Background
IRS’ Notice 2025-72 announces the agency’s intention to issue proposed regulations related to the repeal of IRC Section 898(c)(2) and modifications under §987 as enacted under the One Big Beautiful Bill Act (OB3).
Section 898 allowed specified foreign corporations (SFCs) to elect a taxable year beginning one month earlier than the majority U.S. shareholder’s taxable year. OB3 repealed the election for taxable years of SFCs beginning after November 30, 2025. OB3 requires transition rules and guidance for allocating foreign taxes paid or accrued by the SFC.
Final regulations were issued under §987 in December 2024 including rules for taxpayers calculating foreign currency gain or loss of a qualified business unit. For additional details, read our FORsights™ article “A Closer Look at Foreign Currency Gains & Losses of QBUs.”
Section 898
According to the notice, the forthcoming proposed regulations under §898 will define key terms such as affected corporation, first required year, specified foreign income tax, and succeeding taxable year. Allocation rules of specified foreign income tax between the first and succeeding taxable years are provided as well as ordering rules for the allocation of specified foreign income taxes once the applicable year is established. Rules are also provided in relation to accrued taxes under §905(c) and foreign income tax translation under §986(a).
Section 987
Forthcoming proposed regulations under §987 modify the effect of the amortization election relating to the pretransition gain or loss for short taxable years, including those related to the repeal of §898(c)(2).
Important Dates & Action Items
Section 898 regulations will apply to taxable years of SFCs beginning after November 30, 2025.
Section 987 regulations will apply to taxable years beginning after December 31, 2024, and ending on or after November 25, 2025.
Taxpayers may rely on the rules of this notice until the proposed regulations are published provided they are applied in their entirety and consistently.
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