Rule2021-20615
Guidance on the Treatment of Qualified Improvement Property Under Sections 250(b) and 951A(d) and Guidance Related to the Foreign Tax Credit
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Published
September 24, 2021
Effective
September 24, 2021
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations under sections 250 and 951A addressing the calculation of qualified business asset investment ("QBAI") for qualified improvement property ("QIP") under the alternative depreciation system ("ADS"). This document also contains final regulations with transition rules relating to the impact on loss accounts of net operating loss (NOL) carrybacks allowed by reason of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The final regulations affect United States shareholders of controlled foreign corporations, domestic corporations eligible for the section 250 deduction, and taxpayers that claim credits or deductions for foreign income taxes.
Full Text
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<title>Federal Register, Volume 86 Issue 183 (Friday, September 24, 2021)</title>
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[Federal Register Volume 86, Number 183 (Friday, September 24, 2021)]
[Rules and Regulations]
[Pages 52971-52973]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20615]
[[Page 52971]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9956]
RIN 1545-BP91; RIN 1545-BP70
Guidance on the Treatment of Qualified Improvement Property Under
Sections 250(b) and 951A(d) and Guidance Related to the Foreign Tax
Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations under sections 250
and 951A addressing the calculation of qualified business asset
investment (``QBAI'') for qualified improvement property (``QIP'')
under the alternative depreciation system (``ADS''). This document also
contains final regulations with transition rules relating to the impact
on loss accounts of net operating loss (NOL) carrybacks allowed by
reason of the Coronavirus Aid, Relief, and Economic Security Act (the
``CARES Act''). The final regulations affect United States shareholders
of controlled foreign corporations, domestic corporations eligible for
the section 250 deduction, and taxpayers that claim credits or
deductions for foreign income taxes.
DATES:
Effective date: These regulations are effective on September 24,
2021.
Applicability dates: For dates of applicability, see Sec. Sec.
1.250-1(b), 1.904(f)-12(j)(7), and 1.951A-7(a).
FOR FURTHER INFORMATION CONTACT: Concerning Sec. Sec. 1.250(b)-1(b)(2)
and 1.250(b)-2(e)(2), Lorraine Rodriguez at (202) 317-6726; concerning
Sec. 1.904(f)-12, Jeffrey L. Parry at (202) 317-4916; concerning Sec.
1.951A-3(e)(2), Jorge M. Oben at (202) 317-6934 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
I. Treatment of QIP Under Sections 250 and 951A
On January 15, 2021, the Department of the Treasury (``Treasury
Department'') and the IRS published proposed regulations (REG-111950-
20) under sections 250, 951A, 1297, and 1298 in the Federal Register
(86 FR 4582, as corrected at 86 FR 12886) (the ``2021 proposed
regulations''). The provisions in the 2021 proposed regulations under
sections 250 and 951A, which were added to the Code in the Tax Cuts and
Jobs Act, Public Law 115-97, 131 Stat. 2234 (2017), addressed the
treatment of QIP under the ADS for purposes of calculating QBAI.
The Treasury Department and the IRS received no written comments
with respect to the proposed rules under sections 250 and 951A. A
public hearing on the 2021 proposed regulations was not held because
there were no requests to speak.
This rulemaking finalizes the portion of the 2021 proposed
regulations under sections 250 and 951A, but does not finalize the
portions of the 2021 proposed regulations under sections 1297 and 1298
(determining whether a foreign corporation is treated as a passive
foreign investment company and the treatment of income and assets of a
qualifying insurance corporation that is engaged in the active conduct
of an insurance business). The Treasury Department and the IRS intend
to finalize those portions of the 2021 proposed regulations separately.
II. Treatment of Net Operating Losses Incurred in Post-2017 Taxable
Years That Are Carried Back to Pre-2018 Taxable Years
On November 12, 2020, the Treasury Department and the IRS published
proposed regulations (REG-101657-20) in the Federal Register (85 FR
72078) (the ``2020 FTC proposed regulations''), which included
revisions to the transition rules for post-2017 NOL carrybacks to pre-
2018 taxable years.
The Treasury Department and the IRS received no written comments
with respect to the proposed revisions to the transition rules that
address post-2017 NOL carrybacks to pre-2018 taxable years. A public
hearing on the 2020 FTC proposed regulations was held on April 7, 2021.
This rulemaking finalizes the portion of the 2020 FTC proposed
regulations that addresses the transition rules for post-2017 NOL
carrybacks to pre-2018 taxable years. This rulemaking does not finalize
any other portions of the 2020 FTC proposed regulations. The Treasury
Department and the IRS intend to finalize those portions of the 2020
FTC proposed regulations separately.
Summary of Comments and Explanation of Revisions
The Treasury Department and the IRS received no written comments
with respect to the proposed rules under sections 250 and 951A or the
transition rules that address post-2017 NOL carrybacks to pre-2018
taxable years. Therefore, those portions of the proposed regulations
are being finalized without substantive change.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
These regulations are not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Treasury Department and the Office of Management
and Budget regarding review of tax regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a federal agency obtain the approval of the OMB before
collecting information from the public, whether such collection of
information is mandatory, voluntary, or required to obtain or retain a
benefit.
There are no information collection requirements associated with
these final regulations.
III. Regulatory Flexibility Act
It is hereby certified that these final regulations will not have a
significant economic impact on a substantial number of small entities
within the meaning of section 601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6).
A. Regulations Regarding the Treatment of QIP Under Sections 250 and
951A
The economic impact of the regulations regarding the treatment of
QIP under sections 250 and 951A is not likely to be significant because
these regulations merely clarify that the technical amendment to
section 168 enacted in section 2307(a) of the CARES Act applies to
determine the adjusted basis of property under section 951A(d)(3) as if
it had originally been part of section 13204 of the Act. The
clarification resolves an ambiguity and adopts the interpretation that
does not require duplicative recordkeeping for the basis in this
property. Therefore, this rule should reduce recordkeeping and
compliance burdens that might otherwise apply. In addition, the
regulations do not impose a collection of information burden on any
person, including small entities. Accordingly, it is hereby certified
that the regulations regarding the treatment of QIP under sections 250
and 951A will not have a significant economic impact on a substantial
number of small entities.
[[Page 52972]]
B. Foreign Tax Credit Transition Rules Addressing Post-2017 NOL
Carrybacks to Pre-2018 Taxable Years
The foreign tax credit transition rules addressing post-2017 NOL
carrybacks to pre-2018 taxable years provide guidance needed to comply
with statutory changes and affect individuals and corporations claiming
foreign tax credits. Adequate data are not available at this time to
certify that a substantial number of small entities would be
unaffected. However, the Treasury Department and the IRS have
determined that the regulations will not have a significant economic
impact on domestic small business entities. Based on information from
the Statistics of Income 2017 Corporate File, foreign tax credits as a
percentage of three different tax-related measures of annual receipts
(see Table for variables) by corporations are substantially less than
the 3 to 5 percent threshold for significant economic impact.
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$5,000,000 $10,000,000 $50,000,000 $100,000,000
Under $500,000 $500,000 under $1,000,000 under under under under $250,000,000
Size (by business receipts) (%) $1,000,000 (%) under $10,000,000 $50,000,000 $100,000,000 $250,000,000 or more (%)
$5,000,000 (%) (%) (%) (%) (%)
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FTC/Total Receipts.............................................. 0.12 0.00 0.00 0.00 0.01 0.01 0.02 0.28
FTC/(Total Receipts-Total Deductions)........................... 0.61 0.03 0.09 0.05 0.35 0.71 1.38 9.89
FTC/Business Receipts........................................... 0.84 0.00 0.00 0.00 0.01 0.01 0.02 0.05
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Source: Statistics of Income (2017) Form 1120.
In addition, these final regulations do not impose a collection of
information burden on any person, including small entities.
Accordingly, it is hereby certified that the foreign tax credit
transition rules addressing post-2017 NOL carrybacks to pre-2018
taxable years will not have a significant economic impact on a
substantial number of small entities.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notices of proposed rulemaking preceding these final regulations were
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comments on their impact on small business, and no
comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a state,
local, or tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. These regulations do not include any Federal mandate that
may result in expenditures by state, local, or tribal governments, or
by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on state and local
governments, and is not required by statute, or preempts state law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive Order. These regulations do not have
federalism implications and do not impose substantial direct compliance
costs on state and local governments or preempt state law within the
meaning of the Executive Order.
Drafting Information
The principal authors of these regulations are Jorge M. Oben,
Jeffrey L. Parry, and Larry R. Pounders of the Office of Associate
Chief Counsel (International). However, other personnel from the
Treasury Department and the IRS participated in their development.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices, and other
guidance cited in this document are published in the Internal Revenue
Bulletin and are available from the Superintendent of Documents, U.S.
Government Publishing Office, Washington, DC 20402, or by visiting the
IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805.
0
Par. 2. Section 1.250-1 is amended by revising the first sentence of
paragraph (b) and adding a sentence at the end of the paragraph to read
as follows:
Sec. 1.250-1 Introduction.
* * * * *
(b) * * * Except as otherwise provided in this paragraph (b),
Sec. Sec. 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 apply to
taxable years beginning on or after January 1, 2021. * * * The last
sentence in Sec. 1.250(b)-2(e)(2) applies to taxable years beginning
after December 31, 2017.
0
Par. 3. Section 1.250(b)-2 is amended by adding a sentence at the end
of paragraph (e)(2) to read as follows:
Sec. 1.250 (b)-2 Qualified business asset investment (QBAI).
* * * * *
(e) * * *
(2) * * * For purposes of applying section 250(b)(2)(B) and this
paragraph (e), the technical amendment to section 168(g) (to provide a
recovery period of 20 years for qualified improvement property for
purposes of the alternative depreciation system) enacted in section
2307(a) of the Coronavirus Aid, Relief, and Economic Security Act,
Public Law 116-136 (2020) is treated as enacted on December 22, 2017.
* * * * *
Sec. 1.904-2 [Amended]
0
Par. 4. Section 1.904-2(j)(1)(iii)(D) is amended by removing the
language ``Sec. 1.904(f)-12(j)(5)'' and adding in its place the
language ``Sec. 1.904(f)-12(j)(6)''.
0
Par. 5. Section 1.904(f)-12 is amended by:
0
1. Removing paragraph (j)(6);
0
2. Redesignating paragraph (j)(5) as paragraph (j)(6); and
0
3. Adding new paragraphs (j)(5) and (j)(7);
The additions read as follows:
Sec. 1.904(f)-12 Transition rules.
* * * * *
(j) * * *
[[Page 52973]]
(5) Treatment of net operating losses incurred in post-2017 taxable
years that are carried back to pre-2018 taxable years--(i) In general.
Except as provided in paragraph (j)(5)(ii) of this section, a net
operating loss incurred in a taxable year beginning after December 31,
2017 (a ``post-2017 taxable year''), which is carried back, pursuant to
section 172, to a taxable year beginning before January 1, 2018 (a
``pre-2018 carryback year''), will be carried back under the rules of
Sec. 1.904(g)-3(b). For purposes of applying the rules of Sec.
1.904(g)-3(b), income in a pre-2018 separate category in the taxable
year to which the net operating loss is carried back is treated as if
it included only income that would be assigned to the post-2017 general
category. Therefore, any separate limitation loss created by reason of
a passive category component of a net operating loss from a post-2017
taxable year that is carried back to offset general category income in
a pre-2018 carryback year will be recaptured in post-2017 taxable years
as general category income, and not as a combination of general,
foreign branch, and section 951A category income.
(ii) Foreign source losses in the post-2017 separate categories for
foreign branch category income and section 951A category income. Net
operating losses attributable to a foreign source loss in the post-2017
separate categories for foreign branch category income and section 951A
category income are treated as first offsetting general category income
in a pre-2018 carryback year to the extent available to be offset by
the net operating loss carryback. If the sum of foreign source losses
in the taxpayer's separate categories for foreign branch category
income and section 951A category income in the year the net operating
loss is incurred exceeds the amount of general category income that is
available to be offset in the carryback year, then the amount of
foreign source loss in each of the foreign branch and section 951A
categories that is treated as offsetting general category income under
this paragraph (j)(5)(ii), is determined on a proportionate basis.
General category income in the pre-2018 carryback year is first offset
by foreign source loss in the taxpayer's post-2017 separate category
for general category income in the year the net operating loss is
incurred before any foreign source loss in that year in the separate
categories for foreign branch category income and section 951A category
income is carried back to reduce general category income. To the extent
a foreign source loss in a post-2017 separate category for foreign
branch category income or section 951A category income offsets general
category income in a pre-2018 taxable year under the rules of this
paragraph (j)(5)(ii), no separate limitation loss account is created.
* * * * *
(7) Applicability date. Except as otherwise provided in this
paragraph (j)(7), this paragraph (j) applies to taxable years ending on
or after December 31, 2017. Paragraph (j)(5) of this section applies to
carrybacks of net operating losses incurred in taxable years beginning
on or after January 1, 2018.
0
Par. 6. Section 1.951A-3 is amended by adding a sentence at the end of
paragraph (e)(2) to read as follows:
Sec. 1.951A-3 Qualified business asset investment.
* * * * *
(e) * * *
(2) * * * For purposes of applying section 951A(d)(3) and this
paragraph (e), the technical amendment to section 168(g) (to provide a
recovery period of 20 years for qualified improvement property for
purposes of the alternative depreciation system) enacted in section
2307(a) of the Coronavirus Aid, Relief, and Economic Security Act,
Public Law 116-136 (2020) is treated as enacted on December 22, 2017.
* * * * *
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
Approved: September 10, 2021.
Mark J. Mazur,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2021-20615 Filed 9-21-21; 4:15 pm]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on September 24, 2021.
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