Controversial Disregarded Payment Loss Rules Finalized, With Some Relief

Treasury and the IRS have finalized a new "disregarded payment loss" (DPL) regime that can require domestic corporations to include in income amounts with respect to payments that are disregarded for US tax purposes but that are deductible under foreign tax law. Proposed regulations addressing DPLs, as well as aspects of the dual consolidated loss (DCL) regime, were issued in August 2024 (REG-105128-23). Treasury and the IRS have described the purpose of the DPL rules as preventing arrangements involving disregarded entities from avoiding the DCL rules, which are intended to prevent "double dipping" of losses, i.e., the use of a single economic loss to offset income in more than one jurisdiction. Treasury and the IRS received a number of comments criticizing the proposed regulations, including comments questioning Treasury and the IRS's authority to implement the DPL regime.