ABA Tax Section Suggests Further Guidance on BEAT Regs

ABA Tax Section Suggests Further Guidance on BEAT Regs

American Bar Association Section of Taxation

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed base erosion and antiabuse tax regulations (<a href="/lr/resolve//28pf1">REG-104259-18</a>), identifying provisions that it suggests should be reconsidered and other areas that need further clarification. The tax section has suggested that Treasury and the IRS provide guidance on the applicable taxpayer tests to provide some clarifications and to simplify a provision that requires taxpayers with different tax years within a single aggregate group to apply the applicable taxpayer tests using each taxpayer’s tax year for all members of the aggregate group. Section members also seek guidance on the definition of the term “base erosion payment” regarding transactions involving noncash consideration. Section members suggest that such guidance adopt a two-prong inquiry to determine whether a transaction involving issuer stock or the assumption of liabilities should be treated as resulting in an amount paid or accrued for section 59A purposes. The guidance should also address or clarify 10 other issues raised by section members. The tax section has suggested that Treasury and the IRS provide guidance regarding the treatment of expenses allocable to a foreign corporation’s effectively connected income, addressing cases in which a taxpayer has made simplifying elections for purposes of determining its total interest deductions and cases in which a taxpayer uses a treaty method that determines profit based on functions performed, assets used, and risks assumed. Section members have requested additional examples or clarification regarding the sufficient documentation of the methods used to allocate and apportion costs between services cost method (SCM)-eligible services and non-SCM-eligible services. Section members also suggested that Treasury and the IRS clarify that applying section 15 will not result in a blended rate for tax years beginning in 2018 for the transition from the 5 percent to the 10 percent rate, but instead will result in a blended rate for the transition from 10 percent to the 12.5 percent rate. The tax section has suggested guidance on several partnership issues, including treatment of contributions and distributions and the relevance of the aggregate approach to the ownership of partnership assets for purposes of section 59A. The tax section also suggested guidance addressing some issues regarding the antiabuse and recharacterization rules.

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed base erosion and antiabuse tax regulations (REG-104259-18), identifying provisions that it suggests should be reconsidered and other areas that need further clarification.

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed base erosion and antiabuse tax regulations (REG-104259-18), identifying provisions that it suggests should be reconsidered and other areas that need further clarification. The tax section has suggested that Treasury and the IRS provide guidance on the applicable taxpayer tests to provide some clarifications and to simplify a provision that requires taxpayers with different tax years within a single aggregate group to apply the applicable taxpayer tests using each taxpayer’s tax year for all members of the aggregate group. Section members also seek guidance on the definition of the term “base erosion payment” regarding transactions involving noncash consideration. Section members suggest that such guidance adopt a two-prong inquiry to determine whether a transaction involving issuer stock or the assumption of liabilities should be treated as resulting in an amount paid or accrued for section 59A purposes. The guidance should also address or clarify 10 other issues raised by section members. The tax section has suggested that Treasury and the IRS provide guidance regarding the treatment of expenses allocable to a foreign corporation’s effectively connected income, addressing cases in which a taxpayer has made simplifying elections for purposes of determining its total interest deductions and cases in which a taxpayer uses a treaty method that determines profit based on functions performed, assets used, and risks assumed. Section members have requested additional examples or clarification regarding the sufficient documentation of the methods used to allocate and apportion costs between services cost method (SCM)-eligible services and non-SCM-eligible services. Section members also suggested that Treasury and the IRS clarify that applying section 15 will not result in a blended rate for tax years beginning in 2018 for the transition from the 5 percent to the 10 percent rate, but instead will result in a blended rate for the transition from 10 percent to the 12.5 percent rate. The tax section has suggested guidance on several partnership issues, including treatment of contributions and distributions and the relevance of the aggregate approach to the ownership of partnership assets for purposes of section 59A. The tax section also suggested guidance addressing some issues regarding the antiabuse and recharacterization rules.

Sec. 59A Tax on base erosion payments of taxpayers with substantial gross receipts

United States

Base erosion and antiabuse tax (BEAT)

Corporate taxation

Tax Cuts and Jobs Act

Eric Solomon

DOC 2019-19212

2019 WTD 95-25

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Eric Solomon is a partner in the tax practice at Steptoe &amp; Johnson LLP.
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ABA Tax Section Suggests Further Guidance on BEAT Regs