Background
On December 4, 2025, the U.S. Department of the Treasury and the IRS published Notice 2025-78 (the Notice), announcing their intent to issue proposed regulations regarding Section 250(b)(3)(A)(i)(VII), as enacted under the One Big Beautiful Bill Act (OB3).
Section 250 provides domestic corporations with a deduction on their foreign-derived deduction eligible income (FDDEI). FDDEI is defined as income derived from the sale, lease, license, exchange, or other disposition of property for foreign use to a non-U.S. person or services provided to person not located within the United States.
Prior to the OB3, this deduction eligible income (DEI) was calculated as the excess of the domestic corporation’s gross income, excepting six types of gross income as provided in the code section, over deductions allocable to such gross income.
Insight From Forvis Mazars: Prior to the OB3 and the changes it provided, the precursor to FDDEI was known as foreign-derived intangible income or FDII. While the general intent of FDII was retained in FDDEI, the calculation and effective tax rate benefit did change.
New Gross Income Exceptions
The new provision introduced by the OB3 adds a seventh and an eighth DEI gross income exception applicable to income or gains resulting from transactions occurring after June 16, 2025. The two new categories are:
- Any income or gain derived from the sale or disposition of intangible property
- Any income or gain derived from the sale or disposition of other property of a type that is subject to depreciation, amortization, or depletion by the seller
Insight From Forvis Mazars: The OB3 specifies that the broader definition of “sales” including lease, license, exchange, or other disposition does not apply to these two new categories. Therefore, definitionally, the two new categories strictly apply to sales or dispositions as written in the law.
Forthcoming Regulations
The notice provides definitions for the following terms that will be included in the forthcoming regulations. Terms include:
- Sales or other disposition: A sale or other disposition of intangible or excluded property refers to any transaction treated as a sale under general tax principles, including deemed sales and 367(d) transactions, but excludes leases or licenses.
- Intangible property: Intangible property is defined under 367(d)(4) and, for §250(b)(3)(A)(i)(VII)(aa), excludes copyrighted articles as defined in §1.861-18(c)(3).
- Other excluded property: Other excluded property refers to non-intangible property that, in the seller’s hands, is or has been subject to depreciation under 167, amortization, or depletion under §611.
- Seller: Seller means the domestic corporation that sells or otherwise disposes of the intangible property or other excluded property.
- Related-party anti-abuse rule: If a seller acquires property that was previously classified as other excluded property by an affiliated group member in a basis-carryover transaction, and the acquisition is primarily intended to avoid 250(b)(3)(A)(i)(VII)(bb), that property remains treated as other excluded property for the seller. For this rule, a modified affiliated group is defined under §1.250(b)-1(c)(17) with adjusted ownership thresholds for determining control.
Taxpayers may rely on the rules of this notice until the proposed regulations are published, provided they are applied in their entirety and consistently. Comments on the notice should be submitted to Treasury and the IRS by February 2, 2026.
How Forvis Mazars Can Help
The objective of these alterations to FDII appear to encourage businesses to keep intangible property (such as intellectual property) in the U.S. by exempting such sales from the FDDEI deduction.
Our international tax team members can help you in applying these legislative changes and new guidance to your income tax situation. Please reach out to one of our professionals to learn more.