The final Base Erosion and Anti-Abuse Tax regulations recently
approved in T.D. 9885 generally follow the December 21,
2018, proposed regulations with a few important changes. The IRS
also issued new proposed regulations at the same time that it
released the final BEAT regulations. In this article, we analyze
what the changes mean for nonrecognition transactions, loss sales
and the election to waive the deduction, among other issues.
Nonrecognition Transaction Exception
One very important taxpayer-favorable change is the exception
for nonrecognition transactions (sections 332, 351 and 368) from
the definition of base erosion payment. In the proposed BEAT
regulations, inbound nonrecognition transactions were treated as
base erosion "payments" in nearly all cases and were
broader than the statute permits. Nonrecognition transactions are
often used in post-acquisition restructurings and other internal
restructurings to align legal structures and IP ownership.
