Tax News Update    Email this document    Print this document  

December 4, 2020

BREAKING TAX NEWS | Proposed regulations would require taxpayers to use 20-year recovery period for QIP retroactively and prospectively when calculating QBAI under GILTI and FDII rules

Today, the Treasury Department and the IRS released proposed regulations (REG-111950-20) that would require taxpayers to use a 20-year recovery period for qualified improvement property (QIP) when calculating their qualified business asset investment (QBAI) under the rules for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII). The regulations are generally proposed to apply retroactively to tax years beginning after December 31, 2017.

According to the regulations' Preamble, Congress intended to assign QIP a 20-year recovery period under the alternative depreciation system (ADS), but a drafting error in the Tax Cuts and Jobs Act (TCJA) prevented that result. A technical correction to the TCJA, enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provided a 20-year recovery period under ADS for QIP placed in service after December 31, 2017. The correction applied retroactively to the date of the TCJA's enactment.

The proposed regulations would require taxpayers to use the 20-year recovery period enacted under the CARES Act for QIP when calculating their QBAI under the GILTI and FDII rules. They would also require taxpayers to treat that recovery period as if it applied as of the TCJA's enactment.

The Treasury Department and IRS request comments on whether to provide a transition rule for taxpayers that took return positions counter to the proposed regulations before September 1, 2020, and that do not file an amended return for that year.

A Tax Alert on the proposed regulations is forthcoming.