Tax Update (December 14)
On Thursday (Dec 13), the United States Treasury Department and the Internal Revenue Service released the much awaited regulations on the base erosion and anti-abuse tax, also known as the BEAT provision.
Section 59A, enacted by the Tax Cuts and Jobs Act (TCJA), imposes on each applicable taxpayer a tax equal to the base erosion minimum tax amount for the taxable year. The TCJA also added reporting obligations regarding this tax for 25 percent foreign-owned corporations subject to section 6038A and foreign corporations subject to section 6038C. It also addressed other issues for which information reporting under those sections is important to tax administration.
Of particular note, the proposed regulations provide that any disallowed disqualified interest under section 163(j) that resulted from a payment or accrual to a foreign related party and that is carried forward from a taxable year beginning before January 1, 2018, is not a base erosion payment. They also clarify that any disallowed business interest carry forward under section 163(j) that resulted from a payment or accrual to a foreign related party is treated as a base erosion payment in the year that the interest was paid or accrued; even though the interest may be deemed to be paid or accrued again in the year in which it is actually deducted.
The regulations can be found here.
Tax Extenders Package:
If the remaining appropriations bills aren’t passed by December 21, a partial government shutdown will occur. As a result, the potential for any action on an extenders tax package appears to be in jeopardy, with members having little sense of urgency to move forward with the package. It’s expected this package will be slated for Q1 of FY 2019, with one year forward and one year backward as the most likely scenario.