Close
Close

IRS corrects regulations issued under Sections 965 and 250

RFP
Tax Hot Topics newsletter The IRS issued corrections to final regulations under Section 965 (84 FR 14260) and proposed regulations under Section 250 (84 FR 14634 and 84 FR 14901).

The changes under Section 250 included the addition of a sentence to the preamble defining financial services income by reference to Section 904(d)(2)(d) and Prop. Treas. Reg. Sec. 1.904-4(e)(1)(ii). Several applicability dates provided in the preamble of the proposed regulations package were also corrected to apply to taxable years beginning on or after March 4, 2019.

The corrections to the final regulations under Section 965 are more noteworthy. The first modifies the “dealer exception,” which provides that specified foreign corporations (SFCs) that are dealers and traders in commodities must include commodities in their cash positions. This rule now applies to specific commodities held by an SFC in its capacity as a dealer or trader rather than testing the entity to determine if it is a dealer or trader.

The second change to the Section 965 final regulations treats all members of an affiliated group that are Section 958(a) U.S. shareholders as a single U.S. shareholder for purposes of the limited basis election under Treas. Reg. Sec. 1.965-2(f)(2)(ii)(A)(2). As written prior to its correction, a U.S. shareholder could apply the limited basis election only if it owned stock of both a deferred foreign income corporation (DFIC) and E&P deficit foreign corporation. This correction allows members of an affiliated group that only own DFICs to make the election.

Finally, the Section 965 final regulations were corrected to provide a clarification to the anti-diminution rule. As originally written, the rule states that an SFC may not reduce its earnings and profits for a distribution made to its U.S. shareholder in a year that had an SFC measurement date. In limited situations (e.g., if an SFC has a Nov. 30 tax-year end) the rule could apply to multiple years of an SFC. Therefore, it was clarified that the anti-diminution rule applies only to the last year of an SFC beginning before Jan. 1, 2018.

Contact:
David Sites
Partner, Washington National Tax Office
T +1 202 861 4104

David Zaiken
Managing Director, Washington National Tax Office
T +1 202 521 1543

Cory Perry
Senior Manager, Washington National Tax Office
T +1 202 521 1509

Mike Del Medico
Manager, Washington National Tax Office
T+1 202 521 1522

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.