Report on recent US international tax developments – 24 February 2023

Taxpayers should expect initial guidance on how far back to apply basis adjustments to arrive at their “opening” books for the new corporate alternative minimum tax (CAMT), and on additional transaction types, according to an Internal Revenue Service (IRS) official this week. The IRS official was quoted as saying that the CAMT “is incredibly broad, and we took a lot of feedback from the bar when we were determining what we needed to address, so you can expect additional rounds of guidance” in regard to unaddressed areas. Among the areas that will be addressed, the official said, are Internal Revenue Code1 Section 351 transactions.

The IRS released final regulations (TD 9972 (pdf)) this week that amend the electronic filing rules for certain returns to reflect changes made by the Taxpayer First Act of 2019, which reduced the threshold for requiring taxpayers to file electronically, in most cases, from 250 annual returns to 10. The 10-return threshold applies to returns required to be filed in calendar years 2024 and later; the 250-return threshold applies to returns filed in calendar years 2022 and 2023. The regulations affect returns for partnership income, corporate income, unrelated business income and withholding tax, as well as certain information returns, registration statements, disclosure statements, notifications, actuarial reports and excise tax returns. Taxpayers will need to aggregate almost all information return types when determining whether they meet the 10-return threshold.

The preamble to the final regulations state that the IRS did not “adopt the suggestion to provide a blanket electronic-filing exemption for non-U.S. filers.” The IRS indicated that its “preferred approach is to develop alternative authentication requirements for identity proofing in accordance with standards,” and the Government is actively engaged to develop those procedures.

The IRS this week finalized regulations (TD 9973 (pdf)) that treat consolidated group members as a single United States (US) shareholder in certain cases for purposes of Section 951(a)(2)(B). No changes were made to the underlying proposed regs issued in December 2022. The regulations are apparently intended to preclude consolidated taxpayers from asserting that a controlled foreign corporation’s (CFC’s) Section 959(b) distribution, coupled with a shift in the Section 958(a) ownership of the CFC's stock among consolidated group members, causes the lesser of the CFC’s subpart F income and global intangible low-taxed income (GILTI) tested items to be included in the group’s consolidated gross income.

The final regulations affect consolidated groups that own stock in foreign corporations and apply to the 2022 tax year for consolidated groups with a calendar tax year. The final regs could require certain consolidated groups that have a calendar tax year and carried out transactions during 2022 to include more in consolidated gross income than they anticipated. For a detailed look at the proposed regs, see EY Tax Alert, Proposed regulation could increase 2022 income for certain consolidated groups, dated 21 December 2022.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

• Arlene Fitzpatrick

• Joshua Ruland

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.