On Friday 21 August, the IRS and Treasury released a new package of final and proposed regulations, continuing the practice of providing taxpayers with weekend reading. This week’s package finalises the temporary section 245A regulations that were issued in June of 2019 (the 2019 regulations) to address certain potential tax avoidance transactions. Section 245A, which was enacted as part of the TCJA, allows a US corporation a 100% dividend received deduction (referred to as a participation exemption) with respect to dividends from a 10%-owned foreign corporation (an SFC).

 

However, Treasury and the IRS were concerned that the participation exemption created opportunities for US corporations to inappropriately reduce their tax liabilities. Those opportunities were addressed by temporary regulations defining and dealing with transactions giving rise to an extraordinary disposition or an extraordinary reduction.