 

For purposes of determining taxable 

income under the income tax laws of 

Country X, items of income, gain, 

deduction, and loss attributable to a 

permanent establishment (or similar 

taxable presence) in another country, 

which would include the U.S. business 

operations, are not taken into account. 

(ii) Result. Because P transferred the 

U.S. business operations to DE1X with 

a view to avoid the purposes of the rules 

under §§ 1.1503(d)–1 through 

1.1503(d)–8, and the transfer would 

otherwise result in a double deduction 

outcome (that is, in effect putting 

DE1X’s items of deduction or loss that 

would compose a dual consolidated loss 

to both a domestic use and a foreign 

use), the anti-avoidance rule in 

§ 1.1503(d)–1(f)(1) applies. As a result, 

the income or gain that P takes into 

account from the U.S. business 

operations (held indirectly through 

DE1X) is not taken into account for 

purposes of determining the amount of 

income or dual consolidated loss 

attributable to P’s interest in DE1X 

under § 1.1503(d)–5(c). The result 

would be the same if, instead of the 

income tax laws of Country X not taking 

into account the items of income, gain, 

deduction, and loss attributable to a 

permanent establishment (or similar 

taxable presence) in another country for 

purposes of determining taxable 

income, the income tax laws of Country 

X took such items into account for this 

purpose but provided a foreign tax 

credit with respect to taxes paid on the 

taxable income determined by taking 

such items into account. 

(44) Example 44. Disallowed interest 

deductions—(i) Facts. P owns S. S owns 

DE1X, a disregarded entity and, thus, is 

a DPE owner. See § 1.1503(d)–1(d)(1). 

DE1X owns FSX. DE1X and FSX file a 

consolidated tax return for Country X 

tax purposes such that deductions and 

losses of DE1X are available to offset 

income of FSX. With a view to avoid the 

purposes of the rules under 

§§ 1.1503(d)–1 through 1.1503(d)–8, and 

obtain a double deduction or similar 


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outcome, P transfers cash to DE1X in 

exchange for an interest-bearing note. 

Under the terms of the note, payments 

of interest are made in cash or, at the 

option of DE1X, in stock of S. In year 

1, DE1X accrues $100x of interest 

expense under the note. The taxpayer 

takes the position that for U.S. tax 

purposes, the interest expense 

deductions are disallowed under section 

163(l) because DE1X has the option to 

pay the interest with S stock. Further, 

because S’s interest expense deductions 

on the note held by P are disallowed, 

the taxpayer takes the position that P’s 

interest income on the loan is treated as 

tax-exempt income under the 

intercompany transaction rules in 

§ 1.1502–13. In year 1, DE1X is allowed 

a $100x interest expense deduction for 

Country X tax purposes; the $100x 

deduction is available to offset FSX’s 

income for Country X tax purposes. 

(ii) Result. DE1X issued the note to P 

in exchange for cash with a view to 

avoid the purposes of §§ 1.1503(d)–1 

through 1.1503(d)–8. Moreover, under 

the taxpayer’s position, the issuance 

would otherwise result in a double 

deduction or similar outcome (that is, a 

foreign use of DE1X’s $100x interest 

expense deduction where P does not 

recognize a corresponding income 

inclusion for U.S. tax purposes). 

Accordingly, the anti-avoidance rule in 

§ 1.1503(d)–1(f)(1) applies. As a result, 

adjustments are made such that the 

$100x interest expense deduction is 

treated as a disregarded payment loss of 

DE1X, a disregarded payment entity. 

This is the case even though the $100x 

interest payment is not disregarded for 

U.S. tax purposes as a transaction 

between a disregarded entity and its tax 

owner or between disregarded entities 

with the same tax owner under 

§ 1.1503(d)–1(d)(5)(ii)(C)(2). Because the 

$100x disregarded payment loss is made 

available under the Country X 

consolidation regime to offset income of 

FSX, a foreign corporation, a foreign use 

triggering event (within the meaning of 

§ 1.1503(d)–1(d)(3)(i)) occurs. As a 

result, S includes in income a $100x 

DPL inclusion amount in year 1 and 

establishes a suspended deduction of 

$100x in year 2. See § 1.1503(d)–1(d)(1), 

(d)(2)(i), and (d)(2)(ii). 

(45) Example 45. Restructuring to 

avoid the application of the DPL rules— 

(i) Facts. P owns DE1X and S. DE1X 

owns FSX. DE1X and FSX file a 

consolidated tax return for Country X 

tax purposes such that deductions and 

losses of DE1X are available to offset 

income of FSX. P holds an interestbearing note issued by DE1X. For U.S. 

tax purposes, interest accrued and paid 

on the note is disregarded. For Country 

X tax purposes, DE1X is allowed a 

$100x interest expense deduction each 

year for interest accrued under the note. 

At the end of year 1, and with a view 

to avoid the application of the 

disregarded payment loss rules under 

§ 1.1503(d)–1(d) in year 2, P transfers 

the note to S. In year 2, DE1X is allowed 

a $100x interest expense deduction for 

Country X tax purposes. For U.S. tax 

purposes, the $100x interest expense 

deduction in year 2 gives rise to a dual 

consolidated loss attributable to P’s 

interest in DE1X, a hybrid entity 

separate unit, and that loss is subject to 

the domestic use limitation rule of 

§ 1.1503(d)–4(b). 

(ii) Result. Although P transferred the 

note to S with a view to avoid the 

application of the disregarded payment 

loss rules under § 1.1503(d)–1(d), the 

anti-avoidance rule in § 1.1503(d)– 

1(f)(1) does not apply with respect to the 

transfer. This is because the resulting 

year 2 $100x dual consolidated loss is 

subject to the domestic use limitation 

rule of § 1.1503(d)–4(b) (or the terms of 

a domestic use agreement, if a domestic 

use election were to be made) and thus 

cannot be put to both a domestic use 

and a foreign use (that is, it does not 

result in a double deduction or similar 

outcome). The same result would obtain 

if, instead of P transferring the note to 

S at the end of year 1, DE1X 

extinguished the note at the end of year 

1 such that there are no disregarded 

payments in year 2 and, thus, no double 

non-taxation outcome. 

(iii) Alternative facts. The facts are the 

same as in paragraph (c)(45)(i) of this 

section, except that P does not transfer 

the note to S in year 1. Instead, with a 

view to prevent a foreign use of a 

disregarded payment loss attributable to 

DE1X, at the end of year 1 FSX 

distributes all its property to DE1X in a 

complete liquidation described in 

section 332. The anti-avoidance rule in 

§ 1.1503(d)–1(f)(1) does not apply 

because the disregarded payment loss is 

not put to a foreign use (that is, there is 

no double deduction or similar 

outcome). 

(46) Example 46. Disregarded 

payment loss rules—scope—(i) Facts. P 

owns DE1X. DE1X owns FBZ. FBZ is a 

foreign branch, within the meaning of 

§ 1.1503(d)–1(d)(5)(iv), located in 

Country Z. DE1X makes a $10x payment 

to P, which, under the laws of Country 

Z, gives rise to a $10x deduction 

allowable to FBZ. If such payment were 

regarded for U.S. tax purposes, it would 

be interest within the meaning of 

§ 1.267A–5(a)(12). In addition, under 

the laws of Country Z, FBZ is allowed 

a $60x interest deduction for an accrual 

or other transaction between FBZ and 

DE1X, and if such item were regarded 

for U.S. tax purposes, it would be 

interest within the meaning of 

§ 1.267A–5(a)(12). 

(ii) Result. P is a DPE owner because 

it owns DE1X, a disregarded entity. See 

§ 1.1503(d)–1(d)(1). As such, P 

determines disregarded payment 

income or disregarded payment loss of 

DE1X, a disregarded payment entity 

described in § 1.1503(d)–1(d)(5)(i)(A), 

and of FBZ, a disregarded payment 

entity described in § 1.1503(d)– 

1(d)(5)(i)(B). See § 1.1503(d)–1(d)(1). 

The payment from DE1X to P is 

disregarded for U.S. tax purposes as a 

transaction between a disregarded entity 

(DE1X) and its tax owner (P) and 

therefore satisfies the condition in 

§ 1.1503(d)–1(d)(5)(ii)(C)(2). The 

payment also satisfies the conditions 

described in § 1.1503(d)–1(d)(5)(ii)(C)(1) 

and (3) because FBZ is allowed a 

deduction under Country Z law for a 

payment that, if regarded for U.S. tax 

purposes, would be interest within the 

meaning of § 1.267A–5(a)(12). As such, 

the $10x deduction attributable to the 

payment from DE1X to P is taken into 

account in determining whether FBZ 

has disregarded payment income or a 

disregarded payment loss under 

§ 1.1503(d)–1(d)(5)(ii)(A) and (B), 

respectively. The $60x item of 

deduction allowed to FBZ, however, 

does not satisfy the condition described 

in § 1.1503(d)–1(d)(5)(ii)(C)(2), because 

the accrual or other transaction giving 

rise to the deduction is not between a 

disregarded entity and its tax owner 

(here, P), or between disregarded 

entities with the same tax owner. 

Accordingly, the $60x item of deduction 

is not taken into account in determining 

whether FBZ has disregarded payment 

income or a disregarded payment loss. 

The result would be the same with 

respect to the $60x deduction allowed 

to FBZ under the laws of Country Z if, 

instead of P owning FBZ indirectly 

through DE1X, P owned FBZ directly 

and the accrual or other transaction 

giving rise to the deduction is between 

FBZ and P. 

* * * * * 

■ Par. 5. Section 1.1503(d)–8 is 

amended by: 

■ 1. Revising the section heading; and 

■ 2. Adding paragraphs (b)(9) through 

(17). 

The revision and additions read as 

follows: 

§ 1.1503(d)–8 Applicability dates. 

* * * * * 

(b) * * * 

(9) [Reserved]. 

(10) [Reserved]. 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 3021 

(11) Disregarded payment loss rules. 

Section 1.1503(d)–1(d) applies to 

taxable years beginning on or after 

January 1, 2026. See also § 301.7701– 

2(e)(10) of this chapter (applicability 

dates for the entity classification 

provisions relevant to the disregarded 

payment loss rules). 

(12) [Reserved]. 

(13) [Reserved]. 

(14) [Reserved]. 

(15) Anti-avoidance rule. Section 

1.1503(d)–1(f) applies to dual 

consolidated losses incurred in taxable 

years ending on or after August 6, 2024, 

and to disregarded payment losses in 

taxable years beginning on or after 

January 1, 2026. 

(16) [Reserved]. 

(17) Deemed ordering rule. Section 

1.1503(d)–3(c)(3) applies to dual 

consolidated losses incurred in taxable 

years beginning on or after January 1, 

2026, and to disregarded payment losses 

in taxable years beginning on or after 

January 1, 2026. For the application of 

the deemed ordering rule to dual 

consolidated losses incurred in taxable 

years beginning before January 1, 2026, 

but on or after April 18, 2007, see 

§ 1.1503(d)–3(c)(3) as contained in 26 

CFR part 1 revised as of April 1, 2024. 

(18) Exception to mirror legislation 

rule for disregarded payment losses. 

Section 1.1503(d)–3(e)(4) applies to 

taxable years beginning on or after 

January 1, 2026. 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Par. 6. The authority citation for part 

301 is amended by adding an entry for 

§ 301.7701–2 to read as follows: 

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

* * * * * 

Section 301.7701–2 also issued under 26 

U.S.C. 7701. 

* * * * * 

■ Par. 7. Section 301.7701–2 is 

amended by: 

■ 1. In the last sentence of paragraph (a), 

removing the language ‘‘(vi)’’ and 

adding in its place the language ‘‘(vii)’’; 

■ 2. Adding paragraph (c)(2)(vii); and 

■ 3. Adding paragraph (e)(10). 

The additions read as follows: 

§ 301.7701–2 Business entities; 

definitions. 

* * * * * 

(c) * * * 

(2) * * * 

(vii) Special rules for certain 

disregarded payments—(A) Disregarded 

payment loss rules. To the extent 

provided in § 1.1503(d)–1(d) of this 

chapter, certain payments involving a 

business entity that, under paragraph 

(c)(2)(i) of this section is otherwise 

disregarded as an entity separate from 

its owner, are in effect taken into 

account as if the entity were regarded 

and the deduction was denied, and 

therefore give rise to an income 

inclusion, and corresponding 

suspended deduction, to the entity’s 

owner. 

(B) Non-application of the sixtymonth limitation. If an eligible entity 

that is disregarded as an entity separate 

from its owner would become a 

disregarded payment entity (within the 

meaning of § 1.1503(d)–1(d)(5)(i)(A) of 

this chapter) when this paragraph 

(c)(2)(vii) applies, the sixty-month 

limitation under § 301.7701–3(c)(1)(iv) 

does not apply with respect to an 

election by such eligible entity to 

change its classification to an 

association effective before January 1, 

2026 (such that it would not become a 

disregarded payment entity). 

* * * * * 

(e) * * * 

(10) Paragraph (c)(2)(vii) of this 

section (special rules for certain 

disregarded payments) applies to 

taxable years beginning on or after 

January 1, 2026, except that paragraph 

(c)(2)(vii)(B) of this section (nonapplication of sixty-month limitation) 

applies as of August 6, 2024. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: January 2, 2025. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2025–00318 Filed 1–10–25; 11:15 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF LABOR 

Occupational Safety and Health 

Administration 

29 CFR Part 1992 

[Docket Number: OSHA–2022–0005] 

RIN 1218–AD37 

Procedures for the Handling of 

Retaliation Complaints Under the AntiMoney Laundering Act of 2020 (AMLA) 

AGENCY: Occupational Safety and Health 

Administration (OSHA), Labor. 

ACTION: Interim final rule; request for 

comments. 

SUMMARY: This document provides the 

interim final text of regulations 

governing the anti-retaliation provisions 

of the Anti-Money Laundering Act of 

2020 (AMLA or the Act). This rule 

establishes procedures and timeframes 

for the handling of retaliation 

complaints under AMLA, including 

procedures and timeframes for 

complaints to the Occupational Safety 

and Health Administration (OSHA), 

investigations by OSHA, appeals of 

OSHA determinations to an 

administrative law judge (ALJ) for a 

hearing de novo, hearings by ALJs, 

review of ALJ decisions by the 

Administrative Review Board (ARB) 

(acting on behalf of the Secretary of 

Labor (Secretary)), and judicial review 

of the Secretary’s final decision. It also 

sets forth the Secretary’s interpretations 

of the AMLA anti-retaliation provision 

on certain matters. 

DATES: This interim final rule is 

effective on January 14, 2025. 

Comments and additional materials 

must be submitted (post-marked, sent or 

received) by March 17, 2025. 

ADDRESSES: Submit comments by the 

following method: 

Electronically: You may submit 

comments and attachments 

electronically at: https://

www.regulations.gov, which is the 

Federal eRulemaking Portal. Follow the 

instructions online for submitting 

comments. 

Docket: To read or download 

comments or other material in the 

docket, go to https://

www.regulations.gov. Documents in the 

docket are listed in the https://

www.regulations.gov index; however, 

some information (e.g., copyrighted 

material) is not publicly available to 

read or download through the website. 

All submissions, including copyrighted 

material, are available for inspection 

through the OSHA Docket Office. 

Contact the OSHA Docket Office at (202) 

693–2350 (TTY (877) 889–5627) for 

assistance in locating docket 

submissions. 

Instructions: All submissions must 

include the agency name and the OSHA 

docket number for this Federal Register 

document (OSHA–2022–0005). OSHA 

will place comments and requests to 

speak, including personal information, 

in the public docket, which may be 

available online. Therefore, OSHA 

cautions interested parties about 

submitting personal information such as 

Social Security numbers and birthdates. 

For further information on submitting 

comments, see the ‘‘Public 

Participation’’ heading in the section of 

this document titled SUPPLEMENTARY

INFORMATION. 

Extension of comment period: Submit 

requests for an extension of the 

comment period on or before January 

29, 2025 to the Directorate of 


khammond on DSK9W7S144PROD with RULES