Rules for QIP under FDII and GILTI

Final regulations address calculation of qualified business asset investment.
By Paul Bonner

The IRS published final regulations (T.D. 9956) addressing the treatment of qualified improvement property (QIP) for purposes of calculating qualified business asset investment (QBAI) for QIP under the alternative depreciation system (ADS) under Secs. 250 and 951A — respectively, the foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) provisions.

T.D. 9956 also finalizes certain proposed transition rules for purposes of foreign tax credits (FTCs). These rules relate to the impact on separate limitation loss or overall foreign loss accounts of certain net operating loss (NOL) carrybacks under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.

The CARES Act also amended Sec. 168(e) to provide that QIP is classified as 15-year property under the general depreciation system, with a 20-year recovery period under the ADS. This technical amendment was required by the omission of QIP as 15-year property, contrary to Congress's intent, from the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. QIP can be a component in determining the adjusted basis of property under the ADS included in QBAI, which is implicated in determining the GILTI inclusion amount and the deemed tangible income return for purposes of FDII.

The IRS in 2020 issued Notice 2020-69 announcing it intended to clarify in regulations that the CARES Act's technical amendment regarding QIP for the purpose of determining the adjusted basis of property under Sec. 951A(d)(3) applied as if it had originally been part of the TCJA as enacted on Dec. 22, 2017. Those proposed regulations were issued in January 2021 (REG-111950-20) as Prop. Regs. Secs. 1.250(b)-2(e)(2) and 1.951A-3(e)(2). The final regulations adopt these regulations essentially as proposed (but not other proposed regulations in REG-111950-20 pertaining to Secs. 1297 and 1298, which the IRS said it would finalize separately).

T.D. 9956 also finalizes proposed regulations (REG-101657-20) published in November 2020 with respect to revisions to the transition rules for another CARES Act provision, post-2017 NOL carrybacks to pre-2018 tax years, also without substantive change and without finalizing other proposed regulations in REG-101657-20.

The final regulations are effective on or after Sept. 24, 2021, the date they were published in the Federal Register.

  • T.D. 9956

— By Paul Bonner, a JofA senior editor.

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