U.S. Treasury releases final BEAT regulations
TAX ALERT |
Authored by RSM US LLP
The base erosion and anti-abuse tax (BEAT) (section 59A) enacted by the Tax Cuts and Jobs Act (TCJA) applies to a U.S. corporation that has average annual gross receipts of at least $500,000,000 for the prior three years and has a base erosion percentage of 3% (2% in certain instances). In addition to the federal income tax, a U.S. corporation subject to these rules must pay the additional base erosion and anti-abuse tax.
The final BEAT regulations issued this September largely finalize the proposed regulations issued on Dec. 6, 2019. However, the regulations contain refinements to the 2019 proposed regulations that may be applicable to certain taxpayers.
Some of the refinements include:
- BEAT attributes of aggregate group members – there are new clarifications with regards to including gross receipts and base erosion tax benefits for members of an aggregate group that end with or within the taxpayer’s tax year. The regulations include examples of what may be acceptable and unacceptable approaches for determining a taxpayer’s gross receipts and base erosion percentage test when there is a short tax year for the taxpayer. The regulations further state that excluding an aggregate group member’s gross receipts and base erosion tax benefits when the aggregate group member’s tax year doesn’t fall with or within the taxpayer’s tax is an unacceptable method. Also, the final regulations provided additional clarifications on when members of taxpayer’s aggregate group join or depart from the aggregate group. These rules can impact whether a taxpayer meets the $500,000,000 threshold and should be examined closely.
- Waived deductions - the final regulations also include changes to the waived-deduction provisions, including the elimination of the need to provide a detailed statement of the property related to the election.
- Application of BEAT to partnerships - the regulations contain new rules for partnerships and their partners. A corporate partner may waive a deduction with regards to its allocable share of the deduction from a partnership. The waived deduction is treated as a non-deductible expense pursuant to section 705(a)(2)(B). The regulations also contain rules with respect to a partner’s waived interest expense deductions.
- ECI exception - the ECI exception to a base erosion payment is expanded in cases where the foreign related party complies with a certification procedure.
Taxpayers may apply the final regulations to tax years beginning after Dec. 31, 2017 provided the taxpayer applies the final regulations in their entirety and in subsequent years. Taxpayers may also choose to apply the final regulations from tax years beginning after Dec. 31, 2017 only with respect to certain waived deduction provisions provided the taxpayer applies those provisions in future years.
Call us at +1 213.873.1700, email us at email@example.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Josh Johnson, Ayana Martinez and originally appeared on 2020-09-23.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.