On December 2, 2019, the Treasury Department released final regulations (T.D. 9885; Final Regulations) on the base erosion anti-abuse tax (BEAT) under IRC Section 59A. The Final Regulations are generally consistent with the proposed regulations published on December 21, 2018, but make certain modifications.

With the final regulations, Treasury also issued proposed regulations (REG-112607-19; New Proposed Regulations) under IRC Section 59A. Taxpayers may rely on the New Proposed Regulations for tax years beginning after December 31, 2017.

The Final and New Proposed regulations include rules that:

• Generally exclude from the definition of a base erosion payment amounts transferred to, or exchanged with, a foreign related party pursuant to a nonrecognition transaction under IRC Sections 332, 351, 355, or 368 — a significant and taxpayer-favorable change from the 2018 proposed regulations (the exclusion would not apply to amounts treated as "other property" in the Final Regulations)
• Propose to allow a taxpayer to elect to forego a deduction so that it is not taken into account as a base erosion tax benefit, but only if the taxpayer waives the deduction for all US federal income tax purposes
• Clarify that a built-in loss recognized on a sale or transfer of property to a foreign related party is not in itself a deduction that causes the payment to be treated as a base erosion payment
• Provide that IRC Section 15 does not apply to blend the BEAT rates of 5% and 10% for the tax year of a fiscal-year taxpayer beginning in calendar year 2018
• Provide that AMT credits do not reduce adjusted regular tax liability for purposes of determining a taxpayer's base erosion minimum tax amount
• Clarify the scope and application of the IRC Section 59A anti-abuse rules through additional examples and add a specific anti-abuse rule targeting transactions that increase the basis of property that a taxpayer acquires in a nonrecognition transaction
• Provide that losses incurred, as well as claims and benefits paid, by domestic reinsurance companies under reinsurance contracts with foreign related parties are not base erosion payments, and clarify how losses incurred and claims and benefits paid are taken into account for computing the base erosion percentage
• Propose specific rules for determining the composition of the aggregate group for applying the gross receipts and base erosion percentage tests, including rules for when a member joins or leaves the aggregate group, and clarify that an aggregate group can include regulated investment companies, real estate investment trusts, and certain controlled entities under IRC Section 892

A detailed Tax Alert and an invitation to our December 11 webcast are forthcoming.