Proposed regs. govern tax on base-erosion payments

By Sally P. Schreiber, J.D.

The IRS has proposed regulations on the Sec. 59A base-erosion anti-abuse tax (BEAT), added by the law known as the Tax Cuts and Jobs Act, P.L. 115-97 (REG-104259-18). The proposed regulations provide guidance regarding the BEAT, which is imposed on base-erosion payments of taxpayers with substantial gross receipts, and regarding the related reporting requirements. They would affect corporations with substantial gross receipts that make payments to foreign related parties and corporations required to report under Secs. 6038A and 6038C.

Sec. 59A imposes on each applicable taxpayer a tax equal to the base-erosion minimum tax amount for the tax year. Sec. 6038A imposes reporting and recordkeeping requirements on domestic corporations that are 25% foreign-owned, and Sec. 6038C imposes the same reporting and recordkeeping requirements on certain foreign corporations engaged in a U.S. trade or business (collectively, reporting corporations). In general, the proposed regulations provide rules for determining whether a taxpayer is an applicable taxpayer on which the BEAT may be imposed, for computing the taxpayer’s BEAT liability, and for reporting and recordkeeping for taxpayers subject to the BEAT.

The regulations address the following topics:

  • Who are applicable taxpayers for BEAT purposes, including the determination of the aggregate group for applying the gross-receipts test and the base-erosion percentage test;
  • The rules for the gross-receipts test and base-erosion percentage test, the rules regarding taxpayers in an aggregate group with different tax years, and the treatment of mark-to-market deductions;
  • The definition of base-erosion payments, including the operating rules for certain specific types of base-erosion payments and exceptions from the base-erosion payment definition;
  • The definition of base-erosion tax benefits;
  • The computation of modified taxable income and the base-erosion minimum tax amount;
  • The application of the BEAT to partnerships;
  • Rules relating to banks and dealers and rules for insurance companies;
  • Anti-abuse and recharacterization rules;
  • The general application of the BEAT to consolidated groups, including the coordination of the consolidated group rules for Secs. 59A(c)(3) and 163(j) limits on business interest expense and the computation of consolidated tax liability;
  • Proposed amendments to Regs. Sec.1.383-1 to address limitations on a loss corporation’s items under Secs. 382 and 383 in the context of the BEAT; and
  • The reporting and recordkeeping requirements for the BEAT under Sec. 6038A.

The IRS is requesting comments on the regs within 60 days after they are published in the Federal Register.

— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

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