Final regulations. issued on an improvement property qualified under FDII, GILTI
The IRS issued the final regulations (TD 9956) Wednesday dealing with the treatment of Qualified Improvement Property (QIP) for the purpose of calculating Qualified Business Asset Investment (QBAI) for QIP under Alternative Depreciation System (ADS) under Articles. 250 and 951A – the Foreign Source Intangible Income (FDII) and Global Low Tax Intangible Income (GILTI) provisions, respectively.
TD 9956 also finalizes some proposed transition rules for foreign tax credits (FTC) purposes. These rules relate to the impact on separate limitation losses or global loss accounts abroad of certain net operating loss carry-backs (NOL) under the CARES law (Coronavirus Aid, Relief, and Economic Security ), PL 116-136.
The CARES law also amended art. 168 (e) to provide that QIP is classified as a 15 year property under the General Depreciation System, with a payback period of 20 years under the Alternative Depreciation System (ADS). This technical amendment was required by the omission of provisions, contrary to the intention of Congress, in the statute known as the Tax Cuts and Jobs Act (TCJA), PL 115-97. The PAQ can be an element in determining the adjusted basis of the assets under ADS included in QBAI, which is involved in determining the GILTI inclusion amount and the deemed tangible income return for FDII purposes.
The IRS in 2020 issued Notice 2020-69 announcing its intention to clarify in regulations that the technical amendment to the CARES Act regarding the PAQ for the purpose of determining the adjusted basis of ownership under Sec. 951A (d) (3) applied as if it was originally part of the TCJA as promulgated on December 22, 2017. These proposed regulations were published in January 2021 (REG-111950-20 ) as O. Reg. prop. Secs. 1.250 (b) -2 (e) (2) and 1.951A-3 (e) (2). The final regulations adopt these regulations essentially as proposed (but not the other regulations proposed in REG-111950-20 regarding Sections 1297 and 1298, which the IRS said it would finalize separately).
TD 9956 is also finalizing the draft regulation (REG-101657-20) published in November 2020 regarding revisions to the transition rules for another provision of the CARES law, post-2017 NOL carry-overs to tax years. prior to 2018, also without substantive change and without finalizing other regulations proposed in REG-101657-20.
The final regulations come into force when they are published in the Federal Register.
– Paul Bonner ([email protected]) is a JofA senior editor.