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After requests for more guidance, the Internal Revenue Service (IRS) recently issued final regulations on the base-erosion and anti-abuse tax (BEAT). These final regulations were created to finalize (with a few changes) the additional proposed regulations released in Dec. 2019 by the IRS and the Treasury. These proposed regulations provided a new waiver of deductions election to permit applicable taxpayers to alleviate the effects of the BEAT and clarify BEAT applications with respect to partnerships owned by applicable taxpayers. The final regulations are similar to the proposed regulations with the exception of more clarification of certain rules as well as new modifications that impact the overall BEAT analysis. Doeren Mayhew’s tax advisors explore the new BEAT final regulations and provide insights on the new guidance.
The BEAT was introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 to discourage large multinational corporations from reducing their tax liability through specific payments made to foreign related parties and tax credits. The BEAT functions as a minimum tax, so for businesses to be impacted by it, they must have annual gross receipts of at least $500 million and have a base-erosion percentage above a stipulated threshold.
The newly introduced final regulations focus on the following topics:
The preamble of the final regulation also states that the IRS may provide insights on the qualified derivative payment (QDP) reporting requirements (mentioned in Regs. Sec. 1.59A-6 and Regs. Sec. 1.6038A-2(b)(7)(ix)) in the future.
The BEAT final regulations will apply to tax years beginning on or after the day in which the Federal Register publishes the regulations. Applicable taxpayers can apply the final regulations retroactively for tax years beginning after Dec. 31, 2017. Once the regulations have been applied, taxpayers must continue to apply them in their entirety for all tax years to come.
Fortunately, the final regulations seem to be favorable to taxpayers and offer a great deal of clarity to the items initially included in the proposed regulations. Since the final regulations can be applied retroactively, eligible taxpayers could benefit from revisiting their prior year’s BEAT calculations to determine if claiming a waiver of deductions election would be useful on an amended return.
Doeren Mayhew recommends discussing the federal income tax effects of the final regulations with your tax advisor to learn the impact of the BEAT waiver of deductions election as well as avoid any potential consequences that may accompany the Treasury’s clarifications of the final regulations. If you have questions about the new BEAT final regulations, contact Doeren Mayhew’s dedicated team of tax advisors today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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