Regs limit Sec. 245A dividends-received deduction

Tax Hot Topics newsletter The IRS recently issued final regulations (T.D. 9909) and proposed regulations (REG-124737-19) under Sections 245A and 954(c)(6) limiting gap-year and other planning strategies that use the dividends-received deduction contrary to legislative intent.

Specifically, the final regulations deny in whole or in part the Section 245A deduction for certain dividends received to U.S. persons from foreign corporations under Section 245A and the exception to Subpart F income under Section 954(c)(6) for certain dividends received by controlled foreign corporations. The final regulations adopt proposed regulations published in June 2019, and withdraw temporary regulations issued simultaneously with the prior proposed regulations. They apply to tax years ending on or after June 14, 2019. For more details on the temporary regulations, see our story “Temporary regs address Section 245A loophole.”

The new proposed 2020 regulations, issued in conjunction with the final regulations, coordinate the extraordinary disposition rules under the final Section 245A regulations and the disqualified basis rules under Section 951A. They apply for tax years beginning on or after Aug. 27, 2020, the date the final regulations were published in the Federal Register.

Taxpayers may apply both the final and new proposed regulations retroactively, provided the regulations are applied consistently. Final and proposed regulations also were issued under Section 6038 related to information reporting to facilitate administration of the final regulations.

David Sites
Washington National Tax Office
T +1 202 861 4104

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

Yasmin Dirks
Washington National Tax Office
T +1 202 521 1506

Olivia Arnold
Atlanta Office
T +1 678 515 2490

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