ITS Spotlight for Week ending 10 April 2020

This edition of the ITS Spotlight for week ending 10 April begins with a look at the final regulations that implement the hybrid mismatched rules under Sections 245A(e) and 267A, including notable changes to both Sections since they were originally proposed.

There’s also a look at the proposed regulations released this week under Section 951A that include a new rule to deny deductions for payments made either directly or indirectly by a controlled foreign corporation, an overview of the guidance under the CARES act for individuals and businesses reporting net operating losses, and also an extension of deadlines for anyone due to file their tax return in April, May or June to take the COVID-19 pandemic into consideration.

This EY weekly spotlight begins with a look at the final regulations implementing the hybrid mismatched rules under Sections 245A(e) and 267A. These final regulations are targeted at “Deduction, no inclusion outcomes” retain the main structure of the proposals from December 2018, with certain changes.

The IRS also released proposed regulations providing guidance on hybrid deduction accounts and conduit financing arrangements involving equity interests. The final section 267A regulations include significant changes that clarify the rules can apply to interest-free loans; they modify the imported mismatched rules; and narrow the definition of interest.

The final Section 245A(e) regulations make changes to treat notional interest deductions as hybrid deductions that are taken into account for this purpose.

Also, the proposed regulations released on 7 April under Section 951A include a new rule that denies deductions for payments made directly or indirectly by a controlled foreign corporation from 1 January 2018 through to the effective date of the GILTI disqualified period.

The IRS has provided guidance under the CARES act to taxpayers with net operating losses to waive the carry-back period for an NOL. Also, notice 2020-26 grants a 6-month extension to corporations filing Form 1139 and to individuals filing Forms 1035.

Finally, in notice 2020-23, the IRS broadened its tax return, filing and payment relief in response to COVID-19. Generally, any taxpayers with a deadline falling on or after 1 April and before 15 July 2020, have until 15 July to file and pay with no penalties.

Learning outcomes

• Understanding the changes to hybrid mismatched rules under 245A(e) and 267A that provide clarity on exclusions and revisions to the original proposed regulations
• Understanding the new rule implemented this week as part of Section 951A that denies deductions of payments made by a controlled foreign corporation
• Exploring the clarification under the CARES act to help out any individuals or corporations with net-operating losses particularly at this time of the Coronavirus pandemic
• Defining the broadened tax return relief that has been extended to anyone needing to file their return between April and July 2020