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September 2, 2020

BREAKING TAX NEWS | Treasury releases final BEAT regulations

On September 1, 2020, the Treasury Department released final regulations (T.D. 9910; Final Regulations) on the base erosion anti-abuse tax (BEAT) under IRC Section 59A. The Final Regulations generally follow the proposed regulations issued in December 2019, as expected, with certain revisions (see Tax Alert 2019–2154 for a discussion of the proposed regulations). Highlights include provisions that:

  • Retain the rule about changes in the composition of a taxpayer's aggregate group and clarify the timing of the deemed tax year-end of a member joining or leaving the group (now treated as occurring at the end of the day of the transaction)
  • Detail when members of a taxpayer's aggregate group have different tax years, including rules that apply in certain instances to annualize a member's gross receipts, base erosion tax benefits, and deductions for determining the gross receipts and base erosion percentage of the taxpayer's aggregate group
  • Favorably limit the anti-abuse rule for transactions that increase the basis of property acquired by a taxpayer in a non-recognition transaction to turn off the non-recognition exception for the basis step-up amount, and narrow the anti-abuse rule to generally apply if a principal purpose of the basis step-up transaction was to increase the taxpayer's depreciation or amortization deductions without increasing the taxpayer's base erosion tax benefits
  • Retain the definition of "allowed deduction," which includes all deductions that may properly be claimed (whether deducted or not) for the tax year, while also retaining the election to waive deductions so that waived deductions are not treated as base erosion tax benefits (e.g., when determining base erosion percentage or modified taxable income)
  • Include, as part of the BEAT waiver election, a provision for the waiver of any premium or other consideration paid or accrued by a life or non-life insurance company for any reinsurance payments that would be a base erosion tax benefit
  • Allow a partner, but not the partnership itself, to make a BEAT waiver election for allocated deductions from a partnership
  • Conform the treatment of a partner's BEAT waiver election with IRC Section 163(j) so that an increase in the partner's income from waiving a deduction taken into account by the partnership to reduce the partnership's adjusted taxable income is treated as a partner-basis item for the partner, not the partnership, for purposes of IRC Section 163(j)
  • Adopt the proposed rule treating an income allocation to the contributing partner in lieu of a deduction allocation to the non-contributing partner as a base erosion tax benefit under IRC Section 59A

A more detailed Tax Alert on the Final Regulations is forthcoming.