Internal Revenue Bulletin 2019-52 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2019–52
December 23, 2019
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REV. RUL. 2019-28, page 1401.
Interest rates: underpayments and overpayments. The rates
for interest determined under Section 6621 of the code for
the calendar quarter beginning January 1, 2020, will be 5
percent for overpayments (4 percent in the case of a cor-
poration), 5 percent for underpayments, and 7 percent for
large corporate underpayments. The rate of interest paid on
the portion of a corporate overpayment exceeding $10,000
will be 2.5 percent.
EMPLOYEE PLANS
NOTICE 2019-64, page 1505.
This notice contains the 2019 Required Amendments List for
qualified individually designed plans and § 403(b) individually
designed plans.
NOTICE 2019-67, page 1510.
This notice specifies updated mortality improvement rates
and static mortality tables to be used for defined benefit pen-
sion plans under § 430(h)(3)(A) of the Internal Revenue Code
and section 303(h)(3)(A) of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, as amended (ER-
ISA), for valuation dates occurring during the 2021 calendar
year. This notice also includes a modified unisex version of
the mortality tables for use in determining minimum present
value under § 417(e)(3) of the Code and section 205(g)(3) of
ERISA for distributions with annuity starting dates that occur
during stability periods beginning in the 2021 calendar year.
INCOME TAX
REG-112607-19, page 1516.
These proposed regulations that provide guidance regarding
the base erosion and anti-abuse tax imposed on certain large
corporate taxpayers with respect to certain payments made
to foreign related parties. The proposed regulations would
affect corporations with substantial gross receipts that make
payments to foreign related parties.
T.D. 9885, page 1418.
These final regulations implement the base erosion and
anti-abuse tax, designed to prevent the reduction of tax li-
ability by certain large corporate taxpayers through certain
payments made to foreign related parties and certain tax
credits. This tax was added to the Internal Revenue Code (the
“Code”) as part of the Tax Cuts and Jobs Act. The final regula-
tions affect corporations with substantial gross receipts that
make payments to foreign related parties.
NOTICE 2019-65, page 1507.
This Notice announces that the Department of the Treasury
and the Internal Revenue Service intend to amend the regu-
lations under section 987 to defer the applicability date of
the final regulations under section 987, as well as certain
related final and temporary regulations, by one additional
year. Notice 2017-57, published on October 16, 2017, and
Notice 2018-57, published on June 25, 2018, each delayed
the applicability date of the final regulations, along with the
related final and temporary regulations, by 1 year. The Trea-
sury Department and the IRS intend to amend §§1.861-9T,
1.985-5, 1.987-11, 1.988-1, 1.988-4, and 1.989(a)-1 of the
2016 final regulations and §§1.987-2 and 1.987-4 of the
2019 final regulations to apply to taxable years beginning
on or after the first day of the first taxable year following
December 7, 2020.
Finding Lists begin on page ii.

NOTICE 2019-66, page 1509.
This notice provides that the requirement to report part-
ners’ shares of partnership capital on the tax basis method
will not be effective for 2019 (for partnership taxable years
beginning in calendar 2019) but will be effective beginning
in 2020 (for partnership taxable years that begin on or after
January 1, 2020). For 2019, partnerships and other per-
sons must report partner capital accounts consistent with
the reporting requirements in the 2018 forms and instruc-
tions, including the requirement to report negative tax basis
capital accounts on a partner-by-partner basis. This notice
also clarifies the 2019 requirement for partnerships and
other persons to report a partner’s share of “net unrecog-
nized Section 704(c) gain or loss” by defining this term for
purposes of the reporting requirement. Additionally, this no-
tice exempts publicly traded partnerships from the require-
ment to report their partners’ shares of net unrecognized
Section 704(c) gain or loss until further notice. This notice
also provides that the requirement added by the draft in-
structions for 2019 for partnerships to report to partners
information about separate “Section 465 at-risk activities”
will not be effective until 2020. Finally, this notice provides
relief from certain reporting penalties imposed by the Inter-
nal Revenue Code (Code).

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
December 23, 2019 Bulletin No. 2019–52

Part I
Section 6621.—
Determination of Rate of
Interest
26 CFR 301.6621-1: Interest rate.
Rev. Rul. 2019-28
Section 6621 of the Internal Reve-
nue Code establishes the interest rates
on overpayments and underpayments of
tax. Under section 6621(a)(1), the over-
payment rate is the sum of the federal
short-term rate plus 3 percentage points (2
percentage points in the case of a corpo-
ration), except the rate for the portion of a
corporate overpayment of tax exceeding
$10,000 for a taxable period is the sum of
the federal short-term rate plus 0.5 of a
percentage point. Under section 6621(a)
(2), the underpayment rate is the sum of
the federal short-term rate plus 3 percent-
age points.
Section 6621(c) provides that for pur-
poses of interest payable under section
6601 on any large corporate underpay-
ment, the underpayment rate under section
6621(a)(2) is determined by substituting
“5 percentage points” for “3 percentage
points.” See section 6621(c) and section
301.6621-3 of the Regulations on Proce-
dure and Administration for the definition
of a large corporate underpayment and
for the rules for determining the appli-
cable date. Section 6621(c) and section
301.6621-3 are generally effective for pe-
riods after December 31, 1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal short-
term rate for the first month in each cal-
endar quarter. Section 6621(b)(2)(A)
provides that the federal short-term rate
determined under section 6621(b)(1) for
any month applies during the first calendar
quarter beginning after that month. Sec-
tion 6621(b)(3) provides that the federal
short-term rate for any month is the feder-
al short-term rate determined during that
month by the Secretary in accordance with
section 1274(d), rounded to the nearest
full percent (or, if a multiple of 1/2 of 1
percent, the rate is increased to the next
highest full percent).
Notice 88-59, 1988-1 C.B. 546, an-
nounced that in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under section
6621, the Internal Revenue Service will
use the federal short-term rate based on
daily compounding because that rate is
most consistent with section 6621 which,
pursuant to section 6622, is subject to dai-
ly compounding.
The federal short-term rate determined
in accordance with section 1274(d) during
October 2019 is the rate published in
Revenue Ruling 2019-25, 2019-45 IRB
1042, to take effect beginning Novem-
ber 1, 2019. The federal short-term rate,
rounded to the nearest full percent, based
on daily compounding determined during
the month of October 2019 is 2 percent.
Accordingly, an overpayment rate of 5
percent (4 percent in the case of a cor-
poration) and an underpayment rate of 5
percent are established for the calendar
quarter beginning January 1, 2020. The
overpayment rate for the portion of a cor-
porate overpayment exceeding $10,000
for the calendar quarter beginning January
1, 2020 is 2.5 percent. The underpayment
rate for large corporate underpayments for
the calendar quarter beginning January 1,
2020, is 7 percent. These rates apply to
amounts bearing interest during that cal-
endar quarter.
Sections 6654(a)(1) and 6655(a)(1)
provide that the underpayment rate estab-
lished under section 6621 applies in deter-
mining the addition to tax under sections
6654 and 6655 for failure to pay estimat-
ed tax for any taxable year. Thus, the 5
percent rate also applies to estimated tax
underpayments for the first calendar quar-
ter beginning January 1, 2020. Pursuant to
section 6621(b)(2)(B), in determining the
addition to tax under section 6654 for any
taxable year for an individual, the feder-
al short-term rate that applies during the
third month following the taxable year
also applies during the first 15 days of the
fourth month following the taxable year.
In addition, pursuant to section 6603(d)
(4), the rate of interest on section 6603
deposits is 2 percent for the first calendar
quarter in 2020.
Interest factors for daily compound
interest for annual rates of 2.5 percent, 4
percent, 5 percent and 7 percent are pub-
lished in Tables 58, 61, 63, and 67 of Rev.
Proc. 95-17, 1995-1 C.B. 612, 615, 617,
and 621.
Annual interest rates to be compounded
daily pursuant to section 6622 that apply
for prior periods are set forth in the tables
accompanying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Casey R. Conrad of the Office of
the Associate Chief Counsel (Procedure
and Administration). For further informa-
tion regarding this revenue ruling, contact
Mr. Conrad at (202) 317-6844 (not a toll-
free number).
Bulletin No. 2019–52 1401 December 23, 2019

APPENDIX A
365 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
10.000013699630.0008633801250.001713784
20.000027397640.0008770911260.001727506
30.000041096650.0008908011270.001741228
40.000054796660.0009045121280.001754951
50.000068495670.0009182231290.001768673
60.000082195680.0009319341300.001782396
70.000095894690.0009456461310.001796119
80.000109594700.0009593571320.001809843
90.000123294710.0009730691330.001823566
100.000136995720.0009867811340.001837290
110.000150695730.0010004931350.001851013
120.000164396740.0010142061360.001864737
130.000178097750.0010279181370.001878462
140.000191798760.0010416311380.001892186
150.000205499770.0010553441390.001905910
160.000219201780.0010690571400.001919635
170.000232902790.0010827701410.001933360
180.000246604800.0010964841420.001947085
190.000260306810.0011101971430.001960811
200.000274008820.0011239111440.001974536
210.000287711830.0011376251450.001988262
220.000301413840.0011513391460.002001988
230.000315116850.0011650541470.002015714
240.000328819860.0011787681480.002029440
250.000342522870.0011924831490.002043166
260.000356225880.0012061981500.002056893
270.000369929890.0012199131510.002070620
280.000383633900.0012336291520.002084347
290.000397336910.0012473441530.002098074
300.000411041920.0012610601540.002111801
310.000424745930.0012747761550.002125529
320.000438449940.0012884921560.002139257
330.000452154950.0013022081570.002152985
340.000465859960.0013159251580.002166713
350.000479564970.0013296411590.002180441
360.000493269980.0013433581600.002194169
370.000506974990.0013570751610.002207898
380.0005206801000.0013707921620.002221627
390.0005343861010.0013845101630.002235356
400.0005480921020.0013982271640.002249085
410.0005617981030.0014119451650.002262815
December 23, 2019 1402 Bulletin No. 2019–52

420.0005755041040.0014256631660.002276544
430.0005892111050.0014393811670.002290274
440.0006029171060.0014531001680.002304004
450.0006166241070.0014668181690.002317734
460.0006303311080.0014805371700.002331465
470.0006440391090.0014942561710.002345195
480.0006577461100.0015079751720.002358926
490.0006714541110.0015216941730.002372657
500.0006851611120.0015354141740.002386388
510.0006988691130.0015491331750.002400120
520.0007125781140.0015628531760.002413851
530.0007262861150.0015765731770.002427583
540.0007399951160.0015902931780.002441315
550.0007537031170.0016040141790.002455047
560.0007674121180.0016177341800.002468779
570.0007811211190.0016314551810.002482511
580.0007948311200.0016451761820.002496244
590.0008085401210.0016588971830.002509977
600.0008222501220.0016726191840.002523710
610.0008359601230.001686340
620.0008496701240.001700062
Bulletin No. 2019–52 1403 December 23, 2019

366 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
10.000013661630.0008610201250.001709097
20.000027323640.0008746931260.001722782
30.000040984650.0008883661270.001736467
40.000054646660.0009020401280.001750152
50.000068308670.0009157131290.001763837
60.000081970680.0009293871300.001777522
70.000095632690.0009430611310.001791208
80.000109295700.0009567351320.001804893
90.000122958710.0009704091330.001818579
100.000136620720.0009840841340.001832265
110.000150283730.0009977581350.001845951
120.000163947740.0010114331360.001859638
130.000177610750.0010251081370.001873324
140.000191274760.0010387831380.001887011
150.000204938770.0010524591390.001900698
160.000218602780.0010661341400.001914385
170.000232266790.0010798101410.001928073
180.000245930800.0010934861420.001941760
190.000259595810.0011071621430.001955448
200.000273260820.0011208391440.001969136
210.000286924830.0011345151450.001982824
220.000300590840.0011481921460.001996512
230.000314255850.0011618691470.002010201
240.000327920860.0011755461480.002023889
250.000341586870.0011892231490.002037578
260.000355252880.0012029001500.002051267
270.000368918890.0012165781510.002064957
280.000382584900.0012302561520.002078646
290.000396251910.0012439341530.002092336
300.000409917920.0012576121540.002106025
310.000423584930.0012712911550.002119715
320.000437251940.0012849691560.002133405
330.000450918950.0012986481570.002147096
340.000464586960.0013123271580.002160786
350.000478253970.0013260061590.002174477
360.000491921980.0013396851600.002188168
370.000505589990.0013533651610.002201859
380.0005192571000.0013670441620.002215550
390.0005329251010.0013807241630.002229242
400.0005465941020.0013944041640.002242933
410.0005602621030.0014080851650.002256625
420.0005739311040.0014217651660.002270317
December 23, 2019 1404 Bulletin No. 2019–52

Bulletin No. 2019–52 1405 December 23, 2019
430.0005876001050.0014354461670.002284010
440.0006012691060.0014491271680.002297702
450.0006149391070.0014628081690.002311395
460.0006286081080.0014764891700.002325087
470.0006422781090.0014901701710.002338780
480.0006559481100.0015038521720.002352473
490.0006696181110.0015175331730.002366167
500.0006832891120.0015312151740.002379860
510.0006969591130.0015448971750.002393554
520.0007106301140.0015585801760.002407248
530.0007243011150.0015722621770.002420942
540.0007379721160.0015859451780.002434636
550.0007516431170.0015996281790.002448331
560.0007653151180.0016133111800.002462025
570.0007789861190.0016269941810.002475720
580.0007926581200.0016406781820.002489415
590.0008063301210.0016543611830.002503110
600.0008200031220.0016680451840.002516806
610.0008336751230.001681729
620.0008473481240.001695413

December 23, 2019 1406 Bulletin No. 2019–52
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
PERIODRATEIn 1995-1 C.B.
DAILY RATE TABLE
Before Jul. 1, 19756%Table 2,pg. 557
Jul.1,1975–Jan.31,19769%Table4,pg.559
Feb.1,1976–Jan.31,19787%Table3,pg.558
Feb.1,1978–Jan.31,19806%Table2,pg.557
Feb.1,1980–Jan.31,198212%Table5,pg.560
Feb.1,1982–Dec.31,198220%Table6,pg.560
Jan.1,1983–Jun.30,198316%Table37,pg.591
Jul.1,1983–Dec.31,198311%Table27,pg.581
Jan.1,1984–Jun.30,198411%Table75,pg.629
Jul.1,1984–Dec.31,198411%Table75,pg.629
Jan.1,1985–Jun.30,198513%Table31,pg.585
Jul.1,1985–Dec.31,198511%Table27,pg.581
Jan.1,1986–Jun.30,198610%Table25,pg.579
Jul.1,1986–Dec.31,19869%Table23,pg.577
TABLE OF INTEREST RATES
FROM JAN. 1, 1987 - Dec. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995-1 C.B.1995-1 C.B. RATE
RATETABLEPGRATETABLEPG
Jan.1,1987–Mar.31,19878%215759%23577
Apr.1,1987–Jun.30,19878%215759%23577
Jul.1,1987–Sep.30,19878%215759%23577
Oct.1,1987–Dec.31,19879%2357710%25579
Jan.1,1988–Mar.31,198810%7362711%75629
Apr.1,1988–Jun.30,19889%7162510%73627
Jul.1,1988–Sep.30,19889%7162510%73627
Oct.1,1988–Dec.31,198810%7362711%75629
Jan.1,1989–Mar.31,198910%2557911%27581
Apr.1,1989–Jun.30,198911%2758112%29583
Jul.1,1989–Sep.30,198911%2758112%29583
Oct.1,1989–Dec.31,198910%2557911%27581
Jan.1,1990–Mar.31,199010%2557911%27581
Apr.1,1990–Jun.30,199010%2557911%27581
Jul.1,1990–Sep.30,199010%2557911%27581
Oct.1,1990–Dec.31,1990
10%2557911%27581
Jan.1,1991–Mar.31,199110%2557911%27581
Apr.1,1991–Jun.30,19919%2357710%25579
Jul.1,1991–Sep.30,19919%2357710%25579

Bulletin No. 2019–52 1407 December 23, 2019
Oct.1,1991–Dec.31,19919%2357710%25579
Jan.1,1992–Mar.31,19928%696239%71625
Apr.1,1992–Jun.30,19927%676218%69623
Jul.1,1992–Sep.30,19927%676218%69623
Oct.1,1992–Dec.31,19926%656197%67621
Jan.1,1993–Mar.31,19936%175717%19573
Apr.1,1993–Jun.30,19936%175717%19573
Jul.1,1993–Sep.30,19936%175717%19573
Oct.1,1993–Dec.31,19936%175717%19573
Jan.1,1994–Mar.31,19946%175717%19573
Apr.1,1994–Jun.30,19946%175717%19573
Jul.1,1994–Sep.30,19947%195738%21575
Oct.1,
1994–Dec.31,19948%215759%23577
Jan.1,1995–Mar.31,19958%215759%23577
Apr.1,1995–Jun.30,19959%2357710%25579
Jul.1,1995–Sep.30,19958%215759%23577
Oct.1,1995–Dec.31,19958%215759%23577
Jan.1,1996–Mar.31,19968%696239%71625
Apr.1,1996–Jun.30,19967%676218%69623
Jul.1,1996–Sep.30,19968%696239%71625
Oct.1,1996–Dec.31,19968%696239%71625
Jan.1,1997–Mar.31,19978%215759%23577
Apr.1,1997–Jun.30,19978%215759%23577
Jul.1,1997–Sep.30,19978%215759%23577
Oct.1,1997–Dec.31,
19978%215759%23577
Jan.1,1998–Mar.31,19988%215759%23577
Apr.1,1998–Jun.30,19987%195738%21575
Jul.1,1998–Sep.30,19987%195738%21575
Oct.1,1998–Dec.31,19987%195738%21575

December 23, 2019 1408 Bulletin No. 2019–52
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 - PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995-1 C.B.
RATETABLEPAGE
Jan.1,1999–Mar.31,19997%19573
Apr.1,1999–Jun.30,19998%21575
Jul.1,1999–Sep.30,19998%21575
Oct.1,1999–Dec.31,19998%21575
Jan.1,2000–Mar.31,20008%69623
Apr.1,2000–Jun.30,20009%71625
Jul.1,2000–Sep.30,20009%71625
Oct.1,2000–Dec.31,20009%71625
Jan.1,2001–Mar.31,20019%23577
Apr.1,2001–Jun.30,20018%21575
Jul.1,2001–Sep.30,20017%19573
Oct.1,2001–Dec.31,20017%19573
Jan.1,2002–Mar.31,20026%17571
Apr.1,2002–Jun.30,20026%17571
Jul.1,2002–Sep.30,20026%17571
Oct.1,2002–Dec.31,20026%17571
Jan.1,2003–Mar.31,20035%15569
Apr.1,2003–Jun.30,20035%15569
Jul.1,2003–Sep.30,20035%15569
Oct.1,2003–Dec.31,20034%13567
Jan.1,2004–Mar.31,20044%61615
Apr.1,2004–Jun.30,20045%63617
Jul.1,2004–Sep.30,20044%61615
Oct.1,2004–Dec.31,20045%63617
Jan.1,2005–Mar.31,20055%15569
Apr.1,2005–Jun.30,20056%17571
Jul.1,2005–Sep.30,20056%17571
Oct.1,2005–Dec.31,20057%19573
Jan.1,2006–Mar.31,20067%19573
Apr.1,2006–Jun.30,20067%19573
Jul.1,2006–Sep.30,20068%21575
Oct.1,2006–Dec.31,20068%21575
Jan.1,2007–Mar.31,20078%21575
Apr.1,2007–Jun.30,20078%21575
Jul.1,2007–Sep.30,20078%21575
Oct.1,2007–Dec.31,20078%21575
Jan.1,2008–Mar.31,20087%67621
Apr.1,2008–Jun.30,20086%65619
Jul.1,2008–Sep.30,20085%63617
Oct.1,2008–Dec.31,20086%65619
Jan.1,2009–Mar.31,20095%15569

Bulletin No. 2019–52 1409 December 23, 2019
Apr.1,2009–Jun.30,20094%13567
Jul.1,2009–Sep.30,20094%13567
Oct.1,2009–Dec.31,20094%13567
Jan.1,2010–Mar.31,20104%13567
Apr.1,2010–Jun.30,20104%13567
Jul.1,2010–Sep.30,20104%13567
Oct.1,2010–Dec.31,20104%13567
Jan.1,2011–Mar.31,20113%11565
Apr.1,2011–Jun.30,20114%13567
Jul.1,2011–Sep.30,20114%13567
Oct.1,2011–Dec.31,20113%11565
Jan.1,2012–Mar.31,20123%59613
Apr.1,2012–Jun.30,20123%59613
Jul.1,2012–Sep.30,20123%59613
Oct.1,2012–Dec.31,20123%59613
Jan.1,2013–Mar.31,20133%11565
Apr.1,2013–Jun.30,20133%11565
Jul.1,2013–Sep.30,20133%11565
Oct.1,2013–Dec.31,20133%11565
Jan.1,2014–Mar.31,20143%11565
Apr.1,2014–Jun.30,20143%11565
Jul.1,2014–Sep.30,20143%11565
Oct.1,2014–Dec.31,20143%11565
Jan.1,2015–Mar.31,20153%11565
Apr.1,2015–Jun.30,20153%11565
Jul.1,2015–Sep.30,20153%11565
Oct.1.2015–Dec.31,20153%11565
Jan.1,2016–Mar.31,20163%59613
Apr.1,2016–Jun.30,20164%61615
Jul.1,2016–Sep.30,20164%61615
Oct.1,2016–Dec.31,20164%61615
Jan.1,2017–Mar.31,20174%13567
Apr.1,2017–Jun.30,20174%13567
Jul.1,2017–Sep.30,20174%13567
Oct.1,2017–Dec.31,20174%13567
Jan.1,2018–Mar.31,20184%13567
Apr.1,2018–Jun.30,20185%15569
Jul.1,2018–Sep.30,20185%15569
Oct.1,2018–Dec.31,20185%15569
Jan.1,2019–Mar.31,20196%17571
Apr.1,2019–Jun.30,20196%17571
Jul.1,2019–Sep.30,20195%15569
Oct.1,2019–Dec. 31,20195%15569
Jan.1,2020–Mar.31, 20205%63617

December 23, 2019 1410 Bulletin No. 2019–52
TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995-1 C.B.1995-1 C.B.
RATETABLEPGRATETABLEPG
Jan.1,1999–Mar.31,19996%175717%19573
Apr.1,1999–Jun.30,19997%195738%21575
Jul.1,1999–Sep.30,19997%195738%21575
Oct.1,1999–Dec.31,19997%195738%21575
Jan.1,2000–Mar.31,20007%676218%69623
Apr.1,2000–Jun.30,20008%696239%71625
Jul.1,2000–Sep.30,20008%696239%71625
Oct.1,2000–Dec.31,20008%696239%71625
Jan.1,2001–Mar.31,20018%215759%23577
Apr.1,2001–Jun.30,20017%195738%21575
Jul.1,2001–Sep.30,20016%175717%19573
Oct.1,2001–Dec.31,20016%175717%19573
Jan.1,2002–Mar.31,20025%155696%17571
Apr.1,2002–Jun.30,20025%155696%17571
Jul.1,2002–Sep.30,20025%155696%17571
Oct.1,2002–Dec.31,20025%155696%17571
Jan.1,2003–Mar.31,20034%135675%15569
Apr.1,2003–Jun.30,20034%135675%15569
Jul.1,2003–Sep.30,20034%135675%15569
Oct.1,2003–Dec.31,20033%115654%13567
Jan.1,2004–Mar.31,20043%596134%61615
Apr.1,2004–Jun.30,20044%616155%63617
Jul.1,2004–Sep.30,20043%596134%61615
Oct.1,2004–Dec.31,20044%616155%63617
Jan.1,2005–Mar.31,20054%135675%15569
Apr.1,2005–Jun.30,20055%155696%17571
Jul.1,2005–Sep.30,20055%155696%17571
Oct.1,2005–Dec.31,20056%175717%19573
Jan.1,2006–Mar.31,20066%175717%19573
Apr.1,2006–Jun.30,20066%175717%19573
Jul.1,2006–Sep.30,20067%195738%21575
Oct.1,2006–Dec.31,20067%195738%21575
Jan.1,2007–Mar.31,20077%195738%21575
Apr.1,2007–Jun.30,20077%195738%21575
Jul.1,2007–Sep.30,20077%195738%21575
Oct.1,2007–Dec.31,20077%195738%21575
Jan.1,2008–Mar.31,20086%656197%67621
Apr.1,2008–Jun.30,20085%636176%65619
Jul.1,2008–Sep.30,20084%616155%63617
Oct.1,2008–Dec.31,20085%636176%65619
Jan.1,2009–Mar.31,20094%135675%15569

Bulletin No. 2019–52 1411 December 23, 2019
Apr.1,2009–Jun.30,20093%115654%13567
Jul.1,2009–Sep.30,20093%115654%13567
Oct.1,2009–Dec.31,20093%115654%13567
Jan.1,2010–Mar.31,20103%115654%13567
Apr.1,2010–Jun.30,20103%115654%13567
Jul.1,2010–Sep.30,20103%115654%13567
Oct.1,2010–Dec.31,20103%115654%13567
Jan.1,2011–Mar.31,20112%95633%11565
Apr.1,2011–Jun.30,20113%115654%13567
Jul.1,2011–Sep.30,20113%115654%13567
Oct.1,2011–Dec.31,20112%95633%11565
Jan.1,2012–Mar.31,20122%576113%59613
Apr.1,2012–Jun.30,20122%576113%59613
Jul.1,2012–Sep.30,20122%576113%59613
Oct.1,2012–Dec.31,20122%576113%59613
Jan.1,2013–Mar.31,20132%95633%11565
Apr.1,2013–Jun.30,20132%95633%11565
Jul.1,2013–Sep.30,20132%95633%11565
Oct.1,2013–Dec.31,20132%95633%11565
Jan.1,2014–Mar.31,20142%95633%11565
Apr.1,2014–Jun.30,20142%95633%11565
Jul.1,2014–Sep.30,20142%95633%11565
Oct.1,2014–Dec.31,20142%95633%11565
Jan.1,2015–Mar.31,20152%95633%11565
Apr.1,2015–Jun.30,20152%95633%11565
Jul.1,2015–Sep.30,20152%95633%11565
Oct.1,2015–Dec.31,20152%95633%11565
Jan.1,2016–Mar.31,20162%576113%59613
Apr.1,2016–Jun.30,20163%596134%61615
Jul.1,2016–Sep.30,20163%596134%61615
Oct.1,2016–Dec.31,20163%596134%61615
Jan.1,2017–Mar.31,20173%115654%13567
Apr.1,2017–Jun.30,20173%115654%13567
Jul.1,2017–Sep.30,20173%115654%13567
Oct.1,2017–Dec.31,,20173%115654%13567
Jan.1,2018–Mar.31,20183%115654%13567
Apr.1,2018–Jun.30,20184%135675%15569
Jul.1,2018–Sep.30,20184%135675%15569
Oct.1,2018–Dec.31,20184%135675%15569
Jan.1,2019–Mar.31,20195%155696%17571
Apr.1,2019–Jun.30,20195%155696%17571
Jul.1,2019–Sep.30,20194%135675%15569
Oct.1,2019–Dec.31,20194%135675%15569
Jan.1,2020–Mar. 31,20204%616155%63617

December 23, 2019 1412 Bulletin No. 2019–52
TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
1995-1 C.B.
RATETABLEPG
Jan.1,1991–Mar.31,199113%31585
Apr.1,1991–Jun.30,199112%29583
Jul.1,1991–Sep.30,199112%29583
Oct.1,1991–Dec.31,199112%29583
Jan.1,1992–Mar.31,199211%75629
Apr.1,1992–Jun.30,199210%73627
Jul.1,1992–Sep.30,199210%73627
Oct.1,1992–Dec.31,19929%71625
Jan.1,1993–Mar.31,19939%23577
Apr.1,1993–Jun.30,19939%23577
Jul.1,1993–Sep.30,19939%23577
Oct.1,1993–Dec.31,19939%23577
Jan.1,1994–Mar.31,19949%23577
Apr.1,1994–Jun.30,19949%23577
Jul.1,1994–Sep.30,199410%25579
Oct.1,1994–Dec.31,199411%27581
Jan.1,1995–Mar.31,199511%27581
Apr.1,1995–Jun.30,199512%29583
Jul.1,1995–Sep.30,199511%27581
Oct.1,1995–Dec.31,199511%27581
Jan.1,1996–Mar.31,199611%75629
Apr.1,1996–Jun.30,199610%73627
Jul.1,1996–Sep.30,199611%75629
Oct.1,1996–Dec.31,199611%75629
Jan.1,1997–Mar.31,199711%27581
Apr.1,1997–Jun.30,199711%27581
Jul.1,1997–Sep.30,199711%27581
Oct.1,1997–Dec.31,199711%27581
Jan.1,1998–Mar.31,199811%27581
Apr.1,1998–Jun.30,199810%25579
Jul.1,1998–Sep.30,199810%25579
Oct.1,1998–Dec.31,199810%25579
Jan.1,1999–Mar.31,19999%23577
Apr.1,1999–Jun.30,199910%25579
Jul.1,1999–Sep.30,199910%25579
Oct.1,1999–Dec.31,199910%25579
Jan.1,2000–Mar.31,200010%73627
Apr.1,2000–Jun.30,200011%75629
Jul.1,2000–Sep.30,200011%75629
Oct.1,2000–Dec.31,200011%75629
Jan.1,2001–Mar.31,200111%27581
Apr.1,2001–Jun.30,200110%25579

Bulletin No. 2019–52 1413 December 23, 2019
Jul.1,2001–Sep.30,20019%23577
Oct.1,2001–Dec.31,20019%23577
Jan.1,2002–Mar.31,20028%21575
Apr.1,2002–Jun.30,20028%21575
Jul.1,2002–Sep.30,20028%21575
Oct.1,2002–Dec.31,20028%21575
Jan.1,2003–Mar.31,20037%19573
Apr.1,2003–Jun.30,20037%19573
Jul.1,2003–Sep.30,20037%19573
Oct.1,2003–Dec.31,20036%17571
Jan.1,2004–Mar.31,20046%65619
Apr.1,2004–Jun.30,20047%67621
Jul.1,2004–Sep.30,20046%65619
Oct.1,2004–Dec.31,20047%67621
Jan.1,2005–Mar.31,20057%19573
Apr.1,2005–Jun.30,20058%21575
Jul.1,2005–Sep.30,20058%21575
Oct.1,2005–Dec.31,20059%23577
Jan.1,2006–Mar.31,20069%23577
Apr.1,2006–Jun.30,20069%23577
Jul.1,2006–Sep.30,200610%25579
Oct.1,2006–Dec.31,200610%25579
Jan.1,2007–Mar.31,200710%25579
Apr.1,2007–Jun.30,200710%25579
Jul.1,2007–Sep.30,200710%25579
Oct.1,2007–Dec.31,200710%25579
Jan.1,2008–Mar.31,20089%71625
Apr.1,2008–Jun.30,20088%69623
Jul.1,2008–Sep.30,20087%67621
Oct.1,2008–Dec.31,20088%69623
Jan.1,2009–Mar.31,20097%19573
Apr.1,2009–Jun.30,20096%17571
Jul.1,2009–Sep.30,20096%17571
Oct.1,2009–Dec.31,20096%17571
Jan.1,2010–Mar.31,20106%17571
Apr.1,2010–Jun.30,20106%17571
Jul.1,2010–Sep.30,20106%17571
Oct.1,2010–Dec.31,20106%17571
Jan.1,2011–Mar.31,20115%15569
Apr.1,2011–Jun.30,20116%17571
Jul.1,2011–Sep.30,20116%17571
Oct.1,2011–Dec.31,20115%15569
Jan.1,2012–Mar.31,20125%63617
Apr.1,2012–Jun.30,20125%63617
Jul.1,2012–Sep.30,20125%63617

December 23, 2019 1414 Bulletin No. 2019–52
Oct.1,2012–Dec.31,20125%63617
Jan.1,2013–Mar.31,20135%15569
Apr.1,2013–Jun.30,20135%15569
Jul.1,2013–Sep.30,20135%15569
Oct.1,2013–Dec.31,20135%15569
Jan.1,2014–Mar.31,20145%15569
Apr.1,2014–Jun.30,20145%15569
Jul.1,2014–Sep.30,20145%15569
Oct.1,2014–Dec.31,20145%15569
Jan.1,2015–Mar.31,20155%15569
Apr.1,2015–Jun.30,20155%15569
Jul.1,2015–Sep.30,20155%15569
Oct.1,2015–Dec.31,20155%15569
Jan.1,2016–Mar.31,20165%63617
Apr.1,2016–Jun.30,20166%65619
Jul.1,2016–Sep.30,20166%65619
Oct.1,2016–Dec.31,20166%65619
Jan.1,2017–Mar.31,20176%17571
Apr.1,2017–Jun.30,20176%17571
Jul.1,2017–Sep.30,20176%17571
Oct.1,2017–Dec.31,20176%17571
Jan.1,2018–Mar.31,20186%17571
Apr.1,2018–Jun.30,20187%19573
Jul.1,2018–Sep.30,20187%19573
Oct.1,2018–Dec.31,20187%19573
Jan.1,2019–Mar.31,20198%21575
Apr.1,2019–Jun.30,20198%21575
Jul.1,2019–Sep.30,20197%19573
Oct.1,2019–Dec.31,20197%19573
Jan.1,2020–Mar. 31,20207%67621

Bulletin No. 2019–52 1415 December 23, 2019
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995 – PRESENT
1995-1 C.B.
RATETABLEPG
Jan.1,1995–Mar.31,19956.5%18572
Apr.1,1995–Jun.30,19957.5%20574
Jul.1,1995–Sep.30,19956.5%18572
Oct.1,1995–Dec.31,19956.5%18572
Jan.1,1996–Mar.31,19966.5%66620
Apr.1,1996–Jun.30,19965.5%64618
Jul.1,1996–Sep.30,19966.5%66620
Oct.1,1996–Dec.31,19966.5%66620
Jan.1,1997–Mar.31,19976.5%18572
Apr.1,1997–Jun.30,19976.5%18572
Jul.1,1997–Sep.30,19976.5%18572
Oct.1,1997–Dec.31,19976.5%18572
Jan.1,1998–Mar.31,19986.5%18572
Apr.1,1998–Jun.30,19985.5%16570
Jul.1.1998–Sep.30,19985.5%16570
Oct.1,1998–Dec.31,19985.5%16570
Jan.1,1999–Mar.31,19994.5%14568
Apr.1,1999–Jun.30,19995.5%16570
Jul.1,1999–Sep.30,19995.5%16570
Oct.1,1999–Dec.31,19995.5%16570
Jan.1,2000–Mar.31,20005.5%64618
Apr.1,2000–Jun.30,20006.5%66620
Jul.1,2000–Sep.30,20006.5%66620
Oct.1,2000–Dec.31,20006.5%66620
Jan.1,2001–Mar.31,20016.5%18572
Apr.1,2001–Jun.30,20015.5%16570
Jul.1,2001–Sep.30,20014.5%14568
Oct.1,2001–Dec.31,20014.5%14568
Jan.1,2002–Mar.31,20023.5%12566
Apr.1,2002–Jun.30,20023.5%12566
Jul.1,2002–Sep.30,20023.5%12566
Oct.1,2002–Dec.31,20023.5%12566
Jan.1,2003–Mar.31,20032.5%10564
Apr.1,2003–Jun.30,20032.5%10564
Jul.1,2003–Sep.30,20032.5%10564
Oct.1,2003–Dec.31,20031.5%8562
Jan.1,2004–Mar.31,20041.5%56610
Apr.1,2004–Jun.30,20042.5%58612

December 23, 2019 1416 Bulletin No. 2019–52
Jul.1,2004–Sep.30,20041.5%56610
Oct.1,2004–Dec.31,20042.5%58612
Jan.1,2005–Mar.31,20052.5%10564
Apr.1,2005–Jun.30,20053.5%12566
Jul.1,2005–Sep.30,20053.5%12566
Oct.1,2005–Dec.31,20054.5%14568
Jan.1,2006–Mar.31,20064.5%14568
Apr.1,2006–Jun.30,20064.5%14568
Jul.1,2006–Sep.30,20065.5%16570
Oct.1,2006–Dec.31,20065.5%16570
Jan.1,2007–Mar.31,20075.5%16570
Apr.1,2007–Jun.30,20075.5%16570
Jul.1,2007–Sep.30,20075.5%16570
Oct.1,2007–Dec.31,20075.5%16570
Jan.1,2008–Mar.31,20084.5%62616
Apr.1,2008–Jun.30,20083.5%60614
Jul.1,2008–Sep.30,20082.5%58612
Oct.1,2008–Dec.31,20083.5%60614
Jan.1,2009–Mar.31,20092.5%10564
Apr.1,2009–Jun.30,20091.5%8562
Jul.1,2009–Sep.30,20091.5%8562
Oct.1,2009–Dec.31,20091.5%8562
Jan.1,2010–Mar.31,20101.5%8562
Apr.1,2010–Jun.30,20101.5%8562
Jul.1,2010–Sep.30,20101.5%8562
Oct.1,2010–Dec.31,20101.5%8562
Jan.1,2011–Mar.31,20110.5%*
Apr.1,2011–Jun.30,20111.5%8562
Jul.1,2011–Sep.30,20111.5%8562
Oct.1,2011–Dec.31,20110.5%*
Jan.1,2012–Mar.31,20120.5%*
Apr.1,2012–Jun.30,20120.5%*
Jul.1,2012–Sep.30,20120.5%*
Oct.1,2012–Dec.31,20120.5%*
Jan.1,2013–Mar.31,20130.5%*
Apr.1,2013–Jun.30,20130.5%*
Jul.1,2013–Sep.30,20130.5%*
Oct.1,2013–Dec.31,20130.5%*
Jan.1,2014–Mar.31,20140.5%*
Apr.1,2014–Jun.30,20140.5%*
Jul.1,2014–Sep.30,20140.5%*

Bulletin No. 2019–52 1417 December 23, 2019
Oct.1,2014–Dec.31,20140.5%*
Jan.1,2015–Mar.31,20150.5%*
Apr.1,2015–Jun.30,20150.5%*
Jul.1,2015–Sep.30,20150.5%*
Oct.1,2015–Dec.31,20150.5%*
Jan.1,2016–Mar.31,20160.5%*
Apr.1,2016–Jun.30,20161.5%56610
Jul.1,2016–Sep.30,20161.5%56610
Oct.1,2016–Dec.31,20161.5%56610
Jan.1,2017–Mar.31,20171.5%8562
Apr.1,2017–Jun.30,20171.5%8562
Jul.1,2017–Sep.30,20171.5%8562
Oct.1,2017–Dec.31,20171.5%8562
Jan.1,2018–Mar.31,20181.5%8562
Apr.1,2018–Jun.30,20182.5%10564
Jul.1,2018–Sep.30,20182.5%10564
Oct.1,2018–Dec.31,20182.5%10564
Jan.1,2019–Mar.31,20193.5%12566
Apr.1,2019–Jun.30,20193.5%12566
Jul.1,2019–Sep.30,20192.5%10564
Oct.1,2019–Dec. 31,20192.5%10564
Jan.1,2020–Mar.31,20202.5%58612
* The asterisk reflects the interest factors for daily compound interest for annual rates of 0.5 percent published in Appendix A of
this Revenue Ruling.

December 23, 2019 1418 Bulletin No. 2019–52
26 CFR 1.59A-1 through 1.59A-10
T.D. 9885
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Base Erosion and
Anti-Abuse Tax
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations implementing the base
erosion and anti-abuse tax, designed to
prevent the reduction of tax liability by
certain large corporate taxpayers through
certain payments made to foreign related
parties and certain tax credits. These final
regulations also provide reporting require-
ments related to this tax. This tax was
added to the Internal Revenue Code (the
“Code”) as part of the Tax Cuts and Jobs
Act. This document finalizes the proposed
regulations published on December 21,
2018. The final regulations affect corpo-
rations with substantial gross receipts that
make payments to foreign related parties.
The final regulations also affect any re-
porting corporations required to furnish
information relating to certain related-par-
ty transactions and information relating to
a trade or business conducted within the
United States by a foreign corporation.
DATES: Effective date: The final regula-
tions are effective on December 6, 2019.
Applicability dates: For dates of appli-
cability, see §§1.59A-10, 1.1502-2(d),
1.1502-59A(h), and 1.6038A-2(g).
FOR FURTHER INFORMATION CON-
TACT: Concerning §§1.59A-1 through
1.59A-10, Azeka J. Abramoff, Sheila
Ramaswamy, or Karen Walny at (202)
317-6938; concerning the services cost
method exception, L. Ulysses Chatman
at (202) 317-6939; concerning §§1.383-
1, 1.1502-2, 1.1502-4, 1.1502-43,
1.1502-47, 1.1502-59A, 1.1502-100, and
1.6655-5, Julie Wang at (202) 317-6975
or John P. Stemwedel at (202) 317-5024;
concerning §§1.6038A-1, 1.6038A-2,
and 1.6038A-4, Brad McCormack or
Anand Desai at (202) 317-6939 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Background
On December 21, 2018, the Depart-
ment of the Treasury (“Treasury Depart-
ment”) and the IRS published proposed
regulations (REG-104259-18) under sec-
tion 59A, and proposed amendments to
26 CFR part 1 under sections 383, 1502,
6038A, and 6655 in the Federal Regis-
ter (83 FR 65956) (the “proposed regu-
lations”). The base erosion and anti-abuse
tax (“BEAT”) in section 59A was added
to the Code by the Tax Cuts and Jobs
Act, Pub. L. 115-97 (2017) (the “Act”),
which was enacted on December 22,
2017. The Act also added reporting obli-
gations regarding this tax for 25-percent
foreign-owned corporations subject to
section 6038A and foreign corporations
subject to section 6038C.
A public hearing was held on March 25,
2019. The Treasury Department and the
IRS also received written comments with
respect to the proposed regulations. Com-
ments outside the scope of this rulemak-
ing are generally not addressed but may
be considered in connection with future
guidance projects. All written comments
received in response to the proposed reg-
ulations are available at www.regulations.
gov or upon request.
Summary of Comments and
Explanation of Revisions
I. Overview
The final regulations retain the basic
approach and structure of the proposed
regulations, with certain revisions. This
Summary of Comments and Explanation
of Revisions discusses those revisions as
well as comments received in response to
the solicitation of comments in the notice
of proposed rulemaking accompanying
the proposed regulations.
II. Comments and Changes to Proposed
§1.59A-1—Overview and Definitions
Proposed §1.59A-1 provides general
definitions under section 59A. Proposed
§1.59A-1(b)(17) provides a definition of
the term “related party.” The proposed
regulations generally define a related par-
ty with respect to an applicable taxpayer
as (a) any 25-percent owner of the tax-
payer, (b) any person related (within the
meaning of section 267(b) or 707(b)(1)) to
the taxpayer or any 25-percent owner of
the taxpayer, or (c) a controlled taxpayer
within the meaning of §1.482-1(i)(5).
The proposed regulations’ definition
of “related party” is identical to the defi-
nition provided by section 59A(g), except
with respect to the relatedness standard
under section 482. Specifically, the pro-
posed regulations provide a more precise
citation to the section 482 regulations
(“a controlled taxpayer within the mean-
ing of §1.482-1(i)(5)”) than the general
cross-reference that is provided in section
59A(g)(1)(C) (“any other person who is
related (within the meaning of section
482) to the taxpayer”).
Comments recommended that the final
regulations modify the definition of “re-
lated party” to exclude related publicly
traded companies or otherwise provide
an exception for payments between pub-
licly traded companies. These comments
suggested that payments between related
publicly traded companies do not result
in base erosion. The comments explained
that the boards of directors of publicly
traded companies generally have fiducia-
ry obligations to shareholders to act in the
best interest of the company and are sub-
ject to regulatory oversight. On this basis,
the comments asserted that a domestic
corporation cannot artificially shift profits
to a foreign corporation in this situation.
Comments also noted that the Treasury
Department and the IRS have provided
relief for publicly traded companies in cir-
cumstances where there is no explicit leg-
islative history or statutory authority to do
so, such as where minority shareholders of
publicly traded companies must be iden-
tified. See §1.367(e)-1(d)(3) and §1.382-
2T(j).
The Treasury Department and the IRS
have determined that it is not appropri-
ate to modify the statutory definition of

Bulletin No. 2019–52 1419 December 23, 2019
a related party to exclude publicly traded
companies because this recommendation
is inconsistent with the statutory language
of section 59A(g). Section 59A(g) sets
forth specific limits on the definition of a
“related party” that include a corporation
and its 25-percent owner. Under the pro-
posal recommended by the comments,
section 59A would not apply to any less
than 100 percent owned affiliate, so long
as other “public” shareholders owned
some interest in the corporation. The cor-
porate laws of a state of the United States
or a foreign jurisdiction may, and often
do, impose certain duties on the board
of directors of a company, including ob-
ligations with respect to the interests of
minority shareholders. These companies
are also subject to securities laws in the
United States. Notwithstanding this reg-
ulatory environment, the Code includes
many provisions that apply to related
parties, and none of those provisions are
limited to corporations that are 100 per-
cent related.
For example, section 267(a) generally
applies to transactions among greater than
50 percent controlled parties. Section 482
provides a test that can be satisfied by a
quantitative measure of ownership or a
qualitative test of control (“two or more
organizations, trades, or businesses...
owned or controlled directly or indirectly
by the same interests”), that, as interpret-
ed by regulations, can apply at well below
a 100 percent relatedness standard. See
§1.482-1(i)(5). Other sections of the Code
apply based on a relatedness standard of
80 percent. See, generally, section 1504;
section 351(a). In section 59A, Congress
adopted, disjunctively, both the 50 per-
cent relatedness-test from section 267(a)
and the relatedness-test from section 482.
Moreover, Congress also added, disjunc-
tively, a lower objective standard for de-
termining relatedness for a 25-percent
owner.
Finally, the Treasury Department and
IRS concluded that a rule that confers
special status on payments to a publicly
traded foreign corporation that is related
(using a 25 percent or greater standard) to
the payor would not be analogous to the
rules in §1.367(e)-1(d)(3) or §1.382-2T(j),
which provide special rules that pertain to
shareholders that own less than 5 percent
of publicly traded corporations, in light of
challenges in determining the identity of
such shareholders.
For these reasons, the final regulations
do not modify the relatedness thresholds
that are set forth in section 59A and the
proposed regulations.
III. Comments and Changes to Proposed
§1.59A-2—Applicable Taxpayer,
Aggregation Rules, Gross Receipts Test,
and Base Erosion Percentage Test
Proposed §1.59A-2 contains rules for
determining whether a taxpayer is an ap-
plicable taxpayer on which the BEAT may
be imposed, including rules relating to
the gross receipts test, base erosion per-
centage test, and the determination of the
aggregate group for purposes of applying
these tests.
A. Determining the gross receipts and
base erosion percentage of an aggregate
group that includes a RIC, a REIT, or an
entity treated as a corporation by section
892
Section 59A(e)(1)(A) excludes corpo-
rations that are (1) regulated investment
companies (“RICs”), (2) real estate invest-
ment trusts (“REITs”), or (3) S corpora-
tions from the definition of an applicable
taxpayer. A comment requested that the fi-
nal regulations clarify that controlled RICs
and REITs are similarly excluded from the
aggregate group for purposes of the gross
receipts test and base erosion percentage
test. The comment implied that the Trea-
sury Department and the IRS did not in-
tend for RICs and REITs to be part of an
aggregate group because RICs and REITs
are not subject to the BEAT as separate
taxpayers. The proposed regulations do
not exclude RICs and REITs from mem-
bership in an aggregate group. A corpora-
tion is an applicable taxpayer if it is not one
of the excluded categories of corporations
(RIC, REIT, or S corporation), it satisfies
the gross receipts test in section 59A(e)(1)
(B), and it satisfies the base erosion per-
centage test in section 59A(e)(1)(C). The
proposed regulations provide that when
applying the gross receipts test and the
base erosion percentage test with respect
to a particular corporation for purposes of
section 59A, those tests are applied on the
basis of that corporation and members of
that corporation’s aggregate group. The
proposed regulations define an aggregate
group by reference to section 1563(a) in a
manner consistent with section 59A(e)(3),
which references section 1563(a) indirect-
ly. The section 1563(a) definition refers to
controlled groups of corporations, wheth-
er brother-sister groups or parent-subsidi-
ary groups. Section 1563(c) provides spe-
cial rules excluding certain categories of
stock in a corporation from the aggrega-
tion rules in section 1563(a) (for example,
certain stock held by an organization to
which section 501 applies). None of those
provisions exclude the stock of, or held
by, a RIC or REIT. Moreover, just as the
gross receipts and deductions of non-ap-
plicable taxpayers (such as partnerships)
can inure to the benefit of an applicable
taxpayer (such as a domestic corporation
that is a partner in a partnership), so too
can the gross receipts and deductions of a
controlled RIC or REIT that is a member
of a corporation’s aggregate group inure
to the benefit of that corporation. Because
of these considerations, the final regula-
tions do not adopt this recommendation.
Similarly, another comment requested
that the final regulations exclude from the
aggregate group foreign government own-
ers of stock of corporations when the for-
eign government is treated as a corpora-
tion under section 892 and the regulations
thereunder. The comment cited the exclu-
sion from section 1563(a) of certain stock
held by an organization to which section
501 applies, and suggested that a foreign
government should be provided similar
treatment because a foreign government,
like a section 501 organization, does not
have private shareholders. In addition, the
comment asserted that it cannot be en-
gaged in direct commercial activities with
respect to its portfolio companies and that
its investment managers consist of sepa-
rate teams.
The Treasury Department and the IRS
have determined that it is not appropriate
to provide a regulatory exception from the
aggregate group rules for entities that are
commonly controlled by a foreign govern-
ment shareholder and that are treated as
corporations under section 892. Congress
provided that the activities of an aggregate
group are fully taken into account when
applying the gross receipts test and the
base erosion percentage test to a corpora-

December 23, 2019 1420 Bulletin No. 2019–52
tion. The fact that a common shareholder
of a different chain of corporations may be
more passive than other common share-
holders, or that the common sharehold-
er’s investment teams are within different
lines of a management structure does not
change the fact the common shareholder
has economic interests in the subsidiary
corporation that is within the statutory
aggregate group definition adopted for
section 59A. Accordingly, the final regu-
lations do not adopt this recommendation.
B. Gross receipts from certain inventory
and similar transactions
To determine gross receipts, section
59A(e)(2)(B) provides for “rules similar
to the rules” of section 448(c)(3)(B), (C),
and (D). Accordingly, these final regula-
tions provide rules that are similar to, but
not necessarily the same as, the rules of
section 448(c)(3) and the implement-
ing regulations. Proposed §1.59A-1(b)
(13) defines the term “gross receipts” for
purposes of section 59A by reference to
§1.448-1T(f)(2)(iv), which provides that
gross receipts include total sales, net of
returns and allowances, and all amounts
received for services. Section 1.448-1T(f)
(2)(iv) further provides that gross receipts
are not reduced by cost of goods sold
(“COGS”) or reduced by the cost of prop-
erty sold if such property is described in
section 1221(a)(1), (3), (4), or (5) (types
of property excluded from the definition
of a capital asset). Separately, §1.448-
1T(f)(2)(iv) provides that gross receipts
from the sale of capital assets or a sale
of property described in section 1221(a)
(2) (relating to property used in a trade
or business) are reduced by the adjusted
basis of the property sold. Section 1.448-
1T(f)(2)(iv) further provides that gross re-
ceipts include income from investments,
but not the repayment of a loan or similar
instrument.
Comments observed that, pursuant to
the definition of gross receipts in the pro-
posed regulations, banks that originate and
then sell loans are required to include the
gross proceeds from the sale of the loan in
their gross receipts because banks gener-
ally treat loans originated in the ordinary
course of business as ordinary assets under
section 1221(a)(4). These comments con-
trasted a situation where a bank originates
and holds a loan to maturity, in which case
the proceeds the bank receives upon re-
payment are not included in gross receipts
due to the express exclusion of these
amounts contained in §1.448-1T(f)(2)(iv).
The comments recommended that the reg-
ulations provide for a separate reduction
of gross receipts from the sale of a loan
for the basis in loans originated by a bank.
Another comment recommended a similar
exception for a bank or broker-dealer that
holds stocks and bonds in inventory. This
comment proposed that final regulations
permit banks and broker-dealers to reduce
gross receipts from ordinary course sales
of stocks and bonds by the basis of these
instruments. The comment also observed
that the gains or losses recognized with
respect to the stocks and bonds are from
sales in the ordinary course and may be
small relative to the cost basis in the prop-
erty.
The final regulations do not adopt the
approach suggested by these comments.
The final regulations continue to define
the term “gross receipts” by cross-refer-
encing to §1.448-1T(f)(2)(iv), and those
rules are used to determine how an item
is included in gross receipts. The rules in
section 59A for implementing the gross
receipts test are similar to the rules de-
scribed in section 448(c). See section
59A(e)(3) (adopting an aggregation rule
similar to that in section 448(c)(2)); sec-
tion 59A(e)(2)(B) (specifically cross-ref-
erencing rules similar to section 448(c)
(3)(B), (C), and (D) for the treatment of
short taxable years, reductions for re-
turns and allowances, and predecessors,
respectively); and section 59A(e)(2)(A)
(adopting a broad concept of gross re-
ceipts, narrowed to exclude gross receipts
of a foreign person that are not taken into
account in determining income that is
effectively connected with the conduct
of a trade or business within the United
States). Because of this statutory link be-
tween section 59A(e)(2) and section 448,
the final regulations adopt the definition
of gross receipts for purposes of section
59A that is used for section 448 purpos-
es–that is, the definition in §1.448-1T(f)
(2)(iv). Because the Act includes other
new rules that cross-reference section
448, the Treasury Department and the
IRS are studying section 448 generally
and whether changes should be made to
the regulations under section 448 to take
into account the Act.
C. Determining the Aggregate Group for
Purposes of Applying the Gross Receipts
Test and Base Erosion Percentage Test
Section 59A determines the status of a
corporation as an applicable taxpayer on
the basis of the aggregate group rules by
taking into account the gross receipts and
base erosion payments of each member of
the aggregate group. However, each tax-
payer must compute the amount of gross
receipts and base erosion payments for
its aggregate group using its own taxable
year and based on those corporations that
are members of the aggregate group at the
end of the taxable year. See section 59(e)
(3). Therefore, members with different
taxable years may have different base ero-
sion percentages.
1. Members of an Aggregate Group with
Different Taxable Years
The proposed regulations provide rules
for determining whether the gross receipts
test and base erosion percentage test are
satisfied for purposes of section 59A with
respect to a specific taxpayer when oth-
er members of its aggregate group have
different taxable years. See proposed
§1.59A-2(e)(3)(vii). In general, the pro-
posed regulations provide that, for pur-
poses of section 59A only, each taxpayer
determines its gross receipts and base
erosion percentage by reference to its own
taxable year, taking into account the results
of other members of its aggregate group
during that taxable year. In other words,
the gross receipts, base erosion tax bene-
fits, and deductions of the aggregate group
for a taxable year are determined by ref-
erence to the taxpayer’s own taxable year,
without regard to the taxable year of the
other member. This rule applies regardless
of whether the taxable year of the member
begins before January 1, 2018; as a result,
a taxpayer includes gross receipts, base
erosion tax benefits, and deductions of the
member even if that member is not sub-
ject to section 59A for that taxable year.
The proposed regulations adopted this
approach to reduce compliance burden
through providing certainty for taxpayers
and avoid the complexity of a rule that

Bulletin No. 2019–52 1421 December 23, 2019
identifies a single taxable year for an ag-
gregate group for purposes of section 59A
that may differ from a particular member
of the aggregate group’s taxable year. As
a result, under the proposed regulations,
two related taxpayers with different tax-
able years may compute their respective
gross receipts and base erosion percent-
ages for purposes of section 59A by ref-
erence to different periods, even though
each taxpayer calculates these amounts on
an aggregate group basis that takes into
account other members of the controlled
group. The preamble to the proposed reg-
ulations explains that taxpayers may use a
reasonable method to determine the gross
receipts and base erosion percentage in-
formation with regard to the taxable year
of the taxpayer when members of the ag-
gregate group of the taxpayer have a dif-
ferent taxable year. REG-104259-18, 83
FR 65956, 65959 (December 21, 2018).
Comments expressed concern regard-
ing the potential administrative burdens
of treating all members of a taxpayer’s
aggregate group as having the same tax-
able year as the taxpayer. These comments
argued that, in many cases, companies do
not maintain monthly accounting records
as detailed as they do on a quarterly basis
(for publicly traded companies) or an an-
nual basis (for privately held companies).
Also, comments noted that this rule does
not take into account the effect of deduc-
tions that are determined on a yearly basis
or subject to annual limitations, such as
under section 163(j).
Comments requested that the determi-
nation of gross receipts and the base ero-
sion percentage of a taxpayer’s aggregate
group be made on the basis of the taxpay-
er’s taxable year and the taxable year of
each member of its aggregate group that
ends with or within the applicable tax-
payer’s taxable year (the “with-or-within
method”). With respect to members of
an aggregate group with different taxable
years, the Treasury Department and the
IRS appreciate the concerns raised regard-
ing the potential administrative burden of
proposed §1.59A-2(e)(3)(vii) and believe
that the approach described in the com-
ments represents a reasonable approach.
The final regulations, therefore, adopt the
with-or-within method, for purposes of
section 59A only, to determine the gross
receipts and the base erosion percentage
of an aggregate group. See §1.59A-2(c)
(3). In addition, the Treasury Department
and the IRS are issuing a notice of pro-
posed rulemaking (the “2019 proposed
regulations”) published in the same issue
of the Federal Register as these final reg-
ulations that proposes rules to further ad-
dress how to implement the with-or-with-
in method, and how to take into account
the changing composition of the aggregate
group with respect to a particular taxpayer
during the relevant periods for applying
the gross receipts test and the base erosion
percentage test. The final regulations do
not include rules on predecessors or short
taxable years. Instead, rules relating to
these situations have been re-proposed in
the 2019 proposed regulations. Until final
rules are applicable relating to predeces-
sors or short taxable years, taxpayers must
take a reasonable approach consistent
with section 59A(e)(2)(B) to determine
gross receipts and base erosion benefits in
these situations.
2. Time for Determining that Transactions
Occurred Between Members of the
Aggregate Group
The proposed regulations provide that,
for purposes of section 59A, transactions
that occur between members of the aggre-
gate group that were members of the ag-
gregate group at the time of the transaction
are not taken into account for purposes of
determining the gross receipts and base
erosion percentage of an aggregate group.
See proposed §1.59A-2(c). In the case of a
foreign corporation that is a member of an
aggregate group, only transactions that re-
late to income effectively connected with
the conduct of a trade or business in the
United States are disregarded for this pur-
pose. The preamble to the proposed regu-
lations explains that this limitation on the
extent to which foreign corporations are
included in the aggregate group is intend-
ed to prevent payments from a domestic
corporation, or a foreign corporation with
respect to effectively connected income,
to a foreign related person, from being in-
appropriately excluded from the base ero-
sion percentage test. REG-104259-18, 83
FR 65956, 65957 (December 21, 2018).
A comment requested clarity on de-
termining whether transactions between
members of an aggregate group are dis-
regarded. Specifically, the comment re-
quested clarity on whether a transaction is
disregarded when both parties to the trans-
action are members of the aggregate group
at the time of the transaction, or whether it
is also a condition that both parties to the
transaction must also be members of the
aggregate group on the last day of the tax-
payer’s taxable year.
As requested by the comment, the fi-
nal regulations clarify that a transaction
between parties is disregarded for purpos-
es of section 59A when determining the
gross receipts and base erosion percentage
of an aggregate group if both parties were
members of the aggregate group at the
time of the transaction, without regard to
whether the parties were members of the
aggregate group on the last day of the tax-
payer’s taxable year. See §1.59A-2(c)(1).
3. Base Erosion Tax Benefits and
Deductions of a Member of an Aggregate
Group with a Taxable Year Beginning
Before January 1, 2018.
For purposes of determining the base
erosion percentage, comments also ex-
pressed concern about including the base
erosion tax benefits and deductions of
a member when the taxable year of the
member begins before January 1, 2018.
The comments noted that this taxable year
of the member is not otherwise subject to
section 59A because of the effective date
in section 14401(e) of the Act. However,
one comment agreed with including these
base erosion tax benefits and deductions
in the aggregate group of a taxpayer for a
taxable year of the taxpayer to which sec-
tion 59A applies.
The Treasury Department and the IRS
agree with comments that it is not ap-
propriate for a taxpayer to include base
erosion tax benefits and deductions at-
tributable to a taxable year of a member
of its aggregate group that begins before
the effective date of section 59A when de-
termining the base erosion percentage of
the aggregate group. Accordingly, when
determining the base erosion percentage
of an aggregate group, the final regula-
tions exclude the base erosion tax benefits
and deductions attributable to the taxable
year of a member of the aggregate group
that begins before January 1, 2018. See
§1.59A-2(c)(8). This rule avoids requiring

December 23, 2019 1422 Bulletin No. 2019–52
members of an aggregate group to calcu-
late their hypothetical base erosion tax
benefits for a year in which the base ero-
sion tax benefit rules do not apply.
4. Other Comments Regarding the
Aggregate Group Rules
Comments also addressed the follow-
ing issues with respect to the aggregate
group rules in the proposed regulations:
(1) how to take into account transactions
when a member joins or leaves an aggre-
gate group, (2) the treatment of predeces-
sors of a taxpayer, (3) the determination
of the aggregate group of a consolidated
group, and (4) the treatment of short tax-
able years. The Treasury Department and
the IRS continue to study the recommen-
dations provided in several comments re-
lating to these issues. Therefore, the Trea-
sury Department and the IRS are issuing
the 2019 proposed regulations to further
address aggregate group issues.
D. Mark-to-market deductions
To determine the base erosion per-
centage for the year, the taxpayer (or in
the case of a taxpayer that is a member of
an aggregate group, the aggregate group)
must determine the amount of base ero-
sion tax benefits in the numerator and
the total amount of certain deductions,
including base erosion tax benefits, in the
denominator. The proposed regulations
provide rules for determining the total
amount of the deductions that are includ-
ed in the denominator of the base erosion
percentage computation in the case of
transactions that are marked to market.
In determining the amount of the deduc-
tion that is used for purposes of the base
erosion percentage test, the proposed
regulations require the combination of
all items of income, deduction, gain, or
loss on each marked transaction for the
year (“the BEAT Netting Rule”), such as
from a payment, accrual, or mark. See
proposed §1.59A-2(e)(3)(vi). The BEAT
Netting Rule was adopted to ensure that
only a single deduction is claimed with
respect to each marked transaction and
to prevent distortions in deductions from
being included in the denominator of the
base erosion percentage, including as a
result of the use of an accounting meth-
od that values a position more frequently
than annually.
A comment requested guidance clari-
fying whether the BEAT Netting Rule ap-
plies to physical securities such as stocks,
bonds, repurchase agreements, and secu-
rities loans with respect to which a tax-
payer applies a mark-to-market method
of accounting. The comment questioned
whether the BEAT Netting Rule should
apply to these types of positions. The com-
ment acknowledged that the BEAT Net-
ting Rule produces an appropriate result
with respect to derivatives by avoiding
double-counting of both a current mark-
to-market loss as well as a future payment
to which the current loss relates. Unlike
in the case of many derivatives, the com-
ment observed that transactions involving
stocks, bonds, repurchase agreements, and
securities loans generally do not result in
a loss of value to the holder of the relevant
instrument that is subsequently realized in
the form of a payment made by the holder
and that effectively gives rise to an offset-
ting mark-up of the instrument.
To illustrate this observation, the com-
ment provided the following example.
On January 1, 2018, a dealer buys one
share of stock in Company XYZ for $100.
Then, during 2018, Company XYZ pays
dividends of $1 with respect to the share.
On December 31, 2018, the share price of
Company XYZ is $90. Finally, on January
1, 2019, the dealer sells the share of Com-
pany XYZ stock for $90. The comment
noted that in the absence of the BEAT
Netting Rule, the amount of the dealer’s
deduction after marking the stock to mar-
ket on December 31, 2018, would be $10.
With the application of the BEAT Netting
Rule, however, the comment noted that
the amount of the deduction that will be
included in the base erosion percentage
denominator is $9. According to this com-
ment, the BEAT Netting Rule may not be
necessary to avoid the double-counting
of deductions in these transactions, and
could result in the netting of amounts that
would not be netted under section 475 and
that are not duplicative of other inclusions
or deductions by the taxpayer.
Proposed §1.59A-2(e)(3)(vi) applies
to any position with respect to which
the taxpayer (or in the case of a taxpayer
that is a member of an aggregate group, a
member of the aggregate group) applies
a mark-to-market method of accounting.
Therefore, the BEAT Netting Rule in the
proposed regulations applies to stocks,
bonds, repurchase agreements, and se-
curities lending transactions that the tax-
payer marks to market, rendering further
clarification unnecessary. The Treasury
Department and the IRS have determined
that the applicability of the BEAT Netting
Rule should not be limited in the manner
suggested by the comment. In addition
to avoiding the double counting that the
comment acknowledged, the proposed
regulations adopt the BEAT Netting Rule
to enhance administrability and reduce
compliance burden. That is, having a sin-
gle rule apply to all transactions that are
marked to market will enhance adminis-
trability, especially given the challenges
in (a) distinguishing the specific financial
transactions that should qualify for exclu-
sion; (b) determining whether a distribu-
tion or payment received on an excluded
instrument is duplicative of other inclu-
sions or deductions; and (c) determining
the extent to which a payment ultimately
gives rise to an offsetting decline in the
value of the instrument. For these rea-
sons, the BEAT Netting Rule in the final
regulations does not exclude physical se-
curities.
Another comment recommended that
the BEAT Netting Rule should not be man-
datory and should instead be included in
the final regulations as only a safe harbor.
The comment reasoned that section 59A is
generally applied on a gross basis and that
requiring taxpayers to offset deductions
and losses with income and gain when
determining the base erosion percentage
is inconsistent with a gross approach. The
BEAT Netting Rule was adopted to ensure
that taxpayers do not overstate the amount
of deductions includible in the denomina-
tor with respect to transactions subject to a
mark-to-market method of accounting. If
the BEAT Netting Rule were provided as a
safe harbor in the final regulations, as this
comment requested, taxpayers could inap-
propriately inflate the denominator of the
base erosion percentage by treating multi-
ple marks as separate deductions. There-
fore, the final regulations do not adopt this
comment.
As discussed in Part III.D of this Sum-
mary of Comments and Explanation of
Revisions, the taxpayer must also deter-

Bulletin No. 2019–52 1423 December 23, 2019
mine the amount of base erosion tax bene-
fits in the numerator to determine the base
erosion percentage for the year. Proposed
§1.59A-3(b)(2)(iii) also applies the BEAT
Netting Rule for purposes of determining
the amount of base erosion payments that
result from transactions that are marked
to market. A comment expressed con-
cern that this rule could result in mark-
to-market losses being treated as base
erosion payments and recommended the
withdrawal of proposed §1.59A-3(b)(2)
(iii), although the comment observed that
if the Treasury Department and the IRS
were to adopt the comment to make the
qualified derivative payments (“QDP”)
exception available to securities loans
(which is discussed in Part VII of this
Summary of Comments and Explanation
of Revisions), that change would make
this issue moot. The Treasury Department
and the IRS do not view this concern to be
valid, considering that a mark-to-market
loss arising from a deemed sale or dispo-
sition of a third-party security held by a
taxpayer is not within the general defini-
tion of a base erosion payment because
the loss is not attributable to any payment
made to a foreign related party. Rather,
the mark-to-market loss is attributable to
a decline in the market value of the se-
curity. The Treasury Department and the
IRS also note that the BEAT Netting Rule
will apply primarily for purposes of de-
termining the amount of deductions that
are taken into account in the denominator
of the base erosion percentage. The Trea-
sury Department and the IRS agree with
the comment that the QDP exception of
§1.59A-3(b)(3)(ii) eliminates most mark-
to-market transactions from characteriza-
tion as a base erosion payment, including
as a result of the expansion of the QDP
exception to apply to the securities leg
of a securities loan. See Part VII of this
Summary of Comments and Explanation
of Revisions for a discussion of the qual-
ification of the securities leg of a secu-
rities loan for the QDP exception. Thus,
the BEAT Netting Rule will apply only in
limited circumstances such as when the
taxpayer fails to properly report a QDP.
The final regulations therefore continue
to apply the BEAT Netting Rule for pur-
poses of determining the amount of base
erosion payments that result from trans-
actions that are marked to market.
IV. Comments and Changes to Proposed
§1.59A-3—Base Erosion Payments and
Base Erosion Tax Benefits
Proposed §1.59A-3 contains rules for
determining whether a payment or accrual
gives rise to a base erosion payment and
the base erosion tax benefits that arise
from base erosion payments.
A. How base erosion payments are
determined in general
Proposed §1.59A-3(b)(1) defines a
base erosion payment as a payment or
accrual by the taxpayer to a foreign relat-
ed party that is described in one of four
categories: (1) a payment with respect
to which a deduction is allowable; (2) a
payment made in connection with the ac-
quisition of depreciable or amortizable
property; (3) premiums or other consider-
ation paid or accrued for reinsurance that
is taken into account under section 803(a)
(1)(B) or 832(b)(4)(A); or (4) a payment
resulting in a reduction of the gross re-
ceipts of the taxpayer that is with respect
to certain surrogate foreign corporations
or related foreign persons.
The Conference Report to the Act states
that base erosion payments do not include
any amounts that constitute reductions to
determine gross income including pay-
ments for COGS (except for reductions to
determine gross income for certain surro-
gate foreign corporations). Conf. Rep. at
657. The proposed regulations do not con-
tain a provision that expressly provides
that amounts paid or accrued to a related
foreign person that result in reductions to
determine gross income are not treated as
base erosion payments (except in the case
of certain surrogate foreign corporations).
A comment requested that, in order to pro-
vide more certainty to taxpayers, the final
regulations expressly reflect that payments
that result in reductions to determine gross
income are not subject to section 59A. In
response to this comment, §1.59A-3(b)
has been modified to explicitly clarify that
payments resulting in a reduction to de-
termine gross income, including COGS,
are not treated as base erosion payments
within the meaning of section 59A(d)(1)
or (2). See §1.59A-3(b)(2)(viii).
The proposed regulations do not es-
tablish any specific rules for determin-
ing whether a payment is treated as a
deductible payment. However, the pre-
amble to the proposed regulations states
that, except as otherwise provided in the
proposed regulations, the determination
of whether a payment or accrual by the
taxpayer to a foreign related party is de-
scribed in one of the four categories is
made under general U.S. federal income
tax law. REG-104259-18, 83 FR 65956,
65959 (December 21, 2018). The pre-
amble to the proposed regulations refers
specifically to agency principles, reim-
bursement doctrine, case law conduit
principles, and assignment of income as
examples of principles of generally appli-
cable tax law. Id. A comment noted the po-
tential for ambiguity that could result by
failing to reflect in the text of the proposed
regulations the language contained in the
preamble to the proposed regulations and
requested that the final regulations pro-
vide more specific guidance on how the
determination of whether a payment is a
base erosion payment is made. In response
to this comment, the final regulations in-
clude in the regulatory text a rule that the
determination of whether a payment or
accrual is a base erosion payment is made
under general U.S. federal income tax law.
See §1.59A-3(b)(2)(i).
Similarly, because existing tax law
generally applies, the amounts of income
and deduction for purposes of section 59A
are generally determined on a gross ba-
sis under the Code and regulations. The
proposed regulations generally do not
permit netting of income and expense in
determining amounts of base erosion pay-
ments. Comments to the proposed regu-
lations requested guidance regarding (1)
transactions involving a middle-man or a
passthrough payment, (2) divisions of rev-
enues in connection with global service
arrangements, and (3) the general netting
of income and expense.
1. Transactions Involving a “Middle-
Man” or “Passthrough Payments”
Several comments requested addition-
al guidance relating to transactions or ar-
rangements in which a taxpayer serves as
a so-called middle-man for a payment to a
foreign related party or makes a so-called
passthrough payment to a foreign related
party that may frequently arise in connec-

December 23, 2019 1424 Bulletin No. 2019–52
tion with global services and similar busi-
nesses. Broadly, the comments considered
situations where a domestic corporation
makes a deductible payment to a foreign
related party, and that foreign related party
in turn makes corresponding payments to
unrelated third parties. Comments that ad-
dressed this concern arose in a variety of
industries and business models. In some
situations, the comments observed that
business exigencies require the domestic
corporation to make payments to the for-
eign related party. For example, in a busi-
ness involving the physical delivery of
goods within a foreign jurisdiction, a do-
mestic corporation may subcontract with
its foreign related party to perform the for-
eign in-country delivery function. Another
example involves global service contracts
that may be entered into by a domestic
corporation and a client that does business
in multiple jurisdictions, and may require
services in connection with the client’s
global operations that are also subcon-
tracted to foreign related parties. Some
more specific comments observed that this
global services situation may arise in con-
nection with U.S.-based manufacturers
that sell manufactured products to unre-
lated global customers and simultaneous-
ly enter into contracts to provide services
for the product in multiple jurisdictions
in connection with the sale of equipment.
The comments observed that these service
contracts, like other global services con-
tracts, frequently involve subcontracting
with a foreign related party to perform the
services in foreign jurisdictions.
Multiple comments requested that the
final regulations provide that the defini-
tion of a base erosion payment does not
include payments made pursuant to a
contract when a taxpayer makes a corre-
sponding payment to a foreign related par-
ty for third party costs. Other comments
requested that the final regulations more
specifically exempt the types of business
models discussed in the comment letters.
For example, some comments recom-
mended that the final regulations provide
an exception to the term “base erosion
payment” for payments made by a taxpay-
er to a foreign related party with respect to
services performed for an unrelated party,
provided that the foreign related party per-
forms the services outside of the United
States. Other comments recommended a
similar exception that would apply only
to services that are performed in connec-
tion with tangible property produced or
manufactured by the taxpayer (or a relat-
ed party). These comments observed that
Congress intended to exclude manufactur-
ers from the BEAT because it effectively
created an exception for COGS, and that
this exception should be carried through
to services in connection with manufac-
turing.
Other comments recommended an ex-
ception to the definition of base erosion
payment for payments to foreign related
parties that are mandated under regulato-
ry requirements. In other situations, com-
ments observed that regulatory consider-
ations affect the decision by the domestic
corporation to make a payment to the for-
eign related party. An example includes
a global dealing operation where a U.S.
securities dealer has a client who wants
to trade its securities on a foreign securi-
ties exchange that requires a locally reg-
istered dealer; for those trades, a foreign
related party of the U.S. securities dealer
conducts those trades. Other examples
involving regulatory considerations in-
clude U.S. life sciences companies that,
in connection with obtaining food and
drug approval to sell a product in a for-
eign market, use a foreign related party
to conduct clinical trials in that market
because foreign regulators require testing
on local patients.
The final regulations do not adopt a
general exception to the definition of a
base erosion payment in situations when
the foreign related payee also makes pay-
ments to unrelated persons. The BEAT
statute and the legislative history contain
no indication of such an exception. More-
over, this recommended exception is in-
consistent with the statutory framework of
the BEAT. If traced to the ultimate recipi-
ent, most expenses of a taxpayer could be
linked to a payment to an unrelated party,
through direct tracing or otherwise, leav-
ing a residual of profit associated with the
payment. Accordingly, adopting such an
exception would have the effect of elimi-
nating a significant portion of service pay-
ments to foreign related parties from the
BEAT because it would impose the BEAT
on the net rather than the gross amount of
the payment. The only net income based
concept included in the BEAT statute is
the treatment of payments covered by the
services cost method (“SCM”) exception.
For a further discussion of the SCM ex-
ception, see Part IV.C.1 of this Summary
of Comments and Explanation of Revi-
sions.
The final regulations also do not adopt
a narrower regulatory exception for pay-
ments that arise in similar circumstances
but that are also associated with manufac-
turing or the production of tangible prop-
erty. The Treasury Department and the
IRS do not view the presence or absence
of manufacturing as bearing on the statu-
tory definition of a base erosion payment
for services. Further, the Treasury Depart-
ment and the IRS do not view the fact that
payments that reduce gross receipts, such
as COGS, are not base erosion payments
under section 59A(d)(1) as demonstrating
Congressional intent to exclude services
that do not qualify as COGS from the
definition of a base erosion payment under
section 59A(d)(1) if those services have a
connection to manufacturing operations.
Congress included a single specific excep-
tion for services – the SCM exception. For
a further discussion of that exception, see
Part IV.C.1 of this Summary of Comments
and Explanation of Revisions.
The final regulations do not adopt a
narrower exception for payments to for-
eign related parties that arise because of
non-tax business considerations, includ-
ing a non-tax foreign regulatory require-
ment. The Treasury Department and the
IRS recognize that there may be non-tax
reasons that compel a taxpayer to per-
form a particular global service outside
the United States. For example, an inter-
national delivery service may need to en-
gage a foreign related party in the destina-
tion country to deliver goods in a foreign
jurisdiction.
The final regulations do not adopt this
recommended exception because it would
require rules to distinguish between the
conditions under which a domestic cor-
poration is compelled to operate through
a foreign related party and the conditions
under which a domestic corporation oper-
ates through a foreign related party as a re-
sult of a business choice. This distinction
would be inherently subjective. For exam-
ple, in a global service business that pro-
vides services to a global client that has
operations around the world, the decision

Bulletin No. 2019–52 1425 December 23, 2019
to provide personnel on-site in a foreign
location may or may not be compelled by
the business needs of its client. Similarly,
in the case of the back-office functions of
a global services business, those functions
may be performed in the United States or
in a location outside of the United States;
the location of those services may or may
not be compelled by the business needs of
their client. Moreover, even if there is a
compelling reason to operate the activities
outside the United States, a base erosion
payment exists only if a taxpayer makes a
payment to a foreign related party. Thus, if
a foreign branch of the domestic corpora-
tion performs services in the foreign juris-
diction, there will be no payment or accru-
al to a foreign related party. Finally, there
is no indication that Congress intended to
create a broad services exception, outside
of the SCM exception, even though these
global services conditions are common in
the modern economy.
2. Division of Revenues from Global
Services
Comments requested that final regula-
tions provide an exception from the term
“base erosion payment” for revenue shar-
ing payments or arrangements, including
allocations with respect to global dealing
operations. Specifically, some comments
recommended that the final regulations
provide that a payment is not a base ero-
sion payment in a situation where the do-
mestic corporation records revenue from
transactions with third party customers,
and in turn the domestic corporation
makes payments to a foreign related par-
ty. Other comments recommended that
payments by the domestic corporation to
foreign related parties should not be base
erosion payments if the parties have ad-
opted a profit split as their best method of
pricing the related-party transactions for
purposes of section 482. Some of these
comments asserted that parties to such
payments could be viewed as splitting the
customer revenue for purposes of section
59A. Under this view, the payments re-
ceived by the foreign related party would
be treated as received directly from the
third-party customer, with the result that
there would be no corresponding deduct-
ible payment from the domestic corpora-
tion to the foreign related party.
Other comments more specifically
addressed this issue in the narrower con-
text of a global dealing operation within
the meaning of proposed §1.482-8(a)(2)
(i). These comments requested that pay-
ments made pursuant to a global dealing
operation not be treated as base erosion
payments.
The final regulations do not adopt the
recommendations to specifically exclude
from the definition of a base erosion pay-
ment transactions that are priced based on
the profit split or similar transfer pricing
method that is used for purposes of sec-
tion 482. Under section 482, the parties
to a controlled transaction apply the best
method to determine if the parties are
compensated at arm’s length. However,
the use of a particular method, whether
the profit split method or another method,
does not change the contractual relation-
ship between the parties. Accordingly, the
final regulations do not adopt this recom-
mendation because the proper character-
ization depends on the underlying facts
and the relationships between the parties.
See §1.59A-3(b)(2).
Similarly, with respect to a global deal-
ing operation, the final regulations do not
adopt the comment to provide that glob-
al dealing operations do not give rise to
base erosion payments because the proper
characterization depends on the underly-
ing facts. Under general tax principles,
and consistent with proposed §1.863-3(h),
a global dealing operation in which par-
ticipants manage a single book of assets,
bear risk, and share in trading profits may
be viewed as co-ownership of the trading
positions or similar arrangement, with no
deductible payments made by any par-
ticipants for purposes of section 59A. In
contrast, where non-U.S. participants are
compensated for services performed, the
arrangement may be more properly char-
acterized as trading income to the U.S.
participant and a deductible payment to
the foreign participant for purposes of
section 59A.
To the extent that an amount is treated
under general U.S. federal income tax law
as received by a U.S. person as an agent
for, and is remitted to, a foreign related
party, see also Part IV.A (How Base Ero-
sion Payments are Determined in General)
of this Summary of Comments and Expla-
nation of Revisions, which discusses the
addition of §1.59A-3(b)(2)(i) to clarify
that the determination of whether a pay-
ment or accrual by the taxpayer to a for-
eign related party is described in one of
four categories of a base erosion payment
is made under general U.S. federal income
tax law, including agency principles.
3. Netting of Income and Expense
Proposed §1.59A-3(b)(ii) generally
states that the amount of any base erosion
payment is determined on a gross basis,
regardless of any contractual or legal right
to make or receive payments on a net basis,
except as otherwise provided in paragraph
(b)(2)(iii) of that section, which addresses
mark-to-market positions, or as permitted
by the Code or regulations. As explained
in the preamble to the proposed regu-
lations, the BEAT statutory framework
is based on including the gross amount
of base erosion payments in the BEAT’s
expanded modified taxable income base.
REG-104259-18, 83 FR 65956, 65968
(December 21, 2018).
a. In general
Numerous comments recommended
that the final regulations permit netting for
purposes of section 59A. Generally, net-
ting would allow a taxpayer to determine
the amount of a base erosion payment by
reducing the amount of that payment by
the amount of another corresponding ob-
ligation.
A comment asserted that netting should
be permitted for all base erosion payments
other than with respect to reinsurance pay-
ments. The comment explained that the
plain language of section 59A(d)(1) pro-
vides that only amounts paid or accrued
are taken into account; this comment in-
terpreted this language to mean the net
amount paid or accrued. Because section
59A(d)(3) refers to gross premiums in the
reinsurance context, the comment main-
tained that netting is permitted for other
base erosion payments. This comment
also noted that netting was provided under
proposed section 4491, an inbound base
erosion provision included in section 4303
of the House version of H.R. 1, before
the Senate amended H.R.1 to include the
BEAT in place of proposed section 4491.
This comment also recommended that

December 23, 2019 1426 Bulletin No. 2019–52
netting be permitted because other sec-
tions of the Code or regulations include
netting concepts, such as sections 163(j),
250,and 951A, and the aggregation rule in
§1.482-1T(f)(2)(i)(B).
Some comments recommended that
the final regulations permit netting when
the foreign related party payee has a cor-
responding obligation to make payments
to an unrelated third party payee. Some of
these comments asserted that base erosion
payments arise because of commercial
and regulatory efficiency and expediency,
rather than because of tax planning. These
comments recommended that netting be
permitted in ordinary course transactions.
Other comments recommended that the fi-
nal regulations permit netting for deduct-
ible amounts owed by a domestic corpora-
tion to a foreign related party if the foreign
related party also owes amounts to the do-
mestic corporation and the obligations are
settled on a net basis.
The Treasury Department and the IRS
have determined that it is appropriate to
retain the approach in the proposed regu-
lations that the amount of a base erosion
payment is determined on a gross basis,
except as provided in the BEAT Netting
Rule and to the extent permitted by the
Code or regulations. See part III.D of this
Summary of Comments and Explanation
of Revisions (Mark-to-market deduc-
tions). As explained in the preamble to the
proposed regulations, amounts of income
and deduction are generally determined
on a gross basis under the Code. REG-
104259-18, 83 FR 65956, 65968 (De-
cember 21, 2018). For example, whether
the amount of income or deductions with
respect to financial contracts that provide
for offsetting payments is taken into ac-
count on a gross or net basis is determined
under generally applicable federal income
tax law. Section 59A does not change that
result.
The final regulations are consistent
with the statutory framework of section
59A. Section 59A specifically addresses
deductible payments and other statutorily
defined base erosion payments, and im-
poses tax on an increased base of modi-
fied taxable income, but at a lower tax rate
than the corporate income tax rate set forth
in section 11. If regulations provided that
statutorily defined base erosion payments
could be reduced by offsetting amounts
received, then the regulations would sub-
stantially limit the scope of section 59A.
Section 11 imposes a tax on a corpora-
tion’s taxable income. Taxable income is
defined as gross income minus the deduc-
tions allowed by chapter 1 of the Code.
Section 63. Gross income is generally de-
fined as income from whatever source de-
rived. Section 61. The amount of income
and deductions are generally determined
on a gross basis under the Code. Nothing
in section 59A evidences Congressional
intent to alter this framework. In fact, sec-
tion 59A(c) determines modified taxable
income from the starting point of taxable
income as defined in section 63.
A netting rule would have the same ef-
fect as allowing a deduction from gross in-
come because it would reduce the amount
of a taxpayer’s modified taxable income,
and in that sense would conflict with sec-
tion 59A(c)(1) (disallowing a deduction
for base erosion tax benefits). Congress
determined that certain deductions, name-
ly those that are within the statutory defi-
nition of a base erosion payment, should
not be allowed for purposes of the tax im-
posed under section 59A, and therefore,
limited the availability of these deduc-
tions. Permitting netting of items of gross
income and deductions to determine the
amount of a base erosion payment would
frustrate Congress’ purpose in enacting
section 59A.
In addition, the other provisions of the
Code and regulations that are cited by
comments are irrelevant to the analysis
of section 59A and do not provide sup-
port for adopting a netting rule for pur-
poses of section 59A. Whereas sections
163(j) and 951A refer explicitly to net
amounts, section 59A explicitly refers to
a deduction allowable under Chapter 1
of the Code. Section 250 provides rules
for determining whether services are for
“foreign use” by contemplating services
provided to and from a related party
that are substantially similar. This des-
tination-based rule is entirely different
from the construct of section 59A, and,
moreover, section 59A contains no sim-
ilar language contemplating payments to
and from a related party. Proposed sec-
tion 4491 would have operated through
the regular income tax system and would
have represented a fundamentally differ-
ent approach to inbound base erosion than
section 59A; therefore, that proposed re-
vision to the Code is not relevant here.
The aggregation rule in §1.482-1T(f)(2)
(i)(B) does not involve the treatment of
payments to foreign related parties, and
thus is not relevant for purposes of ana-
lyzing the meaning of section 59A.
Some comments also cited the heading
to section 59A(h) (exception for certain
payments made in the ordinary course of
trade or business) as support for a reg-
ulatory exception for ordinary course
transactions for which a taxpayer has not
adopted a mark-to-market method of ac-
counting. Specifically, these comments
suggested that Congress did not intend
for section 59A(h)(2)(A)(i) to limit the
QDP exception to only transactions that
are marked-to-market. The citations to the
heading to section 59A(h) are inconsistent
with the statutory rule in section 59A(h),
which provides a narrowly defined excep-
tion applicable to derivative payments un-
der specific circumstances.
b. Hedging transactions
Another comment recommended that
the final regulations permit netting in the
narrow context of related-party hedging
transactions. The comment observed that
the QDP exception applies to related-par-
ty hedging transactions when the taxpayer
uses a mark-to-market method of account-
ing. The comment asserted that there is no
policy rationale for limiting netting relief
to taxpayers that use a mark-to-market
method of accounting; therefore, the com-
ment requested that the QDP exception be
expanded to also apply to taxpayers that
apply the mark-to-market method for fi-
nancial accounting purposes. Alternative-
ly, the comment recommended that tax-
payers engaged in related- party hedging
transactions be permitted to net income
items against deduction items.
The final regulations do not provide
for a netting rule for related-party hedging
transactions. As discussed in Part IV.A.3.a
of this Summary of Comments and Expla-
nation of Revisions, permitting netting for
related-party hedging transactions would
be inconsistent with the statutory frame-
work of section 59A. Furthermore, this
recommendation would eliminate or sub-
stantially modify one of the three statutory
requirements for the QDP exception (that

Bulletin No. 2019–52 1427 December 23, 2019
is, use of the mark-to-market accounting
method).
c. Clarification of netting under current
law
Finally, some comments recommend-
ed that the final regulations clarify when
netting is permitted under the Code and
regulations, including confirming that
netting is permitted for notional principal
contracts and for cost sharing transaction
payments under §1.482-7(j)(3)(i). The
Treasury Department and the IRS decline
to provide such specific guidance because
it is beyond the scope of the final regula-
tions; however, the Treasury Department
and the IRS are cognizant that section 59A
may place more significance on some sec-
tions of the Code than was the case before
the Act. The Treasury Department and the
IRS intend to study the effect of these pro-
visions on the BEAT and whether changes
should be made to the regulations thereun-
der to better take into account new consid-
erations under the BEAT.
B. Treatment of certain specific types of
payments
1. Losses Recognized with Respect to the
Sale or Transfer of Property to a Foreign
Related Party
Section 59A(d) defines a base erosion
payment to include any amount paid or
accrued by a taxpayer to a foreign related
party with respect to which a deduction
is allowable. Proposed §1.59A-3(b)(1)
(i) repeats this statutory language. Pro-
posed §1.59A-3(b)(2)(i) provides that
“an amount paid or accrued” includes an
amount paid or accrued using any form
of consideration, including cash, proper-
ty, stock, or the assumption of a liability.
In explaining this provision, the preamble
to the proposed regulations states that “a
base erosion payment also includes a pay-
ment to a foreign related party resulting
in a recognized loss; for example, a loss
recognized on the transfer of property to
a foreign related party.” REG-104259-
18, 83 FR 65956, 65960 (December 21,
2018).
This principle would apply if, for ex-
ample, a taxpayer transfers to a foreign
related party (a) built-in-loss property as
payment for a deductible service provided
by the foreign related party to the taxpay-
er (the latter of which may also be a base
erosion payment), (b) built-in-loss proper-
ty as payment for a good or service that
the taxpayer is required to capitalize (for
example, COGS) such that the payment is
not deductible to the taxpayer (the latter
of which is not a base erosion payment),
or (c) depreciated nonfunctional currency
as a payment for a nonfunctional currency
denominated amount owed by a taxpayer.
Comments requested that the final
regulations revise the definition of a base
erosion payment to exclude losses recog-
nized on the sale or exchange of property
by a taxpayer to a foreign related party.
According to these comments, a payment
made with, or a sale of, built-in-loss prop-
erty is not encompassed within the statu-
tory definition of a base erosion payment.
Comments stated that both the statutory
and proposed regulations’ definition con-
tain two requirements for a payment to be
a base erosion payment: there must be (i)
an amount paid or accrued by the taxpayer
to a foreign person that is a related party
of the taxpayer; and (ii) a deduction must
be allowable with respect to that amount.
Regarding the first requirement — that
there must be an amount paid or accrued
by the taxpayer to a foreign related party
— when a U.S. taxpayer sells property to
a foreign related party for cash, the com-
ments noted that no payment or accrual
has taken place by the U.S. taxpayer for
purposes of section 59A; rather, the U.S.
taxpayer is receiving a cash payment in
exchange for the transferred property, and
is not making a payment. Thus, the com-
ments argued, the first requirement for a
base erosion payment, that a payment or
accrual exists, has not been met.
Regarding the second requirement —
that a deduction must be allowable with
respect to that amount — comments ar-
gued that even if a payment is found to
have been made to the foreign related par-
ty, the deduction for the loss on the built-
in-loss property is not with respect to this
payment. That is, the comments argued
that the loss deduction is not attributable
to any “payment” made to the foreign re-
lated party (the form of consideration in
the transaction); rather, the loss is attrib-
utable to the taxpayer’s basis in the built-
in loss property. Although that built-in-
loss is recognized in connection with the
transfer to a foreign related party, and thus
could meet the statutory requirement as
allowed “with respect to” the payment, the
comments recommended a narrower inter-
pretation that views the recognized loss as
arising independently from the payment,
that is viewed as merely a corollary con-
sequence unrelated to the payment being
made to the foreign related party.
The final regulations adopt the recom-
mendation provided in these comments.
The final regulations clarify the definition
of a base erosion payment in §1.59A-3(b)
(1)(i) and (b)(2)(ix) to provide that a loss
realized from the form of consideration
provided to the foreign related party is
not itself a base erosion payment. For the
reasons described in the comments and
discussed in this Part of the Summary of
Comments and Explanation of Revisions,
this treatment aligns the definition of base
erosion payment with the economics of
the payment made by the applicable tax-
payer to the foreign related party. That
is, the term “base erosion payment” does
not include the amount of built-in-loss be-
cause that built-in-loss is unrelated to the
payment made to the foreign related party.
This rule applies regardless of whether the
loss realized from the form of consider-
ation provided to the foreign related party
is itself consideration for an underlying
base erosion payment. To the extent that a
transfer of built-in-loss property results in
a deductible payment to a foreign related
party that is a base erosion payment, the
final regulations clarify that the amount of
the base erosion payment is limited to the
fair market value of that property.
2. Transfers of Property between Related
Taxpayers
The proposed regulations limit the abil-
ity of a taxpayer to eliminate base erosion
tax benefits by transferring depreciable or
amortizable property to another member
of the taxpayer’s aggregate group. Specif-
ically, proposed §1.59A-3(b)(2)(vii) pro-
vides that if a taxpayer holds depreciable
or amortizable property that produces de-
preciation or amortization deductions that
are base erosion tax benefits to the tax-
payer, those depreciation or amortization
deductions will continue to be treated as a
base erosion tax benefit for the acquirer if

December 23, 2019 1428 Bulletin No. 2019–52
the taxpayer transfers the property to an-
other member of its aggregate group.
The Treasury Department and the IRS
are aware of similar transactions involv-
ing a domestic corporation that ordinari-
ly acquires, from a foreign related party,
property that is subject to an allowance for
depreciation or amortization in the hands
of the domestic corporation. In the trans-
action, the domestic corporation inserts
into its supply chain a second domestic
corporation, with a principal purpose of
avoiding base erosion payments. Specifi-
cally, the second domestic corporation, a
dealer in property that avails itself of the
exclusion of COGS from the definition of
a base erosion payment in section 59A(d)
(1) and (2), acquires the property from the
foreign related party and in turn resells the
property to the first domestic corporation.
The Treasury Department and the IRS
view this type of transaction as already
within the scope of the anti-abuse rule set
forth in proposed §1.59A-9(b)(1) (trans-
actions involving unrelated persons, con-
duits, or intermediaries), and have added
an example to the final regulations clarify-
ing the application of this anti-abuse rule
to similar fact patterns.
3. Corporate Transactions
The proposed regulations provide
that a payment or accrual by a taxpayer
to a foreign related party may be a base
erosion payment regardless of wheth-
er the payment is in cash or in any form
of non-cash consideration. See proposed
§1.59A-3(b)(2)(i). There may be situa-
tions where a taxpayer incurs a non-cash
payment or accrual to a foreign related
party in a transaction that meets one of
the definitions of a base erosion payment,
and that transaction may also qualify un-
der certain nonrecognition provisions of
the Code. Examples of these transactions
include a domestic corporation’s acquisi-
tion of depreciable assets from a foreign
related party in an exchange described in
section 351, a liquidation described in sec-
tion 332, and a reorganization described in
section 368.
The proposed regulations do not in-
clude any specific exceptions for these
types of transactions even though (a) the
transferor of the assets acquired by the do-
mestic corporation may not recognize gain
or loss, (b) the acquiring domestic corpo-
ration may take a carryover basis in the
depreciable or amortizable assets, and (c)
the importation of depreciable or amortiz-
able assets into the United States in these
transactions may increase the regular in-
come tax base as compared to the non-im-
portation of those assets. In the preamble
to the proposed regulations, the Treasury
Department and the IRS also note that for
transactions in which a taxpayer that owns
stock in a foreign related party receives
depreciable property from the foreign re-
lated party as an in-kind distribution sub-
ject to section 301, there is no base erosion
payment because there is no consideration
provided by the taxpayer to the foreign
related party in exchange for the proper-
ty. REG-104259-18, 83 FR 65956, 65960
(December 21, 2018). Thus, there is no
payment or accrual in that transaction.
The preamble to the proposed regula-
tions requests comments about the treat-
ment of payments or accruals that consist
of non-cash consideration. REG-104259-
18, 83 FR 65956, 65960 (December 21,
2018). Comments have suggested that
corporate nonrecognition transactions or
transactions in which U.S. taxpayers do
not obtain a step-up in the tax basis of an
acquired asset should not be treated as a
base erosion payment. They argued that
these nonrecognition transactions should
not be treated as a payment or accrual.
Based on this position, some comments
argued either that the Treasury Depart-
ment and the IRS do not have the author-
ity to treat nonrecognition transactions as
base erosion payments or that the better
policy is to exclude nonrecognition trans-
actions from the definition of base erosion
payments. Furthermore, comments ar-
gued that nonrecognition provisions such
as sections 332, 351, and 368 reflect the
judgment of Congress that certain corpo-
rate transactions such as the formation and
dissolution of businesses and the readjust-
ment of continuing interests in property
do not warrant the imposition of tax. They
also argued that the legislative history of
section 59A does not suggest that Con-
gress intended for it to apply to nonrecog-
nition transactions.
With regard to section 332 liquidations,
comments argued that a section 332 liq-
uidation should not be treated as a base
erosion payment when a section 301 dis-
tribution is not. Furthermore, comments
argued that transactions in which stock
is merely deemed to be exchanged, like
certain section 351 transactions or section
332 liquidations, should not be treated as
base erosion payments since there is no
actual transfer of shares.
Comments also argued that nonrecog-
nition transactions are not base eroding.
Comments asserted that inbound nonrec-
ognition transactions are often used in
post-acquisition restructurings, as well as
in other internal restructurings to better
align a multinational organization’s legal
structure with its commercial operations.
Comments also argued that treating these
transactions as base erosion payments
would provide a disincentive to move in-
tangible property and other income-pro-
ducing property into the United States,
contrary to the goals of the Act.
Furthermore, comments argued that
amortization of a carryover tax basis of
an asset acquired by a U.S. taxpayer from
a related party in a nonrecognition trans-
action would not create the same base
erosion concerns as other types of deduc-
tions. However, comments acknowledged
that, if final regulations adopted a broad
exception for nonrecognition transactions,
taxpayers could abuse that exception by
engaging in certain basis step-up trans-
actions immediately before an inbound
nonrecognition transfer. Comments sug-
gested that augmenting the conduit an-
ti-abuse rule of proposed §1.59A-9 may
be sufficient to prevent these types of
transactions. Alternatively, comments also
suggested that, to delineate cases of po-
tential abuse, a rule similar to the 5-year
active trade or business rules in §1.355-3
could apply to specify instances when as-
sets would qualify as not being “recently
stepped up assets.”
Comments generally supported the
statement in the preamble to the proposed
regulations that a section 301 distribu-
tion is not treated as a base erosion pay-
ment because there is no exchange, and
requested that the exclusion be included
in the final regulations as well as the pre-
amble. Comments also requested that the
definition of a base erosion payment also
exclude exchanges (including section 302
and 304 transactions) that are treated as
section 301 distributions pursuant to sec-
tion 302(d).

Bulletin No. 2019–52 1429 December 23, 2019
Comments have generally acknowl-
edged that the taxable transfer of depre-
ciable or amortizable property in ex-
change for stock should be subject to the
BEAT. For example, comments stated that
the transfer of assets to a corporation that
is partially taxable to the transferor pur-
suant to section 351(b) or 356 as a result
of the receipt of “boot” by the transferor
is appropriately treated as a base erosion
payment. The amount of the base erosion
payment could be determined based on
the gain or increase in basis of the prop-
erty, the amount of boot allocated to the
property, or by treating all of the boot as
paid for depreciable or amortizable prop-
erty first, to the extent thereof. Comments
also requested clarity on the treatment of
the assumption of liabilities pursuant to
a nonrecognition transaction. One com-
ment requested that the assumption of
liabilities in a nonrecognition transaction
be excluded from the definition of a base
erosion payment to the extent that the as-
sumption is not treated as money or other
property. This comment suggested that, if
the Treasury Department and the IRS are
concerned about abusive transactions, an
anti-abuse rule could be designed to treat
certain liabilities as base erosion pay-
ments.
Similarly, comments stated that the
taxable transfer of assets to a domestic
corporation in exchange for stock, such as
in a so-called “busted section 351 trans-
action,” should be subject to the BEAT.
Comments also discussed whether a tax-
able distribution to a domestic corporation
in a section 331 liquidation of a foreign
corporation should be subject to the BEAT.
These comments acknowledged that tax-
able transactions generally give rise to
base erosion payments and did not take a
view on whether section 331 liquidations
should be subject to the BEAT. Accord-
ingly, comments requested that nonrecog-
nition transactions be excluded from the
definition of a base erosion payment only
to the extent that the U.S. taxpayer obtains
a carryover basis in the acquired asset.
Alternatively, comments have requested a
safe harbor that would exclude nonrecog-
nition transactions that are part of post-ac-
quisition restructuring to allow taxpayers
to transfer into the United States intellec-
tual property that was recently acquired
from a third party. Comments have also
requested that final regulations clarify that
nonrecognition transactions that occurred
before the effective date of the BEAT will
not be treated as base erosion payments.
Finally, comments have noted that a
nonrecognition transaction involving a
U.S. branch of a foreign corporation may
not qualify for the ECI exception under
proposed §1.59A-3(b)(3)(iii) for pay-
ments that are treated as effectively con-
nected income in the hands of the payee,
because the ECI exception under pro-
posed §1.59A-3(b)(3)(iii) is predicated
on the payment or accrual being subject
to U.S. federal income taxation, which
cannot occur when the transaction is not
taxable.
Consistent with these comments, the fi-
nal regulations generally exclude amounts
transferred to, or exchanged with, a foreign
related party in a transaction described in
sections 332, 351, and 368 (“corporate
nonrecognition transaction”) from the
definition of a base erosion payment. In
light of the comments, the Treasury De-
partment and the IRS have determined a
limited exclusion of corporate nonrecog-
nition transactions is consistent with the
underlying anti-base erosion purpose of
the BEAT, tends to reduce disincentives
for taxpayers to move intangible proper-
ty and other income-producing property
into the United States in corporate non-
recognition treatment transactions, and
is consistent with the general treatment
of corporate nonrecognition transactions
under other sections of the Code. Howev-
er, the Treasury Department and the IRS
have determined that it is not appropriate
to apply this exception to the transfer of
other property, or property transferred in
exchange for other property, in a corpo-
rate nonrecognition transaction. Solely for
purposes of determining what is a base
erosion payment, “other property” has the
meaning of other property or money, as
used in sections 351(b), 356(a)(1)(B), and
361(b), as applicable, including liabilities
described in section 357(b). However,
other property does not include the sum
of any money and the fair market value
of any property to which section 361(b)
(3) applies. Other property also includes
liabilities that are assumed by the taxpayer
in a corporate nonrecognition transaction,
but only to the extent of the amount of
gain recognized under section 357(c).
For example, if a foreign corpora-
tion transfers depreciable property to its
wholly owned domestic subsidiary in a
transaction to which section 351 applies,
and if the foreign corporation receives
subsidiary common stock and cash in
exchange, the cash may be treated as a
base erosion payment, while the common
stock is not. Similarly, property trans-
ferred in a section 351 or 368 transaction
in exchange, in whole or in part, for other
property may be a base erosion payment
if it otherwise meets the definition of a
base erosion payment. For example, if a
domestic corporation transfers property to
its wholly-owned foreign subsidiary in a
transaction to which section 351 applies,
and if the domestic corporation receives
common stock in the foreign corporation
and other property consisting of deprecia-
ble property, the property transferred by
the domestic corporation may be a base
erosion payment. These rules apply with-
out regard to whether or not gain or loss is
recognized in the transaction.
When a taxpayer transfers other prop-
erty to a foreign related party, or transfers
property to a foreign related party in ex-
change for other property, the determi-
nation of the amount of property that is
treated as received from the foreign re-
lated party in exchange for the property
transferred to the foreign related party is
based on U.S. federal income tax law. See,
for example, Rev. Rul. 68-55, 1968-1 C.B.
140.
Consistent with concerns raised by
comments, the Treasury Department and
the IRS are concerned that the exclusion of
nonrecognition transactions could lead to
inappropriate results in certain situations.
An example of an inappropriate result is
the sale of depreciable property between
foreign related parties shortly before a
nonrecognition transaction, which could
step up the taxpayer’s basis in the property
and increase depreciation or amortization
deductions of the domestic corporation
after the nonrecognition transaction rela-
tive to the alternative in which the step-up
basis transactions did not occur. Accord-
ingly, the Treasury Department and the
IRS have determined that it is appropriate
to specifically address these transactions
with an anti-abuse rule. See §1.59A-9(b)
(4). The anti-abuse rule applies in addi-
tion to, and in conjunction with, section

December 23, 2019 1430 Bulletin No. 2019–52
357(b). In addition, the Treasury Depart-
ment and the IRS observe that, because
the BEAT is applied after the application
of general U.S. federal income tax law,
other doctrines—including the step trans-
action doctrine and economic substance
doctrine—also may apply.
Because the final regulations provide
an exception for corporate nonrecognition
transactions, it is not necessary for the fi-
nal regulations to include other suggested
modifications, such as (i) modifying the
ECI exception for nonrecognition trans-
actions involving U.S. branches, (ii) pro-
viding a safe harbor that would exclude
nonrecognition transactions that are part
of a post-acquisition restructuring, or
(iii) clarifying that nonrecognition trans-
actions that occurred before the effective
date of the BEAT are not treated as base
erosion payments.
The final regulations also clarify the
treatment of distribution transactions,
such as distributions described in section
301, and redemption transactions, such
as redemptions described in section 302.
A distribution with respect to stock for
which there is no consideration (a “pure
distribution”) is not treated as an ex-
change. Accordingly, the final regulations
provide that a pure distribution of proper-
ty made by a corporation to a shareholder
with respect to its stock is not an amount
paid or accrued by the shareholder to the
corporation. These pure distributions in-
clude distributions under section 301,
without regard to the application of sec-
tion 301(c) to the shareholder (addressing
distributions in excess of earnings and
profits). §1.59A-3(b)(2)(ii). However,
unlike a pure distribution, a redemption
of stock in exchange for property consti-
tutes an exchange. Accordingly, the final
regulations provide that a redemption of
stock by a corporation within the mean-
ing of section 317(b) (such as a redemp-
tion described in section 302(a) and (d)
or section 306(a)(2)), or an exchange of
stock described in section 304 or section
331, is an amount paid or accrued by the
shareholder to the corporation (or by the
acquiring corporation to the transferor in a
section 304 transaction).
4. Interest Expense Allocable to a Foreign
Corporation’s Effectively Connected
Income
a. In general
Section 59A applies to foreign corpora-
tions that have income that is subject to net
income taxation as effectively connected
with the conduct of a trade or business in
the United States, taking into account any
applicable income tax treaty of the Unit-
ed States. The proposed regulations gen-
erally provide that a foreign corporation
that has interest expense allocable under
section 882(c) to income that is effective-
ly connected with the conduct of a trade
or business within the United States will
have a base erosion payment to the extent
the interest expense results from a pay-
ment or accrual to a foreign related party.
The amount of interest that will be treated
as a base erosion payment depends on the
method used under §1.882-5.
If a foreign corporation uses the three-
step method described in §1.882-5(b)
through (d), the proposed regulations
provide that interest on direct allocations
and on U.S.-booked liabilities that is paid
or accrued to a foreign related party will
be a base erosion payment.
1
See proposed
§1.59A-3(b)(4)(i)(A). If U.S.-booked lia-
bilities exceed U.S.-connected liabilities,
the proposed regulations provide that a
foreign corporation computing its inter-
est expense under this method must ap-
ply the scaling ratio to all of its interest
expense on a pro-rata basis to determine
the amount that is a base erosion pay-
ment. The amount of interest on excess
U.S.-connected liabilities that is a base
erosion payment is equal to the interest
on excess U.S.-connected liabilities mul-
tiplied by the foreign corporation’s ratio
of average foreign related-party liabilities
over average total liabilities. See proposed
§1.59A-3(b)(4)(i)(A)(2).
If a foreign corporation determines its
interest expense under the separate cur-
rency pools method described in §1.882-
5(e), the proposed regulations provide
that the amount of interest expense that
is a base erosion payment is equal to the
sum of (1) the interest expense on direct
allocations paid or accrued to a foreign re-
lated party and (2) the interest expense in
each currency pool multiplied by the ratio
of average foreign related-party liabilities
over average total liabilities for that pool.
See proposed §1.59A-3(b)(4)(i)(B).
Comments requested that a consistent
method apply to determine the portion of
interest allocated to a U.S. branch that is
treated as paid to a foreign related party.
The comments noted that the methods in
the proposed regulations may produce
meaningfully different amounts of base
erosion payments depending on which
method the taxpayer uses to determine
its branch interest expense. Comments
noted that a branch that uses the meth-
od described in §1.882-5(b) through (d)
may have a lower amount of base erosion
payments than a branch using the method
described in §1.882-5(e) or a permanent
establishment applying a U.S. tax treaty,
although those differences will ultimately
depend on the composition of the counter-
parties of the U.S.-booked liabilities and
the excess U.S.-connected liabilities (as
foreign related parties or not foreign re-
lated parties). See also Part IV.B.5 of this
Summary of Comments and Explanation
of Revisions for a discussion of interest
allowed to permanent establishments ap-
plying a U.S. tax treaty. The comments
argued that these differences are not sup-
ported by tax policy.
Comments generally requested a rule
permitting or requiring foreign corpora-
tions to use U.S.-booked liabilities to de-
termine the portion of U.S. branch interest
expense that is treated as paid to foreign
related parties, consistent with the method
described in the proposed regulations for
corporations that determine U.S. branch
interest expense using the method de-
scribed in §1.882-5(b) through (d), even if
the U.S. branch uses a different method to
determine its interest expense. The com-
ments argued that U.S. assets are used to
determine the amount of leverage that is
properly allocable to a U.S. branch, and,
as a result, U.S.-booked liabilities should
determine the amount of interest treated as
a base erosion payment. Specifically with
1
For purposes of §1.882-5, direct allocations generally refer to the requirement that a allocate interest expense to income from particular assets; these circumstances generally arise with
respect to (i) certain assets that are subject to qualified nonrecourse indebtedness or (ii) certain assets that are in an integrated financial transaction.

Bulletin No. 2019–52 1431 December 23, 2019
regard to banks, a comment argued that
banks are highly regulated with limited
or no ability to manipulate U.S.-booked
liabilities, and, as a result, should be per-
mitted to use U.S.-booked liabilities to de-
termine the amount of U.S. branch interest
expense treated as paid to foreign related
parties.
The Treasury Department and the IRS
agree that the rules for determining the
portion of U.S. branch interest paid to
foreign related parties should be consis-
tent, regardless of whether taxpayers ap-
ply the method described in §1.882-5(b)
through (d) or §1.882-5(e). For purposes
of section 59A, the Treasury Department
and the IRS agree that the starting point
for determining the identity of the recip-
ient should be the U.S. booked liabilities
of the U.S. branch. The final regulations,
therefore, provide that the amount of U.S.
branch interest expense treated as paid to
a foreign related party is the sum of: (1)
the directly allocated interest expense
that is paid or accrued to a foreign relat-
ed party, (2) the interest expense on U.S.-
booked liabilities that is paid or accrued to
a foreign related party, and (3) the interest
expense on U.S.-connected liabilities in
excess of interest expense on U.S.-booked
liabilities multiplied by the ratio of av-
erage foreign related-party interest over
average total interest (excluding from this
ratio interest expense on U.S. booked li-
abilities and interest expense directly al-
located). See §1.59A-3(b)(4)(i)(A); see
also Part IV.B.4.b.i of this Summary of
Comments and Explanation of Revisions
(discussing the change from a worldwide
liability ratio to a worldwide interest ra-
tio). In adopting a consistent approach,
the final regulations use the same ratio to
determine whether the interest expense on
U.S.-connected liabilities is paid to a for-
eign related party regardless of whether a
taxpayer applies the method described in
§1.882-5(b) through (d) or §1.882-5(e).
See §1.59A-3(b)(4)(i)(A)(3).
b. Simplifying conventions
The Treasury Department and the IRS
recognize that §1.882-5 provides certain
simplifying elections for determining the
interest deduction of a foreign corpora-
tion. The proposed regulations request
comments about similar simplifying
elections for determining the portion of
U.S.-connected liabilities that are paid to
a foreign related party for purposes of sec-
tion 59A. REG-104259-18, 83 FR 65956,
65960 (December 21, 2018).
Comments, in response to the request
for comments on simplifying conven-
tions, indicated that it may be difficult for
foreign corporations to determine their
worldwide ratio of liabilities owed to for-
eign related parties over total liabilities
(“worldwide liabilities ratio”). For ex-
ample, they argued that U.S. branches of
foreign banks typically do not have full
access to information about the bank’s
global operations and funding arrange-
ments. These comments argued that even
if a U.S. branch does have that informa-
tion, U.S. tax law may treat some trans-
actions as debt that non-U.S. tax law does
not, or may integrate some hedging costs
that are not integrated for non-U.S. tax
purposes, or vice-versa. These comments
further observed that if the taxpayer is
using the fixed ratio election for purpos-
es of §1.882-5, the taxpayer would not
be required to obtain that information or
reconcile the home office balance sheet
to U.S. tax law principles for purposes of
§1.882-5. Thus, the comments argued that
attempting to reconstruct a global balance
sheet and payments under U.S. tax princi-
ples for purposes of proposed §1.59A-3 is
burdensome and should not be required.
The comments also requested various
simplifying elections for determining the
amount of U.S. branch interest treated as
paid to foreign related parties, including
(a) computing the worldwide ratio by
reference to interest expense rather than
worldwide liabilities (“worldwide inter-
est ratio”), (b) using financial accounting
books and records rather than U.S. tax
principles to determine a worldwide ratio,
or (c) providing a fixed ratio for purpos-
es of determining the minimum amount
of interest treated as paid to third parties
(such as 85 percent).
i. Worldwide interest ratio
The final regulations adopt the com-
ment recommending that taxpayers ap-
ply the worldwide ratio to determine the
amount of a U.S. branch’s interest expense
paid to foreign related parties by reference
to a worldwide ratio of interest expense,
rather than a worldwide ratio of liabilities.
See §1.59A-3(b)(4)(i)(A)(3). The final
regulations adopt this approach as a rule,
rather than as an election, because the
Treasury Department and the IRS agree
with the comments that a worldwide ra-
tio based on interest expense, rather than
liabilities, is the appropriate measurement
for determining a U.S. branch’s base ero-
sion payments. Section 59A determines
the amount of interest that is a base erosion
payment based on the amount of interest
paid or accrued to foreign related parties,
rather than the amount of liabilities owed
to foreign related parties. Accordingly, the
final regulations determine the amount of
a U.S. branch’s interest expense treated
as a base erosion payment based on the
foreign corporation’s worldwide interest
ratio.
ii. Use of applicable financial statements
The Treasury Department and the
IRS recognize that it may be difficult for
foreign corporations to determine their
worldwide interest ratio under U.S. tax
principles, as indicated by the comments.
Accordingly, for simplicity and to reduce
the administrative burden on taxpayers,
the final regulations adopt the comment to
allow taxpayers to elect to determine their
worldwide interest ratio using their appli-
cable financial statements as described in
section 451(b)(3). See §1.59A-3(b)(4)(i)
(D). The final regulations also clarify that
the applicable financial statement must be
the applicable financial statement of the
taxpayer, not a consolidated applicable fi-
nancial statement, because a consolidated
applicable financial statement may elim-
inate inter-company liabilities. The final
regulations provide that a taxpayer makes
this election on Form 8991 or a successor
form. Until the Form 8991 is revised to in-
corporate the election, a taxpayer should
attach a statement with that form to make
this election as provided in forms and in-
structions.
iii. Fixed ratio or safe harbor for the
worldwide interest ratio
The final regulations do not adopt a
fixed ratio or safe harbor for the world-
wide interest ratio as suggested in com-
ments because the actual worldwide

December 23, 2019 1432 Bulletin No. 2019–52
interest ratio of an enterprise may vary
significantly from one industry to another
and from one taxpayer to another. As a re-
sult, it is not possible to establish a single
safe harbor that appropriately takes into
account the differing position of indus-
tries and taxpayers while protecting the
interests of the government. The Treasury
Department and the IRS recognize that
§1.882-5 provides other safe harbors, such
as the fixed ratio safe harbor for determin-
ing the ratio of liabilities to assets of 95
percent for banks and 50 percent for oth-
er taxpayers. §1.882-5(c)(4). In the con-
text of determining the portion of a U.S.
branch’s interest expense that is deemed
attributed to foreign related parties (versus
other persons), the Treasury Department
and the IRS determined that there is not
a sufficient basis to establish a safe harbor
because different taxpayers could have
different internal capital structures.
One comment suggested that a U.S.
branch of a bank should be permitted to
assume that 85 percent of its funding is
from unrelated lenders because regula-
tions under section 884 provide a safe har-
bor assumption that 85 percent of a bank’s
capital can be deemed to come from de-
posits (and thus eligible for the bank de-
posit interest exemption from the tax im-
posed by section 881(a)). See §1.884-4(a)
(2)(iii). The section 884 safe harbor, how-
ever, is not relevant to the determination
of the ratio of funding from foreign related
parties because the bank deposit exception
is available for both related and unrelated
depositors/lenders. Thus, this section 884
safe harbor does not reflect the expected
percentage of the lenders who are not for-
eign related parties. See section 871(i)(2)
and section 881(d).
c. Other coordinating rules
The final regulations also revise
§1.59A-3(b)(4)(1) to take into account
the expansion of the exception for certain
total loss-absorbing capacity securities to
include foreign issuers. See Part IV.C.5 of
this Summary of Comments and Explana-
tion of Revisions (Exception for Interest
on Certain Instruments Issued by Globally
Systemically Important Banking Organi-
zations).
Finally, a comment recommended
that the final regulations revise proposed
§1.59A-3(b)(4)(i)(D), which provides that
to the extent that a taxpayer makes an elec-
tion to reduce its U.S.-connected liabili-
ties pursuant to §1.884-1(e)(3), the reduc-
tion is treated as proportionally reducing
all liabilities for purposes of determining
the amount of allocable interest expense
that is treated as a base erosion payment.
The comment argued that §1.59A-3(b)
(4)(i)(D) is inconsistent with §1.884-1(e)
(3), which applies for all purposes of the
Code, and which the comment asserted
does not require proportionate reduction.
In response to this comment, the final
regulations do not include the rule in pro-
posed §1.59A-3(b)(4)(i)(D). The Treasury
Department and the IRS are considering
§1.884-1(e)(3) for possible future guid-
ance.
5. Allocations of Interest and Other
Expenses Pursuant to Income Tax
Treaties
The proposed regulations provide a
specific rule for determining the amount
of base erosion payments attributable to
interest and deductions allocated to a per-
manent establishment under a U.S. income
tax treaty. Certain U.S. income tax treaties
provide alternative approaches for the al-
location or attribution of business profits of
an enterprise of one contracting state to its
permanent establishment in the other con-
tracting state on the basis of assets used,
risks assumed, and functions performed
by the permanent establishment. These
treaties allow notional payments that take
into account interbranch transactions and
value the interbranch transactions using
the most appropriate arm’s length meth-
od for those transactions. A treaty-based
expense allocation or attribution method
does not itself create legal obligations be-
tween the U.S. permanent establishment
and the rest of the enterprise. The pro-
posed regulations reflect that under a trea-
ty-based expense allocation or attribution
method, amounts equivalent to deductible
payments may be allowed in computing
the business profits of an enterprise with
respect to transactions between the perma-
nent establishment and the home office or
other branches of the foreign corporation
(“internal dealings”). The deductions from
internal dealings would not be allowed
under the Code and regulations. The pro-
posed regulations provide that deductions
from internal dealings allowed in comput-
ing the business profits of the permanent
establishment are base erosion payments.
The proposed regulations distinguish
between the allocations of expenses and
internal dealings. The allocation and ap-
portionment of expenses of the enterprise
to the branch or permanent establishment
is not a base erosion payment because the
allocation represents a division of the ex-
penses of the enterprise, rather than a pay-
ment between the branch or permanent es-
tablishment and the rest of the enterprise.
Internal dealings, however, are not mere
divisions of enterprise expenses; rather,
internal dealings are priced on the basis
of assets used, risks assumed, and func-
tions performed by the permanent estab-
lishment in a manner consistent with the
arm’s length principle. The proposed reg-
ulations create parity between deductions
for actual regarded payments between
two separate corporations (which are sub-
ject to section 482), and internal dealings
(which are generally priced in a manner
consistent with the applicable treaty and,
if applicable, the OECD Transfer Pricing
Guidelines). The proposed regulations
apply only to deductions attributable to
internal dealings, and not to payments to
entities outside of the enterprise, which
are subject to the general base erosion
payment rules as provided in proposed
§1.59A-3(b)(4)(v)(A).
Comments noted that internal dealings
are a fiction and do not involve an actual
payment or accrual under general U.S. tax
principles. The comments suggested that
internal dealings should be relevant only
for purposes of determining the profit at-
tributable to the permanent establishment
and should not be recognized for other
purposes. They noted that the OECD 2010
Report on the Attribution to Profits to
Permanent Establishments (“2010 OECD
Report”) states that recognizing internal
dealings by a permanent establishment “is
relevant only for the attribution of profits”
and “does not carry wider implications as
regards, for example, withholding taxes.”
2010 OECD Report (July 22, 2010), Part
IV, C-1(iii)(f), section 166. Thus, com-
ments suggested that internal dealings
should not be relevant for BEAT purposes.
The Treasury Department and the IRS
disagree that internal dealings are not rel-

Bulletin No. 2019–52 1433 December 23, 2019
evant for purposes of determining a for-
eign corporation’s base erosion payments.
Unlike the allocation of a foreign corpo-
ration’s deductions to a U.S. branch under
the Code and regulations, internal deal-
ings are not a mere allocation of expens-
es, but rather are determined on the basis
of assets used, risks assumed, and func-
tions performed by the permanent estab-
lishment in a manner consistent with the
arm’s length principle. Deductions deter-
mined under internal dealings, like deduc-
tions determined under the Code and reg-
ulations, reduce the U.S. income tax base
of the permanent establishment. Because
internal dealings are not an allocation of
expenses, the foreign corporation’s world-
wide ratio may not be an appropriate mea-
sure of related party payments. Instead,
in the proposed regulations, the Treasury
Department and the IRS determined that it
is appropriate to look to the internal deal-
ings, rather than the foreign corporation’s
worldwide expenses, for purposes of de-
termining base erosion payments.
However, the Treasury Department and
the IRS recognize that interest expense
allowed to a permanent establishment as
internal dealings often represents interest
expense on back-to-back loans between
(1) the permanent establishment and the
home office, and (2) the home office and
another entity. Furthermore, unlike other
deductions that are often based on pay-
ments to the home office or to another
branch for goods or services or the use of
intellectual property unique to the home
office or branch, money is fungible. A
permanent establishment may be indiffer-
ent to whether its capital comes from the
home office or a loan from another entity.
The Treasury Department and the IRS
have determined that interest expense de-
termined under §1.882-5 generally pro-
vides a reasonable estimate of the amount
of interest of the foreign corporation that
should be allocated to the permanent es-
tablishment based on the assets of the
permanent establishment. Accordingly,
it is appropriate to treat interest expense
determined in accordance with a U.S. tax
treaty (including interest expense deter-
mined by internal dealings) in a manner
consistent with the treatment of interest
expense determined under §1.882-5, to
the extent it would have been allocated
to the permanent establishment under
§1.882-5. In effect, the internal dealing
permits the permanent establishment to
replace an external borrowing with an
internal dealing, and this internal dealing
should be treated as creating additional
interest expense paid to the home office,
and thus treated as a base erosion payment
to a foreign payee. Accordingly, interest
expense determined in accordance with a
U.S. tax treaty (including interest expense
determined by internal dealings) that is
in excess of the amount that would have
been allocated to the permanent establish-
ment under §1.882-5 is treated as interest
expense paid by the permanent establish-
ment to the home office or another branch
of the foreign corporation.
Specifically, the final regulations treat
interest expense determined in accor-
dance with a U.S. tax treaty (including
interest expense determined by internal
dealings) in a manner consistent with the
treatment of interest expense determined
under §1.882-5, to the extent of the hy-
pothetical amount of interest expense that
would have been allocated to the perma-
nent establishment under §1.882-5 (the
“hypothetical §1.882-5 interest expense”).
For purposes of this calculation, the hy-
pothetical §1.882-5 interest expense can-
not exceed the amount of interest expense
determined under the U.S. tax treaty. In-
terest expense in excess of the hypothet-
ical §1.882-5 interest expense is treated
as interest expense paid by the permanent
establishment to the home office or anoth-
er branch of the foreign corporation, and
therefore is treated as a base erosion pay-
ment. See §1.59A-3(b)(4)(i)(E).
Accordingly, under the final regula-
tions, a foreign corporation determines
its hypothetical §1.882-5 interest expense
by calculating the amount of interest that
would have been allocated to effectively
connected income if the foreign corpora-
tion determined its interest expense under
§1.882-5. See §1.59A-3(b)(4)(i)(E)(2).
Therefore, a foreign corporation will use
the method provided in §1.59A-3(b)(4)(i)
(A), as described in Part IV.B.4.a in this
Summary of Comments and Explanation
of Provisions, to determine its hypotheti-
cal §1.882-5 interest expense.
In this regard, the Treasury Department
and the IRS observe that corporations eli-
gible for benefits under a U.S. income tax
treaty are permitted to choose whether to
apply the treaty or the Code and regula-
tions to calculate interest expense alloca-
ble to a permanent establishment or U.S.
branch, and understand that many corpo-
rations eligible for treaty benefits calculate
interest expense allocated to a U.S. branch
or permanent establishment under both
§1.882-5 and the applicable treaty to de-
termine whether to claim treaty benefits.
Additionally, the Treasury Department
and the IRS also understand that corpo-
rations that determine interest expense al-
lowed to a permanent establishment under
a U.S. income tax treaty may nonetheless
be required to allocate interest to the per-
manent establishment under §1.882-5 for
state or local tax purposes.
6. Related-Party Hedging Payments
Comments requested that the final
regulations provide relief from the ap-
plication of the BEAT for hedging pay-
ments made by domestic corporations to
foreign related parties, specifically in the
context of the energy industry. The com-
ments described a scenario in the energy
industry where large multinational groups
designate one or more members of their
worldwide group to act as a hedging cen-
ter to manage price risk associated with
commodities that the group produces or
sells through the execution of commodi-
ties derivatives. The comments indicated
that under prevailing industry practice and
applicable financial accounting standards,
income, gain, loss, or expense on com-
modity derivatives are often accounted
for as items of COGS or as a reduction to
determine gross income for book account-
ing purposes. These items, however, are
not treated as COGS or as another form
of reduction to determine gross income
for tax purposes; the items are deductions
for tax purposes and potentially within the
scope of section 59A(d)(1) and proposed
§1.59A-3(b)(1)(i). The payments de-
scribed in these comments are not eligible
for the QDP exception in section 59A(h)
and proposed §1.59A-6. The comments
requested that the final regulations include
a rule that related-party hedging payments
are not base erosion payments.
The final regulations do not adopt this
recommendation. The status of an item
as a deduction is determined under U.S.
federal income tax law, not industry prac-

December 23, 2019 1434 Bulletin No. 2019–52
tice or financial accounting treatment. Al-
though the legislative history of section
59A states that base erosion payments do
not include any amount that constitutes
reductions to determine gross income, in-
cluding payments for COGS, these state-
ments are in the context of U.S. federal
income tax law, which sets forth the tax
law for deductions. In addition, section
59A(d)(1) refers to “deductions allowable
under this chapter,” that is, chapter 1 (nor-
mal taxes and surtaxes) of Subtitle A (in-
come taxes) of the Code, which includes
section 1 through section 1440Z-2. Con-
gress did not indicate that the definition of
a reduction to determine gross income or
COGS for purposes of section 59A should
be derived from financial accounting prin-
ciples. In the absence of clear Congres-
sional intent otherwise, the Treasury De-
partment and the IRS believe that whether
an amount constitutes a reduction to de-
termine gross income or COGS must be
determined under established principles of
U.S. federal income tax law. Consequent-
ly, if related-party hedging payments are
not properly treated as reductions to de-
termine gross income for tax purposes,
these payments are not excluded from the
definition of base erosion payments. See
also Part IV.A.3.b of this Summary of
Comments and Explanation of Revisions
(Netting of income and expense; Hedging
transactions).
7. Captive Finance Subsidiaries
Comments addressed the impact of
the BEAT on domestic corporate captive
finance subsidiaries that purchase prop-
erty (business equipment) from a foreign
related party and then lease the property
to unrelated third party end users. The
comments requested that the final regula-
tions permit taxpayers using this type of
business model to treat the depreciation
deductions attributable to the leased prop-
erty as COGS for purposes of the BEAT.
The comments premised this requested
treatment on the theory that the cost of the
leased property and its associated depre-
ciation deductions are directly correlated
with the rental income generated from
leasing the property and on the unique na-
ture of this particular business model.
The final regulations do not include
an exception from the definition of base
erosion payments for the transactions
described in these comments. Under sec-
tion 59A(d)(2), the deduction allowed
for depreciation with respect to property
acquired from a foreign related party is a
base erosion tax benefit, notwithstanding
that the property acquired by the taxpayer
is used in an income-generating business
in the United States, such as the leasing of
the business equipment to unrelated third
party lessees of the property or operating
the business equipment itself as a service
for unrelated third parties.
8. Capitalization and Amortization of
Research and Experimental Expenditures
One comment recommended that the
final regulations clarify the treatment of
research and experimental (“R&E”) ex-
penditures after such costs are required to
be amortized in taxable years beginning
after December 31, 2021, under section
174. The comment recommended clarifi-
cation that after the change to section 174
is in effect, the BEAT payment associat-
ed with R&E expenses is limited to the
amount of amortization. The final regula-
tions do not adopt this comment because
the Treasury Department and the IRS view
§1.59A-3(b)(1)(i) and §1.59A-3(c)(1)(i)
as sufficiently clear in setting forth that a
base erosion payment to a foreign related
party does not result in a base erosion tax
benefit until the deduction is “allowed un-
der chapter 1 of subtitle A of the [Code].”
C. Other exceptions from the base
erosion payment definition contained in
the proposed regulations
1. Exception for Certain Amounts with
Respect to Services and the Services Cost
Method
Proposed §1.59A-3(b)(3)(i) provides
that a base erosion payment does not re-
sult from amounts paid or accrued to a
foreign related party for services that are
eligible for the SCM exception described
in proposed §1.59A-3(b)(3)(i)(B), but
only to the extent of the total services cost
of those services. Any amount paid or ac-
crued to a foreign related party in excess
of the total services cost of services eligi-
ble for the SCM exception (the mark-up
component) remains a base erosion pay-
ment. Proposed §1.59A-3(b)(3)(i)(B) pro-
vides that the SCM exception applies if all
of the requirements of §1.482–9(b), which
describes the SCM, are satisfied, with
two exceptions. First, the requirements of
§1.482-9(b)(5), commonly referred to as
the business judgment rule, do not apply.
Second, the books and records require-
ment described in §1.482–9(b)(6) is re-
placed with the requirements of proposed
§1.59A-3(b)(3)(i)(C). Section 1.482-9(b)
(4) provides that certain activities, includ-
ing research, development, and experi-
mentation, are not eligible for the SCM.
As a result, payments for these services
do not qualify for the SCM exception de-
scribed in proposed §1.59A-3(b)(3)(i)(B).
Comments supported the SCM ex-
ception and recommended that final
regulations adopt this approach. The fi-
nal regulations continue to provide that
the SCM exception is available for the
cost portion of a payment that otherwise
meets the requirements for the SCM ex-
ception. A comment recommended that
the final regulations provide examples or
clarification as to the requirement in pro-
posed §1.59A-3(b)(3)(i)(C) that taxpay-
ers’ books and records provide sufficient
documentation to allow verification of
the methods used to allocate and appor-
tion the costs to the services in question
in accordance with §1.482-9(k). The final
regulations include additional detail on
the documentation required to satisfy this
requirement. §1.59A-3(b)(3)(i)(C).
Comments also recommended that the
final regulations extend the SCM excep-
tion to the cost element of payments for
other types of services that are not eligible
for the SCM. Some comments suggested
that an exception should be available for
all services. Some comments suggested
that an exception should be available for
services that are excluded under §1.482-
9(b)(4) (excluded activities) but that other-
wise would be eligible for the SCM excep-
tion described in proposed §1.59A-3(b)(3)
(i)(B). Some comments suggested that an
exception should be available for research
and experimentation services.
Comments suggested that applying
the SCM exception to only some services
will lead to inequitable results for services
companies as compared to similarly situ-
ated U.S. manufacturers and distributors
because the definition of base erosion pay-

Bulletin No. 2019–52 1435 December 23, 2019
ments does not include payments included
in COGS, but there is not a similar rule
for the costs in a services business. Com-
ments also claimed that, relative to man-
ufacturers or distributors, service compa-
nies are more constrained in where they
operate. Comments also asserted that no
base erosion could result from an expan-
sion of the SCM exception because only
the cost element of the service fee would
be subject to the exception.
The comments suggesting that an ex-
ception should be available for excluded
activities that otherwise would be eligible
for the SCM also asserted that the list of
excluded activities serves a similar pur-
pose as the business judgment rule, which
is to identify services for which total ser-
vices costs can constitute an inappropriate
reference point for determining profitabil-
ity or that should be subject to a more ro-
bust transfer pricing analysis. Comments
suggested that §1.482-9(b)(4) is essen-
tially a list of specific activities for which
the SCM is unavailable because they are
deemed to contribute significantly to key
competitive advantages, core capabilities,
or fundamental risks of success or failure
of the business. These comments suggest-
ed that when section 59A(d) states that the
exception therein is based on compliance
with the services cost exception in section
482 “(determined without regard to the re-
quirement that the services not contribute
significantly to fundamental risks of busi-
ness success or failure)”, that language
was intended to disregard the list of ex-
cluded activities.
The comments requesting an expansion
of the SCM exception for research and ex-
perimentation services also asserted that
extending the SCM exception to these ser-
vices would reduce the incentive to move
intangible property offshore and would
broaden the U.S. tax base by encouraging
U.S. ownership and exploitation of newly
created intangible property.
Section 59A(d)(5)(A) sets forth the pa-
rameters under which certain services—
those that are eligible for the SCM without
regard to the business judgment rule—are
eligible for the SCM exception. The Trea-
sury Department and IRS have consid-
ered the policy considerations that the
comments raised for expanding the SCM
exception, but have determined that the
recommendation to expand the SCM ex-
ception is inconsistent with the parameters
that Congress set forth in section 59A(d)
(5). Further, the Treasury Department and
IRS disagree with the premise in the com-
ments that the list of excluded activities
serves the same purpose as the business
judgment rule. While certain services that
are ineligible for the SCM as a result of
being on the list of excluded activities also
may be ineligible for the SCM as a result
of failing the business judgment rule, the
list of excluded activities from the SCM
provides an objective list of categories
that tend to be high margin or for which
the cost of the services tends to be an in-
appropriate reference point for the price of
those services. See 71 FR 44466, 44467-
68 (Aug. 4, 2006). By contrast, the busi-
ness judgment rule also excludes from the
SCM services that tend to be low margin
as a general matter, but in the context of a
particular business are a core competency
of the business. See 71 FR 44466, 44467
(Aug. 4, 2006). The parenthetical lan-
guage in section 59A(d)(5)(A) indicates
unambiguously that Congress intended
the SCM exception to be available for
all services that are typically low margin
even if, in the context of a particular busi-
ness, the service is a core competency of a
business that may not satisfy the criteria in
§1.482-9(b)(5). Accordingly, the Treasury
Department and the IRS have determined
that the SCM exception should continue
to follow the statute, and the rule is un-
changed from the proposed regulations.
2. Qualified Derivatives Payments
For a discussion of QDPs, see Part VII
of this Summary of Comments and Expla-
nation of Revisions.
3. Exception to Base Erosion Payment
Status for Payments the Recipient of
which is Subject to U.S. Tax
Proposed §1.59A-3(b)(3)(iii) generally
provides that a base erosion payment does
not result from amounts paid or accrued to
a foreign related party that are subject to
tax as income effectively connected with
the conduct of a trade or business in the
United States (ECI). Comments recom-
mended that final regulations adopt this
rule. Accordingly, this rule is unchanged
in the final regulations.
Several comments recommended that
final regulations include a similar excep-
tion from the definition of a base erosion
payment for payments made by a domes-
tic corporation to a controlled foreign
corporation (CFC) that result in a subpart
F or global intangible low tax income
(GILTI) inclusion. Another comment re-
quested that this exception be extended
to apply to payments made to a passive
foreign investment company (PFIC) when
a U.S. person has made a qualified elect-
ing fund (QEF) election, and the payment
is included in the electing U.S. person’s
gross income. The comments asserted that
payments that give rise to a subpart F or
GILTI inclusion do not erode the U.S. tax
base, and accordingly, warrant a base ero-
sion payment exception under the same
policy rationale for granting this type of
exception in the proposed regulations for
ECI, section 988 losses, and interest paid
with respect to total loss-absorbing capac-
ity (TLAC) securities. Finally, comments
noted that proposed regulations under sec-
tion 267A provide an exception for certain
payments that result in income inclusions
under section 951 and section 951A and
suggested equivalent treatment was justi-
fied in the case of the BEAT.
The final regulations do not include a
subpart F, GILTI, or PFIC exception to
base erosion payment status. The Treasury
Department and the IRS have determined
that the reasons for adopting the other ex-
ceptions cited in the comments (such as
the ECI exception and the exception under
section 267A) do not warrant a subpart F,
GILTI, or QEF exception from base ero-
sion payment status.
First, comments have misinterpreted
the underlying policy rationale for provid-
ing an ECI exception in the proposed reg-
ulations. The proposed regulations’ ECI
exception was adopted in part based upon
the determination that it would be appro-
priate in defining a base erosion payment
to consider the U.S. federal tax treatment
of the foreign recipient—particularly,
whether a payment received by a foreign
related party was subject to tax on a net
basis in substantially the same manner as
amounts paid to a U.S. person. In contrast
to the tax directly imposed on a foreign
person with respect to its ECI under sec-
tions 871(b) and 882(a), a CFC receiving
a base erosion payment is not directly

December 23, 2019 1436 Bulletin No. 2019–52
subject to U.S. taxation. Rather, the U.S.
shareholder is subject to tax under the
subpart F or GILTI regime (or the PFIC
rules). Thus, the CFC recipient (or PFIC
recipient) of a payment is not itself subject
to tax on a net basis in substantially the
same manner as a U.S. person.
In addition, a foreign corporation that
is engaged in a U.S. trade or business is
itself subject to section 59A. In contrast,
because neither a CFC nor a PFIC is sub-
ject to section 59A, the CFC or PFIC can
make payments to a foreign related party
without any BEAT consequences.
The ECI exception was also adopt-
ed to achieve symmetry with proposed
§1.59A-2(c), which treats foreign corpo-
rations as outside of the controlled group,
except to the extent that the foreign cor-
poration has ECI. Because foreign corpo-
rations with ECI are treated as part of the
aggregate group in determining whether a
taxpayer will ultimately be subject to the
BEAT, the ECI exception to base erosion
payment status is necessary to ensure that
the foreign corporation is treated equiva-
lently to a domestic member of its aggre-
gate group receiving deductible payments.
The Treasury Department and the IRS
further disagree with the premise that the
approaches in the proposed regulations
with respect to TLAC interest and section
988 losses support an exception for sub-
part F or GILTI income in the final regula-
tions. With respect to TLAC, the preamble
to the proposed regulations notes that the
TLAC exception is appropriate because
of the special status of TLAC as part of
a global system to address bank solven-
cy and the precise limits that regulations
place on the terms of TLAC securities.
REG-104259-18, 83 FR 65956, 65963
(December 21, 2018).
With respect to section 988, the pream-
ble to the proposed regulations states that
the exception is based on a determination
that the losses did not present the same
base erosion concerns as other types of
losses that arise in connection with pay-
ments to a foreign related party. See REG-
104259-18, 83 FR 65956, 65963 (Decem-
ber 21, 2018).
The Treasury Department and the IRS
also disagree with the premise that the ap-
proach in the proposed hybrid regulations
under section 267A provides support for a
regulatory exception. Section 267A(b)(1)
expressly provides that the disqualified re-
lated-party amount does not include any
payment to the extent that the payment is
included in the gross income of a United
States shareholder under section 951(a).
Whereas Congress expressly provided an
exception for subpart F in section 267A,
Congress did not provide a similar ex-
ception for purposes of section 59A. The
Treasury Department and the IRS have
determined that the inclusion of a similar
exception in another section of the Act, but
not in section 59A, reflects Congressional
intent to not provide a GILTI or subpart
F exception for purposes of section 59A.
In addition, section 59A(c)(4)(B) provides
that a deduction under section 250 (pro-
viding a domestic corporation a deduction
for a portion of its GILTI amount) is not
included in the denominator for purposes
of the base erosion percentage; this shows
that Congress considered the interaction
between section 59A and GILTI, but did
not provide an exception from the term
base erosion payment for payments sub-
ject to tax under section 951A.
Finally, with respect to the suggested
GILTI exception, the Treasury Department
and the IRS are concerned that a GILTI
exception would be difficult to adminis-
ter because it would require a determina-
tion of whether a particular payment to a
CFC is included in the taxpayer’s GILTI
inclusion, but a taxpayer’s GILTI inclu-
sion often cannot be traced to particular
payments to a CFC because a taxpayer’s
GILTI inclusion amount depends on mul-
tiple factors. A GILTI exception would
also need to take into account differences
in effective and marginal tax rates under
GILTI, BEAT, and regular corporate in-
come tax.
For the foregoing reasons, the final reg-
ulations do not provide a regulatory ex-
ception to the definition of a base erosion
payment for a payment that may give rise
to subpart F, GILTI, or PFIC inclusions.
4. Exchange Loss from a Section 988
Transaction
Proposed §1.59A-3(b)(3)(iv) provides
that exchange losses from section 988
transactions described in §1.988-1(a)(1)
are excluded from the definition of base
erosion payments. Proposed §1.59A-2(e)
(3)(ii)(D) provides that an exchange loss
from a section 988 transaction (including
with respect to transactions with persons
other than foreign related parties) is not
included in the denominator when calcu-
lating the base erosion percentage. The
preamble to the proposed regulations re-
quests comments on whether the denom-
inator should exclude only section 988
losses with respect to foreign related-par-
ty transactions. REG-104259-18, 83 FR
65956, 65963 (December 21, 2018).
Comments recommended that section
988 losses should not be excluded from
the denominator of the base erosion per-
centage because excluding all section 988
losses is not consistent with the statute.
Some comments, however, recommend-
ed that section 988 losses with respect to
transactions with foreign related parties
that are also excluded from the numera-
tor should continue to be excluded from
the denominator, and that this approach
would be symmetrical with the approach
in the statute for deductions for qualified
derivative payments and for amounts el-
igible for the SCM exception. The final
regulations adopt this recommendation.
See §1.59A-2(e)(3)(ii)(D). This approach
is also consistent with the treatment of
amounts paid to foreign related parties
with respect to TLAC securities, which
are excluded from the denominator only
if the deductions arise from foreign relat-
ed-party transactions.
5. Exception for Interest on Certain
Instruments Issued by Globally
Systemically Important Banking
Organizations (GSIBs)
Proposed §1.59A-3(b)(3)(v) provides
that the amount paid or accrued to a for-
eign related party with respect to total
loss-absorbing capacity (“TLAC”) securi-
ties is not a base erosion payment, but only
to the extent of the amount of TLAC secu-
rities required by the Board of Governors
of the Federal Reserve (Federal Reserve
Board) under subpart P of 12 CFR part
252. See proposed §1.59A-1(b)(18) and
(20). Specifically, proposed §1.59A-3(b)
(3)(v) provides that the amount exclud-
ed is no greater than the amount paid to
foreign related parties multiplied by the
scaling ratio, which is the average TLAC
long-term debt required over the aver-
age TLAC security amount. The pream-

Bulletin No. 2019–52 1437 December 23, 2019
ble to the proposed regulations requests
comments regarding whether the TLAC
exception should also apply to similar in-
struments issued by foreign corporations
that are required by law to issue a similar
type of loss-absorbing instruments. These
instruments issued by foreign corpora-
tions would be relevant for section 59A if
interest expense from those instruments is
deducted by the U.S. branch or permanent
establishment of the foreign corporation.
Comments generally supported the excep-
tion for amounts paid to a foreign related
party with respect to TLAC and suggested
that the final regulations expand the ex-
ception to foreign issuers.
a. TLAC issued in compliance with
foreign law
Comments requested that the TLAC
exception be expanded to include TLAC
issued to comply with foreign laws and
regulations that are similar to the TLAC
requirements prescribed by the Federal
Reserve Board. One comment observed
that an exception for interest on TLAC
that is issued to comply with foreign law
and allocated to a U.S. branch or perma-
nent establishment would provide branch
parity, by excluding interest from base
erosion payment status to the same ex-
tent, whether that internal TLAC debt is
issued by a U.S. subsidiary or branch.
See generally Rev. Proc. 2017-12, 2017-
3 I.R.B. 424, for the definition of internal
TLAC.
The Treasury Department and the IRS
generally agree with comments that the
special status of TLAC as part of the glob-
al system to address bank solvency ap-
plies equally to TLAC securities whether
issued pursuant to U.S. law or foreign
law. Consistent with comments, the fi-
nal regulations expand the scope of the
TLAC exception to include internal se-
curities issued by GSIBs pursuant to laws
of a foreign country that are comparable
to the rules established by the Federal
Reserve Board (“foreign TLAC”), where
those securities are properly treated as
indebtedness for U.S. federal income tax
purposes.
2
In order to provide consisten-
cy between interest deductions on TLAC
of a domestic subsidiary and a U.S.
branch or permanent establishment, the
final regulations limit the foreign TLAC
exception to interest expense of GSIBs,
and determine the limitation on the ex-
ception by reference to the specified min-
imum amount of TLAC debt that would
be required pursuant to rules established
by the Federal Reserve Board for TLAC
if the branch or permanent establishment
were a domestic subsidiary that is subject
to Federal Reserve Board requirements.
In addition, to ensure that the limitation
is not greater than the amount required
under foreign law, the final regulations
express the limitation as the lesser of
the hypothetical Federal Reserve Board
limitation described in the preceding sen-
tence and the specified minimum amount
of TLAC debt that is required pursuant
to bank regulatory requirements of a for-
eign country that are comparable to the
requirements established by the Federal
Reserve Board. Further, the Treasury De-
partment and the IRS understand that in
some jurisdictions, foreign TLAC may
apply in a more discretionary manner
than the framework established in the
proposed regulations that references the
specified minimum amount of TLAC
debt that is required pursuant to rules es-
tablished by the Federal Reserve Board
for TLAC of U.S. issuers, for example,
with no specified minimum amount. For
that reason, if the bank regulatory re-
quirements of a foreign country do not
specify a minimum amount, the limita-
tion is determined by reference solely to
the hypothetical Federal Reserve Board
limitation. The second prong serves to
provide general consistency with TLAC
of a domestic subsidiary, by limiting the
foreign TLAC exception to no more than
the amount of TLAC that would be re-
quired by the Federal Reserve Board if
the branch were a subsidiary (subject to
the modification for a buffer that is also
discussed in this Part IV.C.5.b). These
rules tend to support the systemic bank
solvency goals of TLAC by reducing
the tax cost of issuing such securities
via foreign related parties. The Treasury
Department and the IRS understand that
information necessary to determine this
amount is generally knowable to banks
with U.S. operations. The Treasury De-
partment and the IRS also understand that
in some foreign jurisdictions, the foreign
TLAC requirements may apply to orga-
nizations other than GSIBs; however, to
provide general consistency with interest
deductions on TLAC of a domestic sub-
sidiary, the final regulations limit the for-
eign TLAC exception to only GSIBs.
b. Buffer amount above specified
minimum amount
Comments also recommended that the
final regulations increase the specified
minimum amount of interest eligible for
the TLAC exception to permit an addition-
al “buffer” amount of TLAC that exceeds
the minimum amount required to satisfy
regulatory requirements (such as 115 per-
cent of the specified minimum amount
or a buffer equal to 1 to 1.5 percent of
the risk-weighted assets). Comments ex-
plained that the inputs used to determine
the minimum amount of TLAC needed
to satisfy regulatory requirements change
on a daily basis; as a result, the amount of
TLAC securities needed also may change
on a daily basis. The comments also not-
ed that market issues dictate a certain lead
time to issue TLAC securities. As a result,
comments stated that it is the market ex-
pectation and practice that GSIBs operate
with a buffer, which helps to ensure that
TLAC does not fall below the minimum
amount when risk-weighted assets or total
leverage increase. Finally, the comments
asserted that because the cost of issuing
TLAC securities significantly exceeds the
cost of issuing non-loss absorbing securi-
ties, banks are commercially incentivized
to issue no more TLAC securities than
necessary.
Because of the special status of TLAC
as part of a global system to address bank
solvency and the specific requirements
established by the Board and other regu-
2
While final regulations adopt the comment recommending similar treatment as between TLAC that is required under Federal Reserve Board regulations and similar foreign TLAC instru-
ments, the final regulations do not address, and provide no inference, on whether those instruments issued pursuant to foreign law are treated as debt for U.S. federal income tax purposes. See
Rev. Proc. 2017-12, 2017-3 I.R.B. 424 (providing generally that the IRS will treat as indebtedness internal TLAC that is issued by an intermediate holding company of a foreign GSIB pursuant
to the Federal Reserve Board regulations, and that “[n]o inference should be drawn about the federal tax characterization of an instrument that is outside the scope of [Rev. Proc. 2017-12].”).

December 23, 2019 1438 Bulletin No. 2019–52
lators, the Treasury Department and the
IRS recognize that it is necessary and
appropriate to take into account the mar-
ket practices that have been adopted to
prevent TLAC from falling below the
specified minimum amount as required
by regulations. For these reasons, the final
regulations adopt the recommendation to
provide a 15 percent buffer on the speci-
fied minimum amount of interest eligible
for the exception. This buffer applies for
both TLAC and foreign TLAC.
c. Requests to extend the TLAC
exception to include other regulatory
capital requirements
The Treasury Department and the IRS
decline to expand the TLAC exception to
cover interest payments on debt to for-
eign related parties that may satisfy reg-
ulatory capital requirements other than
TLAC. The TLAC exception was adopt-
ed because of the unique role of TLAC
securities in the global banking system
for GSIBs; while other regulatory capital
requirements may also serve an import-
ant role in bank regulation, the Treasury
Department and the IRS are cognizant
that the BEAT applies as a general matter
to interest paid to foreign related parties,
and have thus limited this regulatory ex-
ception to only those specific securities
that are issued as part of the integrated
international financial regulation and su-
pervision system.
d. TLAC issued during transition period
Comments recommended that the final
regulations increase the specified min-
imum amount of interest eligible for the
TLAC exception to permit interest with
respect to TLAC debt in place during a
three-year transition period before the
year in which a corporation is required
to have issued TLAC. The final regula-
tions do not extend the TLAC exception
to cover TLAC issued during a pre-effec-
tive date or transition period before being
required to comply with the regulations
prescribed by the Federal Reserve Board,
because in that situation all of the debt is
discretionary rather than mandatory. Fur-
ther, there is no clear objective metric to
scope discretionary issuances during a
pre-effective period.
e. Other operational elements of the
TLAC exception
A comment recommended modifying
the limitation on the exclusion for inter-
nal TLAC when a portion of the internal
TLAC is held by the U.S. branch of a for-
eign person such that interest payments
on the internal TLAC is also eligible for
the ECI exception. The comment rec-
ommended that interest on the internal
TLAC be first attributed to TLAC held
by the U.S. branch of a foreign person,
and thus excluded from the definition of
a base erosion payment on the basis of
the interest being ECI; and then only the
incremental interest expense in excess of
the amount payable to that branch would
be subject to the TLAC scaling ratio lim-
itation. The final regulations do not further
expand the TLAC exception through such
a rule, so as to retain the narrow scope of
the TLAC exception to those securities
that are required to be in place because
of Federal Reserve Board requirements
(taking into account the buffer described
in this Part IV.C.5.b). The final regulations
clarify the definition of TLAC securities
amount to confirm that the TLAC scaling
ratio applies without regard to whether
TLAC interest is also eligible for another
exclusion from base erosion payment sta-
tus, and thus that the TLAC scaling ratio
applies pro-rata to all internal TLAC. See
§1.59A-1(b)(19).
Another comment recommended that
the final regulations modify the definition
of the “TLAC long term debt minimum
amount” to reflect international standards,
rather than Federal Reserve Board re-
quirements because the comment asserted
that the Federal Reserve Board may, in the
future, eliminate the minimum require-
ment in the Federal Reserve Board regu-
lations. Comments also recommended ex-
panding the TLAC exception to apply to
other intercompany debt that is issued to
comply with other bank regulatory capital
requirements. The Treasury Department
and the IRS have determined that it is ap-
propriate to limit the amount of the TLAC
exception by reference to Federal Reserve
Board requirements, notwithstanding
comments suggesting that in the future
the Federal Reserve Board may eliminate
its minimum required amount. If there are
meaningful changes in the total loss ab-
sorbing capacity systems in the future, the
Treasury Department and the IRS would
be able to reassess the section 59A regu-
lations.
Finally, a comment recommended that
the final regulations should not exclude
interest on TLAC borrowing from the
denominator of the base erosion percent-
age calculation, which is discussed in
Part III of this Summary of Comments
and Explanation of Revisions. The pro-
posed regulations exclude from the de-
nominator of the base erosion percent-
age amounts excluded under certain of
the specific exceptions to base erosion
payment status in §1.59A-3(b) for SCM,
QDP, and TLAC. This is in contrast to
those amounts that are not base erosion
payments because they are not within the
main definition of a base erosion pay-
ment, for example, a payment to an unre-
lated third party, which remain in the de-
nominator. The comment suggested that
interest expense that is excluded from
the definition of a base erosion payment
under the TLAC exception should be
viewed as like a payment to an unrelated
third party, that is, the interest expense
should remain in the denominator of the
base erosion percentage. The comment
premised this position on the view that in-
ternal TLAC should be viewed as issued
to the holders of external TLAC (that is,
to unrelated third party investors) under a
theory that the issuer of internal TLAC is
an intermediary or conduit for the issuer
of the external TLAC securities. There-
fore, there would be no underlying base
erosion payment by the U.S. borrower on
the internal TLAC, and thus the internal
TLAC interest expense would remain in
the denominator of the base erosion per-
centage calculation like interest paid to
unrelated third parties. The proposed reg-
ulations and the final regulations provide
a regulatory exception for internal TLAC
on the basis of the special status of TLAC
issued by GSIBs as part of the global sys-
tem to address bank solvency. That is, the
rationale for the TLAC exception in the
proposed regulations and final regula-
tions is not that the internal TLAC is a
conduit for the external TLAC. For this
reason, the final regulations (consistent
with the proposed regulations) exclude
from the denominator the TLAC interest
in a manner consistent with the treatment

Bulletin No. 2019–52 1439 December 23, 2019
of deductions covered by the SCM and
QDP exceptions.
D. Base erosion tax benefits
1. Withholding Tax on Payments
The proposed regulations provide that
if tax is imposed by section 871 or 881,
and the tax is deducted and withheld un-
der section 1441 or 1442 without reduc-
tion by an applicable income tax treaty on
a base erosion payment, the base erosion
payment is treated as having a base ero-
sion tax benefit of zero for purposes of
calculating a taxpayer’s modified taxable
income and base erosion percentage. If an
income tax treaty reduces the amount of
withholding imposed on the base erosion
payment, the amount of the base erosion
payment that is treated as a base erosion
tax benefit is reduced in proportion to
the reduction in withholding. In the reg-
ulation section pertaining to base erosion
tax benefits, the final regulations include
a technical correction to the fraction used
to determine the amount of a base erosion
payment that is treated as a base erosion
tax benefit when the rate of withholding
imposed on that payment is reduced by
an income tax treaty. §1.59A-3(c)(3)(i).
To avoid duplication, the final regulation
section pertaining to the base erosion per-
centage replaces a similar operating rule
with a cross reference to the rule for de-
termining base erosion tax benefits. See
§1.59A-2(e)(3)(iii).
Under section 884(f) and §1.884-4, a
portion of interest expense allocated to
income of a foreign corporation that is,
or is treated as, effectively connected
with the conduct of a trade or business
in the United States (“excess interest”)
is treated as interest paid by a whol-
ly-owned domestic corporation to the
foreign corporation. The foreign corpo-
ration is subject to tax under section 881
on the excess interest and is required to
report the excess interest on its income
tax return, subject to the exemption pro-
vided in section 881 for bank deposit
interest and reduction or elimination
under applicable tax treaties. However,
no withholding is required under section
1441 and 1442. See §1.884-4(a)(2)(iv).
Because no withholding is required, ex-
cess interest is not excluded from treat-
ment as a base erosion tax benefit under
the proposed regulations.
A comment suggested that because
excess interest is subject to tax under sec-
tion 881(a) as if it were interest paid to a
foreign corporation by a wholly-owned
domestic corporation, the exclusion from
base erosion tax benefits that applies to
payments subject to full withholding
should also apply to excess interest. The
comment suggested that the exclusion
from treatment as a base erosion tax bene-
fit might apply to excess interest under the
proposed regulations, but requested clari-
fication. While excess interest would not
be excluded from treatment as a base ero-
sion tax benefit under the proposed regu-
lations because it is not subject to with-
holding, the Treasury Department and the
IRS have determined that it is appropriate
to expand the general exclusion from base
erosion tax benefits to include excess in-
terest. Accordingly, the final regulations
reduce any base erosion tax benefit attrib-
utable to interest in excess of interest on
U.S.-connected liabilities by excess in-
terest to the extent that tax is imposed on
the foreign corporation with respect to the
excess interest under section 884(f) and
§1.884-4, and the tax is properly report-
ed on the foreign corporation’s income
tax return and paid in accordance with
§1.884-4(a)(2)(iv). §1.59A-3(c)(2)(ii). If
an income tax treaty reduces the amount
of tax imposed on the excess interest, the
amount of base erosion tax benefit under
this rule is reduced in proportion to the re-
duction in tax.
The final regulations also provide a
coordination rule to clarify the interaction
between the withholding tax exception
and the rules determining the portion of
interest expense attributable to ECI that is
treated as paid to a foreign related party.
As discussed in part IV.B.4. of this Sum-
mary of Comments Explanation of Revi-
sions, interest expense attributable to ECI
that is in excess of direct allocations and
interest expense on U.S.-booked liabilities
is treated as paid to a foreign related party
in proportion to the foreign corporation’s
average worldwide ratio of interest ex-
pense paid to a foreign related party over
total interest expense. This coordination
rule provides that any interest, including
branch interest under §1.884-4(b)(1), on
which tax is imposed under 871 or 881
and tax has been deducted and withheld
under section 1441 or 1442 but which is
not attributable to direct allocations or in-
terest expense on U.S.-booked liabilities
is treated as not paid to a foreign relat-
ed party for purposes of determining the
foreign corporation’s average worldwide
ratio.
2. Rule for Classifying Interest for Which
a Deduction is Allowed when Section
163(j) or Another Provision of the Code
Limits Deductions
Section 59A(c)(3) provides a stacking
rule in cases in which section 163(j) ap-
plies to a taxpayer, under which the reduc-
tion in the amount of deductible interest
is treated as allocable first to interest paid
or accrued to persons who are not relat-
ed parties with respect to the taxpayer
and then to related parties. The statute
does not provide a rule for determining
which portion of the interest treated as
paid to related parties (and thus potential-
ly treated as a base erosion payment) is
treated as paid to a foreign related party
as opposed to a domestic related party.
Proposed §1.59A-3(c)(4) provides rules
coordinating section 163(j) with the de-
termination of the amount of base erosion
tax benefits. This rule provides, consistent
with section 59A(c)(3), that where section
163(j) applies to limit the amount of a tax-
payer’s business interest expense that is
deductible in the taxable year, a taxpayer
is required to treat all disallowed business
interest first as interest paid or accrued to
persons who are not related parties, and
then as interest paid or accrued to related
parties for purposes of section 59A. More
specifically, with respect to interest paid to
related parties, the proposed regulations
provide that the amount of allowed busi-
ness interest expense is treated first as the
business interest expense paid to related
parties, proportionately between foreign
and domestic related parties. Conversely,
the amount of a disallowed business inter-
est expense carryforward is treated first as
business interest expense paid to unrelated
parties, and then as business interest ex-
pense paid to related parties, proportion-
ately between foreign and domestic relat-
ed-party business interest expense.
Proposed §1.59A-3(c)(4)(i)(C) provides
that business interest expense paid or ac-

December 23, 2019 1440 Bulletin No. 2019–52
crued to a foreign related party to which the
ECI exception in proposed §1.59A-3(b)(3)
(iii) applies is classified as domestic related
business interest expense. One comment
observed that the proposed regulations do
not expressly provide similar rules for busi-
ness interest expense paid to foreign related
parties that is excluded from the definition
of a base erosion payment under the TLAC
exception or excluded from the definition
of a base erosion tax benefit under the ex-
ception for payments subject to withhold-
ing tax. The final regulations confirm that
those categories of interest expense retain
their classification as payments to foreign
related parties, but also that the foreign re-
lated business interest expense category is
treated as consisting of interest that is eli-
gible for these exceptions and interest that
is not eligible for these exceptions, on a
pro-rata basis. See §1.59A-3(c)(4)(i)(C)(2).
E. Election to waive allowable deductions
See the 2019 proposed regulations for
a proposal to provide an election (and
certain procedural safeguards) by which
a taxpayer may permanently forego a de-
duction for all U.S. federal tax purposes,
with the result that the foregone deduction
will not be treated as a base erosion tax
benefit.
V. Comments and Changes to Proposed
§1.59A-4—Modified Taxable Income
Proposed §1.59A-4 contains rules re-
lating to the determination of modified
taxable income.
A. Method of computing modified taxable
income
Section 59A(c)(1) defines modified tax-
able income as “the taxable income of the
taxpayer computed under this chapter for
the taxable year, determined without re-
gard to – (A) any base erosion tax benefit
with respect to any base erosion payment,
or (B) the base erosion percentage of any
net operating loss deduction allowed under
section 172 for the taxable year.” Proposed
§1.59A-4(b)(2) clarifies that modified tax-
able income is computed by adding back
the base erosion tax benefits and base
erosion percentage of any net operating
loss deductions (the “add-back method”).
In addition, to prevent net operating loss
benefits from being duplicated, proposed
§1.59A-4(b)(1) provides that taxable in-
come may not be reduced below zero as a
result of a net operating loss deduction.
Comments generally recommended one
of three approaches to calculate modified
taxable income: (1) the add-back method,
(2) the “recomputation method,” and (3)
the “limited recomputation method.”
1. The Add-back Method
Some comments recommended that
the final regulations retain the add-back
method because it would be simpler and
easier to administer this method than a
recomputation method. See Part V.A.2
of this Summary of Comments and Ex-
planation of Revisions for a description
of the recomputation method. Comments
highlighted that the add-back method
does not require attributes to be separately
computed and tracked for regular income
tax purposes and the BEAT. In addition, a
comment asserted that this method more
closely follows the statute, observing that
the statutory language in section 59A(c)
is substantially different from the recom-
putation-like language that was in section
59(a)(1)(B) relating to the foreign tax
credit determination for alternative mini-
mum tax purposes, which is now repealed
for corporations. See section 59(a)(1)(B)
(providing explicit language referencing
computing the alternative minimum tax
foreign tax credit as if section 904 were
applied on the basis of alternative mini-
mum taxable income instead of taxable
income); see also the Act, §12001(a) (re-
pealing the alternative minimum tax for
corporations and rendering section 59(a)
(1)(B) inapplicable to corporations). An-
other comment noted that the add-back
method is harmonious with the language
of section 59A(c)(1)(B) because that sec-
tion includes the base erosion percentage
of net operating loss deductions as an item
included in modified taxable income as
the method for determining which por-
tion of net operating loss carryovers from
prior years resulted from base erosion tax
benefits. (Under a recomputation method
with a net operating loss carryover that is
computed on a BEAT basis, base erosion
tax benefits would already be excluded
from the net operating loss carryover, so it
would be anomalous to also apply section
59A(c)(1)(B) to the net operating loss de-
duction.) In support of the add-back meth-
od, one comment asserted that applying
a recomputation approach would exceed
statutory authority.
2. The Recomputation Method
Some comments recommended that the
final regulations determine modified tax-
able income by using the recomputation
method that is described in the preamble
to the proposed regulations whereby the
taxpayer’s taxable income is recomputed
without the excluded items, or a variation of
that method. See REG-104259-18, 83 F.R.
65965 (December 21, 2018) (describing a
recomputation approach as requiring attri-
butes that are limited based on taxable in-
come to be recomputed for purposes of sec-
tion 59A). For example, some comments
recommended making the recomputation
method elective. One comment requested
a recomputation method with a special rule
for net operating loss deductions, which is
discussed in Part V.A.3 of this Summary of
Comments and Explanation of Revisions
(limited recomputation method). While
comments acknowledged that the add-back
method is less complex, comments assert-
ed that the add-back method may result in
greater BEAT liability. Comments claimed
that the recomputation method more ac-
curately computes the base erosion mini-
mum tax amount (“BEMTA”). Comments
also asserted that the language in section
59A(c) – specifically the clause “comput-
ed without regard to” – is more consistent
with the recomputation method. Another
comment noted that nothing in section 59A
or its legislative history mandates the use
of the add-back method and that taxpayers
familiar with the prior corporate alternative
minimum tax would have anticipated using
the recomputation method.
Additionally, some comments request-
ed a recomputation method with a sep-
arate tracking of attributes such as net
operating loss carryovers, while others
requested a recomputation method with-
out a separate tracking of attributes. Some
comments acknowledged that the recom-
putation method could give taxpayers a
double benefit from non-base eroding de-
ductions unless it required separate track-
ing of attributes for purposes of the BEAT.
For example, one comment noted that the
recomputation method would generally
allow net operating loss carryovers to be

Bulletin No. 2019–52 1441 December 23, 2019
used more rapidly for purposes of mod-
ified taxable income than for regular tax
purposes because the taxable income lim-
itation under section 172 on net operating
loss deductions would be lower for regu-
lar tax purposes. As a result, the comment
noted that if net operating loss carryovers
are not separately tracked for purposes of
the BEAT, a taxpayer may receive a dou-
ble benefit from the non-base eroding de-
ductions because those attributes reduce
modified taxable income in the loss year,
but if the attributes do not reduce the tax-
payer’s regular tax liability, the attributes
would remain available to reduce mod-
ified taxable income in a future year. In
contrast, another comment asserted that
attributes should not be separately tracked
because section 59A requires a snapshot
of relative tax attributes that are applied
independently to calculate taxable income
and modified taxable income.
3. The Limited Recomputation Method
Some comments recommended that
the final regulations permit a taxpayer
to elect to recompute its taxable income
with respect to pre-2018 net operating
loss carryovers (the “limited recomputa-
tion method”). Under this approach, com-
ments generally suggested the taxpayer
would use the add-back method except
with respect to pre-2018 net operating
loss carryovers, which would be separate-
ly used and tracked for purposes of the
BEAT. One comment suggested that this
approach should apply to net operating
losses generally, not only pre-2018 net
operating loss carryovers. Comments as-
serted that the proposed regulations have
the effect of denying some taxpayers the
economic benefit of their pre-2018 net
operating loss carryovers because they
do not allow pre-2018 net operating loss
carryovers to offset full tax liability of tax-
payers. Some comments acknowledged
that using net operating loss carryovers
under any of the three methods discussed
in this Part V.A of the Summary of Com-
ments and Explanation of Revisions are
timing differences (rather than permanent
differences that would deny economic
benefit) because pre-2018 net operating
loss carryovers are allowed against modi-
fied taxable income as and when those net
operating loss carryovers are deducted for
regular tax purposes. Comments general-
ly asserted that limiting the utilization of
net operating loss carryovers is arguably
retroactive in nature because it limits the
tax benefit of pre-2018 net operating loss
carryovers and is unduly harsh because
it may cause a taxpayer to pay tax on an
amount greater than its economic income.
Some comments also asserted that the
limited recomputation approach is more
consistent with pre-Act section 172 and
the policies supporting section 59A. The
comments noted that the section 172 leg-
islative history suggests that net operating
loss deductions were allowed primarily
to alleviate economic losses incurred by
taxpayers and asserted that absent clear
statutory language and expressed legisla-
tive intent to limit the use of net operat-
ing losses, taxpayers should be able to use
the net operating loss carryovers without
limitation in calculating their modified
taxable income. However, the comment
acknowledged that an attribute tracking
system is required to prevent the same net
operating loss carryovers from being de-
ducted multiple times for the BEAT.
4. Add-back Method Retained in Final
Regulations
The final regulations retain the add-back
method. The add-back method takes into
account all the statutory language in section
59A(c)(1), which determines modified tax-
able income without regard to both the base
erosion tax benefits and the base erosion
percentage of net operating loss deductions.
This approach is also consistent with the
Joint Committee on Taxation’s Explanation
of the Act, which states that “an applica-
ble taxpayer’s modified taxable income is
its taxable income for the taxable year, in-
creased by (1) any base erosion tax benefit
with respect to any base erosion payment
and (2) the base erosion percentage of any
NOL deduction allowed under section 172
for such taxable year.” Joint Comm. on
Tax’n, General Explanation of Pub. L. 115-
97 (“Bluebook”), at 403 (emphasis added).
By contrast, the recomputation method
conflicts with section 59A(c)(1). If taxable
income is recomputed without any base
erosion tax benefits for modified taxable
income, it is a necessary premise that net
operating loss carryovers would also be re-
computed as BEAT-basis attributes, which,
under the recomputation framework, would
not include the effect of any base erosion
tax benefits (because the recomputation
method is without regard to base erosion tax
benefits). However, that framework would
make the language in section 59A(c)(1)(B)
superfluous or inexplicable because section
59A(c)(1)(B) addresses the percentage of
base erosion tax benefits embedded in a net
operating loss carryover, whereas a recom-
puted BEAT-basis net operating loss carry-
over would already exclude all base erosion
tax benefits.
3
3
For example, assume that a domestic corporation (DC) is an applicable taxpayer that has a calendar year. In 2020, DC has gross income of $0, a deduction of $60x that is not a base erosion
tax benefit, and a deduction of $40x that is a base erosion tax benefit. For regular tax purposes, DC has a net operating loss carryover within the meaning of section 172(b) of $100x. DC also
has a base erosion percentage of 40 percent for the 2020 taxable year. Under the recomputation method, DC’s taxable income would presumably be recomputed without regard to base erosion
tax benefits, and as a result, DC would presumably have a BEAT-basis net operating loss carryover of $60x, computed as DC’s excess of deductions over gross income, without regard to the
$40x of deductions that are base erosion tax benefits.

Assume further that in 2021, DC has gross income of $70x, and no current year deductions. For regular tax purposes, DC is permitted a net operating loss deduction of $56x (section
172(a) limits the regular tax deduction for net operating losses that originated after the Act to 80 percent of taxable income before the net operating loss deduction), and thus DC has regular
taxable income of $14x ($70x - $56x = $14x). Under the add-back method, DC’s modified taxable income for 2021 would be computed as $36.4x, computed as regular taxable income of
$14x, plus $0 base erosion tax benefits in 2021, plus the section 59A(c)(1)(B) base erosion percentage of the net operating loss allowed under section 172, $22.4x ($56x x 40 percent = $22.4x).

Under the recomputation method, DC would presumably need to recompute its 2021 taxable income without regard to its base erosion tax benefits in 2021 (there are none in the example)
and also without regard to the base erosion percentage of the net operating loss deduction allowed under section 172 for the taxable year ($56x). Section 59A(c)(1)(B). However, the basic
premise of the recomputation method is that DC has a BEAT-basis net operating loss carryover from 2020 of $60x that already excludes the 2020 base erosion tax benefits. DC’s modified
taxable income for 2021 might thus be computed as $14x ($70x gross income, reduced by $56x, which is the lesser of (i) the $60x BEAT-basis net operating loss carryover from 2020 or (ii) 80
percent of the taxable income ($70x) computed without regard to the section 172 deduction, or $56x). However that adaptation would render section 59A(c)(1)(B) irrelevant. If instead, section
59A(c)(1)(B) was taken into account in computing DC’s modified taxable income, then DC’s modified taxable income would include the erosion percentage (40 percent) of the BEAT-basis
net operating loss carryover from 2020 ($60x), even though that BEAT-basis net operating loss carryover has already been stripped of any 2020 base erosion tax benefits. Thus, this adaptation
that gives regard to section 59A(c)(1)(B) would seem to incongruously increase modified taxable income by $24x (40 percent of $60x = $24x). Some comments observed these anomalies,
but no comments appear to provide a complete reconciliation of how the recomputation method would address the anomalies under the terms of the statute.

December 23, 2019 1442 Bulletin No. 2019–52
Further, as some comments noted,
the add-back method is more consistent
with the statutory framework of section
59A because the add-back method does
not require additional rules regarding the
treatment of separate tax attributes. The
Treasury Department and the IRS have
determined, and numerous comments
acknowledged, that if the recomputation
method were used, separate tracking of at-
tributes would be required to avoid dupli-
cation of benefits. Unlike the alternative
minimum tax that was repealed for corpo-
rations, the BEAT does not contain rules
to address how a recomputation method
would be implemented, including in the
case of a section 381 transaction, a sec-
tion 382 ownership change, or a deconsol-
idation. Thus, the recomputation methods
would require the Treasury Department
and the IRS to construct such rules by
regulation. Moreover, as also identified
by comments, the add-back method is
simpler and easier to comply with and
administer for both taxpayers and the IRS
than the recomputation method or other
methods (including a method by which
a taxpayer could elect to apply the add-
back or recomputation method) because
the recomputation-based methods would
require the taxpayer to calculate an entire
parallel tax return and schedules to take
into account iterative effects, whereas the
add-back approach only requires addition,
rather than iterative effects. As a result of
these factors, the Treasury Department
and the IRS have determined that it is not
appropriate to permit the recomputation
method.
These reasons for rejecting the recom-
putation method also apply to the limit-
ed recomputation method. Because the
recomputation approach generally is not
consistent with the statutory construct, it
would be inappropriate to create a limit-
ed version of that approach to permit a
taxpayer to use its pre-2018 net operat-
ing loss carryovers or all net operating
loss carryovers. Section 59A does not
provide special rules or preferences for
pre-2018 net operating loss carryovers.
In addition, the comments’ assertions for
pre-2018 net operating loss carryovers
generally apply to subsequent net operat-
ing loss carryovers of certain taxpayers,
and those carryovers would raise all the
issues discussed.
The claim that taxpayers are losing the
benefit of their net operating loss carry-
overs as a result of the add-back method
in the proposed regulations is erroneous.
Net operating loss carryovers continue
to offset regular taxable income. Section
59A does not change that result, as the
net operating loss deduction is allowed
against modified taxable income as and
when deducted for regular tax purposes.
Section 172 does not provide that if a tax-
payer has a net operating loss carryover
then the taxpayer does not have to pay any
taxes under any provision. Because the
base erosion percentage of any net oper-
ating loss deduction is taken into account
in determining modified taxable income,
section 59A(c)(1)(B) specifically contem-
plates that a taxpayer may not obtain the
full benefit of net operating loss carry-
overs even in a year in which the taxpayer
uses a net operating loss deduction to fully
offset taxable income for purposes of its
regular tax liability.
Moreover, the statutory language in
section 59A does not explicitly limit that
provision to net operating loss deductions
related to carryovers that originated in
tax years beginning after December 31,
2017; rather, that limitation resulted from
the vintage year approach adopted in pro-
posed §1.59A-4(b)(2)(ii). Absent that pro-
vision, or if proposed §1.59A-4(b)(2)(ii)
had adopted a current year base erosion
percentage approach, the add-back provi-
sion in section 59A(c)(1)(B) could have
also applied to net operating loss deduc-
tions related to carryovers that originated
in pre-2018 tax years. See Part V.B of this
Summary of Comments and Explanation
of Revisions for a discussion of the com-
ments related to proposed §1.59A-4(b)(1)
and limiting the net operating loss deduc-
tion for purposes of computing modified
taxable income.
B. Amount of net operating loss
deduction from net operating loss
carryovers
Under the add-back method, section
59A(c) provides that the computation of
modified taxable income starts with the
taxpayer’s regular taxable income for the
year. Section 172(a) generally provides
that for regular tax purposes a deduction
is allowed for the tax year in an amount
equal to the net operating loss carryover to
the year. For net operating loss carryovers
originating after the Act, the net operat-
ing loss deduction is generally limited for
regular tax purposes to 80 percent of tax-
able income computed without regard to
the net operating loss deduction. Section
172(a). For net operating loss carryovers
originating before the Act, the net oper-
ating loss carryover deduction generally
is not limited for regular tax purposes.
Section 13302(e)(1) of the Act. Proposed
§1.59A-4(b)(1) provides that taxable in-
come may not be reduced below zero as
a result of net operating loss deductions.
The preamble to the proposed regulations
explains that the rule is necessary because
section 172(a) could be read to provide
that the same net operating loss carryover
could reduce modified taxable income in
multiple years. REG-104259-18, 83 F.R.
65965 (December 21, 2018).
The preamble to the proposed regula-
tions provides an example where a tax-
payer has a net operating loss carryover
of $100x that arose in a taxable year be-
ginning before January 1, 2018. REG-
104259-18, 83 F.R. 65965 (December 21,
2018). In a subsequent year, the taxpayer
has taxable income of $5x before taking
into account the $100x net operating loss
carryover. Absent the rule in proposed
§1.59A-4(b)(1), the taxpayer might claim
the entire $100x net operating loss carry-
over as a $100x deduction in that year to
create a $95x taxable loss for determining
modified taxable income, even though
$95x of the net operating loss carryover
would remain as a carryover to future
years. Proposed §1.59A-4(b)(1) ensures
that a net operating loss is taken into ac-
count only once in determining a taxpay-
er’s modified taxable income.
Some comments recognized the need
for proposed §1.59A-4(b)(1) consistent
with the preamble to the proposed regula-
tions. A comment acknowledged that if the
net operating loss carryover deductions
are not limited to the amount of taxable
income, those net operating losses could
reduce taxable income — and therefore
the taxpayer’s BEAT liability — multiple
times. Another comment noted that, with-
out proposed §1.59A-4(b)(1), allowing
net operating loss carryovers to be taken
into account for modified taxable income
to the same extent as general taxable in-

Bulletin No. 2019–52 1443 December 23, 2019
come would give rise to certain complex
questions concerning net operating loss
carryovers for general tax purposes.
Other comments asserted that there is
no authority in section 59A for limiting
the net operating loss deduction to the
amount of taxable income, that the rule
in proposed §1.59A-4(b)(1) is contrary
to the statute, and that the final regula-
tions should permit taxable income to be
negative as a result of net operating loss
carryovers. Comments noted that modi-
fied taxable income is determined based
on taxable income, which generally is
gross income minus deductions allowed
under chapter 1, including the net oper-
ating loss deduction. Another comment
noted that with respect to the amount of
net operating loss deduction in a taxable
year, when Congress wants to place a
floor on a number, it does so expressly; for
example, section 59A(b)(1)(B) provides
that regular tax liability is “reduced (but
not below zero).” In contrast, there is no
similar language in section 59A or section
172(a) prior to the Act for net operating
loss deductions.
Comments also asserted that the lim-
itation on the use of net operating loss
carryovers as deductions in a taxable year
causes taxpayers to be liable for tax pur-
suant to the BEAT on their base erosion
tax benefits even though they are not lia-
ble for regular income tax because of their
net operating loss deductions that reduced
regular taxable income to zero. Comments
also asserted that the proposed regulations
effectively reduce the extent to which the
net operating loss carryforwards may be
used.
Other comments requested that the
final regulations provide a transition to
the proposed rule preventing taxable in-
come to be negative as a result of a net
operating loss deduction. One comment
requested that final regulations provide
for a deferral of the effective date of
proposed §1.59A-4(b)(1) of one or two
years. Another comment requested that
final regulations provide that taxpayers
may reduce their BEAT liability by (a)
an amount equal to the pre-2018 net op-
erating loss carryover that offset taxable
income, multiplied by (b) the difference
between the regular income tax rate and
the BEAT rate because section 59A should
not retroactively reduce the value of the
pre-2018 net operating loss carryovers.
These comments also highlighted a situ-
ation where a taxpayer’s regular taxable
income is reduced entirely by available
pre-2018 net operating loss carryovers,
but the taxpayer also has base erosion tax
benefits that increase modified taxable
income, causing a BEAT liability. The
comments asserted that imposing BEAT
on this modified taxable income amounts
to a retroactive reduction in the value of
the taxpayer’s pre-2018 net operating loss
carryovers, and recommended that the fi-
nal regulations adopt this methodology by
which pre-2018 attributes are provided a
21 percent tax rate benefit, which is sim-
ilar to the limited recomputation method
discussed in Part V.A of this Summary of
Comments and Explanation of Revisions.
These comments are not adopted in
the final regulations. First, the comments
focused on a technical reading of section
172(a) as it applies to net operating loss
carryovers that originated before the Act.
That version of section 172(a) did not ex-
pressly limit the amount of net operating
loss deduction for regular tax purposes to
100 percent of taxable income computed
without regard to the net operating loss
deduction. As it existed before the Act,
there was no reason to limit the section
172(a) deduction in this manner because
before the Act there was no consequence
to claiming a net operating loss deduction
greater than 100 percent of current year
taxable income. For example, before the
Act, a taxpayer’s net operating loss carry-
over was only reduced by the amount of
net operating loss deduction that was actu-
ally used to reduce taxable income to zero.
See §1.172-4(a)(3).
In addition to the technical reading of
section 172(a) as it applies to net operating
loss carryovers that originated before the
Act, the Treasury Department and the IRS
continue to believe, consistent with some
of the comments received, that limiting net
operating loss deductions to the amount of
taxable income for purposes of computing
modified taxable income is necessary and
appropriate to prevent net operating loss
carryovers from being used multiple times
to reduce modified taxable income. If the
final regulations did not limit the amount
of net operating loss carryover deductions
for purposes of calculating modified tax-
able income, a taxpayer with a large pre-
2018 net operating loss carryover would
be able to reduce modified taxable income
in multiple years with the same net oper-
ating loss carryover, without reducing the
net operating loss carryover for regular in-
come tax purposes.
The fact that taxpayers with suffi-
ciently large pre-2018 net operating loss
carryovers may be able to avoid paying
regular income tax in a taxable year does
not mean that those taxpayers should be
permitted to offset the entire amount of
their BEAT liability in that taxable year,
or in other words, not be liable for tax un-
der the BEAT. As discussed in Part V.A.
of this Summary of Comments and Expla-
nation of Revisions, the limitation on net
operating loss deductions for determining
modified taxable income impacts only the
BEMTA. This limitation does not prevent
the use of pre-2018 net operating loss car-
ryover to reduce regular taxable income
to zero. Further, to the extent a taxpayer’s
pre-2018 net operating loss carryovers
exceed the taxpayer’s taxable income, the
taxpayer continues to use those remain-
ing net operating loss carryovers in later
years to offset some or all regular taxable
income; and the taxpayer continues to re-
duce modified taxable income by the same
amount in those later years.
A comment asserted that the add-back
method creates an economic disparity be-
tween similarly situated taxpayers because
taxpayers without pre-2018 net operating
loss carryovers can make more base ero-
sion payments than taxpayers with pre-
2018 net operating loss carryovers before
being subject to BEAT liability. Howev-
er, taxpayers with pre-2018 net operating
loss carryovers are not similarly situated
to taxpayers without pre-2018 net oper-
ating loss carryovers, as the former are
paying less regular income taxes than the
latter, which is a factor in determining the
amount of BEAT liability.
One comment questioned why current
year losses can result in negative taxable
income for BEAT purposes, while net op-
erating losses that are carried to a differ-
ent year cannot result in negative taxable
income in that different year. Proposed
§1.59A-4(b)(1) permits taxpayers that
have current year losses to use that neg-
ative income amount as a starting point
for computing modified taxable income
because the Treasury Department and the

December 23, 2019 1444 Bulletin No. 2019–52
IRS determined that if taxpayers were not
permitted to use that negative amount as
a starting point for calculating modified
taxable income, the base erosion tax bene-
fits for that year could be double counted.
That is, the base erosion tax benefits for
that year could be included in modified
taxable income for the current year and in
the year the net operating loss carryover is
used because of the add-back of the base
erosion percentage of the net operating
loss deduction in the year used. Because
of this concern, the proposed regulations
expressly permit current year losses to be
taken into account as the starting point for
computing modified taxable income. Pro-
posed §§1.59A-4(b)(1) and (c).
Section 59A(i) provides a broad grant
of regulatory authority, permitting the Sec-
retary to prescribe regulations as may be
necessary or appropriate to carry out the
provisions of the section. For the reasons
discussed, the Treasury Department and the
IRS have determined that limiting the net
operating loss deduction to taxable income
in computing modified taxable income is
within the grant of authority, and the final
regulations do not adopt the comments re-
questing a different rule. The final regula-
tions also do not adopt a rule providing a
fixed 21 percent tax rate benefit for all pre-
2018 net operating loss carryovers. The
fact that a taxpayer may have positive mod-
ified taxable income (resulting in a positive
BEAT tax liability) even if the taxpayer has
a lesser amount of regular taxable income
because pre-2018 net operating loss carry-
overs reduce taxable income is a part of the
statutory framework of the BEAT; that is,
imposing tax on a modified taxable income
base. See also, the response to the limited
recomputation method discussed in Part
V.A of this Summary of Comments and
Explanation of Revisions.
C. Use of aggregate base erosion
percentage for net operating loss
deductions
Proposed §1.59A-4(b)(1) generally de-
fines modified taxable income as a taxpay-
er’s taxable income computed under chap-
ter 1, determined without regard to base
erosion tax benefits and the base erosion
percentage of any net operating loss de-
duction under section 172 for the taxable
year. Under the proposed regulations, the
base erosion percentage for the year that
the net operating loss carryover arose (the
“vintage year” base erosion percentage) is
used to compute modified taxable income.
Proposed §1.59A-4(b)(2)(ii). Although
the computation of modified taxable in-
come is made on a taxpayer-by-taxpayer
basis, the proposed regulations clarify that
in computing the add-back for net oper-
ating loss deductions, the relevant base
erosion percentage is the base erosion per-
centage for the aggregate group, which is
used to determine whether the taxpayer is
an applicable taxpayer.
A comment noted that an aggregate base
erosion percentage could potentially take
into account deductions of another aggre-
gate group member that are not otherwise
included in a taxpayer’s return. The com-
ment questioned whether a more precise
determination of a taxpayer’s vintage year
base erosion percentage is appropriate.
The Treasury Department and the IRS
have determined that the base erosion per-
centage that is applied to net operating
loss deductions when computing modi-
fied taxable income should be computed
on the basis of the taxpayer and its ag-
gregate group in the same manner as the
base erosion percentage that is comput-
ed for determining whether the taxpayer
is an applicable taxpayer under section
59A(e). Section 59A(e)(3) requires ag-
gregation for purposes of computing the
base erosion percentage that is used to de-
termine whether a taxpayer is an applica-
ble taxpayer and to determine the portion
of net operating loss deductions that are
included in computing modified taxable
income pursuant to section 59A(c)(1)(B).
Because Congress chose to determine the
base erosion percentage on an aggregate
basis, it follows that one aggregate group
member’s deductions can affect the base
erosion percentage that will apply with re-
spect to another member of the group. For
these reasons, the final regulations do not
revise the rules for determining the base
erosion percentage that is applied to net
operating loss deductions when comput-
ing modified taxable income.
D. Operation of vintage approach for net
operating losses
Section 59A(c)(1)(B) provides that
modified taxable income includes the
base erosion percentage of any net oper-
ating loss deduction allowed under sec-
tion 172 for the taxable year. Proposed
§1.59A-4(b)(2)(ii) provides that the base
erosion percentage of the year in which
the loss arose, or the “vintage year,” is
used to compute modified taxable income
rather than the base erosion percentage in
the year in which the taxpayer takes the
net operating loss deduction.
One comment requested guidance on
how the vintage year approach is applied
when in the vintage year the taxpayer has
both deductions that are base erosion tax
benefits and deductions that are not base
erosion tax benefits. The comment stated
that it is not clear how to compute or or-
der the base erosion percentage because
the proposed regulations do not provide
rules for determining which type of de-
ductions were used in that vintage year
to offset gross income, and which deduc-
tions were carried forward as net oper-
ating loss carryforwards. The comment
provided an example in which the tax-
payer in year 1 has gross income of $800x
and deductions of $1000x that consist of
$250x of base erosion tax benefits and
$750x of non-base erosion tax benefits,
resulting in a $200x net operating loss.
The comment requested clarification for
determining how the deductions are or-
dered for determining the base erosion
percentage of the year 1 $200x net oper-
ating loss carryover when that carryover
is deducted in a later year.
The final regulations do not revise the
vintage year rule because section 59A(c)
(1)(B) and the proposed regulations al-
ready provide that the base erosion per-
centage used with respect to the net op-
erating loss deduction is the base erosion
percentage of the taxpayer in the relevant
taxable year (in this example, $250x /
$1000x = 25 percent). That is, no specific
ordering rule is required because the base
erosion percentage calculation for the vin-
tage year takes into account a proportion-
ate amount of each type of deduction (or
$250x divided by $1000x in the example).
Another comment suggested that in
applying the vintage year approach to
net operating loss deductions, a simpli-
fying convention should be provided to
address target corporations that have net
operating loss carryovers and become
members of a taxpayer’s aggregate group

Bulletin No. 2019–52 1445 December 23, 2019
by acquisition. The comment suggested
that taxpayers be permitted to elect to
use their current year base erosion per-
centage with respect to the net operating
loss deductions, rather than the vintage
year base erosion percentage of the tar-
get because it may be complicated to
determine the target’s vintage year base
erosion percentage. The comment specif-
ically noted the difficulty in cases where
the target was not an applicable taxpayer
in the vintage year. The final regulations
do not adopt this elective approach. Be-
cause the net operating loss carryover is
an attribute of the target corporation, the
target corporation is required to maintain
documentation to support both the car-
ryover amount and the other aspects of
its attributes that affect the target corpo-
ration’s tax liability — namely the base
erosion percentage with respect to its net
operating loss carryovers. Accordingly,
the acquiring corporation should be able
to obtain the information necessary to de-
termine the target corporation’s vintage
year base erosion percentage.
VI. Comments and Changes to Proposed
§1.59A-5—BEMTA
Proposed §1.59A-5 contains rules re-
garding the calculation of BEMTA and
provides the base erosion and anti-abuse
tax rate that applies to the taxpayer’s tax-
able year. The proposed regulations pro-
vide that an applicable taxpayer computes
its BEMTA for the taxable year to deter-
mine its liability under section 59A(a).
Proposed §1.59A–5(b). Generally, the tax-
payer’s BEMTA equals the excess of (1)
the applicable tax rate for the taxable year
(‘‘BEAT rate’’) multiplied by the taxpay-
er’s modified taxable income for the tax-
able year over (2) the taxpayer’s adjusted
regular tax liability for that year. Proposed
§1.59A-5(b). In determining the taxpay-
er’s adjusted regular tax liability for the
taxable year, credits (including the foreign
tax credit) are generally subtracted from
the regular tax liability amount. Proposed
§1.59A–5(b)(2). Consistent with section
59A(b)(1)(B), the proposed regulations
provide that for taxable years beginning
before January 1, 2026, the credits al-
lowed against regular tax liability (which
reduce the amount of regular tax liability
for purposes of calculating BEMTA) are
not reduced by the research credit deter-
mined under section 41(a) or by a portion
of applicable section 38 credits.
To prevent an inappropriate understate-
ment of a taxpayer’s adjusted regular tax
liability, the proposed regulations provide
that credits for overpayment of taxes and
for taxes withheld at source are not sub-
tracted from the taxpayer’s regular tax li-
ability because these credits relate to U.S.
federal income tax paid for the current or
previous year. Proposed §1.59A-5(b)(3)(i)
(C) and (ii).
A. Applicability of aggregation rule to
BEMTA
The proposed regulations provide
that the computations of modified tax-
able income and BEMTA are done on a
taxpayer-by-taxpayer basis. That is, the
aggregate group concept is used solely
for determining whether a taxpayer is an
applicable taxpayer, and does not apply to
the computations of modified taxable in-
come and the BEMTA. The preamble to
the proposed regulations explains that if
taxpayers calculated BEMTA differently
depending on their differing views of the
base on which the BEAT should be calcu-
lated (that is, aggregate group, consolidat-
ed group, individual company), this could
lead to inequitable results across other-
wise similar taxpayers. REG-104259-18,
83 F.R. 65974 (December 21, 2018).
The proposed regulations also explain
that it is expected to be less costly for
taxpayers to calculate BEMTA on a tax-
payer-by-taxpayer basis because the stat-
utory framework of section 59A applies
in addition to the regular tax liability of
a taxpayer. Calculating BEAT liability at
an aggregate level, for example, would re-
quire any BEAT liability to be reallocated
among the separate taxpayers.
Comments requested that electing tax-
payers be permitted to apply the aggrega-
tion rules of section 59A(e)(3) to deter-
mine their modified taxable income and
BEMTA. Electing taxpayers would effec-
tively compute modified taxable income
and BEMTA at the level of the aggregate
group rather than at the level of the sepa-
rate taxpayer.
The comments explained that aggrega-
tion would permit a group with multiple
consolidated returns to be given full credit
for the group’s contributions to the U.S.
tax base. Comments further explained
that, in certain instances, business, legal,
or regulatory reasons prevent groups with
multiple taxpayers from forming an af-
filiated group of corporations within the
meaning of section 1504 that can file a
single consolidated return. However, the
comments asserted that these groups still
represent a single economic unit where
they have a common parent and overall
management, share services, and are gen-
erally treated as a single employer.
Comments also suggested that an elec-
tion to apply the aggregation rules for BE-
MTA would prevent inequitable results in
the application of the BEAT. For example,
some comments suggested that it would
be inequitable for a single consolidated
group within an aggregate group that had
a large amount of NOLs, minimal regular
tax liability, and little to no base erosion
payments to be subject to the BEAT as a
result of a separate consolidated group’s
high base erosion percentage.
The comments suggested that an aggre-
gate approach would result in an insignifi-
cant amount of additional complexity and
little additional burden to taxpayers and
the government. Comments also made
suggestions regarding particular require-
ments of the election, such as require-
ments that each taxpayer joining the elec-
tion have the same taxable year-end, agree
to provide the IRS with all information
needed to compute the aggregate BEAT
liability, agree to be allocated a pro-rata
share of the aggregate BEAT liability, and
give consent for the statute of limitations
to remain open until the audits of all group
members with respect to the information
used to determine that aggregate BEAT
liability have closed.
The final regulations do not adopt the
recommendations. The Treasury Depart-
ment and the IRS recognize that, in deter-
mining whether a taxpayer is an applica-
ble taxpayer, and for determining certain
computational matters relating to modi-
fied taxable income and the BEMTA, sec-
tion 59A applies by reference to the tax-
payer and the members of its aggregate
group. Section 59A does not explicitly
extend that aggregate group treatment to
the computation of a taxpayer’s BEMTA
or the resulting tax liability. The rules
relating to the aggregate group concept

December 23, 2019 1446 Bulletin No. 2019–52
are complex, and they produce mean-
ingful differences from the single-entity
concepts in the consolidated return reg-
ulations. See Part III of this Summary of
Comments and Explanation of Revisions.
Section 1502 and the regulations there-
under contain detailed rules for imple-
menting the single taxpayer elements of
the consolidated return regulations. No
similar rules are expressly contemplated
in section 59A with respect to BEMTA.
Adding similar rules to these final regu-
lations would add significant complexi-
ty and would require the IRS to audit a
parallel BEMTA computation system.
Consistent with section 1502 and the reg-
ulations thereunder, aggregate groups of
taxpayers that file a consolidated return
must compute BEMTA on a single-entity
basis under section 59A and the final reg-
ulations. See §1.1502-59A(b). Therefore,
the final regulations continue to provide
that BEMTA is calculated on a taxpay-
er-by-taxpayer basis.
B. Treatment of general business credits
and foreign tax credits
A comment noted that taxpayers may
have credits generated in taxable years
beginning before January 1, 2018, that
carry forward to be used in taxable years
beginning after December 31, 2017. In the
case of net operating losses that arose in
taxable years beginning before January 1,
2018, and that are deducted as carryovers
in taxable years beginning after Decem-
ber 31, 2017, the comment also noted that
proposed §1.59A-4(b)(2)(ii) provides that
those deductions are excluded from modi-
fied taxable income.
The comment requested that the final
regulations exclude section 38 credits and
foreign tax credits generated in pre-2018
taxable years from the definition of credits
allowed under chapter 1 of the Code. As a
result of this request, these credits would
not be subtracted from the regular tax li-
ability amount in determining BEMTA.
Alternatively, the comment requested that
the partial exclusion of section 38 credits
from the calculation of BEMTA in pro-
posed §1.59A-5(b)(3)(i)(B) be extended
to foreign tax credits.
The final regulations do not adopt
this comment. With respect to net oper-
ating losses that arose in taxable years
beginning before January 1, 2018, the
exclusion of these deductions from the
calculation of modified taxable income
results from two statutory elements: (i)
section 59A(c)(1) provides that the start-
ing point for modified taxable income is
“taxable income of the taxpayer com-
puted under [chapter 1 of the Code] for
the taxable year ...”; that is, modified
taxable income starts with taxable in-
come, as reduced for any net operating
loss deduction under section 172; and (ii)
section 59A(c)(1)(B) provides that mod-
ified taxable income includes, or adds
back to taxable income, the base ero-
sion percentage of any NOL deduction
under section 172 for the taxable year.
This statutory framework for determin-
ing modified taxable income establishes
that section 59A permits the net operat-
ing loss deduction to reduce some or all
of the current year’s pre-NOL taxable in-
come, but that a portion of the tax benefit
from that NOL deduction is added back
to taxable income. Further, §1.59A–4(b)
(2)(ii) applies the base erosion percent-
age of the year in which the loss arose
for this purpose, which effectively means
that net operating losses incurred in tax-
able years ending on or before Decem-
ber 31, 2017, are entirely excluded from
the calculation from modified taxable
income when those deductions are used
to reduce or eliminate regular taxable in-
come. In contrast to this explicit statutory
framework that addresses the lifecycle of
the net operating loss carryforward, sec-
tion 59A does not provide a similar rule
for credits. Instead, section 59A(b)(1)(B)
provides that all credits allowed under
chapter 1 of the Code against regular tax-
able income for the taxable year are ex-
cluded from the calculation of BEMTA,
except for specifically enumerated cred-
its that are partially or fully allowed to
reduce BEMTA. Because section 59A(b)
(1) refers to all credits allowed to reduce
taxable income during the taxable year
and makes no distinction as between
those credits that originated in the current
taxable year or a prior taxable year, the
Treasury Department and the IRS have
determined that the proposed regulations
are consistent with the statute, and the fi-
nal regulations retain the same rules with
respect to section 38 credits and foreign
tax credits.
C. Exclusion of AMT credits from credits
reducing regular tax liability
Generally, a taxpayer’s BEMTA equals
the excess of (1) the applicable tax rate for
the year multiplied by the taxpayer’s mod-
ified taxable income for the taxable year
over (2) the taxpayer’s adjusted regular
tax liability for that year. In determining
the taxpayer’s adjusted regular tax liabili-
ty for the taxable year, credits are general-
ly subtracted from the regular tax liability
amount. To prevent an inappropriate un-
derstatement of a taxpayer’s adjusted reg-
ular tax liability, the proposed regulations
provide that credits for overpayment of
taxes and for taxes withheld at source are
not subtracted from the taxpayer’s regular
tax liability because these credits relate to
U.S. federal income tax paid for the cur-
rent or previous year.
Historically, an alternative minimum
tax (“AMT”) was imposed on a corpora-
tion to the extent the corporation’s ten-
tative minimum tax exceeded its regular
tax. If a corporation was subject to AMT
in any year, the amount of AMT was al-
lowed as an AMT credit in any subsequent
taxable year to the extent the corporation’s
regular tax liability exceeded its tentative
minimum tax in the subsequent year.
Bluebook, pp. 92, 94.
The Act repealed the corporate AMT,
and allows the corporate AMT credit to
offset the entire regular tax liability of
the corporation for a taxable year. In ad-
dition, the AMT credit is allowable and
generally refundable for a taxable year
beginning after 2017 and before 2022 in
an amount equal to 50 percent (100 per-
cent in the case of taxable years begin-
ning in 2021) of the excess (if any) of the
minimum tax credit for the taxable year
over the amount of the credit allowed
for the year against regular tax liability.
Bluebook p. 97.
Comments requested that AMT cred-
its be excluded from the calculation of
credits that reduce adjusted regular tax
liability because they represent income
taxes imposed in a previous tax year and
allowed as credits in a subsequent tax
year. The Treasury Department and the
IRS agree with these comments. Accord-
ingly, §1.59A-5(b)(3) provides that AMT
credits, like overpayment of taxes and for
taxes withheld at source, do not reduce ad-

Bulletin No. 2019–52 1447 December 23, 2019
justed regular tax liability for purposes of
section 59A.
D. Rules relating to banks and registered
securities dealers for purposes of
computing the base erosion percentage
and determining the BEAT rate for
computing BEMTA
Generally, under proposed §1.59A-2(e)
(1), a taxpayer, or the aggregate group of
which the taxpayer is a member, satisfies
the base erosion percentage test to deter-
mine applicable taxpayer status if its base
erosion percentage is at least three per-
cent. However, section 59A(e)(1)(C) and
proposed §1.59A-2(e)(2)(i) provide that a
lower threshold of two percent applies if
the taxpayer is a member of an affiliated
group (as defined in section 1504(a)(1))
that includes a domestic bank or registered
securities dealer. Proposed §1.59A-2(e)
(2)(ii) applies this two-percent threshold
to the aggregate group of which a taxpayer
is a member that includes a bank or regis-
tered securities dealer that is a member of
an affiliated group. Proposed §1.59A-2(e)
(2)(iii) provides a de minimis exception to
this lower two-percent base erosion per-
centage threshold in the case of an aggre-
gate group or consolidated group that has
de minimis bank or registered securities
dealer activities as measured by gross re-
ceipts. Specifically, proposed §1.59A-2(e)
(2)(iii) provides that an aggregate group
that includes a bank or a registered securi-
ties dealer that is a member of an affiliated
group is not treated as including a bank or
registered securities dealer for a taxable
year if the total gross receipts of the aggre-
gate group attributable to the bank or the
registered securities dealer represent less
than two percent of the total gross receipts
of the aggregate group (or consolidat-
ed group if there is no aggregate group).
Even if a taxpayer qualifies for the de
minimis exception to the lower base ero-
sion percentage test threshold, proposed
§1.59A-5(c)(2) provides that the BEAT
rate is increased by an additional one per-
cent for any taxpayer that is a member of
an affiliated group that includes a bank or
registered securities dealer. See section
59A(b)(3) (requiring that the base erosion
and anti-abuse tax rate in effect for the
taxable year for these taxpayers must be
increased by one percentage point).
A comment requested that the final reg-
ulations provide for a higher de minimis
threshold of five percent and clarify that in
characterizing the income of a corporation
with a bank or securities dealer division
for purposes of this threshold, only the
gross receipts arising from the conduct of
the banking or securities business would
be taken into account. The Treasury De-
partment and the IRS have determined
that this modification to the de minimis
threshold is not warranted because this de
minimis exception in the proposed regu-
lations was developed based on a quali-
tative assessment of a very small degree
of activities to justify a regulatory-based
exception to the statutory provision that
applies to a bank or registered securities
dealer. Accordingly, the final regulations
retain the two-percent de minimis thresh-
old.
Comments supported the proposed
regulations’ de minimis exception to the
lower base erosion percentage threshold
and suggested that a similar exception be
created regarding the increased BEAT rate
for a taxpayer that is a member of an affil-
iated group with de minimis gross receipts
attributable to banking or securities dealer
activities. In instances where the base ero-
sion percentage exceeds three percent, the
comments questioned the appropriateness
of applying the BEAT rate add-on of one
percent to the non-financial members of
the affiliated group when the gross receipts
of the financial members are insignificant
relative to the non-financial members.
The final regulations adopt this com-
ment by revising §1.59A-5(c)(2) to pro-
vide that the additional one percent add-
on to the BEAT rate will not apply to a
taxpayer that is part of an affiliated group
with de minimis banking and securities
dealer activities.
A comment recommended that an ad-
ditional exception to the increased BEAT
rate should be provided where the bank or
securities dealer members of an affiliated
group make no more than a de minimis
amount of base erosion payments, mea-
sured by reference to aggregate affiliated
group base erosion payments. The final
regulations do not adopt this recommen-
dation because the base erosion percent-
age test already operates as a statutory rule
that limits the BEAT to taxpayers (without
regard to any particular type of business)
that have a relatively low degree of base
erosion payments.
A comment requested that the final
regulations include a transitory ownership
exception to apply where a bank or secu-
rities dealer is a member of an affiliated
group for only a short period (such as 90
days) during the taxable year. The stated
purpose of this request was to allow time
for a taxpayer that acquires a group that
includes a bank or registered securities
dealer to dispose of the bank or securi-
ties dealer member of a target affiliated
group without causing the entire acquiring
affiliated group to become subject to the
higher BEAT rate applicable to taxpayers
with bank or registered securities dealer
members. The Treasury Department and
the IRS decline to expand the regulatory
de minimis exception to include an excep-
tion based on short-term ownership, but
note that a taxpayer in this situation may
be eligible for the de minimis regulatory
exception if the bank and securities deal-
er operations are relatively small. If the
operations are not sufficiently small, the
statutory rules that apply to banks and reg-
istered securities dealers would no longer
apply in taxable years after the disposition
of the bank or securities dealer.
A comment observed that the rule in
the proposed regulations extending the
lower base erosion percentage threshold
to the entire aggregate group that includes
a bank or registered securities dealer is not
supported by the language of section 59A.
The comment proposed that the proper ap-
plication of section 59A requires that the
lower base erosion percentage should be
limited to only the affiliated group that in-
cludes a bank or registered securities deal-
er, and not the remainder of the taxpayer’s
aggregate group. The final regulations do
not adopt this comment. The Treasury
Department and the IRS note that section
59A(e)(3) specifically requires aggrega-
tion for purposes of computing the base
erosion percentage. Further, the implica-
tion of the comment is that in measuring
whether a particular taxpayer has a base
erosion percentage that is greater than
the prescribed level in section 59A(e)(3)
(C), the threshold level would be blended.
That is, under the approach recommend-
ed by the comment, a taxpayer with a
bank or securities dealer in its aggregate
group would compute a relative weighting

December 23, 2019 1448 Bulletin No. 2019–52
of the bank/dealers (two percent thresh-
old) vs. non-bank/dealers (three percent
threshold) in order to compute a blended
threshold that is used for the base erosion
percentage test. There is no indication in
the statutory language supporting this ap-
proach. Accordingly, no changes are made
to the final regulations in this regard.
E. Applicability of section 15 to the BEAT
rate
Section 59A(b)(1)(A) provides that
the base erosion minimum tax amount
of an applicable taxpayer for any taxable
year is the excess of an amount equal to
10 percent (5 percent in the case of tax-
able years beginning in calendar year
2018) of the modified taxable income
of the taxpayer for the taxable year. Pro-
posed §1.59A-5(c) provides the base
erosion and anti-abuse tax rates that ap-
ply for purposes of calculating the BE-
MTA. The base erosion and anti-abuse
tax rate is five percent for taxable years
beginning in calendar year 2018 and 10
percent for taxable years beginning after
December 31, 2018, and before January
1, 2026. Proposed §1.59A-5(c)(1)(i) and
(ii). Proposed §1.59A-5(c)(3) provides
that section 15 does not apply to any tax-
able year that includes January 1, 2018,
and further provides that for a taxpayer
using a taxable year other than the calen-
dar year, section 15 applies to any taxable
year beginning after January 1, 2018. In
the case of taxpayers that use a taxable
year other than the calendar year and that
includes January 1, 2019, this proposed
regulation provides that section 15 ap-
plies to the change in the section 59A tax
rate from 5 percent to 10 percent, based
on an effective date of January 1, 2019.
Several comments asserted that final
regulations should provide that section 15
applies only to the change in tax rate set
forth in section 59A(b)(2) and should not
apply to the change in tax rate included
in section 59A(b)(1)(A) for taxable years
beginning in calendar year 2018. The fi-
nal regulations adopt this comment. In
adopting this comment that section 15 not
apply to the change in tax rate included
in section 59A(b)(1)(A) for taxable years
beginning in calendar year 2018, the final
regulations provide no inference as to the
application of section 15 to other provi-
sions of the Code that do not set forth an
explicit effective date.
VII. Comments and Changes to Proposed
§1.59A-6—Qualified Derivative
Payments
Proposed §1.59A-6 provides guidance
regarding QDPs.
A. Scope of the QDP exception
Proposed §1.59A-6(b) defines a QDP
as a payment made by a taxpayer to a for-
eign related party pursuant to a derivative
with respect to which the taxpayer (i) rec-
ognizes gain or loss as if the derivative
were sold for its fair market value on the
last business day of the taxable year (and
any additional times as required by the
Code or the taxpayer’s method of account-
ing); (ii) treats any recognized gain or loss
as ordinary; and (iii) treats the character
of all items of income, deduction, gain, or
loss with respect to a payment pursuant to
the derivative as ordinary. The definition
in the proposed regulations adopts the
statutory definition of a QDP contained in
section 59A(h)(2)(A). The QDP exception
under the statute and the proposed regula-
tions is subject to further limitations that
are discussed in Parts VII.B and C of this
Summary of Comments and Explanation
of Revisions.
A comment requested that the scope
of the QDP definition be expanded. The
comment requested that the final reg-
ulations extend the scope of the QDP
exception so that multinational corpora-
tions that use a centralized hedging center
structure can benefit from this exception
from the definition of a base erosion pay-
ment with respect to their outbound re-
lated-party hedging payments. The com-
ment stated that taxpayers in the oil and
gas sector often do not adopt a mark-to-
market method of tax accounting for a va-
riety of business and tax-related reasons.
The comment recommended that the final
regulations adopt a distinct QDP excep-
tion that would be applicable to oil and
gas hedging centers (as well as any simi-
larly situated hedging centers). The com-
ment requested that this QDP exception
exclude related-party hedging payments
from the scope of base erosion payments,
without regard to whether the taxpayer
satisfies the requirement in section 59A(h)
(2)(A)(i) that the taxpayer accounts for
the underlying commodity derivative on
a mark-to-market basis. As an alterna-
tive, the comment suggested that the fi-
nal regulations could interpret the mark-
to-market requirement of section 59A(h)
(2)(A)(i) broadly to cover taxpayers that
undertake mark-to-market accounting for
derivatives for either financial accounting
or tax purposes.
For a derivative payment to qualify for
the QDP exception, section 59A(h)(2)(A)
requires that the taxpayer recognize gain
or loss with respect to the derivative as if
the derivative were sold for its fair mar-
ket value on the last business day of the
taxable year, and “such additional times
as required by this title or the taxpayer’s
method of accounting” (emphasis added).
The Treasury Department and the IRS,
therefore, interpret section 59A as exclud-
ing a derivative from the QDP exception
if the taxpayer does not adopt a mark-to-
market method of tax accounting. In light
of the statute’s clear requirement for the
QDP exception that a derivative must be
treated as sold for its fair market value on
the last business day of the taxable year
(or more frequently, if required by the
Code or the taxpayer’s method of account-
ing), the final regulations do not adopt the
comment. See § 1.475(a)-4(d).
B. Sale-repurchase transactions and
securities lending transactions
Section 59A(h)(1) provides that a QDP
is not treated as a base erosion payment.
To qualify for the QDP exception, the pay-
ment must be made with respect to a de-
rivative. A derivative is generally defined
in section 59A(h)(4) as any contract the
value of which, or any payment or other
transfer with respect to which, is directly
or indirectly determined by reference to
one or more listed items, including any
share of stock in a corporation or any ev-
idence of indebtedness. A derivative does
not include any of the listed items. Section
59A(h)(3) excludes from the QDP excep-
tion any payment that would be treated
as a base erosion payment if it were not
made pursuant to a derivative (for exam-
ple, interest on a debt instrument). Section
59A(h)(3) also excludes any payment
properly allocable to a nonderivative com-

Bulletin No. 2019–52 1449 December 23, 2019
ponent of a contract that contains deriva-
tive and nonderivative components.
The preamble to the proposed regula-
tions notes that a sale-repurchase transac-
tion satisfying certain conditions is treated
as a secured loan for U.S. federal tax pur-
poses, and therefore, is not a derivative.
REG-104259-18, 83 F.R. 65962 (Decem-
ber 21, 2018). The preamble to the pro-
posed regulations explains that “[b]ecause
sale-repurchase transactions and securi-
ties lending transactions are economically
similar to each other, the Treasury Depart-
ment and the IRS have determined that
these transactions should be treated sim-
ilarly for purposes of section 59A(h)(4),
and therefore payments on those trans-
actions are not treated as QDPs.” REG-
104259-18, 83 F.R. 65963 (December 21,
2018). As a result, proposed §1.59A-6(d)
(2)(iii) provides that a derivative does not
include any securities lending transaction,
sale-repurchase transaction, or substan-
tially similar transaction.
Comments generally agreed that a
sale-repurchase transaction that is treated
as a secured loan for U.S. federal income
tax purposes is not a derivative; therefore,
comments acknowledged that a sale-re-
purchase transaction that is treated as a se-
cured loan for U.S. federal tax purposes is
not eligible for the QDP exception under
section 59A, regardless of the specific ex-
clusion language in proposed §1.59A-6(d)
(2)(iii). Certain comments explained that
the nominal seller of the securities in a
sale-repurchase transaction is treated as
transferring the securities as collateral of a
loan. Comments interpret current federal
income tax law to provide that the nom-
inal seller remains the tax owner of the
securities when a sale-repurchase transac-
tion is treated as a secured loan for federal
income tax purposes. Therefore, when the
nominal buyer of the securities receives
payments with respect to the collateral
securities (for example, in the case of an
equity security, the dividend payments),
and passes those payments on to the nom-
inal seller (or otherwise credits the seller
for the amount of the payments), the com-
ments asserted that the nominal seller is
treated as having directly received those
payments from the issuer of the securities.
In the context of section 59A, if the
nominal seller in a sale-repurchase trans-
action that is treated as a loan is a domes-
tic corporation and the nominal buyer is
a foreign related party, any interest paid
with respect to the secured loan from the
domestic corporation to the foreign relat-
ed party would be a base erosion payment,
not a QDP. In a sale-repurchase transac-
tion that is treated as a loan for which the
nominal seller is instead a foreign related
party and the nominal buyer is a domestic
corporation, the payments with respect to
the security held by the nominal buyer as
collateral for that transaction are treated as
received by the nominal buyer for the ben-
efit of the nominal seller. Because there is
no regarded “substitute payment” from
the nominal buyer to the nominal seller,
there cannot be a base erosion payment.
Comments asserted that securities
lending transactions and sale-repurchase
transactions are treated differently with
respect to underlying payments or sub-
stitute payments as a result of proposed
§1.59A-6(d)(2)(iii) even though the trans-
actions are economically similar. Com-
ments observed that in a typical fully-col-
lateralized securities lending transaction,
the securities lender transfers the securi-
ties to the securities borrower in exchange
for an obligation by the borrower to make
certain payments to the securities lender
and return identical securities. Unlike a
sale-repurchase transaction, comments
remarked that this transaction results in a
transfer of beneficial ownership of the se-
curities to the securities borrower for U.S.
federal income tax purposes. Comments
noted that these securities lending trans-
actions may arise in the ordinary course of
business, for example, to facilitate a short
sale of the underlying security. In con-
nection with the transfer of securities, the
securities borrower provides cash or other
collateral to the securities lender, typical-
ly with the same or greater value as the
underlying security. Comments observed
that the securities lender in these trans-
actions can be viewed as both a lender of
securities to the counterparty, and as the
borrower of cash from the counterparty.
Comments suggested that the final reg-
ulations should treat a collateralized se-
curities lending transaction as consisting
of two legs: (1) a loan of securities, or a
“securities leg”, and (2) a loan of cash,
or a “cash leg.” Comments stated that
the cash leg is simply a cash borrowing
by the security lender. Many comments
conceded that the cash leg of a securities
lending transaction should not be eligible
for the QDP exception because the cash
leg is properly treated as a loan and any
payments should be treated as interest.
Certain of these comments observed that
the treatment of the cash leg of a securi-
ties lending transaction as debt giving rise
to interest payments is consistent with
the broadly symmetrical treatment of se-
curities lending transactions and sale-re-
purchase transactions that are treated as
secured loans for U.S. federal income tax
purposes.
Comments, however, asserted that
the securities leg of a securities lending
transaction should be treated as a deriva-
tive that qualifies for the QDP exception.
The comments argued that a securities leg
meets the statutory requirement of a de-
rivative because it represents a contract,
which includes any short position, the
value of which, or any payment or other
transfer with respect to which, is (direct-
ly or indirectly) determined by reference
to any share of stock in a corporation. By
treating a substitute payment in a securi-
ties lending transaction as eligible for the
QDP exception, those payments would
receive similar treatment for purposes of
section 59A as in the case of a sale-repur-
chase transaction that is treated as a se-
cured loan. That is, in the sale-repurchase
transaction, the remittances on the collat-
eral by the nominal buyer to the nominal
seller are treated as a payment from the
issuer of the security to the nominal seller
for U.S. federal income tax purposes.
Some comments acknowledged that in
certain circumstances, there is the poten-
tial to use a securities lending transaction
as a financing. One comment described
a scenario involving an uncollateralized
securities borrowing by a domestic corpo-
ration of relatively risk-free debt, such as
short-term Treasury bills, from a foreign
related party. As a second step, the do-
mestic corporation immediately sells the
Treasury bills for cash; after a short pe-
riod, the taxpayer buys even shorter-term
Treasury bills and redelivers them to the
lender. Comments acknowledged that in
this situation, or in similar situations, the
transaction may be viewed as economical-
ly equivalent to borrowing money, with
the taxpayer exposed to the relatively
small risk of changes in the value of the

December 23, 2019 1450 Bulletin No. 2019–52
security (here, U.S. government-backed
Treasury bills).
Rather than excluding all securities
lending transactions from QDP status,
comments generally recommended that
the final regulations adopt rules to address
this particular risk. Some comments rec-
ommended adopting a specific operating
rule to address this concern, including (i)
providing that only contracts entered into
in the ordinary course of the taxpayer’s
trade or business can qualify for the QDP
exception, (ii) providing that only fully
collateralized transactions can qualify for
the QDP exception, or (iii) applying dif-
ferent rules for securities lending transac-
tions involving relatively low-risk securi-
ties (such as Treasury bills) than for other
securities that are subject to more market
risk. Regarding fully collateralized securi-
ties lending transactions, some comments
asserted that under certain bank regulato-
ry regimes, other amounts outside of the
actual collateral in the transaction may
effectively serve as collateral due to the
securities borrower’s compliance with any
specific regulatory regime governing se-
curities borrowing. Some comments rec-
ommended that the final regulations adopt
an anti-abuse rule rather than an operating
rule to address this concern. One comment
suggested an anti-abuse rule that excludes
from the QDP exception transactions with
specific debt-like features that make the
transaction substantially similar to a fi-
nancing, while another comment noted
that it would be unduly burdensome to
test contracts based on certain characteris-
tics, particularly for taxpayers that engage
in a high volume of these transactions in
the ordinary course. This comment in-
stead suggested that all securities lending
transactions entered into for valid non-tax
business purposes should be eligible for
the QDP exception.
In response to these comments, the fi-
nal regulations make certain revisions to
§1.59A-6(d)(2)(iii). First, §1.59A-6(d)(2)
(iii) has been revised to more directly pro-
vide that a derivative contract as defined
in section 59A(h)(4) does not include a
sale-repurchase transaction or substantial-
ly similar transaction that is treated as a
secured loan for U.S. federal income tax
purposes. Second, §1.59A-6(d)(2)(iii) is
also revised to exclude from the defini-
tion of a derivative for purposes of sec-
tion 59A(h) the cash leg of a securities
lending transaction, along with cash pay-
ments pursuant to a sale-repurchase trans-
action, or other similar transaction. The
final regulations no longer expressly ex-
clude securities lending transactions from
the definition of a derivative contract in
§1.59A-6(d)(2)(iii). As a result, payments
(such as a borrow fee) made with respect
to the securities leg of a securities lending
transaction may qualify as a QDP.
To address the concern about secu-
rities lending transactions that have a
significant financing component, the
final regulations adopt the recommen-
dation from comments to provide an
anti-abuse rule. See §1.59A-6(d)(2)(iii)
(C). The anti-abuse rule in the final reg-
ulations includes criteria to limit the rule
to situations that have been identified as
presenting clear opportunities for abuse.
The anti-abuse rule takes into account
two factors: (a) whether the securities
lending transaction or substantially sim-
ilar transaction provides the taxpayer
with the economic equivalent of a sub-
stantially unsecured cash borrowing and
(b) whether the transaction is part of an
arrangement that has been entered into
with a principal purpose of avoiding the
treatment of any payment with respect to
the transaction as a base erosion payment.
The determination of whether a securities
lending transaction or substantially simi-
lar transaction provides the taxpayer with
the economic equivalent of a substantial-
ly unsecured cash borrowing takes into
account arrangements that effectively
serve as collateral due to the taxpayer’s
compliance with any U.S. regulatory re-
quirements governing such transaction.
The anti-abuse rule is based on these
factors because the Treasury Department
and the IRS are cognizant that an objec-
tive mechanical rule based on the level of
collateralization may be difficult for both
taxpayers and the IRS to apply, in particu-
lar due to the high volume of transactions
issued under varying conditions.
C. QDP reporting requirements
Section 59A(h)(2)(B) provides that
no payment is a QDP for a taxable year
“unless the taxpayer includes in the in-
formation required to be reported under
section 6038B(b)(2)
4
[sic] with respect to
such taxable year such information as is
necessary to identify the payments to be
so treated and such other information as
the Secretary determines necessary to car-
ry out the provisions of this subsection.”
Proposed §1.59A-6(b)(2)(i) clarifies that
no payment is a QDP unless the taxpay-
er reports the information required by the
Secretary in proposed §1.6038A-2(b)(7)
(ix). Proposed §1.6038A-2(b)(7)(ix) iden-
tifies the specific information that a tax-
payer needs to report to comply with the
reporting requirement of section 59A(h)
(2)(B) and proposed §1.59A-6(b)(2)(i).
The proposed regulations provide that the
rule for reporting QDPs applies to taxable
years beginning one year after final regu-
lations are published in the Federal Reg-
ister. Proposed §1.6038A-2(g). Before
proposed §1.6038A-2(b)(7)(ix) is appli-
cable, a taxpayer is treated as complying
with the QDP reporting requirement by
reporting the aggregate amount of QDPs
on Form 8991. Id.
1. Scope of QDP Reporting
Section 1.6038A-1(c) generally de-
fines a reporting corporation as either a
domestic corporation that is 25-percent
foreign-owned, or a foreign corporation
that is 25-percent foreign-owned and en-
gaged in trade or business within the Unit-
ed States. A comment recommended that
the final regulations clarify that a failure
to comply with the Form 8991 reporting
requirements by a taxpayer that is not a
reporting corporation (within the meaning
of §1.6038A-1(c)) does not affect the QDP
status of any payments made by the tax-
payer. The comment also recommended
that the final regulations clarify the con-
sequences of failing to comply with the
Form 8991 QDP reporting requirements.
Section 59A(h)(2)(B) requires that all
taxpayers, whether or not the taxpayer is a
4
As enacted, section 59A(h)(2)(B) cross-references section 6038B(b)(2). This cross-reference in section 59A(h)(2)(B) is a typographical error. Section 6038B(b)(2) does not relate to section
59A. The correct cross-reference is to section 6038A(b)(2). The Act added reporting requirements for section 59A in section 6038A(b)(2). See Act, §14401(b).

Bulletin No. 2019–52 1451 December 23, 2019
reporting corporation within the meaning
of section 6038A, report QDPs in order
for the exception to apply to any particu-
lar payment. The Treasury Department and
the IRS interpret the language in section
59A(h)(2)(B) referencing section 6038B(b)
(2) (“the information required to be report-
ed under section 6038B(b)(2) [sic]”) as
addressing the scope of information re-
quired to be reported rather than limiting
the scope of taxpayers that must report in
order to qualify derivatives as QDPs un-
der section 59A(h). The final regulations,
therefore, clarify that §1.59A-6(b)(2)(i)
applies to all taxpayers (whether or not a
taxpayer is a reporting corporation as de-
fined in §1.6038A-1(c)) and that all taxpay-
ers must report the information required by
§1.6038A-2(b)(7)(ix) for a payment to be
eligible for QDP status.
Comments also requested addition-
al guidance regarding the consequences
when a taxpayer fails to comply with the
QDP reporting requirements with respect
to a particular payment. The proposed reg-
ulations provide that a failure by a taxpay-
er to report a particular payment as a QDP
disqualifies only that payment and does
not affect the taxpayer’s properly reported
payments. The final regulations retain that
rule. In addition, §1.59A-6(b)(2)(i) pro-
vides that a taxpayer satisfies the report-
ing requirement by including a QDP in
the aggregate amount of all QDPs (rather
than the aggregate amount as determined
by type of derivative contract as provided
in proposed §1.6038A-2(b)(7)(ix)(A)) on
Form 8991 or a successor form.
Another comment requested a reason-
able cause exception to the QDP reporting
requirements because treating a payment
as a base erosion payment solely when a
taxpayer failed to report the payments as
a QDP would unfairly penalize a taxpayer
for making an error. The Treasury Depart-
ment and the IRS have determined that a
reasonable cause exception is inappropriate
because section 59A(h)(2)(B) provides that
a taxpayer must identify all base erosion
payments. A taxpayer must determine that
a payment is eligible for the QDP excep-
tion and, therefore, properly excluded from
the base erosion percentage calculation.
Similarly, a taxpayer must determine that
a payment is properly characterized as a
QDP to properly determine modified tax-
able income for purposes of section 59A.
In addition, a reasonable cause exception
would make it more difficult for the IRS to
administer section 59A. However, as dis-
cussed in Part VII.C.3 of this Summary of
Comments and Explanation of Revisions,
the final regulations provide a good faith
standard that applies during the QDP tran-
sition period before the reporting set forth
in §1.6038A-2(b)(7)(ix) is required. In ad-
dition, in response to comments, the transi-
tion period has been extended to 18 months.
2. Determining the Amount of QDP
Payment
A comment recommended that the fi-
nal regulations clarify that taxpayers may
use the net amount with respect to each
derivative transaction to arrive at the ag-
gregate QDP amount that must be report-
ed on Form 8991. The comment noted that
this approach would be consistent with the
BEAT Netting Rule for mark-to-market
transactions. See Part III.D of Summary
of Comments and Explanation of Revi-
sions. Generally, the Treasury Department
and the IRS have adopted this comment.
See §1.59A-6(b)(2)(iii). A taxpayer, how-
ever, must exclude from the net amount of
a QDP any payment made with respect to
a derivative that is either excluded from
QDP status pursuant to section 59A9(h)
(3) or otherwise treated as a type of pay-
ment that is not a derivative payment. See
§1.59A-6(b)(3)(ii).
Another comment requested exclud-
ing from QDP reporting requirements any
payments with respect to securities lending
transactions and sale-repurchase transac-
tions that are not regarded under generally
accepted accounting principles (GAAP).
The final regulations do not adopt this rec-
ommendation. Reporting QDPs is a statu-
tory requirement to provide the IRS with
data about transactions that have been ex-
cluded under the QDP exception, and the
financial accounting for these transactions
is not relevant to QDP status. Furthermore,
the Treasury Department and the IRS have
determined that the deferred applicabili-
ty date and transition period, described in
Part VII.C.3 of Summary of Comments
and Explanation of Revisions, will provide
taxpayers with adequate time to develop
systems to track the information that may
not have been previously maintained in ac-
counting systems.
3. Applicability Date and Transition
Period for QDP Reporting
Comments asserted that taxpayers
needed additional time before the final
regulations regarding QDP reporting are
applicable. Comments noted that before
the enactment of section 59A, taxpayers
generally were not required to separately
track or account for certain transactions
with foreign related parties. The Treasury
Department and the IRS recognize that sec-
tion 59A will require taxpayers to develop
new systems to properly report QDPs;
therefore, the final regulations extend the
transition period for meeting the complete
QDP reporting requirements until taxable
years beginning on or after June 7, 2021.
Another comment requested additional
guidance regarding the QDP reporting re-
quirements that apply before the applica-
bility date of the final regulations for these
rules (the “QDP transition period”). Specif-
ically, comments interpreted the QDP tran-
sition period as applying only to a reporting
corporation as defined in §1.6038A-1(c).
They recommended that all taxpayers be
permitted to report QDPs on an aggregate
basis during the QDP transition period
and that the good faith effort standard for
reporting QDPs during the transition peri-
od should apply to all taxpayers. The final
regulations adopt these comments by clar-
ifying that §1.6038A-2(b)(7)(ix) applies
to a taxpayer whether or not the taxpayer
is a reporting corporation as defined in
§6038A-1(c). See §1.59A-6(b)(2)(i). In
addition, the final regulations eliminate the
rule in the proposed regulations requiring a
taxpayer to report the aggregate amount of
QDPs as determined by type of derivative
contract, the identity of each counterparty,
and the aggregate amount of QDPs made
to each counterparty. The Treasury Depart-
ment and the IRS anticipate that the aggre-
gate amount of QDPs provides adequate
information to allow the IRS to administer
the QDP rules.
VIII. Comments and Changes to
Proposed §1.59A-7—Application of
BEAT to Partnerships
Proposed §1.59A-7 provides rules re-
garding how partnerships and their part-
ners are treated for purposes of the BEAT.
The proposed regulations generally apply

December 23, 2019 1452 Bulletin No. 2019–52
an aggregate approach in addressing the
treatment of payments made by a partner-
ship or received by a partnership for pur-
poses of section 59A.
A. Partnership contributions and
distributions
1. Request for Contribution Exception
The proposed regulations treat a con-
tribution to a partnership as a transaction
between the partners that may result in
a base erosion payment, including when
a partnership with a domestic corporate
partner receives a contribution of depre-
ciable property from a foreign related par-
ty. Several comments requested a change
to the approach taken in the proposed reg-
ulations. One comment asserted that the
issuance of a partnership interest in ex-
change for a contribution to a partnership
was not intended to be a base erosion pay-
ment covered by section 59A(d)(2) and
that subjecting inbound nonrecognition
transactions to the BEAT seems contrary
to the purpose of the Act, which the com-
ment stated was to encourage taxpayers to
relocate business functions and assets to
the United States and expand business ac-
tivities in the United States. The comment
noted that if Congress intended to subject
nonrecognition transactions to the BEAT,
it would have done so more explicitly.
Other comments generally asserted
that nonrecognition transactions should
not be subject to the BEAT. Some of these
comments specifically addressed section
721 transactions and recommended that
the same exception for section 351 trans-
actions that is discussed in Part IV.B.3 of
this Summary of Comments and Explana-
tion of Revisions apply to section 721(a)
transactions.
In contrast, a comment noted that ap-
plying an aggregate approach to partner-
ships for purposes of the BEAT was con-
sistent with the purposes of the statute. The
comment asserted that treating a contribu-
tion of property in exchange for a partner-
ship interest as a potential base erosion
payment is consistent with the concept of
treating a partnership as an aggregate of
its partners and with the purposes of sec-
tion 59A. The comment explained that to
the extent there is a base eroding transac-
tion when property (such as depreciable
property) is contributed to a partnership
under section 721, it is the acquisition of a
proportionate share of new property by the
existing partners from a contributing part-
ner (assuming that partner is a foreign re-
lated party). The comment also explained
that the existing partners would have paid
for the new property with a proportionate
share of the existing assets of the partner-
ship. In addition, the comment noted that
a contributing partner (such as a domestic
corporation) could be acquiring a propor-
tionate share of the partnership’s existing
assets (where one or more partners of the
partnership are foreign related parties).
The final regulations do not adopt the
comments requesting an exception for
nonrecognition transactions involving
partnerships. The general premise of the
aggregate approach to transactions involv-
ing partners and partnerships in both the
proposed regulations and the final regu-
lations is to treat partners as engaging in
transactions directly with each other, not
as engaging in transactions with the part-
nership as a separate entity (solely for pur-
poses of section 59A). See §1.59A-7(b)
and (c); proposed §1.59A-7(b)(1)-(3);
REG-104259-18, 83 F.R. 65965 (Decem-
ber 21, 2018). The Treasury Department
and the IRS acknowledge that the final
regulations include an exception for spec-
ified corporate nonrecognition transac-
tions that is discussed in Part IV.B.3 of the
Summary of Comments and Explanation
of Revisions, which presents some simi-
larity with the types of transactions con-
templated by this comment. For example,
if a domestic corporation and a foreign
related party each contribute depreciable
property to a new domestic corporation in
exchange for stock of the new domestic
corporation in a transaction that qualifies
under section 351(a), the new domestic
corporation generally will not be treated
as making a base erosion payment in ex-
change for the depreciable property pur-
suant to the new exception in the final
regulations for specified corporate non-
recognition transactions that is discussed
in Part IV.B.3 of the Summary of Com-
ments and Explanation of Revisions. In
contrast, if the same domestic corporation
and a foreign related party each contribute
depreciable property to a new partnership
in exchange for interests in the partner-
ship in a transaction that qualifies under
section 721(a), the transaction is treated
as a partner-to-partner exchange that may
result in a base erosion payment solely for
purposes of section 59A, with no specific
exception adopted in the final regulations.
The final regulations do not extend the
exception for specified corporate nonrec-
ognition transactions to partnership trans-
actions because that treatment would be
generally inconsistent with the approach
of treating partners in a partnership as
engaging in transactions with each other.
The preamble to the proposed regulations
states that the Treasury Department and
the IRS determined that a rule that applies
the aggregate principle consistently is nec-
essary to align the treatment of economi-
cally similar transactions. REG-104259-
18, 83 FR 65956, 65967 (Dec. 21, 2018).
The adoption of a section 721(a) excep-
tion to the BEAT could permit related par-
ties to use a partnership to avoid a transac-
tion that would be a base erosion payment
if that transaction occurred directly among
the partners. The Treasury Department
and the IRS acknowledge that in some re-
spects, a similar argument could be made
against adopting the exception for speci-
fied corporate nonrecognition transactions
that applies to the section 351(a) exam-
ple that is described in this Part VIII.A.1;
however, the general tax rules that apply
to corporations under subchapter C are
fundamentally different from the general
tax rules that apply to partnerships under
subchapter K. In particular, when property
is distributed by a partnership back to the
partner, nonrecognition by the partnership
and the partner is the general rule under
subchapter K; however, when property
is distributed by a corporation back to its
shareholder, recognition and income by
the corporation and the shareholder is the
general rule under subchapter C. Com-
pare sections 731(b) and (a) with sections
311(b) and 301(c). For these reasons, the
final regulations do not extend the excep-
tion that is provided to specified corporate
nonrecognition transactions to partnership
nonrecognition transactions, such as con-
tributions.
2. Amounts Paid or Accrued
Proposed §1.59A-3(b)(2)(i) confirms
that an amount “paid or accrued,” as those
terms are used for purposes of determin-

Bulletin No. 2019–52 1453 December 23, 2019
ing whether there is a base erosion pay-
ment, includes an amount paid or accrued
using any form of consideration.
A comment asserted that subchapter
K of the Code contains well-developed
provisions to distinguish between a sale
or exchange, as opposed to a contribu-
tion, and that there should only be a “pay-
ment or accrual” for purposes of section
59A(d) to the extent a partner is treated as
receiving proceeds from the partnership
pursuant to a sale (for example, under
the disguised sale rules of section 707).
Similarly, a comment recommended that
a distribution by a partnership described
in section 731 generally not be treated as
an amount paid or accrued for purposes of
section 59A, except to the extent that the
transaction would be treated as a deemed
sale of property by the partnership.
In addition, one comment recommended
that if the final regulations continue to treat
certain partnership contributions and distri-
butions as “payments” that could be base
erosion payments, the applicability date
of the provisions relating to this treatment
should be modified to take into account that
taxpayers have engaged in contributions to
(or distributions by) partnerships between
December 31, 2017, and December 21,
2018, without guidance that these transac-
tions could be treated as base erosion pay-
ments. The comment also recommended a
special rule to exclude pro-rata contribu-
tions (contributions made by each partner
of the partnership in proportion to its inter-
est in the partnership) from the definition of
“an amount paid or accrued.”
The final regulations continue to treat
contributions to and distributions from
partnerships as “payments” that could be
base erosion payments under the aggre-
gate approach. Section 59A does not con-
tain an explicit restriction on the type of
consideration that constitutes a payment.
Proposed §1.59A-3(b)(2)(i) confirms that
“an amount paid or accrued includes an
amount paid or accrued using any form
of consideration, including cash, proper-
ty, stock, or the assumption of a liability.”
The final regulations include the same
language. The Treasury Department and
the IRS have determined that it is not
appropriate to change the operating rule
describing payment consideration or de-
lay its application. However, in response
to comments, the final regulations add
partnership interests to the non-exclu-
sive list of examples of consideration in
§1.59A-3(b)(2)(ii) to reaffirm this result.
The final regulations do not exclude
pro-rata contributions from the defini-
tion of “an amount paid or accrued” and
therefore, they are not excluded from the
definition of a base erosion payment. If
pro-rata contributions are made by each
partner, each transaction must be separate-
ly considered, consistent with the general
rule in section 59A that assesses transac-
tions on a gross, rather than net, basis. A
pro-rata contribution exclusion would be
inconsistent with the aggregate approach
taken in these final regulations. For exam-
ple, if there was an exception, a domes-
tic corporation could contribute cash to
a new partnership and its foreign parent
could contribute depreciable property,
each in proportion to their interest in the
partnership, and under the exception, the
transaction would not be subject to sec-
tion 59A even though, under the aggregate
approach, the domestic corporation ef-
fectively acquired its proportionate share
of the contributed depreciable property
from a foreign related party in exchange
for cash. See also Part VIII.B of this Sum-
mary of Comments and Explanation of
Revisions (Netting). To clarify this point,
§1.59A-7(c)(5)(iv) provides that when
both parties to a transaction use non-cash
consideration, each party must separately
determine its base erosion payment with
respect to each property, and §1.59A-7(d)
(1) provides that base erosion tax benefits
are calculated separately for each payment
or accrual on a property-by-property basis
and are not netted.
Consistent with the approach taken for
contributions to a partnership, the Trea-
sury Department and the IRS determined
that no special rule should be provided
for distributions by a partnership. The ap-
proach suggested by a comment — only
treating distributions subject to the dis-
guised sales rules as potential base erosion
payments — would be inconsistent with
the aggregate approach to partnerships
for the reasons discussed in the context of
partnership contributions.
3. Request for ECI Exception
A comment recommended that con-
tributions of depreciable (or amortiz-
able) property by a foreign related party
to a partnership (in which an applicable
taxpayer is a partner) or distributions of
depreciable or amortizable property by
a partnership (in which a foreign related
party is a partner) to an applicable tax-
payer be excluded from the definition of
a base erosion payment to the extent that
the foreign related party would receive (or
would be expected to receive) allocations
of income from that partnership interest
that would be taxable to the foreign re-
lated party as effectively connected in-
come. The final regulations do not include
rules relating to these comments. In the
2019 proposed regulations, however, the
Treasury Department and the IRS request
comments regarding how to address a
contribution by a foreign person to a part-
nership engaged in a U.S. trade or busi-
ness, transfers of partnership interests by
a foreign person, and transfers of property
by the partnership with a foreign person as
a partner to a related U.S. person. See Part
VI.B of the Explanation of Provisions of
the preamble to the 2019 proposed regu-
lations in which the Treasury Department
and the IRS request comments regarding
transactions involving partners and part-
nerships that have effectively connected
income.
B. Netting
Proposed §1.59A-3(b)(2)(iii) provides
that the amount of any base erosion pay-
ment is determined on a gross basis unless
the transaction is subject to a special mark-
to-market rule or the Code or regulations
otherwise provide. A comment requested
that a special netting rule be provided for
partnerships when the base erosion tax
benefits allocated by a partnership are re-
duced by deductions foregone as a result
of the partner contributing property to the
partnership.
The Treasury Department and the IRS
have determined that this suggestion is
inconsistent with the gross basis regime
generally. See Part IV.A.3 of this Summa-
ry of Comments and Explanation of Re-
visions (Netting). The result addressed in
the comment is the same result that would
arise if the transactions had occurred out-
side of a partnership. For example, a tax-
payer that acquired one depreciable asset
from a foreign related party and sold an-

December 23, 2019 1454 Bulletin No. 2019–52
other asset would be in a similar position:
the taxpayer would treat the depreciation
with respect to the acquired asset as a base
erosion tax benefit and there would be no
offset for deductions from the asset the
taxpayer sold (even if those “foregone”
deductions would not have been base ero-
sion tax benefits). Section 1.59A-7(d)(1)
clarifies that base erosion tax benefits are
determined separately for each asset, pay-
ment, or accrual, as applicable, and are not
netted with other items.
C. Aggregate approach to ownership of
partnership assets
Proposed §1.59A-7(b)(5)(i) provides
that (subject to the small partner excep-
tion), for purposes of section 59A, each
partner is treated as owning its share of
the partnership items determined under
section 704, including the assets of the
partnership, using a reasonable method
with respect to the assets. A comment
proposed either removing the phrase “in-
cluding the assets of the partnership” from
this rule or including examples that clarify
the purposes of section 59A for which the
aggregate approach to the ownership of
partnership assets is relevant.
In response to this comment, the final
regulations remove this language from
§1.59A-7(b)(5)(i). Instead, when it is
necessary for a person to determine what
assets were transferred from or to a part-
ner in a partnership, the relevant provi-
sion refers to the partner’s proportionate
share of the assets, as determined based
on all of the facts and circumstances. See
§1.59A-7(c)(2), (3), and (4).
D. Determining the base erosion payment
Proposed §1.59A-7(b) generally pro-
vides that section 59A is applied at the
partner level and that amounts paid or ac-
crued by (or to) a partnership are treated
as paid or accrued by (or to) the partners
based on their distributive shares.
A number of comments requested clar-
ification with respect to the aggregate ap-
proach taken in the proposed regulations.
For example, a comment indicated that
the proposed regulations do not address
how to determine each partner’s share of
a payment received by a partnership if the
payment results in no income or gain or
results in a deduction or loss (for example,
where a partnership sells depreciable or
amortizable property to an applicable tax-
payer and the amount realized is equal to
or less than the partnership’s adjusted ba-
sis in the property). The comment recom-
mended that the final regulations provide
rules for determining the extent to which
a partner is treated as receiving a payment
received by a partnership where the pay-
ment results in no income or a deduction
or loss. The comment suggested that tax-
payers be permitted to use a reasonable
method to determine each partner’s share
of a payment received by the partnership if
the payment results in no income and that,
in circumstances where a payment results
in a deduction or loss, the partner’s share
of the payment be determined by the part-
ner’s share of the deduction or loss. Addi-
tionally, the comment suggested that the
final regulations permit taxpayers to use
a reasonable method to determine each
partner’s share of the payment received by
the partnership where the income or gain
is recognized over multiple taxable years
(such as in an installment sale).
Comments also requested that the fi-
nal regulations clarify that depreciation
deductions allocated to a taxpayer by a
partnership that are attributable to proper-
ty contributed to the partnership by a for-
eign related party are not treated as base
erosion tax benefits if the property was
contributed before the effective date of
the BEAT.
One comment requested clarification
regarding a scenario described in the pre-
amble in which a foreign related party and
a taxpayer form a partnership, and the for-
eign related party contributes depreciable
property to the partnership. The preamble
concludes that deductions for deprecia-
tion of the property contributed general-
ly are base erosion tax benefits because
the partnership is treated as acquiring
the property in exchange for an interest
in the partnership under section 721(a).
REG-104259-18, 83 FR 65956, 65967
(Dec. 21, 2018). The comment requested
that the final regulations clarify whether,
in the scenario described in the pream-
ble, each partner is treated as making its
share of the payment (in the form of an
interest in the partnership) to the foreign
related party contributing the depreciable
property under proposed §1.59A-7(b)(2)
in determining if there is a base erosion
payment. The language in the preamble to
the proposed regulations that the comment
discussed was in error. Consistent with the
aggregate approach, the language should
have stated that the deductions for depre-
ciation of the property contributed gener-
ally are base erosion tax benefits because
the other partners are treated as acquiring
the property in exchange for a portion of
their interest in the partnership assets, and
this is clarified in the final regulations. See
§1.59A-7(c)(3).
In response to the comments, the final
regulations provide a more detailed expla-
nation of how the aggregate approach set
forth in the proposed regulations operates,
including the treatment of partnership
contributions and transfers of partnership
interests (including issuances). In addi-
tion, §1.59A-7(g) includes examples illus-
trating the application of the rules.
The final regulations clarify that if
property described in §1.59A-3(b)(1)(ii)
or (iv) (depreciable or amortizable prop-
erty or property that results in reductions
to determine gross income) is transferred
to a partnership, each partner is treated as
receiving its proportionate share of the
property for purposes of determining if
it has a base erosion payment. Similarly,
if the partnership transfers property de-
scribed in §1.59A-3(b)(1)(ii) or (iv), each
partner is treated as transferring its pro-
portionate share of the property for pur-
poses of determining if the recipient has
a base erosion payment. See §1.59A-7(c)
(2). If a partnership interest is transferred
(other than by a partnership), the transfer-
or generally is treated as transferring its
proportionate share of the partnership’s
assets. When a partnership interest is
transferred by a partnership, each partner
whose proportionate share of assets is re-
duced is treated as transferring the amount
of the reduction. See §1.59A-7(c)(3).
In keeping with this construct, if a tax-
payer was a partner in a partnership and
a foreign related party contributed depre-
ciable property to the partnership before
January 1, 2018, there would be no base
erosion payment. However, also consis-
tent with this construct, if a taxpayer ac-
quires an interest (including an increased
interest) in any partnership asset (includ-
ing pursuant to a transfer of a partnership
interest either by the partnership or by an-

Bulletin No. 2019–52 1455 December 23, 2019
other person) on or after January 1, 2018,
from a partnership that holds depreciable
property and has a foreign related party as
a partner whose interest in the asset is re-
duced, with or without a section 754 elec-
tion by the partnership, that transaction
will be a base erosion payment because
the property will be treated as acquired on
or after January 1, 2018. See §1.59A-7(c).
The final regulations also clarify that
the amount of deduction resulting from
a payment is not impacted by the gain or
loss arising from the consideration used
to make the payment. Therefore, if the
partnership makes a payment, that pay-
ment from the partnership may result in a
deduction even if the partnership incurs a
gain on the transfer under general tax prin-
ciples because the partnership used built-
in gain property as consideration. Similar-
ly, if the partnership receives a payment as
consideration for the sale of built-in loss
property, that payment to the partnership
will result in income. See §1.59A-3(b)(2)
(ix) and §1.59A-7(c)(5)(iv) and (d)(1).
If a series of payments or accruals with
respect to a transaction occurs over time,
whether there is a base erosion payment is
determined each time there is a payment
or accrual. If, instead, there is a single pay-
ment that results in base erosion tax ben-
efits being allocated by a partnership over
multiple years, the portion of the payment
that is a base erosion payment must be de-
termined at the time of the payment, but
the amount of the base erosion tax bene-
fits will be determined based on the allo-
cations by the partnership that occur each
year. For example, if a partnership, whose
partners are a domestic corporation and
an unrelated person, acquires depreciable
property from a foreign related party of
the domestic corporation, then the entire
amount is a base erosion payment with re-
spect to the domestic corporation and any
allocations by the partnership of depreci-
ation to the domestic corporation are base
erosion tax benefits.
The final regulations clarify that if a
distribution of property from a partnership
to a partner causes an increase in the tax
basis of property that either continues to
be held by the partnership or is distribut-
ed from the partnership to a partner, such
as under section 732(b) or 734(b), the
increase in tax basis for the benefit of a
taxpayer that is attributable to a foreign
related party is treated as if it was newly
purchased property by the taxpayer from
the foreign related party that is placed in
service when the distribution occurs for
purposes of determining if a taxpayer has
a base erosion payment. See §1.59A-7(c)
(4).
The final regulations also include cer-
tain additional operating rules to clari-
fy how §1.59A-7 applies. For example,
§1.59A-7(c)(5)(ii) clarifies the order in
which the base erosion payment rules ap-
ply, and §1.59A-7(c)(5)(iv) reaffirms that
if both parties to a transaction use non-
cash consideration, each transfer of prop-
erty must be separately analyzed to deter-
mine if there is a base erosion payment.
The final regulations also clarify that if
a transaction is not specifically described
in §1.59A-7, whether it gives rise to a base
erosion payment or base erosion tax benefit
will be determined in accordance with the
principles of §1.59A-7 and the purposes of
section 59A. See §1.59A-7(b). Further, the
final regulations clarify that the aggregate
approach under §1.59A-7 does not over-
ride the treatment of any partnership item
under any Code section other than section
59A. See §1.59A-7(a). That clarification
is consistent with the principle that a rule
of general applicability applies unless ex-
plicitly replaced or turned off by another
rule. Thus, for example, section 482 con-
tinues to apply to controlled transactions
involving partnerships (such as transfers
of property or provisions of services, con-
tributions, and distributions), as it applies
to all controlled transactions, and is tak-
en into account in determining the arm’s
length consideration for such transactions
(such as the pricing of transferred property
or services, and the valuation of contribu-
tions and distributions) and in determin-
ing whether partnership transactions (in-
cluding partnership allocations) otherwise
clearly reflect income. See, for example,
§§ 1.482-1(f)(1)(iii) and (i)(7) and (8) and
1.704-1(b)(1)(iii) and (5)(Ex. 28); Notice
2015-54, 2015-34 I.R.B. 210, §§ 2.03 and
2.04.
Given the absence in the statute of a
provision describing the specific treat-
ment of partnerships and partners, the
Act’s legislative history, and the overall
significance of the proper functioning of
the BEAT regime, the Treasury Depart-
ment and the IRS have determined that,
in addition to section 59A, certain author-
ities in subchapter K provide support for
the treatment of partners and partnerships
under these final regulations. The 1954
legislative history to subchapter K makes
clear that this determination of aggregate
versus entity should be based on the poli-
cies of the provision at issue, in this case,
section 59A. See H.R. Rep. No. 83-2543,
at 59 (1954). Under the rules of subchap-
ter K, an aggregate approach applies if it
is appropriate to carry out the purpose of
a provision of the Code, unless an entity
approach is specifically prescribed and
clearly contemplated by the relevant stat-
ute. See, for example, §1.701-2(e). The
BEAT regime does not prescribe the treat-
ment of a partnership as an entity and the
treatment of a partnership as an aggregate
is appropriate with respect to payments
made to or received by it.
E. Determining a partner’s base erosion
tax benefit
For purposes of determining wheth-
er a payment or accrual by a partnership
is a base erosion payment, proposed
§1.59A-7(b)(2) provides that (subject to
the small partner exception) any amount
paid or accrued by a partnership is treated
as paid or accrued by each partner based
on the partner’s distributive share of items
of deduction (or other amounts that could
be base erosion tax benefits) with respect
to that amount (as determined under sec-
tion 704). A comment noted that proposed
§1.59A-7(b)(2) does not indicate how a
partner’s base erosion tax benefits would
be determined if a partner’s distributive
share of the partnership item that produces
the base erosion tax benefits changed from
one taxable year to another taxable year.
The comment concluded that the amount
of a partner’s distributive share of deduc-
tions with respect to property acquired by
the partner’s base erosion payment that is
treated as a base erosion tax benefit may
not correspond to the amount of the part-
ner’s initial base erosion payment with
respect to that property. The comment
recommended that the final regulations
clarify whether any amount of the part-
ner’s distributive share of deductions with
respect to property acquired by a base
erosion payment (in any amount) that is
treated as made by the partner would be

December 23, 2019 1456 Bulletin No. 2019–52
a base erosion tax benefit, subject to the
small partner exception.
Another comment requested that the
final regulations provide that when depre-
ciable property is contributed to a part-
nership that adopts the remedial method
under §1.704-3(d) with respect to that
property, the remedial items of deprecia-
tion (which may be allocated to a partner
that is an applicable taxpayer) should not
be treated as base erosion tax benefits. The
comment further asserted that treating re-
medial items as base erosion tax benefits
would penalize applicable taxpayers that
are U.S. transferors in section 721(c) part-
nerships for which the gain deferral meth-
od is applied. See generally §1.721(c)-1T.
As recommended by a comment,
§1.59A-7(d)(1) clarifies that the base
erosion tax benefits are not dependent on
the amount of the base erosion payment,
and provides that a partner’s base ero-
sion tax benefits are the partner’s distrib-
utive share of any deductions described
in §1.59A-3(c)(1)(i) or (ii) or reductions
to determine gross income described in
§1.59A-3(c)(1)(iii) or (iv) attributable to
the base erosion payment.
The final regulations also clarify that a
taxpayer’s base erosion tax benefits result-
ing from a base erosion payment include
the partner’s distributive share of any de-
duction or reduction to determine gross
income attributable to the base erosion
payment, including as a result of section
704(c), section 734(b), section 743(b) or
certain other sections. See §1.59A-7(d)
(1). As a result, if a taxpayer is allocated
depreciation or amortization deductions
from property acquired pursuant to a base
erosion payment, those deductions are
base erosion tax benefits. If the partner ob-
tains depreciation deductions in excess of
the partner’s proportionate share of the de-
preciable property, those deductions still
arise from the acquisition of the property
pursuant to a base erosion payment, and
the Treasury Department and the IRS have
determined that it would not be appropri-
ate to exclude those deductions from base
erosion tax benefit treatment.
F. Small partner exception
The proposed regulations provide that
partners with certain small ownership in-
terests are excluded from the aggregate
approach for purposes of determining
base erosion tax benefits from the partner-
ship. This small partner exception gener-
ally applies to partnership interests that:
(i) represent less than ten percent of the
capital and profits of the partnership; (ii)
represent less than ten percent of each
item of income, gain, loss, deduction, and
credit; and (iii) have a fair market value of
less than $25 million.
Comments recommended expanding
the thresholds for the small partner excep-
tion for partnership interests and items to
25 percent, and eliminating the fair mar-
ket value limitation. The comments sug-
gested that the compliance burden associ-
ated with the thresholds in the proposed
regulations would be substantial and that
minority partners may have little or no
ability to obtain the necessary information
from the partnership.
The final regulations do not adopt these
recommendations. In determining the ap-
propriate threshold for a small ownership
interest in the proposed regulations, the
Treasury Department and the IRS con-
sidered the treatment of small ownership
interests in partnerships in analogous sit-
uations in other Treasury regulations. Fur-
ther, the fair market value threshold ad-
dresses a concern that while a partner may
have a relatively small interest in a part-
nership, the partnership itself could have
significant value such that partnership
items should not be excluded from the
BEAT base when an analogous payment
made outside of the partnership context
is not similarly excluded from the BEAT
base. The $25 million fair market value
threshold was developed after qualitative
consideration of these factors.
Comments also recommended that the
small partner exception apply to payments
made to a partnership. The final regula-
tions do not adopt this recommendation.
The proposed regulations included the
small partner interest exception for pay-
ments by a partnership in part because the
Treasury Department and the IRS were
cognizant that small partners in a partner-
ship may not always have sufficient in-
formation about the amounts of payments
made by the partnership and the identity
of the payee. The Treasury Department
and the IRS were also cognizant that this
type of information is not currently report-
able by the partnership to its partners on
a Form K-1; that is, without information
provided by the partnership to the taxpay-
er partner, that partner may not be able to
determine whether it is treated as having
made a base erosion payment through the
partnership pursuant to proposed §1.59A-
7. The Treasury Department and the IRS
considered these factors, and reached a
qualitative conclusion that at or below the
threshold level set forth in the proposed
regulations, the administrability consider-
ations outweighed the competing consid-
eration of ensuring that base erosion pay-
ments through a partnership are properly
taken into account by taxpayer partners in
the partnership.
In a situation where a taxpayer makes
a payment to a partnership (that is, a pay-
ment that may be a base erosion payment
under proposed §1.59A-7 because a part-
ner in the partnership is a foreign related
party with respect to the payor), the ad-
ministrability concerns that factored into
the small partner exception for payments
by a partnership are less pronounced. That
is, the taxpayer (payor) will generally
have information to determine whether
it has made a payment to a partnership in
which any foreign related party is a part-
ner without needing to obtain significant
information from the partnership. Based
on these factors, the Treasury Department
and the IRS reached a qualitative conclu-
sion that the administrability aspects of
accounting for payments by a taxpayer to
a partnership are not outweighed by the
competing consideration of ensuring that
base erosion payments to a partnership are
properly taken into account by taxpayer
payors.
IX. Comments and Changes to
Proposed §1.59A-9—Anti-Abuse and
Recharacterization Rules
Proposed §1.59A-9 contains anti-abuse
rules that recharacterize certain transac-
tions in accordance with their substance
for purposes of carrying out the provisions
of section 59A. The proposed anti-abuse
rules address the following types of trans-
actions: (a) transactions involving inter-
mediaries acting as a conduit if there is a
principal purpose of avoiding a base ero-
sion payment (or reducing the amount of
a base erosion payment); (b) transactions
with a principal purpose of increasing the

Bulletin No. 2019–52 1457 December 23, 2019
deductions taken into account in the de-
nominator of the base erosion percentage;
and (c) transactions among related parties
entered into with a principal purpose of
avoiding the application of rules appli-
cable to banks and registered securities
dealers (for example, causing a bank or
registered securities dealer to disaffiliate
from an affiliated group so as to avoid the
requirement th at it be a member of
such a group).
Comments generally requested more
guidance on when a transaction has “a
principal purpose” of avoiding a provi-
sion of section 59A. Comments expressed
a concern that any transaction that would
result in a lower BEAT liability could be
viewed as having “a principal purpose” of
avoiding a provision of the section 59A
regulations. Comments also expressed
a concern that the anti-abuse rules could
be interpreted as applying to transactions
undertaken in the ordinary course of a tax-
payer’s business. One comment requested
that the Treasury Department and the IRS
consider whether existing anti-abuse rules
and judicial doctrines, including section
7701(o), are sufficient to address abuse of
section 59A.
Consistent with the grant of authority in
section 59A(i), the Treasury Department
and the IRS believe that anti-abuse rules
specific to section 59A are needed. The
final regulations address the requests for
clarity regarding the “principal purpose”
standard in the final regulations by adding
new examples that illustrate the differenc-
es between transactions that the Treasury
Department and the IRS find to be abusive
or non-abusive. See §1.59A-9(c)(5), (7),
(8), (9).
A comment requested that the an-
ti-abuse rule for transactions involving
intermediaries acting as a conduit be
modified so that it would not apply to
transactions where taxpayers restructure
their operations in a way that reduces
their base erosion payments because they
have moved operations to the United
States. The comment asserted that pro-
posed §1.59A-9(b)(1) should not apply
where taxpayers restructure their opera-
tions for business reasons even if, under
the resulting structure, payments are made
to a foreign related party through an in-
termediary. As an example, the comment
suggested that taxpayers might restructure
their business so that a domestic related
party performs functions previously per-
formed by a foreign related party. How-
ever, if the foreign related party continues
to perform some functions that benefit the
taxpayer, and payments for those func-
tions are made through the domestic re-
lated party, the comment suggested that
proposed §1.59A-9(b)(1) could apply
to the transaction. The determination of
whether proposed §1.59A-9(b)(1) will ap-
ply to a transaction is dependent, in part,
on whether the transaction has a principal
purpose of avoiding a base erosion pay-
ment or reducing the amount of a base
erosion payment. The requested exception
could lead to inappropriate results where
the change in the taxpayer’s operations is
insignificant compared to the impact of
reducing the taxpayer’s base erosion pay-
ments. Accordingly, the final regulations
do not include the requested exception.
Another comment requested clarifica-
tion on when the anti-abuse rule in pro-
posed §1.59A-9(b)(1) could apply to a
“corresponding payment” to an interme-
diary that would have been a base ero-
sion payment if made to a foreign related
party. The final regulations do not modify
this rule because the rule is already clear
that it applies to a corresponding payment
that is part of a transaction, plan, or ar-
rangement that has a principal purpose
of avoiding a base erosion payment, and
the final regulations include examples of
transactions with such a purpose. Another
similar comment requested clarification
on when the anti-abuse rule in proposed
§1.59A-9(b)(1) could apply to an “indi-
rect” corresponding payment. The final
regulations do not modify this rule be-
cause it is already clear that transactions
involving conduits and intermediaries can
include transactions involving multiple in-
termediaries, for example, multiple inter-
mediary lenders in a fact pattern similar to
that in proposed §1.59A-9(c)(4) (Exam-
ple 4), and thus expanding that example
to involve another intermediary would be
redundant.
Other comments asked for a clarifica-
tion that the anti-abuse rule for transac-
tions designed to inflate the denominator
of the base erosion percentage applies
only to non-economic deductions such
as those described in the example in pro-
posed §1.59A-9(c)(5) (Example 5). One
comment recommended that the rule be
limited to deductions and losses incurred
for “the” principal purpose of increasing
the denominator. The comment expressed
a concern that the rule could be interpret-
ed as applying to deductions and losses
on transactions undertaken in the ordi-
nary course of a taxpayer’s business. The
final regulations do not change the stan-
dard for determining whether transactions
that increase the denominator of the base
erosion percentage are abusive. Narrow-
ing the rule to apply only to transactions
where the single principal purpose is to
increase the denominator of the base ero-
sion percentage would make it difficult to
administer in all but the most egregious
cases. Further, it is a common formula-
tion for anti-abuse rules to apply when “a
principal purpose” or “one of the princi-
pal purposes” of a transaction is to avoid
a particular provision. See, for example,
section 954(h)(7)(A), (C), and (D); sec-
tion 965(c)(3)(F); see also 60 FR 46500,
46501 (rejecting comments requesting
that an anti-avoidance rule of §1.954-1(b)
(4) apply only if a purpose of first impor-
tance, rather than a principal purpose, was
to avoid the de minimis test of §1.954-
1(b)(1)(i) because the suggested standard
would be “significantly more s u b-
jective” than the test adopted and there-
fore inadministrable). However, the final
regulations address the requests for clarity
regarding the treatment of transactions en-
tered into in the ordinary course of a tax-
payer’s business by adding a new example
of the application of §1.59A-9(b)(2). See
§1.59A-9(c)(7).
One comment requested that the an-
ti-abuse rule with respect to the disaffilia-
tion of banks and registered securities deal-
ers be removed. The comment expressed
a concern that proposed §1.59A-9(b)(3)
could effectively prevent taxpayers from
disaffiliating a bank or registered securi-
ties dealer, notwithstanding the fact that
disaffiliation could have other non-tax
effects. The comment suggested that if a
disaffiliation made sense from a business
perspective and is permissible under ap-
plicable banking and securities rules, the
Treasury Department and the IRS should
not treat disaffiliation as abusive. The
Treasury Department and the IRS have
determined that disaffiliation of a bank
or registered securities dealer could be

December 23, 2019 1458 Bulletin No. 2019–52
abusive in certain circumstances, such as
the interposition of entities other than “in-
cludible corporations” (as defined in sec-
tion 1504(b)) with a principal purpose of
avoiding the rules applicable to banks and
registered securities dealers. Moreover, in
developing guidance under various Code
provisions, the Treasury Department and
IRS often consider that disaffiliation could
potentially avoid the purposes of a provi-
sion. See, for example, §1.904(i)-1, which
similarly limits the use of deconsolidation
to avoid foreign tax credit limitations. See
59 FR 25584. Therefore, the final regu-
lations retain §1.59A-9(b)(3). However,
the final regulations address the concern
raised by the comment by providing ex-
amples to clarify the types of transactions
that the Treasury Department and the IRS
consider to be abusive. See §1.59A-9(c)
(8) and (9).
Finally, a comment recommended ex-
cluding from the anti-abuse rule transac-
tions entered into, or pursuant to a binding
commitment that was in effect, before the
date of public announcement of certain
provisions in section 59A. The final regu-
lations do not adopt this recommendation.
The anti-abuse rule in §1.59A-9 is based
on the specific grant of authority in section
59A(i), and the Treasury Department and
the IRS decline to adopt a grandfathering
rule when no such rule was adopted by
statute.
X. Rules Relating to Insurance
Companies
Section 59A(d)(3) provides that the
term “base erosion payment” includes
any premium or other consideration paid
or accrued by a taxpayer to a foreign re-
lated party for any reinsurance payments
that are taken into account under sections
803(a)(1)(B) or 832(b)(4)(A). The pream-
ble to the proposed regulations requests
comments regarding several issues relat-
ing to insurance companies. Specifically,
the preamble to the proposed regulations
requests comments regarding certain rein-
surance agreements and other commercial
agreements with reciprocal payments that
are settled on a net basis. REG-104259-
18, 83 F.R. 65968 (December 21, 2018).
Comments were also requested with
respect to whether claims payments for
losses incurred and other deductible pay-
ments made by a domestic reinsurance
company to a foreign related insurance
company are base erosion payments with-
in the scope of section 59A(d)(1). REG-
104259-18, 83 F.R. 65968 (December 21,
2018). The proposed regulations, howev-
er, did not provide any exceptions specific
to the insurance industry.
Comments received generally ad-
dressed whether (1) claims payments for
losses incurred (claims payments) under
reinsurance contracts should be treated
as base erosion payments, and (2) certain
payments made pursuant to reinsurance
contracts should be netted. For a discus-
sion of comments relating to life/non-life
consolidated returns, see Part XI of this
Summary of Comments and Explanation
of Revisions.
A. Reinsurance claims payments to a
related foreign insurance company
The proposed regulations do not pro-
vide specific rules for payments by a do-
mestic reinsurance company to a related
foreign insurance company. The pream-
ble to the proposed regulations notes the
treatment of claims payments for pur-
poses of section 59A may be different
for life insurance companies and non-life
insurance companies. REG-104259-18,
83 F.R. 65968 (December 21, 2018). For
a life insurance company, payments for
claims or losses incurred are deductible
pursuant to sections 805(a)(1); therefore,
these payments are potentially within the
scope of section 59A(d)(1). With respect
to non-life insurance companies, however,
the preamble to the proposed regulations
notes that certain claims payments for
losses incurred may be treated as reduc-
tions in gross income under section 832(b)
(3), rather than deductions under section
832(c). To the extent not covered by sec-
tion 59A(d)(3), these payments treated as
reductions in gross income may not be
within scope of section 59A.
Generally, comments requested that
the final regulations provide an excep-
tion to the term “base erosion payment”
for claims payments made by a domestic
reinsurance company to a related foreign
insurance company. Some comments rec-
ommended that the exception should ap-
ply only to claims payments with respect
to reinsurance that ultimately relates to the
risk of unrelated third parties. Comments
also stated that there was no apparent pol-
icy reason for treating life and non-life
insurance claims payments differently for
purposes of section 59A, although one
comment noted that this distinction be-
tween life and non-life insurance claims
payments results from the different ap-
proaches taken in drafting section 801(b)
and section 832(b)(3), and that the Code
sometimes provides disparate results.
Comments explained that an excep-
tion for claims payments by a domestic
reinsurance company to a related foreign
insurance company would provide sym-
metrical treatment for life insurance com-
panies and non-life insurance companies.
In addition, comments noted that reinsur-
ance transactions with respect to which
outbound claims payments are made do
not base erode because they result from
insurance business that is moved into the
United States; therefore, it is appropri-
ate to provide an exception similar to the
TLAC exception and the exception for
foreign currency losses. As noted, sever-
al comments requested an exception for
reinsurance claims payments only to the
extent that the claims payments are with
respect to policies ultimately insuring
third-party risks. Comments stated that
because the reinsurance claims payments
are payable only when an unrelated third
party makes a claim under an insurance
policy that the domestic insurance compa-
ny has reinsured (and the nature of those
claims payments are non-routine and of-
ten large and unpredictable), the timing
and amount of the claims payment are not
controlled by the related parties. Finally,
comments noted that foreign regulatory
requirements generally require that a local
entity provide insurance to its residents; as
a result of these regulatory requirements,
domestic companies that want to provide
insurance in many jurisdictions must do
so by reinsuring a subsidiary established
in the local jurisdiction.
Comments also addressed how an ex-
ception for claims payments should impact
the base erosion percentage calculation.
Generally, comments recommended that
claims payments be excluded from the nu-
merator, but included in the denominator.
If claims payments were eliminated from
the denominator, comments noted that a
significant amount of business expenses

Bulletin No. 2019–52 1459 December 23, 2019
would be removed from the base erosion
percentage calculation. Several comments
acknowledged that the final regulations
may adopt an exception that applies to
both the numerator and the denominator;
in that case, comments recommended that
claims payments should be eliminated
from the denominator of the base erosion
percentage only to the extent that the pay-
ments are made to a foreign related party.
Comments also indicated that the ambigu-
ity regarding whether a claims payment is
a deduction or a reduction in gross income
for non-life insurance companies could re-
sult in taxpayers taking inconsistent posi-
tions and may lead to controversy regard-
ing the calculation of the denominator for
the base erosion percentage.
Finally, several comments noted that
certain self-help remedies with respect
to claims payments are not available for
insurance companies. First, because in-
surance companies are per se corporations
under §301.7701-2(b)(4), an election un-
der §301.7701-3 to treat a related foreign
insurance company as a disregarded entity
for U.S. tax purposes is unavailable. In ad-
dition, comments stated that regulators in
some jurisdictions would prohibit a local
insurance company from making an elec-
tion to be treated as a U.S. taxpayer pursu-
ant to section 953(d) if the election would
result in U.S. withholding tax with respect
to payments to policyholders.
Section 1.59A-3(b)(3)(ix) adopts the
recommendation from these comments
and provides a specific exception for de-
ductible amounts for losses incurred (as
defined in section 832(b)(5)) and claims
and benefits under section 805(a) (“claims
payments”) paid pursuant to reinsurance
contracts that would otherwise be within
the definition of section 59A(d)(1), to the
extent that the amounts paid or accrued to
the related foreign insurance company are
properly allocable to amounts required to
be paid by such company (or indirectly
through another regulated foreign insur-
ance company), pursuant to an insurance,
annuity, or reinsurance contract, to a per-
son other than a related party. The final
regulations also clarify that all claims pay-
ments are included in the denominator of
the base erosion percentage, except to the
extent excepted from the definition of a
base erosion payment under §1.59A-3(b)
(3)(ix). This treatment in the denominator
is consistent with the treatment in the fi-
nal regulations of derivatives and QDPs
(discussed in Part VII of this Summary of
Comments and Explanation of Revisions),
section 988 foreign exchange losses (dis-
cussed in Part IV.C.4 of this Summary of
Comments and Explanation of Revisions),
and deductions for services eligible for the
SCM exception (discussed in Part IV.C.1
of this Summary of Comments and Expla-
nation of Revisions).
B. Netting with respect to insurance
contracts
As discussed in Part IV.A.2 of this
Summary of Comments and Explanation
of Revisions, the amount of any base ero-
sion payment is generally determined on a
gross basis, regardless of any contractual
or legal right to make or receive payments
on a net basis. The proposed regulations
do not provide an exception to this gener-
al rule with respect to reinsurance agree-
ments.
Several comments recommended that
the final regulations permit netting with
respect to reinsurance contracts to better
reflect the economics of the transactions.
One comment suggested that the final
regulations permit netting with respect to
a single economic transaction where the
parties exchange net value in the form of
a single payment, which would include
many reinsurance transactions. Other
comments identified specific types of re-
insurance transactions for which netting
should or should not be permitted. For
quota share reinsurance arrangements,
comments noted that the proposed regu-
lations provide that the gross amount of
reinsurance premium is a base erosion
payment without considering any inbound
payments such as reserve adjustments,
ceding commissions, and claims pay-
ments. Other comments suggested that the
amount of base erosion payments with re-
spect to modified coinsurance (“modco”)
and funds withheld reinsurance be deter-
mined on a net basis (particularly when
settlement is on a net basis) in the final
regulations to be consistent with the norm
of paying tax on a net basis.
As background, reinsurance is the
transfer from an insurer (referred to as the
“ceding” company) to a reinsurer of all or
part of the risk assumed under a policy or a
group of policies. A traditional reinsurance
agreement typically requires the ceding
company to pay a reinsurance premium
to the reinsurance company and the rein-
surance company to pay a ceding commis-
sion to the ceding company. The reinsur-
ance premium compensates the reinsurer
for acquiring the reinsured obligations.
The ceding commission compensates the
ceding company for its expenses incurred
in acquiring and managing the reinsured
policies, and may include a profit margin.
When the risks are transferred, the ceding
company may reduce its reserves for the
reinsured obligations, and the reinsurance
company establishes its own reserves for
the reinsured obligations. In terms of pay-
ment flows, it is common for the ceding
commission owed under the reinsurance
agreement to be netted against the reinsur-
ance premium owed, such that the ceding
company remits the reinsurance premium
net of the ceding commission amount.
However, both flows are typically sepa-
rately identified in the contract and in any
case represent reciprocal economic obli-
gations. When losses are paid under the
reinsured policies, depending on the terms
of the reinsurance agreement, the reinsur-
er will have corresponding obligations to
make payments to the ceding company
(for example, the agreement may require
the reinsurer to reimburse a percentage of
total losses, or losses above a certain dol-
lar threshold).
Under modco and similar funds-with-
held reinsurance agreements, the ceding
company retains the assets with respect to
the policies reinsured and generally does
not transmit an initial premium payment
to the reinsurer under the agreement. The
reinsuring company in a modco agree-
ment is entitled to premiums and a share
of investment earnings on certain assets,
and the ceding company is entitled to ex-
pense allowances (similar to ceding com-
missions) and reimbursement for losses
paid under the reinsured policies, but the
parties make net settlement payments
based on each party’s overall entitlement
under the agreement on a periodic basis.
Comments noted that in this respect, the
arrangement is similar to making settle-
ment payments under a derivative con-
tract. In both the modco and traditional re-
insurance context, comments asserted that
imposing tax on one leg of a reinsurance

December 23, 2019 1460 Bulletin No. 2019–52
transaction (the premium payment) is not
equitable and does not reflect the econom-
ics of the transaction.
A comment recommended that the final
regulations exclude ceding commissions
paid by a domestic insurance company
to a foreign affiliate in exchange for the
domestic insurance company’s reinsur-
ance of foreign risk from the definition
of a base erosion payment. The comment
suggested that this exception would be
similar to the exception for section 988
foreign currency losses and for TLAC
securities because an insurance group
should not have a base erosion payment
when insurance regulators dictate the
structure of reinsurance agreements. The
comments noted that reinsurance involves
substantial payments in both directions,
including premiums, ceding commissions,
and claims. The comment explained that a
ceding commission compensates the rein-
sured for its policy acquisition costs plus
a small profit component and noted that a
substantial amount of the commissions are
reimbursements for third party expenses
for many lines of business. For most re-
insurance contracts, a comment noted that
ceding commissions and premiums are
separately stated in the reinsurance con-
tract, but not separately paid. Instead, pre-
miums are paid to the reinsurer net of the
ceding commission.
Several comments expressed strong
support for the determination in the pro-
posed regulations that netting is not per-
mitted with respect to reinsurance ar-
rangements. Comments indicated that
the result from the proposed regulations
is appropriate under current law and nec-
essary to achieve the legislative goals for
the BEAT. Before the enactment of the
BEAT, comments explained that foreign
insurance groups had a significant com-
petitive advantage over U.S.-based insur-
ance companies because foreign groups
were allowed to shift their U.S. earnings
into low-tax jurisdictions using affiliated
reinsurance payments. Comments assert-
ed that section 59A identified reinsurance
as a base erosion payment to close the
loophole. Comments also noted that using
gross amounts is consistent with the statu-
tory annual statement that is the basis for
determining taxable income under sub-
chapter L. Comments explained that the
use of gross reinsurance premium, rath-
er than net, is consistent with the excise
tax imposed under section 4371, which
computes the excise tax as a percentage
of gross reinsurance payments, even for a
funds-withheld or modco contract (where
only net amounts are transferred between
the contracting insurance companies).
Finally, comments noted that when Con-
gress determines that netting is appropri-
ate with respect to insurance, it specifical-
ly permits netting. See sections 848(d)(1),
72(u)(2)(B), and 834(e); see also sections
803(a) and 832.
Some comments asserted that the statu-
tory language of section 59A(d)(3), which
provides that base erosion payments in-
clude consideration paid or accrued “for
any reinsurance payments which are tak-
en into account under sections 803(a)(1)
(B) or 832(b)(4)(A),” requires treating
only the net amounts paid by a domestic
company under a modco-type reinsurance
contract as base erosion payments. For ex-
ample, in the life insurance context, sec-
tion 803(a)(1) defines “premiums” as:
(A) The gross amount of premiums and
other consideration on insurance and
annuity contracts, less
(B) return premiums, and premiums and
other consideration arising out of in-
demnity reinsurance.
Further, section 59A(c)(2)(A)(iii)(I)
closely tracks section 803(a)(1) in its defi-
nition of base erosion tax benefit in the life
insurance context as the amount by which
“gross premiums and other consideration
on insurance and annuity contracts” are
reduced by “premiums and other consid-
eration arising out of indemnity reinsur-
ance.” These comments suggested that
the phrase “consideration arising out of
indemnity reinsurance” suggests a broad-
er view of the transaction than just rein-
surance premiums and is best interpreted
as referring to the net cash settlement
payments under a modco-type reinsurance
contract, rather than the gross amount
identified in the contract as reinsurance
premium.
Other comments disagreed with this
characterization and noted that section
59A(d)(3) is describing consideration
paid or accrued for reinsurance—that is,
payments moving in one direction from
the taxpayer to foreign related party—
without describing offsetting or reciprocal
payments. The comments noted that the
phrase “arising out of indemnity reinsur-
ance” was merely lifted from preexisting
section 803(a)(1)(B), rather than being
selected deliberately by Congress to ac-
count for both inflows and outflows under
a reinsurance contract. They noted further
that section 803(a)(1)(B) and its non-life
counterpart, section 832(b)(4), use paral-
lel structures for measuring the amount of
premiums included in insurance company
gross income, starting with total premi-
ums received, and reducing that total by
premiums paid for reinsurance and by re-
turn premiums (that is, premium amounts
refunded to the policyholder). The two
provisions do not provide for additional
offsets based on obligations flowing in
the other direction, such as ceding com-
missions or reinsurance claim payments
owed.
Some comments asserted that for-
eign insurers may decide to reduce their
capacity, discontinue lines of business,
or increase pricing as a result of section
59A. Those comments acknowledged that
domestic reinsurers may pick up the in-
creased capacity, but warned that the shift
to domestic reinsurers would concentrate
the insured risk in the United States rath-
er than spreading it globally, resulting in
less risk diversification (a key element of
insurance risk management). Other com-
ments disagreed with this contention,
noting that global reinsurance capacity
has remained strong and that premium
increases have been negligible since the
enactment of section 59A.
In contrast, a comment asserted in the
context of reinsurance that it was clear
that the law applies on a gross basis, both
based on the plain language of the statute
and the intent of Congress, and that rel-
evant policy considerations weigh heav-
ily in favor of applying the BEAT on a
gross basis. The comment explained that
because the reinsurance transactions at is-
sue are between related parties, they are
not necessarily at arm’s length. Further,
according to the comment, the legisla-
tive purpose of section 59A was to level
the playing field between U.S. and for-
eign-owned companies, which can only
be advanced if section 59A is applied on
a gross basis.
The final regulations do not adopt the
recommendations that payments made
under a reinsurance contract be netted

Bulletin No. 2019–52 1461 December 23, 2019
for purposes of determining the amount
of a base erosion payment, unless net-
ting would otherwise be permitted for
U.S. federal income tax purposes. Section
59A’s requirements are best interpreted
in the context of the existing body of tax
law and regulations. As discussed in Part
IV.A.3 of this Summary of Comments and
Explanation of Revisions, amounts of in-
come and deduction are generally deter-
mined on a gross basis under the Code,
and unless a rule permits netting (so that
there is no deduction or the deduction is
a reduced amount, as opposed to a deduc-
tion offset by an item of income), no net-
ting is permitted.
Although comments asserted that sec-
tion 59A(d)(3) (defining a base erosion
payment as including certain reinsurance
payments) requires the netting of ceding
commissions and other payments from
the related foreign reinsurance company
against reinsurance premiums, the Trea-
sury Department and IRS are not per-
suaded by arguments that the language of
section 59A(d)(3) mandates that result.
Whether payments under particular types
of reinsurance contracts (for example,
modco) may be netted for purposes of
section 59A is determined based on the
existing rules in the Code and regulations
regarding netting. The subchapter L pro-
visions cited in section 59A(d)(3) (section
803(a)(1)(B) for life insurance companies
and section 832(b)(4)(A) for non-life in-
surance companies) do not provide for
netting of ceding commissions, claims
payments or other expenses against pre-
miums.
With respect to the comment that mod-
co and other reinsurance contracts that
are periodically settled on a net basis are
substantially similar to derivative con-
tracts, the Treasury Department and IRS
note that Congress specified in section
59A(h)(4)(C) that the term “derivative”
does not include insurance contracts. This
indicates that Congress did not intend for
agreements with derivative-like character-
istics that are also insurance contracts to
be treated as derivatives for purposes of
section 59A.
With respect to comments that ceding
commissions should be broken down into
components and not treated as base ero-
sion payments to the extent that they re-
imburse amounts paid to third parties, this
scenario is not materially different from
those described in comments received
from taxpayers in other industries and dis-
cussed in Part IV.A.1 of this Summary of
Comments and Explanation of Revisions.
These other comments described various
scenarios in which a domestic corporation
makes a deductible payment to a foreign
related party, and that foreign related par-
ty in turn makes deductible payments to
unrelated third parties. Therefore, the final
regulations do not adopt a narrower regu-
latory exception for payments to foreign
related insurance companies that arise in
connection with a regulatory requirement.
XI. Comments and Changes to §1.1502-
59A
A. In general
Proposed § 1.1502-59A provides rules
regarding the application of section 59A
and the regulations thereunder to consoli-
dated groups. Under these rules, all mem-
bers of a consolidated group are treated
as a single taxpayer for purposes of de-
termining whether the group is an appli-
cable taxpayer and the amount of tax due
under section 59A. For example, items
resulting from intercompany transactions
(as defined in §1.1502-13(b)(1)(i)) are
disregarded for purposes of making the
required computations.
Some comments requested clarifica-
tion on what it means for intercompa-
ny transactions to be “disregarded” in
making the required computations under
section 59A. Generally, intercompany
transactions should not change the con-
solidated taxable income or consolidated
tax liability of a consolidated group. For
example, where one member (S) sells de-
preciable property to another member (B)
at a gain, S’s gain on the sale is deferred.
Every year, as B depreciates the property,
S recognizes a portion of its deferred gain.
As a result, the depreciation expense de-
ducted by B that exceeds the depreciation
expense the group would have deducted
if S and B were divisions of a single en-
tity (“additional depreciation”) is offset
by the amount of gain S recognizes each
year, and the intercompany sale does not
change the consolidated taxable income.
However, the base erosion percentage
is generally computed based solely on de-
ductions; income items are not relevant.
Therefore, under the foregoing example,
B’s depreciation deduction would include
the additional depreciation amount, but
S’s offsetting gain inclusion would be ex-
cluded from the base erosion percentage
computation.
To make clear that intercompany trans-
actions may not impact the BEAT conse-
quences of a consolidated group, these fi-
nal regulations clarify in §1.1502-59A(b)
(1) that items resulting from intercompany
transactions are not taken into account in
computing the group’s base erosion per-
centage and BEMTA. Consequently, in
the foregoing example, B’s additional
depreciation is not taken into account in
computing the group’s base erosion per-
centage.
In addition, some comments raised
concerns that the proposed section 59A
regulations and proposed §1.1502-59A
may be incompatible with the rules and
framework of §1.1502-47 for life-nonlife
consolidated groups. The Treasury De-
partment and the IRS are analyzing these
concerns and expect to address the issues
in future proposed regulations, and thus
reserve on this matter in the final regula-
tions.
B. New rules under §1.1502-59A(c)
when a member deconsolidates from a
consolidated group with a section 163(j)
carryforward
Proposed section 1.1502-59A(c)(3)
provides rules to determine whether a
consolidated group’s business interest
deduction permitted under section 163(j)
is a base erosion tax benefit. Due to the
fungibility of money, these rules general-
ly treat the consolidated group as a single
entity and aggregate all members’ cur-
rent-year business interest expense paid to
nonmembers. The current-year business
interest expense deducted by members is
then classified as an amount paid or ac-
crued to a domestic related party, foreign
related party, or unrelated party based
on specified allocation ratios, which are
based on the entire group’s business inter-
est expense paid. If members cannot fully
deduct their current-year business interest
expense, then the members’ section 163(j)
carryforwards are allocated a status as a
domestic related carryforward, foreign

December 23, 2019 1462 Bulletin No. 2019–52
related carryforward, or unrelated carry-
forward based on specified allocation ra-
tios. Such status is taken into account for
BEAT purposes in future years when the
member deducts its section 163(j) disal-
lowed business interest expense carryfor-
ward, whether the member remains in the
group or deconsolidates.
A comment requested a special rule
under §1.1502-59A(c)(3) for certain sit-
uations in which a member (T) decon-
solidates from a consolidated group (the
original group) that was not an applicable
taxpayer under section 59A and joins an
unrelated consolidated group. Assume
that, during the time T was a member of
the original group, T incurred business in-
terest expense that could not be fully de-
ducted and has a section 163(j) disallowed
business interest expense carryforward.
T then deconsolidates from the original
group and joins the new group, which is
an applicable taxpayer under section 59A.
The comment recommended allowing T
to use the special allocation ratios under
§1.1502-59A(c)(3) of the new group for
the taxable year of the acquisition (rath-
er than the allocation ratios of the origi-
nal group). The comment posited that the
original group would not have determined
or maintained information pertaining to
the allocation ratios because the original
group was not an applicable taxpayer.
The final regulations do not adopt this
special rule. Whether a business interest
expense deducted by members of a con-
solidated group is a base erosion tax ben-
efit is determined on a single-entity basis,
without regard to which member actually
incurred the payment to the domestic re-
lated, foreign related, or unrelated par-
ty. Therefore, in the foregoing example,
whether T’s deduction of its section 163(j)
disallowed business interest expense car-
ryforward is a base erosion tax benefit
must be determined by reference to the
original group, not the new group.
Furthermore, to determine whether a
consolidated group is an applicable tax-
payer, the group generally must determine
its base erosion percentage for the year. In
order to do so, the group must apply the
classification rule under §1.1502-59A(c)
(3) to its aggregate current-year business
interest expense that was deducted. There-
fore, the original group should have the
information relevant to the classification
rule under §1.1502-59A(c)(3), regardless
of whether it was an applicable taxpayer.
Consequently, the final regulations do not
adopt the rule recommended by the com-
ment.
However, the final regulations pro-
vide two rules for situations in which a
member deconsolidates from the original
consolidated group with a section 163(j)
carryforward. The first rule is an excep-
tion that applies if the original group was
not an applicable taxpayer because it did
not meet the gross receipts test in the year
the business interest expense at issue was
incurred. Under these circumstances, ap-
plication of the classification rule under
§1.1502-59A(c)(3) would have been un-
necessary within the original consolidat-
ed group with regard to the year in which
the interest was paid or accrued. This
special rule permits the deconsolidating
member (and any acquiring consolidated
group) to apply the classification rule on
a separate-entity basis to determine the
status of the deconsolidating member’s
section 163(j) disallowed business inter-
est expense carryforward as a payment or
accrual to a domestic related, foreign re-
lated, or unrelated party. The second rule
applies if the deconsolidating member (or
its acquiring consolidated group) fails to
substantiate the status of its section 163(j)
disallowed business interest expense car-
ryforward from the original group. In
that case, the section 163(j) disallowed
business interest expense carryforward is
treated as a payment or accrual to a for-
eign related party.
Applicability Dates
Pursuant to section 7805(b)(1)(B), these
final regulations (other than the reporting
requirements for QDPs in §1.6038A-2(b)
(7), §1.1502-2, and §1.1502-59A) apply
to taxable years ending on or after Decem-
ber 17, 2018. However, taxpayers may ap-
ply these final regulations in their entirety
for taxable years ending before Decem-
ber 17, 2018. Taxpayers may also apply
provisions matching §§1.59A-1 through
1.59A-9 from the Internal Revenue Bul-
letin (IRB) 2019-02 (https://www.irs.gov/
pub/irs-irbs/irb19-02.pdf) in their entirety
for all taxable years ending on or before
December 6, 2019. Taxpayers choosing to
apply the proposed regulations must apply
them consistently and cannot selectively
choose which particular provisions to ap-
ply.
Section 1.6038A-2(b)(7)(ix) applies to
taxable years beginning on or after June 7,
2021. No penalty under sections 6038A(d)
or 6038C(c) will apply to a failure solely
under §1.6038A-2(a)(3), (b)(6), or (b)(7)
that is corrected by March 6, 2020.
Pursuant to sections 1503(a) and
7805(b)(1)(A), §1.1502-2 and §1.1502-
59A apply to taxable years for which the
original consolidated Federal income tax
return is due (without extensions) after
December 6, 2019. However, taxpayers
may apply §1.1502-2 and §1.1502-59A in
their entirety for taxable years for which
such a return is due (without extensions)
before December 6, 2019.
Statement of Availability of IRS
Documents
IRS revenue procedures, revenue rul-
ings, notices, and other guidance cited in
this preamble are published in the Internal
Revenue Bulletin and are available from
the Superintendent of Documents, U.S.
Government Publishing Office, Wash-
ington, DC 20402, or by visiting the IRS
website at http://www.irs.gov.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 13563 and 12866
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmoniz-
ing rules, and of promoting flexibility. For
purposes of Executive Order 13771, this
rule is regulatory.
These final regulations have been des-
ignated as subject to review under Exec-
utive Order 12866 pursuant to the Mem-
orandum of Agreement (April 11, 2018)
between the Treasury Department and the
Office of Management and Budget (OMB)

Bulletin No. 2019–52 1463 December 23, 2019
regarding review of tax regulations. The
Office of Information and Regulatory Af-
fairs has designated these regulations as
economically significant under section
1(c) of the MOA. Accordingly, the OMB
has reviewed these regulations.
A. Background
The Tax Cuts and Jobs Act of 2017 (the
“Act”) added new section 59A, which ap-
plies to large corporations that have the
ability to reduce U.S. tax liabilities by
making deductible payments to foreign
related parties. The Base Erosion and An-
ti-Abuse Tax (“BEAT”) is generally levied
on certain large corporations that have de-
ductions paid or accrued to foreign related
parties that are greater than three percent
of their total deductions (two percent in
the case of certain banks or registered se-
curities dealers), a determination referred
to as the base erosion percentage test.
Large corporations are those with gross
receipts of $500 million or more, as cal-
culated under the rules of section 59A, a
determination referred to as the gross re-
ceipts test. By taxing these corporations’
base erosion tax benefits, the BEAT “aims
to level the playing field between U.S. and
foreign-owned multinational corporations
in an administrable way.” Senate Commit-
tee on Finance, Explanation of the Bill, S.
Prt. 115-20, at 391 (November 22, 2017).
The BEAT operates as a minimum tax, so
a taxpayer is only subject to additional tax
under the BEAT if the BEAT tax rate mul-
tiplied by the taxpayer’s modified taxable
income exceeds the taxpayer’s regular tax
liability adjusted for certain credits.
B. Need for the final regulations
Section 59A is largely self-executing,
which means that it is binding on taxpay-
ers and the IRS without any regulatory
action. Although it is self-executing, the
Treasury Department and the IRS recog-
nize that section 59A provides interpretive
latitude for taxpayers and the IRS which
could create uncertainty and prompt a va-
riety of taxpayer responses without further
guidance. The final regulations are needed
to address questions regarding the appli-
cation of section 59A and to reduce com-
pliance burden and economic inefficiency
that would be caused by uncertainty about
how to calculate tax liability.
C. Overview of the final regulations
These final regulations provide guid-
ance under section 59A regarding the de-
termination of the tax with respect to base
erosion payments for certain taxpayers
with substantial gross receipts. They pro-
vide guidance for applicable taxpayers to
determine the amount of BEAT liability
and how to compute the components of
the tax calculation.
Regulations under section 59A
(§§1.59A-1 through 1.59A-10) provide
details for taxpayers regarding whether a
taxpayer is an applicable taxpayer and the
computation of certain components of the
base erosion minimum tax amount, includ-
ing the amount of base erosion payments,
the amount of base erosion payments that
are treated as base erosion tax benefits,
and modified taxable income. The regu-
lations also provide specific guidance for
banks, registered securities dealers, and
insurance companies, and provide guid-
ance in applying section 59A to amounts
paid by and to partnerships. These regu-
lations also establish anti-abuse rules to
prevent taxpayers from taking measures to
inappropriately circumvent section 59A.
Regulations under sections 383, 1502
and 6038A (§§1.383-1, 1.1502-2, 1.1502-
59A, 1.6038A-1, 1.6038A-2, and 1.6038-
4) provide rules for the application of
section 59A with respect to limitations on
certain capital losses and excess credits,
consolidated groups and their members,
and reporting requirements, which include
submitting, in certain cases, new Form
8991, Tax on Base Erosion Payments of
Taxpayers With Substantial Gross Re-
ceipts.
D. Economic Analysis
1. Baseline
The Treasury Department and the
IRS have assessed the benefits and costs
of these final regulations compared to a
no-action baseline that reflects anticipated
Federal income tax-related behavior in the
absence of these final regulations.
2. Summary of Economic Effects
These final regulations provide certain-
ty and clarity to taxpayers regarding the
meaning of terms and calculations they
are required to apply under the BEAT pro-
visions of the Act. In the absence of the en-
hanced specificity provided by these regu-
lations, similarly situated taxpayers might
interpret the statutory rules of section 59A
differently, potentially resulting in inef-
ficient patterns of economic activity. For
example, two otherwise similar taxpayers
might structure an income-generating ac-
tivity differently based solely on different
assumptions about whether that activity
will involve payments that are subject to
the BEAT. If this tax-driven difference in
business structures confers a competitive
advantage on the less profitable enterprise,
U.S. economic performance may suffer.
This final regulatory guidance thus pro-
vides value by helping to ensure that eco-
nomic agents face similar tax incentives, a
tenet of economic efficiency.
The Treasury Department and the IRS
project that under these final regulations,
3,500-4,500 taxpayers may be applica-
ble taxpayers under the BEAT because
those taxpayers (1) are U.S. shareholders
of a foreign corporation, 25 percent for-
eign-owned corporations, or foreign cor-
porations engaged in a trade or business
within the United States and (2) have gross
receipts of $500 million or more without
taking into account the gross receipts of
members of its aggregate group. As many
as 100,000-110,000 additional taxpayers
may be applicable taxpayers as a result of
being members of an aggregate group.
5
The Treasury Department and the IRS
recognize that in response to these final
regulations, these businesses may alter
the way they transact with related versus
unrelated parties. They may make chang-
es to financial arrangements, supply chain
arrangements, or the locations of business
activity, each in ways that increase or re-
duce the volume of payments made to a
foreign affiliate that qualify as base ero-
5
These estimates are based on current tax filings for taxable year 2017 and do not yet include the BEAT. At this time, the Treasury Department and the IRS do not have readily available data
to determine whether a taxpayer that is a member of an aggregate group will meet all tests to be an applicable taxpayer for purposes of the BEAT.

December 23, 2019 1464 Bulletin No. 2019–52
sion payments, relative to the decisions
they would make under alternative regu-
latory approaches, including the no-action
baseline. These differences in business ac-
tivities may have economic effects beyond
their effects on taxpayers’ tax liability.
The Treasury Department and the IRS
have not attempted to quantify the eco-
nomic effects of any changes in business
activity stemming from these final regu-
lations. The Treasury Department and the
IRS do not have readily available data or
models that predict with reasonable preci-
sion the decisions that businesses would
make under the final regulations versus
alternative regulatory approaches. Nor do
they have readily available data or models
that would measure with reasonable preci-
sion the loss or gain in economic surplus
resulting from these business decisions
relative to the business decisions that
would be made under an alternative regu-
latory approach. Such estimates would be
necessary to quantify the economic effects
of the final regulations versus alternative
approaches.
Within these limitations, part I.D.3 of
these Special Analyses (and the Summa-
ry of Comments and Explanation of Re-
visions) explains the rationale behind the
final regulations and provides a qualitative
assessment of the economic effects of the
final regulations relative to the alternative
regulatory approaches that were consid-
ered.
The Treasury Department and the IRS
welcome comments on these conclusions
and on the economic effects of the provi-
sions described in the following sections.
3. Economic Effects of Provisions
Substantially Revised from the Proposed
Regulations
a. Securities lending transactions
Section 59A(h) includes an excep-
tion to base erosion payment status for
certain payments by a corporation to a
foreign related party pursuant to certain
derivative contracts (qualified derivative
payments, or QDPs). The statute further
provides that the QDP exception does not
apply to a payment pursuant to a deriv-
ative contract that would be treated as a
base erosion payment if the payment was
not made pursuant to a derivative con-
tract. The final regulations specify how
the QDP exception applies to securities
lending transactions, a particular form of
financial transaction. In this regard, the fi-
nal regulations generally provide parity in
the treatment of securities lending trans-
actions and sale-repurchase transactions,
a similar, alternative form of financial
transaction. This part I.D.3.a discusses
the treatment of securities lending trans-
actions and sale-repurchase transactions
under the final regulations. For a further
description of securities lending transac-
tions and sale-repurchase transactions, see
Part VII.B of the Summary of Comments
and Explanation of Revisions.
In general, a sale-repurchase trans-
action is an agreement under which a
person transfers a security in exchange
for cash and simultaneously agrees to
receive substantially identical securities
from the transferee in the future in ex-
change for cash. Certain sale-repurchase
transactions are treated as secured debt
for federal tax purposes; that is, the nom-
inal seller of the securities in the sale-re-
purchase transaction is treated as trans-
ferring securities as collateral for a loan
from the nominal buyer to the nominal
seller. The fee paid by the nominal seller
to the nominal buyer pursuant to this type
of sale-repurchase contract is one exam-
ple of a payment that does not qualify for
the QDP exception.
In this type of sale-repurchase transac-
tion, the nominal seller remains the bene-
ficial owner of the securities for federal in-
come tax purposes and is treated as a cash
borrower from the nominal buyer. Because
the nominal seller remains the beneficial
owner of the securities for federal income
tax purposes, when the nominal buyer
receives any payments with respect to
the securities and passes those payments
through to the nominal seller (known as
substitute payments), such as interest or
dividends, the nominal seller is treated as
receiving that payment directly from the
issuer of the security for federal income
tax purposes. Thus, the substitute payment
is not considered a payment between the
nominal seller and the nominal buyer for
federal tax purposes. Consequently, even
if the nominal buyer is a U.S. person and
the nominal seller is a foreign related par-
ty, the substitute payments on the sale-re-
purchase agreement that is treated as a
loan for federal tax purposes generally are
not base erosion payments for the BEAT.
Certain securities lending transactions
are economically similar to sale-repur-
chase transactions but are treated differ-
ently for federal income tax purposes. In
some securities lending transactions, a se-
curities lender also transfers securities to a
securities borrower in exchange for an ob-
ligation that the securities borrower make
certain payments to the securities lender
and also return identical (though not nec-
essarily the same) securities to the securi-
ties lender. In connection with the transfer
of securities in this type of transaction, the
securities borrower may also provide cash
or other form of collateral to the securi-
ties lender, often with the same or greater
value as the lent security. Economically,
the securities lender in these transactions
can be viewed as both a lender of secu-
rities to the counterparty, and a borrower
of cash from the counterparty. In these re-
spects, the securities lending transaction is
economically similar to a sale-repurchase
transaction.
However, in these securities lending
transactions, the securities lender is no
longer treated as the beneficial owner of
the securities for federal income tax pur-
poses. As a result, when the securities bor-
rower makes substitute payments (with
respect to the securities) in the securities
lending transaction, those substitute pay-
ments may be base erosion payments
(without regard for the QDP exception)
if the securities lender is a foreign relat-
ed party because the substitute payments
are treated as payments from the securities
borrower to the securities lender for feder-
al income tax purposes.
The proposed regulations state that
sale-repurchase transactions are not eligi-
ble for the QDP exception. The proposed
regulations further provide that securities
lending transactions are not eligible for
the QDP exception because the securities
lending transactions are economically
similar to sale-repurchase transactions.
However, as discussed in this part I.D.3.a,
substitute payments on a sale-repurchase
transaction are not a base erosion payment
because the nominal seller of the securi-
ties is treated as remaining the beneficial
owner of the securities for federal income
tax purposes. Comments observed that the
proposed regulations thus failed to take

Bulletin No. 2019–52 1465 December 23, 2019
into account the disparate tax treatment
of substitute payments for sale-repurchase
transactions and securities lending trans-
actions for purposes of the BEAT.
To take into account the disparate
treatment of the substitute payments in
securities lending transactions, the final
regulations remove the per se exclusion
of securities lending transactions from the
QDP exception. Instead, the final regula-
tions more narrowly exclude the borrow-
ing of cash pursuant to a securities lending
transaction (“cash leg”) from the QDP ex-
ception. This change provides symmetry
with the treatment of a sale-repurchase
transaction that is treated as a secured loan
for federal income tax purposes. Under the
final regulations, both a sale-repurchase
transaction and the cash leg of a securi-
ties lending transaction are excluded from
the QDP exception to the extent that they
are treated as financings, and thus may be
base erosion payments.
The final regulations no longer exclude
payments attributable to the borrowing of
securities pursuant to a securities lending
transaction from qualifying for the QDP
exception; as a result, substitute payments
on the security may qualify for the QDP
exception. This change in the final regu-
lations provides general symmetry in the
treatment of substitute payments made
pursuant to sale-repurchase transactions
and securities lending transactions for
purposes of the BEAT.
The final regulations also provide an
anti-abuse rule to address a potentially
abusive transaction characterized by an
uncollateralized borrowing of securities
that can be liquidated for cash in a mul-
tiple-step transaction that is economically
similar to an uncollateralized cash loan.
Specifically, the Treasury Department
and the IRS adopted an anti-abuse rule that
takes into account two factors: (a) whether
the securities lending transaction or sub-
stantially similar transaction provides the
taxpayer with the economic equivalent of
a substantially unsecured cash borrowing
and (b) whether the transaction is part of
an arrangement that has been entered into
with a principal purpose of avoiding the
treatment of any payment with respect to
the transaction as a base erosion payment.
The Treasury Department and the IRS
considered an alternative anti-abuse rule
that would have applied solely on the ba-
sis of the securities loan being undercol-
lateralized. The Treasury Department and
the IRS did not adopt this alternative in
the final regulations because the Treasury
Department and the IRS are cognizant that
an objective mechanical rule based sole-
ly on the level of collateralization may be
difficult for both taxpayers and the IRS to
apply, in particular due to the high volume
of transactions issued under varying con-
ditions. Accordingly, the final regulations
further provide that for the anti-abuse rule
to apply, the transactions must also be part
of an arrangement that has been entered
into with a principal purpose of avoiding
the treatment of any payment with re-
spect to the transaction as a base erosion
payment. See §§1.59A-6(d)(2)(iii)(C);
1.59A-6(e)(2)(Example 2).
The Treasury Department and the IRS
recognize that in response to these final
regulations, businesses may increase the
volume of certain securities lending trans-
actions relative to the volume that would
occur under alternative anti-abuse rules.
The Treasury Department and the IRS
project, however, that taxpayer response
to these rules, and the relative economic
effects of adoption of the final rule, will
be minor given the wide range of finan-
cial transactions that applicable taxpayers
currently engage in, the various roles that
securities lending transactions play, and
the relatively small difference in regulato-
ry treatment between the final regulations
and alternative anti-abuse rules.
The Treasury Department and the IRS
have not attempted to provide a quan-
titative prediction of the change in the
volume of securities lending transactions
nor to quantify the economic effects of
this potential shift that may result from
the final regulations, relative to alterna-
tive regulatory approaches. The Treasury
Department and the IRS do not have
readily available data or models that
predict with reasonable precision the
types of intercompany arrangements that
businesses would adopt under the final
regulations versus alternative regulato-
ry approaches. Nor do they have readily
available data or models that would mea-
sure with reasonable precision the differ-
ence in returns or risk that would occur
as a result of this shift in the volume of
securities lending transactions relative to
the alternative regulatory approach. Such
estimates would be necessary to quantify
the economic effects of these final reg-
ulations over the treatment of securities
lending transactions versus alternative
regulatory approaches.
Profile of affected taxpayers. The tax-
payers affected by these provisions of the
final regulations are domestic banks and
broker-dealers that engage in securities
lending transactions with a foreign relat-
ed party where the domestic bank or bro-
ker-dealer is the securities borrower that
makes substitute payments to the foreign
related party. The taxpayers affected are
also foreign banks and broker-dealers that
engage in these securities lending transac-
tions with a foreign related party as part of
their conduct of a U.S. trade or business.
To provide an estimate of taxpayers
affected by the change to the QDP rule,
the Treasury Department and the IRS
used current tax filings for taxable year
2017 and examined the set of filers who
marked-to-market securities and were (1)
U.S. shareholders of a foreign corporation
as indicated by the filing of Form 5471 or
(2) otherwise potentially applicable tax-
payers as indicated by the filing of Form
5472. This marked-to-market proxy is
reasonable because the QDP exception ap-
plies only if a taxpayer recognizes gain or
loss as if the derivative were sold for fair
market value on the last day of the taxable
year and treats that gain or loss as ordi-
nary. Based on these tax data, the number
of taxpayers estimated to be affected by
these provisions of the final regulations is
900, based on counts of the forms shown
in the accompanying table.
Taxpayers affected by §1.59A (estimate based on current tax filings for taxable year 2017)
Estimated Impacted Filer Counts
Form 1120 with mark-to-market on Form M3 and Form 5471 and/or 5472750
Form 1120F who completed line u of the Additional Information and Form 5471 and/or 5472150

December 23, 2019 1466 Bulletin No. 2019–52
b. Section 988 losses in the denominator
of the base erosion percentage
Under section 59A, a taxpayer is sub-
ject to the BEAT only if the taxpayer
meets the statutory tests to be an applica-
ble taxpayer, including the base erosion
percentage test. The base erosion percent-
age test is satisfied with respect to a tax-
payer if the taxpayer (or, if the taxpayer
is a member of an aggregate group, that
aggregate group) has a base erosion per-
centage of three percent or more. A lower
threshold of two percent generally applies
if the taxpayer, or a member of the taxpay-
er’s aggregate group, is a member of an
affiliated group that includes a domestic
bank or registered securities dealer. The
final regulations specify how losses from
certain currency exchange transactions
should be included in the base erosion
percentage test.
Proposed §1.59A-3(b)(3)(iv) provides
that exchange losses from section 988
transactions described in §1.988-1(a)(1)
are excluded from the definition of base
erosion payments. Section 988 transac-
tions are generally transactions in which
the amount that the taxpayer is entitled
to receive (or required to pay) is denom-
inated in terms of a nonfunctional cur-
rency or is determined by reference to
one or more nonfunctional currencies.
In the proposed regulations, the Trea-
sury Department and the IRS determined
that this section 988 exception from the
definition of a base erosion payment is
appropriate because those losses do not
present the same base erosion concerns
as other types of losses that arise in con-
nection with payments to a foreign relat-
ed party. Because exchange losses from
section 988 transactions are excluded
from the definition of base erosion pay-
ments in the proposed regulations, those
losses are not included in the numerator
of the base erosion percentage under the
proposed regulations. The final regula-
tions retain the exclusion of section 988
losses from the definition of base erosion
payments and from the numerator of the
base erosion percentage.
Proposed §1.59A-2(e)(3)(ii)(D) also
provides that exchange losses from section
988 transactions (including with respect to
transactions with persons other than for-
eign related parties) are not included in the
denominator when calculating the base
erosion percentage for purposes of the
base erosion percentage test. In response
to comments, the final regulations restore
the section 988 losses to the denominator
when calculating the base erosion percent-
age, except to the extent of the amount of
section 988 losses from transactions with
foreign related parties that is also exclud-
ed from the numerator of the base erosion
percentage.
As an alternative, the Treasury De-
partment and the IRS considered remov-
ing all section 988 losses from the de-
nominator of the base erosion percentage
test. However, the Treasury Department
and the IRS determined that it was appro-
priate to exclude from the denominator
only the amounts that are excluded from
the numerator because that is how other
statutory exceptions from the BEAT are
addressed in the base erosion percentage
calculations. Specifically, for the QDP
exception (discussed in Part I.D.3.a of
this Special Analysis) and the services
cost method exception (discussed in Part
IV.C.1 of the Summary of Comments and
Explanation of Revisions) the amounts
in the denominator of the base erosion
percentage are also accounted for in this
manner. That is, the denominator does in-
clude the amount of QDP deductions or
services cost method deductions that are
also excluded from the numerator of the
base erosion percentage because of those
exceptions.
The Treasury Department and the IRS
project that under these final regulations,
fewer taxpayers would be expected to
satisfy the base erosion percentage test
and therefore fewer would be liable
for the BEAT, relative to the alterna-
tive regulatory approach as specified in
the proposed regulations. These final
regulations include in the denominator
of the base erosion percentage section
988 losses arising from foreign curren-
cy transactions with unrelated parties.
Inclusion of such losses in the denom-
inator, all else equal, reduces the base
erosion percentage, and may increase
the likelihood that businesses engage
in incremental section 988 transactions
with unrelated parties to reduce the base
erosion percentage, relative to the pro-
posed regulations. However, regulations
under §1.59A-9(b)(2) (anti-abuse rule
addressing transactions to increase the
amount of deductions taken into account
in the denominator of the base erosion
percentage computation) are expected to
limit this behavior.
The Treasury Department and the IRS
have not attempted to provide a quantita-
tive prediction of the change in the volume
of section 988 transactions nor to quantify
the economic effects of this change result-
ing from the final regulations, relative to
the alternative regulatory approach. The
Treasury Department and the IRS do not
have readily available data or models that
predict with reasonable precision the vol-
ume of section 988 transactions that busi-
nesses might engage in under the final reg-
ulations versus the alternative regulatory
approach because of the complex role that
currency exchange plays for these busi-
nesses. The Treasury Department and the
IRS further do not have readily available
data or models that would measure with
reasonable precision the difference in eco-
nomic returns or volatility that these busi-
nesses would experience as a result of this
shift in section 988 transactions relative to
the alternative regulatory approach, again
because of the complex role that currency
exchange plays for these businesses. Such
estimates would be necessary to quantify
the economic effects of these final regu-
lations over the treatment of section 988
transactions versus the alternative regula-
tory approach.
Profile of affected taxpayers. The tax-
payers affected by these provisions of the
final regulations generally are those tax-
payers that engage in foreign currency
transactions with unrelated parties and
have section 988 losses that will be includ-
ed in the denominator of the base erosion
percentage under the final regulations.
The Treasury Department and the IRS
have not estimated the number of these
taxpayers because the Form 1120 series
does not separately break out gains or
losses from section 988 transactions. The
sole form that breaks out section 988 gain
and loss is Form 5471, which is filed by
U.S. shareholders of a CFC. Information
from Form 5471 is unlikely to be infor-
mative because a CFC is unlikely to be an
applicable taxpayer.

Bulletin No. 2019–52 1467 December 23, 2019
4. Economic Effects of Provisions Not
Substantially Revised from the Proposed
Regulations
a. Applicable Taxpayer for Aggregate
Groups
A taxpayer is liable for the BEAT only
if the taxpayer is an applicable taxpayer.
In general, an applicable taxpayer is a cor-
poration, other than a RIC, REIT, or an
S corporation, that satisfies the gross re-
ceipts test and the base erosion percentage
test. For purposes of these tests, members
of a group of corporations related by cer-
tain specified percentages of stock owner-
ship are aggregated. Section 59A(e)(3) re-
fers to aggregation on the basis of persons
treated as a single taxpayer under section
52(a) (controlled group of corporations),
which includes both domestic and foreign
persons. In the proposed regulations, the
Treasury Department and the IRS deter-
mined that to implement the provisions
of section 59A, it was necessary to treat
foreign corporations as outside of the con-
trolled group for purposes of applying the
aggregation rules, except to the extent that
the foreign corporation is subject to net
income tax under section 882(a) (tax on
income of foreign corporations connected
with U.S. business). The final regulations
also adopt this position.
Upon aggregation of domestic and for-
eign controlled groups of corporations, in-
tra-aggregate group transactions are elim-
inated for purposes of the gross receipts
test and base erosion percentage test. If
aggregation were defined to include both
domestic and all related foreign persons
(i.e., a “single employer” under section
52(a)), regardless of whether the foreign
person was subject to tax in the United
States, this would eliminate most base
erosion payments, which are defined by
section 59A(d)(1) as “any amount paid or
accrued by the taxpayer to a foreign per-
son which is a related party of the taxpay-
er and with respect to which a deduction
is allowed under this chapter.” Without
these base erosion payments, virtually no
taxpayer or aggregate group would satisfy
the base erosion percentage test; thus sub-
stantially all taxpayers (or the aggregate
group of which the taxpayer was a mem-
ber) would be excluded from the require-
ment to pay a tax equal to the base erosion
minimum tax amount (BEMTA).
In the proposed regulations, the Trea-
sury Department and the IRS considered
an alternative of not providing guidance on
the aggregation rule in the statute. Absent
the proposed regulations, there would be
uncertainty among taxpayers as to whether
the tax equal to the BEMTA would apply
to them. Without guidance, different tax-
payers would likely take different positions
regarding the determination of their status
as an applicable taxpayer, which would re-
sult in inefficient decision-making and in-
consistent application of the statute as tax-
payers engage in corporate restructurings,
or adjust investment and spending policies
based on tax planning strategies to manage
BEAT liability. No substantive comments
objected to the general approach set forth
in the proposed regulations.
b. Service Cost Method exception
Section 59A(d)(5) provides an excep-
tion from the definition of a base erosion
payment for an amount paid or accrued by
a taxpayer for services if the services are
eligible for the services cost method under
section 482 (without regard to certain re-
quirements under the section 482 regula-
tions) and the amount constitutes the total
services cost with no markup component.
The statute is ambiguous as to whether
the SCM exception (1) does not apply
to a payment or accrual that includes a
markup component, or (2) does apply to
such a payment or accrual that includes a
markup component, but only to the extent
of the total services costs. The proposed
regulations follow the latter approach. See
REG-104259-18, 83 F.R. 65961 (Decem-
ber 21, 2018). The final regulations retain
the same approach. See part IV.C.1 of the
Summary of Comments and Explanation
of Revisions.
Alternatives would have been to dis-
allow the SCM exception for the entire
amount of any payment that includes a
markup component, or to not provide any
guidance at all regarding the SCM excep-
tion. The Treasury Department and the
IRS rejected the former approach. The
section 482 regulations mandate inter-
company pricing under an “arm’s length
standard.” Under specific circumstances,
the section 482 regulations provide that in-
tercompany payments for services can be
set by a taxpayer at the cost of providing
the service with no profit markup. Howev-
er, the section 482 regulations prohibit use
of this cost-only SCM approach for ser-
vices “that contribute significantly to fun-
damental risks of business success or fail-
ure” (the “business judgment rule”). See
§1.482-9(b)(5). At arm’s length, such ser-
vices generally would be priced to include
a profit element to satisfy the market’s de-
mand for, and supply of, services among
recipients and providers. Section 59A(d)
(5)(A) explicitly allows an exception from
the BEAT for services that would be el-
igible for the SCM, “determined without
regard to [the business judgment rule].”
By allowing an exception from the BEAT
for intercompany service payments that
do not include a profit markup (i.e., un-
der the SCM transfer pricing method), but
also for intercompany service payments
that must apply a different transfer pricing
method, and therefore generally would in-
clude a profit markup at arm’s length (i.e.,
those subject to the business judgment
rule), the statute creates ambiguity about
the SCM exception’s application with re-
spect to the portion of intercompany pric-
es paid for services reflecting the cost of
providing the services, when there is also
a mark-up component. Thus, the proposed
regulations provide that the SCM excep-
tion is available if there is a profit mark-
up (provided that other requirements are
satisfied), but the portion of any payment
exceeding cost is not eligible for the SCM
exception.
The Treasury Department and the IRS
also rejected the option of not providing
any guidance at all regarding the SCM
exception because if taxpayers relied on
statutory language alone, taxpayers would
adopt different approaches due to ambigui-
ty in the statute, leaving it open to differing
statutory interpretations and an inconsis-
tent application of the statute. Comments
supported the SCM exception and recom-
mended that final regulations adopt the ap-
proach from the proposed regulations.
c. Effectively Connected Income
The final regulations provide an excep-
tion from the definition of base erosion

December 23, 2019 1468 Bulletin No. 2019–52
payment for payments to the U.S. branch
of a foreign related person to the extent
that the payments are treated as effectively
connected income.
Under section 59A, whether a deduct-
ible payment is a base erosion payment
is determined based on whether the re-
cipient is a foreign person (as defined in
section 6038A(c)(3)) and a related par-
ty. See section 59A(f). A foreign person
means any person who is not a United
States person. However, the Treasury
Department and the IRS determined in
the proposed regulations that establish-
ing whether a payment is a base erosion
payment based solely on the status of the
recipient as a foreign person is inconsis-
tent with the statute’s intent of eliminat-
ing base erosion. As a result, deductible
payments to a foreign person that are
treated as effectively connected income
are subject to tax under section 871(b)
and 882(a) in substantially the same
manner as payments to a U.S. citizen or
resident, or a domestic corporation, and,
thus, such payments do not result in base
erosion. Thus, such payments are treated
as income to the recipient and subject to
U.S. tax, substantially similar to any pay-
ment between related U.S. corporations.
Further, treatment of effectively connect-
ed income payments to a foreign related
party would produce different tax results
for two similarly situated U.S. taxpayers.
That is, if the taxpayer were to make a
payment to a related U.S. corporation,
the payment generally would not be sub-
ject to the BEAT, but if a taxpayer were
to make a payment to a foreign person
with respect to its effectively connected
income, it would give rise to BEAT lia-
bility, despite the fact that in both cases
the recipients include the payment in U.S.
taxable income. The final regulations re-
tain the same approach as the proposed
regulations. See §1.59A-3(b)(3)(iii). This
approach provides consistency with the
approach in the regulations to determin-
ing the applicable taxpayer for aggregate
groups, which is discussed in part I.D.4.a
of this Special Analysis, because this
provision excludes from the definition of
a base erosion payment those payments
to members of the aggregate group that
are also excluded from the base erosion
percentage because the payments are also
within the aggregate group.
The Treasury Department and the IRS
considered an alternative of not provid-
ing this exception to the definition of a
base erosion payment, but determined
that it would be inconsistent to exclude a
payment to the U.S. branch of a foreign
related person from the base erosion per-
centage (a condition to the application of
the BEAT) but not also exclude the same
payment from the amount of base erosion
payments (a factor in determining the
amount of BEAT tax liability).
d. Modified Taxable Income
Modified taxable income is a taxpay-
er’s taxable income for the year calculated
without regard to any base erosion tax ben-
efit or the base erosion percentage of any
allowable net operating loss deductions
under section 172 (net operating loss de-
duction). As discussed in Part V.A. of the
Summary of Comments and Explanation
of Revisions, the proposed regulations
provide that modified taxable income is
computed under the add-back method of
adding back to taxable income the base
erosion tax benefits and base erosion per-
centage of any net operating loss deduc-
tions. The regulations do not provide for
computing modified taxable income by re-
computing the tax base without base ero-
sion tax benefits under an approach similar
to the alternative minimum tax, which the
Act repealed for corporations. Applying
the recomputation method would require
taxpayers to maintain records for separate
carryforward balances for attributes, such
as net operating loss deductions and busi-
ness interest expense carryovers. These
items are limited based on taxable income,
so under the recomputation or alternative
minimum tax-approach, there would most
likely be different annual limitations and
other computational differences for regu-
lar tax purposes and section 59A purposes.
The final regulations retain the same ap-
proach as the proposed regulations. This
add-back approach is expected to be less
costly for taxpayers to apply than the re-
computation approach because under the
add-back approach, where amounts are
only added to taxable income, taxpayers
will not have to recompute their entire tax
return on a different basis or maintain sep-
arate sets of records to track annual lim-
itations on attributes such as net operating
loss carryforwards or business interest
expense carryforwards (and the IRS will
not have to administer such a system).
See Part V.A. of the Summary of Com-
ments and Explanation of Revisions for a
detailed discussion of the comments that
were not adopted.
e. Payments to or from partnerships
As discussed in Part VIII of the Sum-
mary of Comments and Explanation of
Revisions section, these final regulations
apply the “aggregate” approach to base
erosion payments involving partnerships,
which is to say that the regulations gen-
erally treat the partnership as an aggre-
gation of its partners, with the partners
viewed as entering into transactions. This
aggregate approach is in contrast to the
alternative “entity” approach that treats
the partnership as an entity that engages
in transactions. Because partnerships are
passthrough entities that are not them-
selves subject to U.S. income tax and
because the income of the partnership is
taxable to the partners in the partnership,
these final regulations apply the aggregate
approach and provide that payments by a
corporation to a partnership, and payments
by a partnership to a corporation, are treat-
ed in the first instance as payments to the
partners in the partnership and in second
instance as payments by the partners in the
partnership. Under the alternative entity
approach that assesses the partnership as
a separate entity, a payment by an applica-
ble taxpayer (corporation) to a related for-
eign partnership could be a base erosion
payment even if all of the partners in the
partnership are domestic persons.
Under the aggregate approach adopted
in these final regulations, the applicable
taxpayer (corporation) that makes a pay-
ment to a related foreign partnership with
a partner or partners that are related for-
eign parties will determine whether it has
made a base erosion payment by treating
the amount as having been paid to each
partner of the partnership. Conversely,
also in the absence of this aggregate ap-
proach, a payment by an applicable tax-
payer (corporation) to a related domestic
partnership would not be a base erosion
payment even if some or all of the part-
ners in the partnership are foreign related
parties. As with a payment to a related for-

Bulletin No. 2019–52 1469 December 23, 2019
eign partnership, under the aggregate ap-
proach adopted in these final regulations,
the applicable taxpayer (corporation) that
makes a payment to a related domestic
partnership with a partner or partners that
are related foreign parties will determine
whether it has made a base erosion pay-
ment by treating the amount as having
being paid to each partner of the partner-
ship. This approach is thus neutral in both
preventing potential abuse and preventing
potential over-breadth.
The final regulations retain the same
general approach that was provided in the
proposed regulations. See Part VIII of the
Summary of Comments and Explanation
of Revisions. The Treasury Department and
the IRS considered an alternative of not pro-
viding guidance on transactions involving
partnerships; however, as discussed in this
part I.D.4.e, these final regulations eliminate
the distortion that would otherwise be pres-
ent if determination of whether a payment is
a base erosion payment is made by reference
to the partnership, rather than by reference
to the partners. For example, in the absence
of these final regulations, taxpayers might
be incentivized to route payments through
a domestic partnership that is formed by
foreign persons as an intermediary to avoid
the BEAT. Conversely, in the absence of the
final regulations, taxpayers would be incen-
tivized to restructure to avoid making any
payments to a foreign partnership that has
partners that are solely domestic because
such payment could be inappropriately clas-
sified as a base erosion payment.
f. Anti-abuse and Reporting
Requirements
Section 59A(i) provides the Secretary
authority to issue regulations and other
guidance including for the purposes of pre-
venting the avoidance of the purposes of
section 59A. Pursuant to this specific grant
of regulatory authority, §1.59A-9 provides
rules recharacterizing certain specified
transactions as necessary to prevent the
avoidance of section 59A, and provides ex-
amples. The Treasury Department and the
IRS have determined that any compliance
burdens or other economic costs created by
the anti-abuse provisions are necessary to
further the purposes of section 59A.
These final regulations also provide re-
porting requirements necessary to proper-
ly administer and enforce section 59A. In
particular, the Treasury Department and the
IRS have identified certain types of infor-
mation from taxpayers who are applicable
taxpayers for purposes of section 59A that
will be required to be reported on Form
5471, Information Return of U.S. Persons
With Respect to Certain Foreign Corpora-
tions, Form 5472, Information Return of a
25% Foreign-Owned U.S. Corporation or
a Foreign Corporation Engaged in a U.S.
Trade or Business (Under Sections 6038A
and 6038C of the Internal Revenue Code),
and a new Form 8991, Tax on Base Erosion
Payments of Taxpayers With Substantial
Gross Receipts. The regulations increase
record keeping requirements for taxpayers
relative to the baseline because additional
information is to be reported on Form 5472
and Form 8991. The requirements added
by the proposed regulations, however, de-
rive directly from statutory changes that
require information from applicable tax-
payers and are necessary for the effective
administration of section 59A.
II. Paperwork Reduction Act
1. Collections of Information – Forms
8991, 5471, 5472, and 8858
The collections of information in the
final regulations with respect to section
59A are in §§1.59A-3(b)(3)(i)(C),1.59A-
3(b)(4)(i)(D), and 1.6038A-2. In response
to comments addressing the notice of
proposed rulemaking preceding the final
regulations, the Treasury Department and
the IRS have revised the collection of in-
formation with respect to section 6038A.
The revised collection of information with
respect to sections 59A and 6038A is in
§1.6038A-2(b)(7)(ix).
The collection of information in
§1.59A-6(b)(2)(i) and §1.6038A-2(b)(7)
(ix) requires an applicable taxpayer that
makes qualified derivative payments to
report information regarding its qualified
derivative payments on Form 8991 in or-
der for the QDP exception from base ero-
sion payment status to apply to any partic-
ular payment. In response to comments,
§1.59A-6(b)(2)(i) provides that a taxpayer
satisfies the reporting requirement by re-
porting the aggregate amount of all QDPs
(rather than the aggregate amount as de-
termined by type of derivative contract
as provided in proposed §1.6038A-2(b)
(7)(ix)(A)) on Form 8991 or its successor
form. To comply with these reporting re-
quirements, taxpayers will need to develop
systems to collect and report the relevant
information. To separately determine the
aggregate amount of QDPs by each specif-
ic type of derivative contract would add to
the complexity of those systems. That ad-
ditional complexity and compliance burden
outweighs the utility to the IRS of receiving
that information for each specific type of de-
rivative contract. Section 1.59A-6(b)(2)(iv)
also provides that during the transition pe-
riod before §1.59A-6(b)(2)(i) is applicable,
taxpayers will not be deemed to have failed
to satisfy the reporting requirement if the
taxpayer reports the aggregate amount of
qualified derivative payments in good faith.
For purposes of the PRA, the reporting bur-
den associated with §1.59A-3(b)(4)(i)(D),
§1.59A-6(b)(2)(i) and §1.6038A-2(b)(7)
(ix) will be reflected in the PRA submission
associated with the Form 8991 series (see
chart at the end of this Part II of the Special
Analysis section for the status of the PRA
submission for this form).
Tax Form Impacted
Collection of information
Number of respondents
(estimated)
Forms to which the
information may be attached
§1.59A-3(b)(4)(i)(D) election to use-applicable financial statements105,600Form 8991 series
§1.59A-6(b)(2)(i) and §1.6038A-2(b)(7)(ix) requirement to report
qualified derivative payments
105,600Form 8991 series
CDW

December 23, 2019 1470 Bulletin No. 2019–52
The information collection require-
ments pursuant to §1.59A-3(b)(3)(i)(C)
are discussed further below. The collec-
tions of information pursuant to section
59A, except with respect to information
collected under §1.59A-3(b)(3)(i)(C), will
be conducted by way of the following:
• Form 8991, Tax on Base Erosion Pay-
ments of Taxpayers With Substantial
Gross Receipts;
• Schedule G to the Form 5471, Infor-
mation Return of U.S. Persons With
Respect to Certain Foreign Corpora-
tions;
• Part VIII of the updated Form 5472,
Information Return of a 25% For-
eign-Owned U.S. Corporation or a
Foreign Corporation Engaged in a
U.S. Trade or Business;
• Revised Form 8858, Information Re-
turn of U.S. Persons With Respect to
Foreign Disregarded Entities.
For purposes of the Paperwork Reduc-
tion Act, the reporting burden associated
with the collections of information with
respect to section 59A, other than with re-
spect to §1.59A-3(b)(3)(i)(C), will be re-
flected in the IRS Forms 14029 Paperwork
Reduction Act Submission, associated
with Forms 5471 (OMB control numbers
1545-0123, and 1545-0074), 5472 (OMB
control number 1545-0123), 8858 (OMB
control numbers 1545-0123, 1545-0074,
and 1545-1910), and 8991 (OMB control
number 1545-0123).
The current status of the Paperwork
Reduction Act submissions related to
BEAT is provided in the following table.
The BEAT provisions are included in ag-
gregated burden estimates for the OMB
control numbers listed below which, in
the case of 1545-0123, represents a total
estimated burden time, including all other
related forms and schedules for corpora-
tions, of 3.157 billion hours and total esti-
mated monetized costs of $58.148 billion
($2017) and, in the case of 1545-0074,
a total estimated burden time, including
all other related forms and schedules for
individuals, of 1.784 billion hours and to-
tal estimated monetized costs of $31.764
billion ($2017). The burden estimates
provided in the OMB control numbers
below are aggregate amounts that relate
to the entire package of forms associat-
ed with the OMB control number, and
will in the future include but not isolate
the estimated burden of only the BEAT
requirements. These numbers are there-
fore unrelated to the future calculations
needed to assess the burden imposed by
the final regulations. The Treasury De-
partment and IRS urge readers to recog-
nize that these numbers are duplicates and
to guard against overcounting the burden
that international tax provisions imposed
prior to the Act. No burden estimates spe-
cific to the final regulations are currently
available. The Treasury Department has
not estimated the burden, including that of
any new information collections, related
to the requirements under the final regula-
tions. Those estimates would capture both
changes made by the Act and those that
arise out of discretionary authority exer-
cised in the final regulations. The Treasury
Department and the IRS request comment
on all aspects of information collection
burdens related to the final regulations.
In addition, when available, drafts of IRS
forms are posted for comment at https://
apps.irs.gov/app/picklist/list/draftTax-
Forms.htm.
FormType of Filer
OMB
Number(s)
Status
Form 5471
(including
Schedule G)
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Individual (NEW
Model)
1545-0074
Limited Scope submission (1040 only) on 10/11/18 at OIRA for review.
Full ICR submission for all forms in 3/2019. 60 Day Federal Register no-
tice not published yet for full collection.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201808-1545-031
Form 5472
(including
Part VIII)
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/11/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Form 8858
All other Filers
(mainly trusts and
estates) (Legacy
system)
1545-1910
Published in the Federal Register on 10/30/18. Public Comment peri-
od closed on11/30/18. ICR in process by the Treasury Department as of
9/6/18.
Link: https://www.federalregister.gov/documents/2018/10/30/2018-23644/agency-information-collection-activi-
ties-submission-for-omb-review-comment-request-multiple-irs
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd

Bulletin No. 2019–52 1471 December 23, 2019
FormType of Filer
OMB
Number(s)
Status
Individual (NEW
Model)
1545-0074
Limited Scope submission (1040 only) on 10/11/18 at OIRA for review.
Full ICR submission for all forms in 3-2019. 60 Day Federal Register
notice not published yet for full collection.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201808-1545-031
Form 8991
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/11/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Related New or Revised Tax Forms
NewRevision of existing formNumber of respondents (2018, estimated)
Form 8991Y3,500 – 4,500
Form 5471, Schedule GY15,000 – 25,000
Form 5472, Part VIIIY80,000 – 100,000
Form 8858Y15,000 – 25,000
The numbers of respondents in the Re-
lated New or Revised Tax Forms table were
estimated by Treasury’s Office of Tax Anal-
ysis based on data from IRS Compliance
Planning and Analytics using tax return
data for tax years 2015 and 2016. Data for
Form 8991 represent preliminary estimates
of the total number of taxpayers which
may be required to file the new Form 8991.
Only certain large corporate taxpayers with
gross receipts of at least $500 million are
expected to file this form. Data for each of
the Forms 5471, 5472, and 8858 represent
preliminary estimates of the total number
of taxpayers that are expected to file these
information returns regardless of whether
that taxpayer must also file Form 8991.
The Treasury Department and the IRS
project that 3,500 – 4,500 taxpayers may
be applicable taxpayers under the BEAT.
This estimate is based on the number of
filers that (1) filed the Form 1120 series of
tax returns (except for the Form 1120-S),
(2) filed a Form 5471 or Form 5472, and
(3) reported gross receipts of at least $500
million. Because an applicable taxpayer is
defined under section 59A(e)(1)(A) as a
corporation other than a regulated invest-
ment company, a real estate investment
trust, or an S corporation, the Treasury
Department and the IRS have determined
that taxpayers who filed the Form 1120
series of tax returns will be most likely to
be affected by these proposed regulations.
Additionally, the Treasury Department
and the IRS estimated the number of fil-
ers likely to make payments to a foreign
related party based on filers of the Form
1120 series of tax returns who also filed
a Form 5471 or Form 5472 to determine
the number of respondents. Finally, be-
cause an applicable taxpayer is defined
under section 59A(e)(1)(B) as a taxpayer
with average annual gross receipts of at
least $500 million for the 3-taxable-year
period ending with the preceding taxable
year, the Treasury Department and the IRS
estimated the scope of respondents based
on the amount of gross receipts reported
by taxpayers filing the Form 1120 series
of tax returns.
These projections are based solely on
data with respect to the taxpayer, with-
out taking into account any members of
the taxpayer’s aggregate group. As many
as 105,600 additional taxpayers may be
applicable taxpayers as a result of being
members of an aggregate group.
6
This es-
timate is based on the number of taxpay-
ers who filed a Form 1120 and also filed
a Form 5471 or a Form 5472, but without
regard to the gross receipts test.
2. Collection of Information –
§1.59A-3(b)(3)(i)(C)
The information collection require-
ments pursuant to §1.59A-3(b)(3)(i)(C)
will be satisfied by the taxpayer main-
taining permanent books and records that
are adequate to verify the amount charged
for the services and the total services
costs incurred by the renderer, including
a description of the services in question,
identification of the renderer and the re-
cipient of the services, calculation of the
amount of profit mark-up (if any) paid for
the services, and sufficient documentation
to allow verification of the methods used
to allocate and apportion the costs to the
services.
The collection of information in
§1.59A-3(b)(3)(i)(C) is mandatory for
taxpayers seeking to exclude certain
amounts paid or accrued to a foreign re-
lated party for services from treatment as
base erosion payments for purposes of
section 59A (the “SCM exception to the
BEAT”). Taxpayers seeking to rely on the
SCM exception to the BEAT are aggregate
groups of corporations with average annu-
al gross receipts of at least $500 million
and that make payments to foreign relat-
ed parties. The information required to be

6
These estimates are based on current tax filings for taxable year 2017 and do not yet include the BEAT. At this time, the Treasury Department and the IRS do not have readily available data
to determine whether a taxpayer that is a member of an aggregate group will meet all tests to be an applicable taxpayer for purposes of the BEAT.

December 23, 2019 1472 Bulletin No. 2019–52
maintained will be used by the IRS for tax
compliance purposes.
Estimated total annual reporting bur-
den: 5,000 hours.
Estimated average annual burden
hours per respondent: 2.5 hours.
Estimated average cost per respon-
dent ($2017): $238.00.
Estimated number of respondents:
2,000. This estimate is based on the
assumption that only a portion of
taxpayers will qualify for the SCM
exception to the BEAT, multiplied
by the number of respondents shown
above.
Estimated annual frequency of re-
sponses: Once.
Based on these estimates, the annu-
al three-year reporting burden for those
electing the SCM exemption is $0.16 mn/
yr ($2017) ($238 x 2000/3, converted to
millions).
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
It is hereby certified that these regula-
tions will not have a significant economic
impact on a substantial number of small
entities within the meaning of section
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6). This certification is
based on the fact that these regulations
will primarily affect aggregate groups of
corporations with average annual gross
receipts of at least $500 million and that
make payments to foreign related parties.
Generally only large businesses both have
substantial gross receipts and make pay-
ments to foreign related parties.
Pursuant to section 7805(f), the pro-
posed regulations preceding these final reg-
ulations (REG-104259-18) were submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires that
agencies assess anticipated costs and ben-
efits and take certain other actions before
issuing a final rule that includes any Feder-
al mandate that may result in expenditures
in any one year by a state, local, or tribal
government, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2019,
that threshold is approximately $154 mil-
lion. This rule does not include any Federal
mandate that may result in expenditures by
state, local, or tribal governments, or by the
private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. This final rule does
not have federalism implications and does
not impose substantial direct compliance
costs on state and local governments or
preempt state law within the meaning of
the Executive Order.
VI. Congressional Review Act
The Administrator of the Office of In-
formation and Regulatory Affairs of the
Office of Management and Budget has de-
termined that this is a major rule for pur-
poses of the Congressional Review Act (5
U.S.C. 801 et. seq.) (“CRA”). Under sec-
tion 801(3) of the CRA, a major rule takes
effect 60 days after the rule is published
in the Federal Register. Notwithstanding
this requirement, section 808(2) of the
CRA allows agencies to dispense with
the requirements of 801 when the agency
for good cause finds that such procedure
would be impracticable, unnecessary, or
contrary to the public interest and the rule
shall take effect at such time as the agency
promulgating the rule determines.
Pursuant to section 808(2) of the CRA,
the Treasury Department and the IRS find,
for good cause, that a 60-day delay in the
effective date is unnecessary and con-
trary to the public interest. The Treasury
Department and the IRS have determined
that the rules in this Treasury decision
(other than the reporting requirements for
QDPs in §1.6038A-2(b)(7), §1.1502-2(a)
(9), and §1.1502-59A) shall take effect for
taxable years ending on or after December
17, 2018. Section 14401(e) of the Act pro-
vides that section 59A applies to base ero-
sion payments paid or accrued in taxable
years beginning after December 31, 2017.
This means that the statute is currently
effective, and taxpayers may be required
to make payments under section 59A on
a U.S. federal income tax return for 2018
tax years. These final regulations provide
crucial guidance for taxpayers on how to
apply the rules of section 59A, correctly
calculate their liability under section 59A,
and accurately file their U.S. federal in-
come tax returns. Because the statute al-
ready requires taxpayers to comply with
section 59A, a 60-day delay in the effec-
tive date is unnecessary and contrary to
the public interest.
Drafting Information
The principal authors of these final reg-
ulations are Azeka J. Abramoff, Sheila Ra-
maswamy, and Karen Walny of the Office
of Associate Chief Counsel (International)
and Julie Wang and John P. Stemwedel
of the Office of Associate Chief Counsel
(Corporate). However, other personnel
from the Treasury Department and the
IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising the entry
for §1.6038A-2 and adding entries for
§§1.59A-0, 1.59A-1, 1.59A-2, 1.59A-
3, 1.59A-4, 1.59A-5, 1.59A-6, 1.59A-7,

Bulletin No. 2019–52 1473 December 23, 2019
1.59A-8, 1.59A-9, 1.59A-10, 1.1502-59A,
and 1.1502-100 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
§1.59A-0 also issued under 26 U.S.C.
59A(i).
§1.59A-1 also issued under 26 U.S.C.
59A(i).
§1.59A-2 also issued under 26 U.S.C.
59A(i).
§1.59A-3 also issued under 26 U.S.C.
59A(i).
§1.59A-4 also issued under 26 U.S.C.
59A(i).
§1.59A-5 also issued under 26 U.S.C.
59A(i).
§1.59A-6 also issued under 26 U.S.C.
59A(i).
§1.59A-7 also issued under 26 U.S.C.
59A(i).
§1.59A-8 also issued under 26 U.S.C.
59A(i).
§1.59A-9 also issued under 26 U.S.C.
59A(i).
§1.59A-10 also issued under 26 U.S.C.
59A(i).
* * * * *
§1.1502-59A also issued under 26
U.S.C. 1502.
* * * * *
§1.1502-100 also issued under 26
U.S.C. 1502.
* * * * *
§1.6038A-2 also issued under 26
U.S.C. 6001, 6038A, and 6038C.
* * * * *
Par. 2. Sections 1.59A-0 through
1.59A-10 are added to read as follows:
* * * * *
Sec.
1.59A-0 Table of contents.
1.59A-1 Base erosion and anti-abuse
tax.
1.59A-2 Applicable taxpayer.
1.59A-3 Base erosion payments and
base erosion tax benefits.
1.59A-4 Modified taxable income.
1.59A-5 Base erosion minimum tax
amount.
1.59A-6 Qualified derivative payment.
1.59A-7 Application of base erosion
and anti-abuse tax to partnerships.
1.59A-8 [Reserved].
1.59A-9 Anti-abuse and recharacteri-
zation rules.
1.59A-10 Applicability date.
* * * * *
§1.59A-0 Table of contents.
This section contains a listing of the
headings for §§1.59A-1, 1.59A-2, 1.59A-
3, 1.59A-4, 1.59A-5, 1.59A-6, 1.59A-7,
1.59A-8, 1.59A-9, 1.59A-10.
§1.59A-1 Base erosion and anti-abuse
tax.
(a) Purpose.
(b) Definitions.
(1) Aggregate group.
(2) Applicable section 38 credits.
(3) Applicable taxpayer.
(4) Bank.
(5) Base erosion and anti-abuse tax
rate.
(6) Business interest expense.
(7) Deduction.
(8) Disallowed business interest ex-
pense carryforward.
(9) Domestic related business interest
expense.
(10) Foreign person.
(11) Foreign related business interest
expense.
(12) Foreign related party.
(13) Gross receipts.
(14) Member of an aggregate group.
(15) Registered securities dealer.
(16) Regular tax liability.
(17) Related party.
(i) In general.
(ii) 25-percent owner.
(iii) Application of section 318.
(18) TLAC long-term debt required
amount.
(19) TLAC securities amount.
(20) TLAC security.
(21) Unrelated business interest ex-
pense.
§1.59A-2 Applicable taxpayer.
(a) Scope.
(b) Applicable taxpayer.
(c) Aggregation rules.
(1) In general.
(2) Aggregate group determined with
respect to each taxpayer.
(i) In general.
(ii) Reserved.
(3) Taxable year of members of an ag-
gregate group.
(4) Reserved.
(5) Reserved.
(6) Reserved.
(7) Partnerships.
(8) Transition rule for aggregate group
members with different taxable years.
(d) Gross receipts test.
(1) Amount of gross receipts.
(2) Taxpayer not in existence for entire
three-year period.
(3) Gross receipts of foreign corpora-
tions.
(4) Gross receipts of an insurance com-
pany.
(5) Reductions in gross receipts.
(6) Gross receipts of consolidated
groups.
(e) Base erosion percentage test.
(1) In general.
(2) Base erosion percentage test for
banks and registered securities dealers.
(i) In general.
(ii) Aggregate groups.
(iii) De minimis exception for banking
and registered securities dealer activities.
(3) Computation of base erosion per-
centage.
(i) In general.
(ii) Certain items not taken into ac-
count in denominator.
(iii) Effect of treaties on base erosion
percentage determination.
(iv) Amounts paid or accrued between
members of a consolidated group.
(v) Deductions and base erosion tax
benefits from partnerships.
(vi) Mark-to-market positions.
(vii) Reinsurance losses incurred and
claims payments.
(viii) Certain payments that qualify
for the effectively connected income ex-
ception and another base erosion payment
exception.
(f) Examples.
(1) Mark-to-market.
(i) Facts.
(ii) Analysis.
(2) [Reserved].
§1.59A-3 Base erosion payments and
base erosion tax benefits.
(a) Scope.
(b) Base erosion payments.
(1) In general.
(2) Operating rules.
(i) In general.
(ii) Amounts paid or accrued in cash
and other consideration.
(iii) Transactions providing for net
payments.

December 23, 2019 1474 Bulletin No. 2019–52
(iv) Amounts paid or accrued with re-
spect to mark-to-market position.
(v) Coordination among categories of
base erosion payments.
(vi) Certain domestic passthrough en-
tities.
(A) In general.
(B) Amount of base erosion payment.
(C) Specified domestic passthrough.
(D) Specified foreign related party.
(vii) Transfers of property to related
taxpayers.
(viii) Reductions to determine gross
income.
(ix) Losses recognized on the sale or
transfer of property.
(3) Exceptions to base erosion pay-
ment.
(i) Certain services cost method
amounts.
(A) In general.
(B) Eligibility for the services cost
method exception.
(C) Adequate books and records.
(D) Total services cost.
(ii) Qualified derivative payments.
(iii) Effectively connected income.
(A) In general.
(B) Application to certain treaty resi-
dents.
(iv) Exchange loss on a section 988
transaction.
(v) Amounts paid or accrued with re-
spect to TLAC securities and foreign
TLAC securities.
(A) In general.
(B) Limitation on exclusion for TLAC
securities.
(C) Scaling ratio.
(D) Average domestic TLAC securities
amount.
(E) Average TLAC long-term debt re-
quired amount.
(F) Limitation on exclusion for foreign
TLAC securities.
(1) In general.
(2) Foreign TLAC long-term debt re-
quired amount.
(3) No specified minimum provided by
local law.
(4) Foreign TLAC security.
(vi) Amounts paid or accrued in taxable
years beginning before January 1, 2018.
(vii) Business interest carried forward
from taxable years beginning before Jan-
uary 1, 2018.
(viii) Specified nonrecognition transac-
tions.
(A) In general.
(B) Other property transferred to a for-
eign related party in a specified nonrecog-
nition transaction.
(C) Other property received from a for-
eign related party in certain specified non-
recognition transactions.
(D) Definition of other property
(E) Allocation of other property.
(ix) Reinsurance losses incurred and
claims payments.
(A) In general.
(B) Regulated foreign insurance com-
pany.
(4) Rules for determining the amount
of certain base erosion payments.
(i) Interest expense allocable to a for-
eign corporation’s effectively connected
income.
(A) Methods described in §1.882-5.
(B) U.S.-booked liabilities determina-
tion.
(C) U.S.-booked liabilities in excess of
U.S.-connected liabilities.
(D) Election to use financial state-
ments.
(E) Coordination with certain tax trea-
ties.
(1) In general.
(2) Hypothetical §1.882-5 interest ex-
pense defined.
(3) Consistency requirement.
(F) Coordination with exception for
foreign TLAC securities.
(ii) Other deductions allowed with re-
spect to effectively connected income.
(iii) Depreciable property.
(iv) Coordination with ECI exception.
(v) Coordination with certain tax trea-
ties.
(A) Allocable expenses.
(B) Internal dealings under certain in-
come tax treaties.
(vi) Business interest expense arising
in taxable years beginning after December
31, 2017.
(c) Base erosion tax benefit.
(1) In general.
(2) Exception to base erosion tax ben-
efit.
(i) In general.
(ii) Branch-level interest tax.
(3) Effect of treaty on base erosion tax
benefit.
(4) Application of section 163(j) to
base erosion payments.
(i) Classification of payments or accru-
als of business interest expense based on
the payee.
(A) Classification of payments or ac-
cruals of business interest expense of a
corporation.
(B) Classification of payments or ac-
cruals of business interest expense by a
partnership.
(C) Classification of payments or ac-
cruals of business interest expense paid or
accrued to a foreign related party that is
subject to an exception.
(1) ECI exception.
(2) TLAC interest and interest subject
to withholding tax.
(ii) Ordering rules for business inter-
est expense that is limited under section
163(j)(1) to determine which classifica-
tions of business interest expense are de-
ducted and which classifications of busi-
ness interest expense are carried forward.
(A) In general.
(B) Ordering rules for treating business
interest expense deduction and disallowed
business interest expense carryforwards
as foreign related business interest ex-
pense, domestic related business interest
expense, and unrelated business interest
expense. (1) General ordering rule for al-
locating business interest expense deduc-
tion between classifications.
(2) Ordering of business interest ex-
pense incurred by a corporation.
(3) Ordering of business interest ex-
pense incurred by a partnership and allo-
cated to a corporate partner.
(d) Examples.
(1) Example 1: Determining a base ero-
sion payment.
(i) Facts.
(ii) Analysis.
(2) Example 2: Interest allocable under
§1.882-5.
(i) Facts.
(ii) Analysis.
(3) Example 3: Interaction with section
163(j).
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed busi-
ness interest expense carryforward.
(4) Example 4: Interaction with section
163(j); carryforward.

Bulletin No. 2019–52 1475 December 23, 2019
(i) Facts.
(ii) Analysis.
(A) Classification of business interest.
(B) Ordering rules for disallowed busi-
ness interest expense carryforward.
(5) Example 5: Interaction with section
163(j); carryforward.
(i) Facts.
(ii) Analysis.
(6) Example 6: Interaction with section
163(j); partnership.
(i) Facts.
(ii) Partnership level analysis.
(iii) Partner level allocations analysis.
(iv) Partner level allocations for deter-
mining base erosion tax benefits.
(v) Computation of modified taxable
income.
(7) Example 7: Transfers of property to
related taxpayers.
(i) Facts.
(ii) Analysis.
(A) Year 1.
(B) Year 2.
§1.59A-4 Modified taxable income.
(a) Scope.
(b) Computation of modified taxable
income.
(1) In general.
(2) Modifications to taxable income.
(i) Base erosion tax benefits.
(ii) Certain net operating loss deduc-
tions.
(3) Rule for holders of a residual inter-
est in a REMIC.
(c) Examples.
(1) Example 1: Current year loss.
(i) Facts.
(ii) Analysis.
(2) Example 2: Net operating loss de-
duction.
(i) Facts.
(ii) Analysis.
§1.59A-5 Base erosion minimum tax
amount.
(a) Scope.
(b) Base erosion minimum tax amount.
(1) In general.
(2) Calculation of base erosion mini-
mum tax amount.
(3) Credits that do not reduce regular
tax liability.
(i) Taxable years beginning on or be-
fore December 31, 2025.
(ii) Taxable years beginning after De-
cember 31, 2025.
(c) Base erosion and anti-abuse tax
rate.
(1) In general.
(i) Calendar year 2018.
(ii) Calendar years 2019 through 2025.
(iii) Calendar years after 2025.
(2) Increased rate for banks and regis-
tered securities dealers.
(i) In general.
(ii) De minimis exception to increased
rate for banks and registered securities
dealers.
(3) Application of section 15 to tax
rates in section 59A.
(i) New tax.
(ii) Change in tax rate pursuant to sec-
tion 59A(b)(1)(A).
(iii) Change in rate pursuant to section
59A(b)(2).
§1.59A-6 Qualified derivative payment.
(a) Scope.
(b) Qualified derivative payment.
(1) In general.
(2) Reporting requirements.
(i) In general.
(ii) Failure to satisfy the reporting re-
quirement.
(iii) Reporting of aggregate amount of
qualified derivative payments.
(iv) Transition period for qualified de-
rivative payment reporting.
(3) Amount of any qualified derivative
payment.
(i) In general.
(ii) Net qualified derivative payment
that includes a payment that is a base ero-
sion payment.
(c) Exceptions for payments otherwise
treated as base erosion payments.
(d) Derivative defined.
(1) In general.
(2) Exceptions.
(i) Direct interest.
(ii) Insurance contracts.
(iii) Securities lending and sale-repur-
chase transactions.
(A) Multi-step transactions treated as
financing.
(B) Special rule for payments associ-
ated with the cash collateral provided in a
securities lending transaction or substan-
tially similar transaction.
(C) Anti-abuse exception for certain
transactions that are the economic equiv-
alent of substantially unsecured cash bor-
rowing.
(3) American depository receipts.
(e) Examples.
(1) Example 1: Notional principal con-
tract as QDP.
(i) Facts.
(ii) Analysis.
(2) Example 2: Securities lending an-
ti-abuse rule.
(i) Facts.
(ii) Analysis.
§1.59A-7 Application of base erosion and
anti-abuse tax to partnerships.
(a) Scope.
(b) Application of section 59A to part-
nerships.
(c) Base erosion payment.
(1) Payments made by or to a partner-
ship.
(2) Transfers of certain property.
(3) Transfers of a partnership interest.
(i) In general.
(ii) Transfers of a partnership interest
by a partner.
(iii) Certain issuances of a partnership
interest by a partnership.
(iv) Partnership interest transfers de-
fined.
(4) Increased basis from a distribution.
(5) Operating rules applicable to base
erosion payments.
(i) Single payment characterized as
separate transactions.
(ii) Ordering rule with respect to trans-
fers of a partnership interest.
(iii) Consideration for base erosion
payment or property resulting in base ero-
sion tax benefits.
(iv) Non-cash consideration.
(d) Base erosion tax benefit for part-
ners.
(1) In general.
(2) Exception for base erosion tax ben-
efits of certain small partners.
(i) In general.
(ii) Attribution.
(e) Other rules for applying section
59A to partnerships.
(1) Partner’s distributive share.

December 23, 2019 1476 Bulletin No. 2019–52
(2) Gross receipts.
(i) In general.
(ii) Foreign corporation.
(3) Registered securities dealers.
(4) Application of sections 163(j) and
59A(c)(3) to partners.
(5) Tiered partnerships.
(f) Foreign related party.
(g) Examples.
(1) Facts.
(2) Examples.
(i) Example 1: Contributions to a part-
nership on partnership formation.
(A) Facts.
(B) Analysis.
(ii) Example 2: Section 704(c) and re-
medial allocations.
(A) Facts.
(B) Analysis.
(iii) Example 3: Sale of a partnership
interest without a section 754 election.
(A) Facts.
(B) Analysis.
(iv) Example 4: Sale of a partnership
interest with section 754 election.
(A) Facts.
(B) Analysis.
(v) Example 5: Purchase of depreciable
property from a partnership.
(A) Facts.
(B) Analysis.
(vi) Example 6: Sale of a partnership
interest to a second partnership.
(A) Facts.
(B) Analysis.
(vii) Example 7: Distribution of cash
by a partnership to a foreign related party.
(A) Facts.
(B) Analysis.
(viii) Example 8: Distribution of prop-
erty by a partnership to a taxpayer.
(A) Facts.
(B) Analysis.
(ix) Example 9: Distribution of prop-
erty by a partnership in liquidation of a
foreign related party’s interest.
(A) Facts.
(B) Analysis.
§1.59A-8 [Reserved].
§1.59A-9 Anti-abuse and
recharacterization rules.
(a) Scope.
(b) Anti-abuse rules.
(1) Transactions involving unrelated
persons, conduits, or intermediaries.
(2) Transactions to increase the amount
of deductions taken into account in the de-
nominator of the base erosion percentage
computation.
(3) Transactions to avoid the applica-
tion of rules applicable to banks and regis-
tered securities dealers.
(4) Nonrecognition transactions.
(c) Examples.
(1) Facts.
(2) Example 1: Substitution of pay-
ments that are not base erosion payments
for payments that otherwise would be
base erosion payments through a conduit
or intermediary.
(i) Facts.
(ii) Analysis.
(3) Example 2: Alternative transaction
to base erosion payment.
(i) Facts.
(ii) Analysis.
(4) Example 3: Alternative financing
source.
(i) Facts.
(ii) Analysis.
(5) Example 4: Alternative financing
source that is a conduit.
(i) Facts.
(ii) Analysis.
(6) Example 5: Intermediary acquisi-
tion.
(i) Facts.
(ii) Analysis.
(7) Example 6: Offsetting transactions
to increase the amount of deductions tak-
en into account in the denominator of the
base erosion percentage computation.
(i) Facts.
(ii) Analysis.
(8) Example 7: Ordinary course trans-
actions that increase the amount of de-
ductions taken into account in the de-
nominator of the base erosion percentage
computation.
(i) Facts.
(ii) Analysis.
(9) Example 8: Transactions to avoid
the application of rules applicable to
banks and registered securities dealers.
(i) Facts.
(ii) Analysis.
(10) Example 9: Transactions that do
not avoid the application of rules appli-
cable to banks and registered securities
dealers.
(i) Facts.
(ii) Analysis.
(11) Example 10: Acquisition of depre-
ciable property in a nonrecognition trans-
action.
(i) Facts.
(ii) Analysis.
(12) Example 11: Transactions between
related parties with a principal purpose of
increasing the adjusted basis of property.
(i) Facts.
(ii) Analysis.
§1.59A-10 Applicability date.
§1.59A-1 Base erosion and anti-abuse tax.
(a) Purpose. This section and §§1.59A-
2 through 1.59A-10 (collectively, the
“section 59A regulations”) provide rules
under section 59A to determine the
amount of the base erosion and anti-abuse
tax. Paragraph (b) of this section provides
definitions applicable to the section 59A
regulations. Section 1.59A-2 provides
rules regarding how to determine wheth-
er a taxpayer is an applicable taxpayer.
Section 1.59A-3 provides rules regarding
base erosion payments and base erosion
tax benefits. Section 1.59A-4 provides
rules for calculating modified taxable in-
come. Section 1.59A-5 provides rules for
calculating the base erosion minimum tax
amount. Section 1.59A-6 provides rules
relating to qualified derivative payments.
Section 1.59A-7 provides rules regarding
the application of section 59A to part-
nerships. Section 1.59A-8 is reserved for
rules regarding the application of section
59A to certain expatriated entities. Sec-
tion 1.59A-9 provides anti-abuse rules to
prevent avoidance of section 59A. Finally,
§1.59A-10 provides the applicability date
for the section 59A regulations.
(b) Definitions. For purposes of this
section and §§1.59A-2 through 1.59A-10,
the following terms have the meanings
provided in this paragraph (b).
(1) Aggregate group. The term aggre-
gate group means the group of corpora-
tions determined by—
(i) Identifying a controlled group of
corporations as defined in section 1563(a),
except that the phrase “more than 50 per-
cent” is substituted for “at least 80 per-
cent” each place it appears in section
1563(a)(1) and the determination is made

Bulletin No. 2019–52 1477 December 23, 2019
without regard to sections 1563(a)(4) and
(e)(3)(C), and
(ii) Once the controlled group of cor-
porations is determined, excluding foreign
corporations except with regard to income
that is, or is treated as, effectively connect-
ed with the conduct of a trade or business in
the United States under an applicable pro-
vision of the Internal Revenue Code or reg-
ulations published under 26 CFR chapter I.
Notwithstanding the foregoing, if a foreign
corporation is subject to tax on a net basis
pursuant to an applicable income tax trea-
ty of the United States, it is excluded from
the controlled group of corporations except
with regard to income taken into account in
determining its net taxable income.
(2) Applicable section 38 credits. The
term applicable section 38 credits means
the credits allowed under section 38 for
the taxable year that are properly alloca-
ble to—
(i) The low-income housing credit de-
termined under section 42(a),
(ii) The renewable electricity production
credit determined under section 45(a), and
(iii) The investment credit determined
under section 46, but only to the extent
properly allocable to the energy credit de-
termined under section 48.
(3) Applicable taxpayer. The term
applicable taxpayer means a taxpayer
that meets the requirements set forth in
§1.59A-2(b).
(4) Bank. The term bank has the mean-
ing provided in section 581.
(5) Base erosion and anti-abuse tax
rate. The term base erosion and an-
ti-abuse tax rate means the percentage
that the taxpayer applies to its modified
taxable income for the taxable year to
calculate its base erosion minimum tax
amount. See §1.59A-5(c) for the base ero-
sion and anti-abuse tax rate applicable for
the relevant taxable year.
(6) Business interest expense. The term
business interest expense, with respect to a
taxpayer and a taxable year, has the mean-
ing provided in §1.163(j)-1(b)(2).
(7) Deduction. The term deduction
means any deduction allowable under
chapter 1 of subtitle A of the Internal Rev-
enue Code.
(8) Disallowed business interest ex-
pense carryforward. The term disallowed
business interest expense carryforward
has the meaning provided in §1.163(j)-
1(b)(9).
(9) Domestic related business interest
expense. The term domestic related busi-
ness interest expense for any taxable year
is the taxpayer’s business interest expense
paid or accrued to a related party that is
not a foreign related party.
(10) Foreign person. The term foreign
person means any person who is not a
United States person. For purposes of the
preceding sentence, a United States per-
son has the meaning provided in section
7701(a)(30), except that any individual
who is a citizen of any possession of the
United States (but not otherwise a citizen
of the United States) and who is not a res-
ident of the United States is not a United
States person. See §1.59A-7(b) for rules
applicable to partnerships.
(11) Foreign related business interest
expense. The term foreign related busi-
ness interest expense for any taxable year
is the taxpayer’s business interest expense
paid or accrued to a foreign related party.
(12) Foreign related party. The term
foreign related party means a foreign per-
son, as defined in paragraph (b)(10) of this
section, that is a related party, as defined in
paragraph (b)(17) of this section, with re-
spect to the taxpayer. In addition, for pur-
poses of §1.59A-3(b)(4)(v)(B) (relating
to internal dealings under certain income
tax treaties), a foreign related party also
includes the foreign corporation’s home
office or a foreign branch of the foreign
corporation. See §1.59A-7(b), (c), and (f)
for rules applicable to partnerships.
(13) Gross receipts. The term gross
receipts has the meaning provided in
§1.448-1T(f)(2)(iv).
(14) Member of an aggregate group.
The term member of an aggregate group
means a corporation that is included in an
aggregate group, as defined in paragraph
(b)(1) of this section.
(15) Registered securities dealer. The
term registered securities dealer means
any dealer as defined in section 3(a)(5) of
the Securities Exchange Act of 1934 that
is registered, or required to be registered,
under section 15 of the Securities Ex-
change Act of 1934.
(16) Regular tax liability. The term
regular tax liability has the meaning pro-
vided in section 26(b).
(17) Related party—(i) In general. A
related party, with respect to an applicable
taxpayer, is—
(A) Any 25-percent owner of the tax-
payer;
(B) Any person who is related (within
the meaning of section 267(b) or 707(b)
(1)) to the taxpayer or any 25-percent
owner of the taxpayer; or
(C) A controlled taxpayer within the
meaning of §1.482-1(i)(5) together with,
or with respect to, the taxpayer.
(ii) 25-percent owner. With respect
to any corporation, a 25-percent owner
means any person who owns at least 25
percent of—
(A) The total voting power of all class-
es of stock of the corporation entitled to
vote; or
(B) The total value of all classes of
stock of the corporation.
(iii) Application of section 318. Section
318 applies for purposes of paragraphs
(b)(17)(i) and (ii) of this section, except
that—
(A) “10 percent” is substituted for “50
percent” in section 318(a)(2)(C); and
(B) Section 318(a)(3)(A) through (C)
are not applied so as to consider a Unit-
ed States person as owning stock that is
owned by a person who is not a United
States person.
(18) TLAC long-term debt required
amount. The term TLAC long-term debt
required amount means the specified min-
imum amount of debt that is required pur-
suant to 12 CFR 252.162(a).
(19) TLAC securities amount. The
term TLAC securities amount is the sum
of the adjusted issue prices (as deter-
mined for purposes of §1.1275-1(b)) of
all TLAC securities issued and outstand-
ing by the taxpayer, without regard to
whether interest thereunder would be a
base erosion payment absent §1.59A-3(b)
(3)(v).
(20) TLAC security. The term TLAC
security means an eligible internal debt
security, as defined in 12 CFR 252.161.
(21) Unrelated business interest ex-
pense. The term unrelated business in-
terest expense for any taxable year is the
taxpayer’s business interest expense paid
or accrued to a party that is not a related
party.

December 23, 2019 1478 Bulletin No. 2019–52
§1.59A-2 Applicable taxpayer.
(a) Scope. This section provides rules
for determining whether a taxpayer is
an applicable taxpayer. Paragraph (b) of
this section defines an applicable taxpay-
er. Paragraph (c) of this section provides
rules for determining whether a taxpayer
is an applicable taxpayer by reference to
the aggregate group of which the taxpayer
is a member. Paragraph (d) of this section
provides rules regarding the gross receipts
test. Paragraph (e) of this section provides
rules regarding the base erosion percent-
age test. Paragraph (f) of this section pro-
vides examples illustrating the rules of
this section.
(b) Applicable taxpayer. For purposes
of section 59A, a taxpayer is an applicable
taxpayer with respect to any taxable year
if the taxpayer—
(1) Is a corporation, but not a regulated
investment company, a real estate invest-
ment trust, or an S corporation;
(2) Satisfies the gross receipts test of
paragraph (d) of this section; and
(3) Satisfies the base erosion percent-
age test of paragraph (e) of this section.
(c) Aggregation rules—(1) In gener-
al. Solely for purposes of this section and
§1.59A-4, a taxpayer that is a member of
an aggregate group determines its gross
receipts and its base erosion percentage on
the basis of the aggregate group. For these
purposes, transactions that occur between
members of the taxpayer’s aggregate
group that were members of the aggre-
gate group as of the time of the transac-
tion are not taken into account. In the case
of a foreign corporation that is a member
of an aggregate group, only transactions
that occur between members of the ag-
gregate group and that relate to income
effectively connected with, or treated as
effectively connected with, the conduct
of a trade or business in the United States
are not taken into account for this purpose.
In the case of a foreign corporation that is
a member of an aggregate group and that
is subject to tax on a net basis pursuant
to an applicable income tax treaty of the
United States, only transactions that occur
between members of the aggregate group
and that relate to income that is taken into
account in determining its net taxable in-
come are not taken into account for this
purpose.
(2) Aggregate group determined with
respect to each taxpayer—(i) In general.
Solely for purposes of this section, an ag-
gregate group is determined with respect
to each taxpayer. As a result, the aggregate
group of one taxpayer may be different
than the aggregate group of another mem-
ber of the taxpayer’s aggregate group.
(ii) [Reserved].
(3) Taxable year of members of an
aggregate group. Solely for purposes of
this section, a taxpayer that is a member
of an aggregate group measures the gross
receipts and base erosion percentage of
the aggregate group for a taxable year by
reference to the taxpayer’s gross receipts,
base erosion tax benefits, and deductions
for the taxable year and the gross receipts,
base erosion tax benefits, and deductions
of each member of the aggregate group for
the taxable year of the member that ends
with or within the taxpayer’s taxable year.
(4) through (6) [Reserved].
(7) Partnerships. For the treatment of
partnerships for purposes of determining
gross receipts and base erosion tax ben-
efits, see §1.59A-7(e)(2) and (d), respec-
tively.
(8) Transition rule for aggregate group
members with different taxable years. If
the taxpayer has a different taxable year
than another member of the taxpayer’s
aggregate group (other member), and the
other member is eligible for the exception
in §1.59A-3(b)(3)(vi) (amounts paid or
accrued in taxable years beginning before
January 1, 2018) with respect to a taxable
year ending with or within the taxpayer’s
taxable year (“excepted taxable year”), the
excepted taxable year of the other mem-
ber is not taken into account for purposes
of paragraph (e) of this section. This rule
applies solely for purposes of determining
whether a taxpayer is an applicable tax-
payer under this section.
(d) Gross receipts test—(1) Amount
of gross receipts. A taxpayer, or the ag-
gregate group of which the taxpayer is a
member, satisfies the gross receipts test of
this section if it has average annual gross
receipts of at least $500,000,000 for the
three-taxable-year period ending with the
preceding taxable year.
(2) Taxpayer not in existence for entire
three-year period. If a taxpayer was not in
existence for the entire three-year period
referred to in paragraph (d)(1) of this sec-
tion, the taxpayer determines a gross re-
ceipts average for the period that it was in
existence (which includes gross receipts
in the current year).
(3) Gross receipts of foreign corpora-
tions. With respect to any foreign corpo-
ration, only gross receipts that are taken
into account in determining income that
is, or is treated as, effectively connected
with the conduct of a trade or business
within the United States are taken into ac-
count for purposes of paragraph (d)(1) of
this section. In the case of a foreign cor-
poration that is a member of an aggregate
group and that is subject to tax on a net
basis pursuant to an applicable income
tax treaty of the United States, the foreign
corporation includes only gross receipts
that are attributable to transactions taken
into account in determining its net taxable
income.
(4) Gross receipts of an insurance com-
pany. Solely for purposes of this section,
for any corporation that is subject to tax
under subchapter L or any corporation that
would be subject to tax under subchapter
L if that corporation were a domestic cor-
poration, gross receipts are reduced by
return premiums (within the meaning of
section 803(a)(1)(B) and section 832(b)
(4)(A)), but are not reduced by any rein-
surance premiums paid or accrued.
(5) Reductions in gross receipts. For
purposes of this section, gross receipts for
any taxable year are reduced by returns
and allowances made during that taxable
year.
(6) Gross receipts of consolidated
groups. For purposes of this section, the
gross receipts of a consolidated group are
determined by aggregating the gross re-
ceipts of all of the members of the consol-
idated group. See §1.1502-59A(b).
(e) Base erosion percentage test—(1)
In general. A taxpayer, or the aggregate
group of which the taxpayer is a member,
satisfies the base erosion percentage test
if its base erosion percentage is three per-
cent or higher.
(2) Base erosion percentage test for
banks and registered securities dealers—
(i) In general. A taxpayer that is a member
of an affiliated group (as defined in sec-
tion 1504(a)(1)) that includes a bank (as
defined in §1.59A-1(b)(4)) or a registered
securities dealer (as defined in section
§1.59A-1(b)(15)) satisfies the base ero-

Bulletin No. 2019–52 1479 December 23, 2019
sion percentage test if its base erosion per-
centage is two percent or higher.
(ii) Aggregate groups. An aggregate
group of which a taxpayer is a member
and that includes a bank or a registered se-
curities dealer that is a member of an affil-
iated group (as defined in section 1504(a)
(1)) is subject to the base erosion percent-
age threshold described in paragraph (e)
(2)(i) of this section.
(iii) De minimis exception for banking
and registered securities dealer activities.
An aggregate group that includes a bank
or a registered securities dealer that is a
member of an affiliated group (as defined
in section 1504(a)(1)) is not treated as
including a bank or registered securities
dealer for purposes of paragraph (e)(2)(i)
of this section for a taxable year, if, for
that taxable year, the total gross receipts
of the aggregate group attributable to the
bank or the registered securities dealer
(or attributable to all of the banks and
registered securities dealers in the group,
if more than one) represent less than two
percent of the total gross receipts of the
aggregate group, as determined under
paragraph (d) of this section. When there
is no aggregate group, a consolidated
group that includes a bank or a regis-
tered securities dealer is not treated as
including a bank or registered securities
dealer for purposes of paragraph (e)(2)(i)
of this section for a taxable year, if, for
that taxable year, the total gross receipts
of the consolidated group attributable to
the bank or the registered securities deal-
er (or attributable to all of the banks or
registered securities dealers in the group,
if more than one) represent less than two
percent of the total gross receipts of the
consolidated group, as determined under
paragraph (d) of this section.
(3) Computation of base erosion per-
centage—(i) In general. The taxpayer’s
base erosion percentage for any taxable
year is determined by dividing—
(A) The aggregate amount of the tax-
payer’s (or in the case of a taxpayer that
is a member of an aggregate group, the
aggregate group’s) base erosion tax ben-
efits (as defined in §1.59A-3(c)(1)) for the
taxable year, by
(B) The sum of—
(1) The aggregate amount of the deduc-
tions (including deductions for base ero-
sion tax benefits described in §1.59A-3(c)
(1)(i) and base erosion tax benefits de-
scribed in §1.59A-3(c)(1)(ii)) allowable to
the taxpayer (or in the case of a taxpayer
that is a member of an aggregate group,
any member of the aggregate group) un-
der chapter 1 of Subtitle A for the taxable
year;
(2) The base erosion tax benefits de-
scribed in §1.59A-3(c)(1)(iii) with respect
to any premiums or other consideration
paid or accrued by the taxpayer (or in the
case of a taxpayer that is a member of an
aggregate group, any member of the ag-
gregate group) to a foreign related party
for any reinsurance payment taken into
account under sections 803(a)(1)(B) or
832(b)(4)(A) for the taxable year; and
(3) Any amount paid or accrued by the
taxpayer (or in the case of a taxpayer that
is a member of an aggregate group, any
member of the aggregate group) resulting
in a reduction of gross receipts described
in §1.59A-3(c)(1)(iv) for the taxable year.
(ii) Certain items not taken into ac-
count in denominator. Except as provided
in paragraph (e)(3)(viii) of this section,
the amount under paragraph (e)(3)(i)(B)
of this section is determined by not taking
into account—
(A) Any deduction allowed under sec-
tion 172, 245A, or 250 for the taxable
year;
(B) Any deduction for amounts paid
or accrued for services to which the ex-
ception described in §1.59A-3(b)(3)(i)
applies;
(C) Any deduction for qualified de-
rivative payments that are not treated
as base erosion payments by reason of
§1.59A-3(b)(3)(ii);
(D) Any exchange loss within the
meaning of §1.988-2 from a section 988
transaction as described in §1.988-1(a)(1)
that is not treated as a base erosion pay-
ment by reason of §1.59A-3(b)(3)(iv);
(E) Any deduction for amounts paid
or accrued to foreign related parties with
respect to TLAC securities and foreign
TLAC securities that are not treated
as base erosion payments by reason of
§1.59A-3(b)(3)(v);
(F) Any reinsurance losses incurred and
claims payments described in §1.59A-3(b)
(3)(ix); and
(G) Any deduction not allowed in de-
termining taxable income for the taxable
year.
(iii) Effect of treaties on base ero-
sion percentage determination. See
§1.59A-3(c)(2) and (3).
(iv) Amounts paid or accrued between
members of a consolidated group. See
§1.1502-59A(b).
(v) Deductions and base erosion
tax benefits from partnerships. See
§1.59A-7(b), (d), and (e).
(vi) Mark-to-market positions. For any
position with respect to which the taxpay-
er (or in the case of a taxpayer that is a
member of an aggregate group, a member
of the aggregate group) applies a mark-
to-market method of accounting for U.S.
federal income tax purposes, the taxpayer
must determine its gain or loss with re-
spect to that position for any taxable year
by combining all items of income, gain,
loss, or deduction arising with respect to
the position during the taxable year, re-
gardless of how each item arises (includ-
ing from a payment, accrual, or mark) for
purposes of paragraph (e)(3) of this sec-
tion. See paragraph (f)(1) of this section
(Example 1) for an illustration of this rule.
For purposes of section 59A, a taxpayer
computes its losses resulting from posi-
tions subject to a mark-to-market regime
under the Internal Revenue Code based
on a single mark for the taxable year on
the earlier of the last business day of the
taxpayer’s taxable year and the disposi-
tion (whether by sale, offset, exercise,
termination, expiration, maturity, or other
means) of the position, regardless of how
frequently a taxpayer marks to market for
other purposes. See §1.59A-3(b)(2)(iii)
for the application of this rule for purposes
of determining the amount of base erosion
payments.
(vii) Reinsurance losses incurred and
claims payments. Except as provided in
paragraph (e)(3)(ii)(F) of this section,
amounts paid for losses incurred (as de-
fined in section 832(b)(5)) and claims and
benefits under section 805(a)(1) are taken
into account for purposes of paragraph (e)
(3)(i)(B)(1) of this section.
(viii) Certain payments that qualify
for the effectively connected income ex-
ception and another base erosion pay-
ment exception. Subject to paragraph (c)
of this section (transactions that occur
between members of the taxpayer’s ag-
gregate group), a payment that qualifies
for the effectively connected income

December 23, 2019 1480 Bulletin No. 2019–52
exception described in §1.59A-3(b)(3)
(iii) and either the service cost meth-
od exception described in §1.59A-3(b)
(3)(i), the qualified derivative payment
exception described in §1.59A-3(b)(3)
(ii), or the TLAC exception described in
§1.59A-3(b)(3)(v) is not subject to para-
graph (e)(3)(ii)(B), (C), or (E) of this sec-
tion and those amounts are included in
the denominator of the base erosion per-
centage if the foreign related party who
received the payment is not a member of
the aggregate group.
(f) Examples. The following examples
illustrate the rules of this section.
(1) Mark-to-market—(i) Facts. (A)
Foreign Parent (FP) is a foreign corpora-
tion that owns all of the stock of domestic
corporation (DC). FP is a foreign related
party of DC under §1.59A-1(b)(12). DC
is a registered securities dealer that does
not hold any securities for investment.
On January 1 of year 1, DC enters into
two interest rate swaps for a term of two
years, one with unrelated Customer A as
the counterparty (position A) and one with
unrelated Customer B as the counterparty
(position B). Each of the swaps provides
for semiannual periodic payments to be
made or received on June 30 and Decem-
ber 31. No party makes any payment to
any other party upon initiation of either
of the swaps (that is, they are entered into
at-the-money). DC is required to mark-to-
market positions A and B for U.S. feder-
al income tax purposes. DC is a calendar
year taxpayer.
(B) For position A in year 1, DC makes
a payment of $150x on June 30, and re-
ceives a payment of $50x on December
31. There are no other payments in year 1.
On December 31, position A has a value to
DC of $110x (that is, position A is in-the-
money by $110x).
(C) For position B in year 1, DC re-
ceives a payment of $120x on June 30,
and makes a payment of $30x on Decem-
ber 31. There are no other payments in
year 1. On December 31, position B has a
value to DC of ($130x) (that is, position B
is out-of-the-money by $130x).
(ii) Analysis. (A) With respect to posi-
tion A, based on the total amount of pay-
ments made and received in year 1, DC
has a net deduction of $100x. In addition,
DC has a mark-to-market gain of $110x.
As described in paragraph (e)(3)(vi) of
this section, the mark-to-market gain of
$110x is combined with the net deduction
of $100x resulting from the payments.
Therefore, with respect to position A, DC
has a gain of $10x, and thus has no deduc-
tion in year 1 for purposes of section 59A.
(B) With respect to position B, based
on the total amount of payments made and
received in year 1, DC has net income of
$90x. In addition, DC has a mark-to-mar-
ket loss of $130x. As described in para-
graph (e)(3)(vi) of this section, the mark-
to-market loss of $130x is combined with
the net income of $90x resulting from the
payments. Therefore, with respect to posi-
tion B, DC has a loss of $40x, and thus has
a $40x deduction in year 1 for purposes of
section 59A.
(2) [Reserved]
§1.59A-3 Base erosion payments and
base erosion tax benefits.
(a) Scope. This section provides defi-
nitions and related rules regarding base
erosion payments and base erosion tax
benefits. Paragraph (b) of this section pro-
vides definitions and rules regarding base
erosion payments. Paragraph (c) of this
section provides rules for determining the
amount of base erosion tax benefits. Para-
graph (d) of this section provides exam-
ples illustrating the rules described in this
section.
(b) Base erosion payments—(1) In
general. Except as provided in paragraph
(b)(3) of this section, a base erosion pay-
ment means—
(i) Any amount paid or accrued by the
taxpayer to a foreign related party of the
taxpayer and with respect to which a de-
duction is allowable under chapter 1 of
subtitle A of the Internal Revenue Code;
(ii) Any amount paid or accrued by the
taxpayer to a foreign related party of the
taxpayer in connection with the acquisi-
tion of property by the taxpayer from the
foreign related party if the character of the
property is subject to the allowance for
depreciation (or amortization in lieu of
depreciation);
(iii) Any premium or other consider-
ation paid or accrued by the taxpayer to
a foreign related party of the taxpayer for
any reinsurance payments that are taken
into account under section 803(a)(1)(B) or
832(b)(4)(A); or
(iv) Any amount paid or accrued by the
taxpayer that results in a reduction of the
gross receipts of the taxpayer if the amount
paid or accrued is with respect to—
(A) A surrogate foreign corporation, as
defined in section 59A(d)(4)(C)(i), that is
a related party of the taxpayer (but only
if the corporation first became a surrogate
foreign corporation after November 9,
2017); or
(B) A foreign person that is a member
of the same expanded affiliated group, as
defined in section 59A(d)(4)(C)(ii), as the
surrogate foreign corporation.
(2) Operating rules—(i) In general.
The determination of the amount paid or
accrued, and the identity of the payor and
recipient of any amount paid or accrued,
is made under general U.S. federal income
tax law.
(ii) Amounts paid or accrued in cash
and other consideration. For purposes of
paragraph (b)(1) of this section, an amount
paid or accrued includes an amount paid
or accrued using any form of consider-
ation, including cash, property, stock, a
partnership interest, or the assumption of
a liability, including any exchange trans-
action. A distribution of property that is
not part of an exchange (such as a distri-
bution under section 301, without regard
to whether section 301(c)(1), (c)(2), or (c)
(3) applies), is not received with respect
to an amount paid or accrued and does
not give rise to a base erosion payment.
In contrast, a redemption of stock by a
corporation within the meaning of section
317(b) (such as a redemption described
in section 302(a) or (d) or section 306(a)
(2)), or a transaction in which there is an
exchange for stock (such as a section 304
or section 331 transaction), is an amount
paid or accrued by the shareholder to the
corporation (or by the acquiring corpora-
tion to the transferor in a section 304 trans-
action), without regard to the treatment of
such transaction for U.S. federal income
tax purposes. See paragraph (b)(3)(viii) of
this section for an exception for specified
nonrecognition transactions (as defined in
paragraph (b)(3)(viii)(A) of this section).
(iii) Transactions providing for net
payments. Except as otherwise provided
in paragraph (b)(2)(iv) of this section or as
permitted by the Internal Revenue Code
or the regulations, the amount of any base
erosion payment is determined on a gross

Bulletin No. 2019–52 1481 December 23, 2019
basis, regardless of any contractual or le-
gal right to make or receive payments on a
net basis. For this purpose, a right to make
or receive payments on a net basis permits
the parties to a transaction or series of
transactions to settle obligations by offset-
ting any amounts to be paid by one party
against amounts owed by that party to the
other party. For example, any premium or
other consideration paid or accrued by a
taxpayer to a foreign related party for any
reinsurance payments is not reduced by or
netted against other amounts owed to the
taxpayer from the foreign related party or
by reserve adjustments or other returns.
(iv) Amounts paid or accrued with re-
spect to mark-to-market position. For any
transaction with respect to which the tax-
payer applies the mark-to-market method
of accounting for U.S. federal income tax
purposes, the rules set forth in §1.59A-2(e)
(3)(vi) apply to determine the amount of
the base erosion payment.
(v) Coordination among categories of
base erosion payments. A payment that
does not satisfy the criteria of one catego-
ry of base erosion payment may be a base
erosion payment described in one of the
other categories.
(vi) Certain domestic passthrough en-
tities—(A) In general. If a taxpayer pays
or accrues an amount that would be a base
erosion payment except for the fact that
the payment is made to a specified domes-
tic passthrough, then the taxpayer will be
treated as making a base erosion payment
to each specified foreign related party for
purposes of section 59A and §§1.59A-2
through 1.59A-10. This rule has no effect
on the taxation of the specified domestic
passthrough under subchapter J or sub-
chapter M of the Code (as applicable).
(B) Amount of base erosion payment.
The amount of the base erosion payment
is equal to the lesser of the amount paid or
accrued by the taxpayer to or for the ben-
efit of the specified domestic passthrough
and the amount of the deduction allowed
under section 561, 651, or 661 to the spec-
ified domestic passthrough with respect
to amounts paid, credited, distributed,
deemed distributed, or required to be dis-
tributed to a specified foreign related par-
ty.
(C) Specified domestic passthrough.
For purposes of this paragraph (b)(2)(vi),
specified domestic passthrough means:
(1) A domestic trust that is not a grant-
or trust under subpart E of subchapter J of
chapter 1 of the Code (“domestic trust”)
and which domestic trust is allowed a de-
duction under section 651 or section 661
with respect to amounts paid, credited, or
required to be distributed to a specified
foreign related party;
(2) A real estate investment trust (as
defined in §1.856-1(a)) that pays, or is
deemed to pay, a dividend to a specified
foreign related party for which a deduc-
tion is allowed under section 561; or
(3) A regulated investment company
(as defined in §1.851-1(a)) that pays, or is
deemed to pay, a dividend to a specified
foreign related party for which a deduc-
tion is allowed under section 561.
(D) Specified foreign related party.
For purposes of this paragraph (b)(2)(vi),
specified foreign related party means,
with respect to a specified domestic
passthrough, any foreign related party of
a taxpayer that is a direct or indirect bene-
ficiary or shareholder of the specified do-
mestic passthrough.
(vii) Transfers of property to related
taxpayers. If a taxpayer owns property of
a character subject to the allowance for
depreciation (or amortization in lieu of
depreciation) with respect to which para-
graph (c)(1)(ii) of this section applies,
and the taxpayer sells, exchanges, or oth-
erwise transfers the property to another
taxpayer that is a member of an aggregate
group that includes the taxpayer (taking
into account §1.59A-7), any deduction
for depreciation (or amortization in lieu
of depreciation) by the transferee taxpayer
remains subject to paragraph (c)(1)(ii) of
this section to the same extent the amounts
would have been so subject in the hands
of the transferor. See paragraph (d)(7) of
this section (Example 7) for an illustration
of this rule.
(viii) Reductions to determine gross
income. For purposes of paragraphs (b)
(1)(i) and (ii) of this section, any amount
resulting in a reduction to determine gross
income under section 61, including an
amount properly treated as cost of goods
sold under the Code, is not a base erosion
payment.
(ix) Losses recognized on the sale or
transfer of property. If a taxpayer recog-
nizes a loss on a sale or transfer of prop-
erty to a foreign related party, the loss rec-
ognized with respect to the sale or transfer
is not a deduction that would cause the
payment to be treated as a base erosion
payment under paragraph (b)(1)(i) of this
section. However, if a taxpayer uses prop-
erty to make a payment to a foreign relat-
ed party and the payment otherwise meets
the requirements of paragraph (b)(1) of
this section, the amount of the payment
that is treated as a base erosion payment
equals the fair market value of the proper-
ty at the time of the transfer.
(3) Exceptions to base erosion pay-
ment. Paragraph (b)(1) of this section does
not apply to the types of payments or ac-
cruals described in paragraphs (b)(3)(i)
through (ix) of this section.
(i) Certain services cost method
amounts—(A) In general. Amounts paid
or accrued by a taxpayer to a foreign re-
lated party for services that meet the re-
quirements in paragraph (b)(3)(i)(B) of
this section, but only to the extent of the
total services cost of those services. Thus,
any amount paid or accrued to a foreign
related party in excess of the total services
cost of services eligible for the services
cost method exception (the mark-up com-
ponent) remains a base erosion payment.
For this purpose, services are an activity
as defined in §1.482-9(l)(2) performed by
a foreign related party (the renderer) that
provides a benefit as defined in §1.482-
9(l)(3) to the taxpayer (the recipient).
(B) Eligibility for the services cost
method exception. To be eligible for the
services cost method exception, all of the
requirements of §1.482-9(b) must be sat-
isfied, except that:
(1) The requirements of §1.482-9(b)(5)
do not apply for purposes of determining
eligibility for the service cost method ex-
ception in this section; and
(2) Adequate books and records must
be maintained as described in paragraph
(b)(3)(i)(C) of this section, instead of as
described in §1.482-9(b)(6).
(C) Adequate books and records. Per-
manent books of account and records
must be maintained for as long as the
costs with respect to the services are in-
curred by the renderer. The books and
records must be adequate to permit ver-
ification by the Commissioner of the
amount charged for the services and the
total services costs incurred by the render-
er, including a description of the services

December 23, 2019 1482 Bulletin No. 2019–52
in question, identification of the renderer
and the recipient of the services, calcula-
tion of the amount of profit mark-up (if
any) paid for the services, and sufficient
documentation to allow verification of
the methods used to allocate and appor-
tion the costs to the services in question
in accordance with §1.482-9(k). For ex-
ample, where a renderer incurs costs that
are attributable to performing a service for
the taxpayer that includes services eligi-
ble for the services cost method exception
under this section (regardless of whether
the taxpayer determined its payments for
those services based on the services cost
method) and another service that is not
eligible for the services cost method ex-
ception, books and records must be main-
tained that show, among other things: the
total amount of costs that are attributable
to each of those services, the method cho-
sen under §1.482-9(k) to apportion the
costs between the service eligible for the
services cost method under this section
and the other service, and the application
of that method in calculating the amount
eligible for the services cost method ex-
ception. This paragraph (b)(3)(i)(C) does
not affect the recordkeeping requirements
imposed by any other provision, including
§1.6001-1.
(D) Total services cost. For purposes
of this section, total services cost has the
same meaning as total services costs in
§1.482-9(j).
(ii) Qualified derivative payments. Any
qualified derivative payment as described
in §1.59A-6.
(iii) Effectively connected income—
(A) In general. Except as provided in
paragraph (b)(3)(iii)(B) of this section,
amounts paid or accrued to a foreign re-
lated party that are subject to U.S. federal
income taxation as income that is, or is
treated as, effectively connected with the
conduct of a trade or business in the Unit-
ed States under an applicable provision of
the Internal Revenue Code or regulations.
Paragraph (b)(3)(iii) of this section ap-
plies only if the taxpayer receives a with-
holding certificate on which the foreign
related party claims an exemption from
withholding under section 1441 or 1442
because the amounts are effectively con-
nected income.
(B) Application to certain treaty resi-
dents. If a foreign related party determines
its taxable income pursuant to the business
profits provisions of an applicable income
tax treaty, amounts paid or accrued to the
foreign related party that are taken into ac-
count in determining its taxable income.
(iv) Exchange loss on a section 988
transaction. Any exchange loss within
the meaning of §1.988-2 from a section
988 transaction described in §1.988-1(a)
(1) that is an allowable deduction and that
results from a payment or accrual by the
taxpayer to a foreign related party.
(v) Amounts paid or accrued with re-
spect to TLAC securities and foreign
TLAC securities—(A) In general. Ex-
cept as provided in paragraph (b)(3)(v)
(B) and (F) of this section, amounts paid
or accrued to foreign related parties with
respect to TLAC securities and foreign
TLAC securities.
(B) Limitation on exclusion for TLAC
securities. The amount excluded under
paragraph (b)(3)(v)(A) of this section is
no greater than the product of the scal-
ing ratio and amounts paid or accrued
to foreign related parties with respect to
TLAC securities for which a deduction is
allowed.
(C) Scaling ratio. For purposes of this
paragraph (b)(3)(v), the scaling ratio for a
taxable year of a taxpayer is a fraction the
numerator of which is 115 percent of the
average TLAC long-term debt required
amount and the denominator of which is
the average TLAC securities amount. The
scaling ratio may in no event be greater
than one.
(D) Average TLAC securities amount.
The average TLAC securities amount for
a taxable year is the average of the TLAC
securities amounts for the year, comput-
ed at regular time intervals in accordance
with this paragraph. The TLAC securities
amount used in calculating the average
TLAC securities amount is computed on
a monthly basis.
(E) Average TLAC long-term debt re-
quired amount. The average TLAC long-
term debt required amount for a taxable
year is the average of the TLAC long-term
debt required amounts, computed on a
monthly basis.
(F) Limitation on exclusion for foreign
TLAC securities—(1) In general. The
amount excluded under paragraph (b)(3)
(v)(A) of this section for foreign TLAC
securities is limited to the extent that in-
terest deducted by a U.S. trade or busi-
ness or permanent establishment with re-
spect to foreign TLAC securities exceeds
the interest expense associated with the
foreign TLAC long-term debt required
amount, applying the scaling ratio princi-
ples set forth under paragraphs (b)(3)(v)
(B) through (E) of this section.
(2) Foreign TLAC long-term debt re-
quired amount. For purposes of paragraph
(b)(3)(v) of this section, the term foreign
TLAC long-term debt required amount
means in the case of a trade or business or
a permanent establishment in the United
States, the lesser of—
(i) The specified minimum amount of
debt, if any, required pursuant to a bank
regulatory requirement imposed under the
laws or regulations of a foreign country
that are comparable to 12 CFR 252.160-
167; or
(ii) The specified minimum amount of
debt, if any, that would be required pursu-
ant to 12 CFR 252.162(a) if the trade or
business or permanent establishment were
a U.S. person (as determined under Feder-
al Reserve regulations).
(3) No specified minimum provided by
local law. For purposes of paragraph (b)
(3)(v)(F)(2)(ii) of this section, if the bank
regulatory requirements imposed under
the laws or regulations of a foreign coun-
try do not specify a minimum amount, the
limitation for purposes of paragraph (b)(3)
(v)(F)(2) of this section is determined by
reference solely to paragraph (b)(3)(v)(F)
(2)(ii) of this section.
(4) Foreign TLAC security. For pur-
poses of paragraph (b)(3)(v) of this sec-
tion, the term foreign TLAC security
means an internal debt security issued
under a bank regulatory requirement im-
posed under the laws or regulations of a
foreign country that is comparable to 12
CFR 252.160-167. The laws or regula-
tions of a foreign country are comparable
to 12 CFR 252.160-167 if the requirement
is imposed by a Financial Stability Board
member state and those laws or regula-
tions are substantially consistent with
TLAC standards of the Financial Stability
Board.
(vi) Amounts paid or accrued in tax-
able years beginning before January
1, 2018. Any amount paid or accrued in
taxable years beginning before January 1,
2018.

Bulletin No. 2019–52 1483 December 23, 2019
(vii) Business interest carried forward
from taxable years beginning before Jan-
uary 1, 2018. Any disallowed business
interest described in section 163(j)(2) that
is carried forward from a taxable year be-
ginning before January 1, 2018.
(viii) Specified nonrecognition trans-
actions—(A) In general. Subject to
paragraph (b)(3)(viii)(B) and (C) of this
section, any amount transferred to, or
exchanged with, a foreign related party
pursuant to a transaction to which sec-
tions 332, 351, 355, or 368 apply (“spec-
ified nonrecognition transaction”). See
§1.59A-9(b)(4) for anti-abuse rules.
(B) Other property transferred to a for-
eign related party in a specified nonrecog-
nition transaction. If a taxpayer transfers
other property (as defined in paragraph (b)
(3)(viii)(D) of this section) to a foreign
related party pursuant to a specified non-
recognition transaction, the other property
is treated as an amount paid or accrued
to which paragraph (b)(3) of this section
does not apply, regardless of whether gain
is recognized on the transaction.
(C) Other property received from a
foreign related party in certain speci-
fied nonrecognition transactions. If, in a
transaction described in section 351, 355,
or 368, the taxpayer transfers property
and receives other property (as defined in
paragraph (b)(3)(viii)(D) of this section)
from a foreign related party, the property
transferred by the taxpayer is treated as
an amount paid or accrued to which para-
graph (b)(3) of this section does not apply,
regardless of whether gain is recognized
on the transaction.
(D) Definition of other property. Sole-
ly for purposes of this paragraph (b)(3)
(viii), the term other property has the
meaning of the phrase “other property or
money” as used in section 351(b), with
respect to a transaction to which sec-
tion 351 applies, and as used in sections
356(a)(1)(B) and 361(b), with respect to
a transaction to which sections 355 or
368 apply, as applicable, including lia-
bilities treated as money under section
357(b). However, the term other prop-
erty does not include the sum of any
money and the fair market value of any
other property to which section 361(b)
(3) applies. The term other property also
includes liabilities that are assumed by
the taxpayer in the specified nonrecog-
nition transaction, but only to the extent
of the amount of gain recognized under
section 357(c).
(E) Allocation of other property. Other
property is treated as exchanged for prop-
erty in a specified nonrecognition transac-
tion in a manner consistent with U.S. fed-
eral income tax law. For purposes making
the allocation under this paragraph (b)(3)
(viii)(E), liabilities described in paragraph
(b)(3)(viii)(D) of this section are treated
as money received.
(ix) Reinsurance losses incurred and
claims payments—(A) In general. Any
amounts paid by a taxpayer subject to tax
under subchapter L to a foreign related
party that is a regulated insurance compa-
ny under a reinsurance contract between
the taxpayer and the regulated foreign in-
surance company for losses incurred (as
defined in section 832(b)(5)) and claims
and benefits under section 805(a)(1), to
the extent that the amounts paid or accrued
are properly allocable to amounts required
to be paid by the regulated foreign in-
surance company (or indirectly through
another regulated foreign insurance com-
pany), pursuant to an insurance, annuity,
or reinsurance contract, to a person other
than a related party. For purposes of this
paragraph (b)(3)(ix), the determination of
whether a contract is an insurance contract
or an annuity contract is made without re-
gard to sections 72(s), 101(f), 817(h), and
7702, provided that the contract is regulat-
ed as a life insurance or annuity contract
in its jurisdiction of issuance and no pol-
icyholder, insured, annuitant or beneficia-
ry with respect to the contract is a United
States person.
(B) Regulated foreign insurance
company. The term regulated foreign
insurance company means any foreign
corporation which –
(1) Is subject to regulation as an in-
surance (or reinsurance) company by the
country in which the corporation is creat-
ed, organized, or maintains its registered
office, and is licensed, authorized, or reg-
ulated by the applicable insurance regu-
latory body for that country to sell insur-
ance, annuity, or reinsurance contracts to
persons other than related parties in that
country, and
(2) Would be subject to tax under sub-
chapter L if it were a domestic corpora-
tion.
(4) Rules for determining the amount
of certain base erosion payments. The
following rules apply in determining the
amount that is a base erosion payment.
(i) Interest expense allocable to a for-
eign corporation’s effectively connect-
ed income—(A) Methods described in
§1.882-5. A foreign corporation that has
interest expense allocable under section
882(c) to income that is, or is treated as,
effectively connected with the conduct
of a trade or business within the United
States applying the method described in
§1.882-5(b) through (d) or the method
described in §1.882-5(e) has base erosion
payments under paragraph (b)(1)(i) of this
section for the taxable year equal to the
sum of—
(1) The interest expense on a liability
described in §1.882-5(a)(1)(ii)(A) or (B)
(direct allocations) that is paid or accrued
by the foreign corporation to a foreign re-
lated party;
(2) The interest expense on U.S.-
booked liabilities, as described in §1.882-
5(d)(2), determined by taking into account
paragraph (b)(4)(i)(B) of this section, that
is paid or accrued by the foreign corpora-
tion to a foreign related party; and
(3) The interest expense on U.S.-con-
nected liabilities, as described in §1.882-
5(d) or 1.882-5(e), in excess of interest
expense on U.S.-booked liabilities as
described in §1.882-5(d)(2), if any (here-
after, excess U.S.-connected liabilities),
multiplied by a fraction, the numerator of
which is the foreign corporation’s average
worldwide interest expense due to a for-
eign related party, and the denominator of
which is the foreign corporation’s average
total worldwide interest expense. The nu-
merator and denominator of this fraction
are determined by translating interest ex-
pense into the functional currency of the
foreign corporation using any reasonable
method, consistently applied. Any interest
expense that is interest expense on a U.S.-
booked liability or is subject to a direct al-
location is excluded from both the numer-
ator and the denominator of the fraction.
(B) U.S.-booked liabilities determina-
tion. For purposes of paragraph (b)(4)(i)
(A) of this section, the determination of
the interest expense on U.S.-booked lia-
bilities, as described in §1.882-5(d)(2), is
made without regard to whether the for-
eign corporation applies the method de-

December 23, 2019 1484 Bulletin No. 2019–52
scribed in §1.882-5(b) through (d) or the
method described in §1.882-5(e) for pur-
poses of determining interest expense.
(C) U.S.-booked liabilities in excess
of U.S.-connected liabilities. For pur-
poses of paragraph (b)(4)(i)(A)(2) of
this section, if a foreign corporation has
U.S.-booked liabilities, as described in
§1.882-5(d)(2), in excess of U.S.-con-
nected liabilities, as described in §1.882-
5(d) or §1.882-5(e), the foreign corpo-
ration applies the scaling ratio pro-rata
to all interest expense on U.S.-booked
liabilities consistent with §1.882-5(d)(4)
for purposes of determining the amount
of allocable interest expense on U.S.-
booked liabilities that is a base erosion
payment. This paragraph (b)(4)(i)(C) ap-
plies without regard to whether the for-
eign corporation applies the method de-
scribed in §1.882-5(b) through (d) or the
method described in §1.882-5(e) for pur-
poses of determining its interest expense.
(D) Election to use financial state-
ments. A foreign corporation may elect to
calculate the fraction described in para-
graph (b)(4)(i)(A)(3) of this section on
the basis of its applicable financial state-
ment rather than U.S. tax principles. For
purposes of this section, an applicable
financial statement has the meaning pro-
vided in section 451(b)(3). The applicable
financial statement must be the applicable
financial statement of the foreign corpo-
ration, not a consolidated applicable fi-
nancial statement. A foreign corporation
makes this election in accordance with the
requirements of Form 8991 (or successor).
(E) Coordination with certain tax trea-
ties—(1) In general. If a foreign corpora-
tion elects to determine its taxable income
pursuant to business profits provisions
of an income tax treaty rather than pro-
visions of the Internal Revenue Code, or
the regulations published under 26 CFR
chapter I, for determining effectively con-
nected income, and the foreign corpora-
tion does not apply §1.882-5 to allocate
interest expense to a permanent establish-
ment, then paragraph (b)(4)(i)(A) through
(D) of this section applies to determine the
amount of hypothetical §1.882-5 interest
expense that is a base erosion payment un-
der paragraph (b)(1) of this section. Inter-
est expense allowed to the permanent es-
tablishment in excess of the hypothetical
§1.882-5 interest expense, if any, is treat-
ed as an amount paid or accrued by the
permanent establishment to the foreign
corporation’s home office or to another
branch of the foreign corporation and is
a base erosion payment to the extent that
the payment or accrual is described under
paragraph (b)(1) of this section.
(2) Hypothetical §1.882-5 interest ex-
pense defined. The hypothetical §1.882-5
interest expense is equal to the amount
of interest expense that would have been
allocable under section 882(c) to income
that is, or is treated as, effectively con-
nected with the conduct of a trade or busi-
ness within the United States if the foreign
corporation determined interest expense
in accordance with section §1.882-5.
However, the hypothetical §1.882-5 inter-
est expense shall not exceed the amount of
interest expense allowed to the permanent
establishment.
(3) Consistency requirement. For
purposes of determining the amount de-
scribed in paragraph (b)(4)(i)(E)(2) of this
section and applying paragraph (b)(4)(i)
(A) through (D) of this section, the elec-
tions of §1.882-5 must be applied consis-
tently and are subject to the rules and lim-
itations of §1.882-5, including limitations
on the time period in which an election
may be made or revoked. If a foreign cor-
poration otherwise meets the requirements
for making or revoking an election under
§1.882-5, then solely for purposes of this
section, the foreign corporation is treated
as making or revoking the election in ac-
cordance with the requirements of Form
8991 (or successor) and its instructions.
(F) Coordination with exception for
foreign TLAC securities. For purposes
of paragraph (b)(4)(i)(A) of this section,
amounts paid or accrued to a foreign relat-
ed party with respect to securities that are
eligible for the foreign TLAC exception in
paragraph (b)(3)(v) of this section are not
treated as paid to a foreign related party.
(ii) Other deductions allowed with
respect to effectively connected income.
A deduction allowed under §1.882-4 for
an amount paid or accrued by a foreign
corporation to a foreign related party
(including a deduction for an amount ap-
portioned in part to effectively connected
income and in part to income that is not
effectively connected income) is a base
erosion payment under paragraph (b)(1)
of this section.
(iii) Depreciable property. Any
amount paid or accrued by a foreign cor-
poration to a foreign related party of the
taxpayer in connection with the acquisi-
tion of property by the foreign corpora-
tion from the foreign related party if the
character of the property is subject to
the allowance for depreciation (or amor-
tization in lieu of depreciation) is a base
erosion payment to the extent the property
so acquired is used, or held for use, in the
conduct of a trade or business within the
United States.
(iv) Coordination with ECI exception.
For purposes of paragraph (b)(4) of this
section, amounts paid or accrued to a for-
eign related party treated as effectively
connected income (or, in the case of a for-
eign related party that determines taxable
income pursuant to the business profits
provisions of an applicable income tax
treaty, such amounts that are taken into
account in determining taxable income)
are not treated as paid to a foreign related
party.
(v) Coordination with certain tax trea-
ties—(A) Allocable expenses. Except as
provided in paragraph (b)(4)(i)(E) of this
section with respect to interest, if a foreign
corporation determines its taxable income
on a net basis pursuant to an applicable
income tax treaty rather than provisions
of the Internal Revenue Code, or the reg-
ulations published under 26 CFR chapter
I, for determining effectively connected
income, then the foreign corporation must
determine whether each allowable deduc-
tion is a base erosion payment under para-
graph (b)(1) of this section.
(B) Internal dealings under certain in-
come tax treaties. Except as provided in
paragraph (b)(4)(i)(E) of this section with
respect to interest, if, pursuant to the terms
of an applicable income tax treaty, a foreign
corporation determines the profits attribut-
able to a permanent establishment based on
the assets used, risks assumed, and func-
tions performed by the permanent estab-
lishment, then any deduction attributable
to any amount paid or accrued (or treated
as paid or accrued) by the permanent es-
tablishment to the foreign corporation’s
home office or to another branch of the for-
eign corporation (an “internal dealing”) is
a base erosion payment to the extent that
the payment or accrual is described under
paragraph (b)(1) of this section.

Bulletin No. 2019–52 1485 December 23, 2019
(vi) Business interest expense arising
in taxable years beginning after Decem-
ber 31, 2017. Any disallowed business
interest expense described in section
163(j)(2) that resulted from a payment or
accrual to a foreign related party that first
arose in a taxable year beginning after
December 31, 2017, is treated as a base
erosion payment under paragraph (b)
(1)(i) of this section in the year that the
business interest expense initially arose.
See paragraph (c)(4) of this section for
rules that apply when business interest
expense is limited under section 163(j)
(1) in order to determine whether the dis-
allowed business interest is attributed to
business interest expense paid to a person
that is not a related party, a foreign relat-
ed party, or a domestic related party.
(c) Base erosion tax benefit—(1) In
general. Except as provided in paragraph
(c)(2) of this section, a base erosion tax
benefit means:
(i) In the case of a base erosion pay-
ment described in paragraph (b)(1)(i) of
this section, any deduction that is allowed
under chapter 1 of subtitle A of the Inter-
nal Revenue Code for the taxable year
with respect to that base erosion payment;
(ii) In the case of a base erosion pay-
ment described in paragraph (b)(1)(ii) of
this section, any deduction allowed un-
der chapter 1 of subtitle A of the Internal
Revenue Code for the taxable year for
depreciation (or amortization in lieu of
depreciation) with respect to the property
acquired with that payment;
(iii) In the case of a base erosion pay-
ment described in paragraph (b)(1)(iii) of
this section, any reduction under section
803(a)(1)(B) in the gross amount of pre-
miums and other consideration on insur-
ance and annuity contracts for premiums
and other consideration arising out of in-
demnity reinsurance, or any deduction un-
der section 832(b)(4)(A) from the amount
of gross premiums written on insurance
contracts during the taxable year for pre-
miums paid for reinsurance; or
(iv) In the case of a base erosion pay-
ment described in paragraph (b)(1)(iv)
of this section, any reduction in gross
receipts with respect to the payment in
computing gross income of the taxpayer
for the taxable year for purposes of chap-
ter 1 of subtitle A of the Internal Revenue
Code.
(2) Exception to base erosion tax ben-
efit—(i) In general. Except as provided in
paragraph (c)(3) of this section, any base
erosion tax benefit attributable to any base
erosion payment is not taken into account
as a base erosion tax benefit if tax is im-
posed on that payment under section 871
or 881, and the tax has been deducted and
withheld under section 1441 or 1442. If a
payment is taken into account for purpos-
es of the fraction described in paragraph
(b)(4)(i)(A)(3) of this section, and tax is
imposed on the payment under section
871 or 881, and the tax has been deducted
and withheld under section 1441 or 1442,
the payment is treated as not paid or ac-
crued to a foreign related party.
(ii) Branch-level interest tax. Except as
provided in paragraph (c)(3) of this sec-
tion, any base erosion tax benefit of a for-
eign corporation attributable to any base
erosion payment determined under para-
graph (b)(4)(i)(A)(3) of this section or at-
tributable to interest expense in excess of
the hypothetical section 1.882-5 interest
expense determined under paragraph (b)
(4)(i)(E)(1) of this section is not taken into
account as a base erosion tax benefit to the
extent of the amount of excess interest, as
defined in §1.884-4(a)(2), if any, on which
tax is imposed on the foreign corporation
under section 884(f) and §1.884-4, if the
tax is properly reported on the foreign cor-
poration’s income tax return and paid in
accordance with §1.884-4(a)(2)(iv).
(3) Effect of treaty on base erosion tax
benefit. If any treaty between the United
States and any foreign country reduces the
rate of tax imposed by section 871 or 881,
the amount of base erosion tax benefit that
is not taken into account under paragraph
(c)(2) of this section is equal to the amount
of the base erosion tax benefit before the
application of paragraph (c)(2) of this sec-
tion multiplied by a fraction of—
(i) The rate of tax imposed under the
treaty; over
(ii) The rate of tax imposed without re-
gard to the treaty.
(4) Application of section 163(j) to
base erosion payments—(i) Classifica-
tion of payments or accruals of business
interest expense based on the payee. The
following rules apply for corporations and
partnerships:
(A) Classification of payments or ac-
cruals of business interest expense of a
corporation. For purposes of this section,
in the year that business interest expense
of a corporation is paid or accrued the
business interest expense is classified as
foreign related business interest expense,
domestic related business interest ex-
pense, or unrelated business interest ex-
pense.
(B) Classification of payments or ac-
cruals of business interest expense by a
partnership. For purposes of this section,
in the year that business interest expense
of a partnership is paid or accrued, the
business interest expense that is allocated
to a partner is classified separately with
respect to each partner in the partnership
as foreign related business interest ex-
pense, domestic related business interest
expense, or unrelated business interest
expense.
(C) Classification of payments or ac-
cruals of business interest expense paid or
accrued to a foreign related party that is
subject to an exception—(1) ECI excep-
tion. For purposes of paragraph (c)(4)(i)
(A) and (B) of this section, business inter-
est expense paid or accrued to a foreign
related party to which the exception in
paragraph (b)(3)(iii) of this section (effec-
tively connected income) applies is classi-
fied as domestic related business interest
expense.
(2) TLAC interest and interest subject
to withholding tax. For purposes of para-
graph (c)(4)(i)(A) and (B) of this section,
if the exception in paragraph (b)(3)(v) of
this section (TLAC securities) or para-
graph (c)(2) or (3) of this section (with-
holding tax) applies to business interest
expense paid or accrued to a foreign re-
lated party, that business interest expense
remains classified as foreign related busi-
ness interest expense, and retains its clas-
sification as eligible for those exceptions,
on a pro-rata basis with other foreign re-
lated business interest expense.
(ii) Ordering rules for business interest
expense that is limited under section 163(j)
(1) to determine which classifications of
business interest expense are deducted
and which classifications of business in-
terest expense are carried forward—(A)
In general. Section 163(j) and the regu-
lations published under 26 CFR chapter
I provide a limitation on the amount of
business interest expense allowed as a de-
duction in a taxable year by a corporation

December 23, 2019 1486 Bulletin No. 2019–52
or a partner in a partnership. In the case of
a corporation with a disallowed business
interest expense carryforward, the regula-
tions under section 163(j) determine the
ordering of the business interest expense
deduction that is allowed on a year-by-
year basis by reference first to business
interest expense incurred in the current
taxable year and then to disallowed busi-
ness interest expense carryforwards from
prior years. To determine the amount of
base erosion tax benefit under paragraph
(c)(1) of this section, this paragraph (c)(4)
(ii) sets forth ordering rules that determine
the amount of the deduction of business
interest expense allowed under section
163(j) that is classified as paid or accrued
to a foreign related party for purposes of
paragraph (c)(1)(i) of this section. This
paragraph (c)(4)(ii) also sets forth simi-
lar ordering rules that apply to disallowed
business interest expense carryforwards
for which a deduction is permitted under
section 163(j) in a later year.
(B) Ordering rules for treating busi-
ness interest expense deduction and disal-
lowed business interest expense carryfor-
wards as foreign related business interest
expense, domestic related business inter-
est expense, and unrelated business inter-
est expense—(1) General ordering rule
for allocating business interest expense
deduction between classifications. For
purposes of paragraph (c)(1) of this sec-
tion, if a deduction for business interest
expense is not subject to the limitation un-
der section 163(j)(1) in a taxable year, the
deduction is treated first as foreign related
business interest expense and domestic
related business interest expense (on a
pro-rata basis), and second as unrelated
business interest expense. The same prin-
ciple applies to business interest expense
of a partnership that is deductible at the
partner level under §1.163(j)-6(f).
(2) Ordering of business interest ex-
pense incurred by a corporation. If a
corporation’s business interest expense
deduction allowed for any taxable year is
attributable to business interest expense
paid or accrued in that taxable year and
to disallowed business interest expense
carryforwards from prior taxable years,
the ordering of business interest expense
deduction provided in paragraph (c)(4)(ii)
(B)(1) of this section among the classifica-
tions described therein applies separately
for the carryforward amount from each
taxable year, following the ordering set
forth in §1.163(j)-5(b)(2). Corresponding
adjustments to the classification of disal-
lowed business interest expense carryfor-
wards are made consistent with this year-
by-year approach. For purposes of section
59A and this section, an acquiring corpo-
ration in a transaction described in section
381(a) will succeed to and take into ac-
count the classification of any disallowed
business interest expense carryforward.
See §1.381(c)(20)-1.
(3) Ordering of business interest ex-
pense incurred by a partnership and al-
located to a corporate partner. For a
corporate partner in a partnership that is
allocated a business interest expense de-
duction under §1.163(j)-6(f), the ordering
rule provided in paragraph (c)(4)(ii)(B)
(1) of this section applies separately to the
corporate partner’s allocated business in-
terest expense deduction from the partner-
ship; that deduction is not comingled with
the business interest expense deduction
addressed in paragraph (c)(4)(ii)(B)(1) or
(2) of this section or the corporate part-
ner’s items from any other partnership.
Similarly, when a corporate partner in a
partnership is allocated excess business
interest expense from a partnership under
the rules set forth in §1.163(j)-6(f) and the
excess interest expense becomes deduct-
ible to the corporate partner, that partner
applies the ordering rule provided in para-
graph (c)(4)(ii)(B)(1) of this section sepa-
rately to that excess interest expense on a
year-by-year basis. Corresponding adjust-
ments to the classification of disallowed
business interest expense carryforwards
are made consistent with this year-by-year
and partnership-by-partnership approach.
(d) Examples. The following examples
illustrate the application of this section.
For purposes of all the examples, assume
that the taxpayer is an applicable taxpayer
and all payments apply to a taxable year
beginning after December 31, 2017.
(1) Example 1: Determining a base erosion pay-
ment—(i) Facts. FP is a foreign corporation that owns
all of the stock of FC, a foreign corporation, and DC,
a domestic corporation. FP has a trade or business in
the United States with effectively connected income
(USTB). DC owns FDE, a foreign disregarded entity.
DC pays interest to FDE and FC. FDE pays interest
to USTB. All interest paid by DC to FC and by FDE
to USTB is deductible by DC in the current year for
regular income tax purposes. FDE also acquires de-
preciable property from FP during the taxable year.
FP’s income from the sale of the depreciable prop-
erty is not effectively connected with the conduct of
FP’s trade or business in the United States. DC and
FP (based only on the activities of USTB) are appli-
cable taxpayers under §1.59A-2(b).
(ii) Analysis. The payment of interest by DC to
FC is a base erosion payment under paragraph (b)
(1)(i) of this section because the payment is made
to a foreign related party and the interest payment is
deductible. The payment of interest by DC to FDE is
not a base erosion payment because the transaction
is not a payment to a foreign person and the transac-
tion is not a deductible payment. With respect to the
payment of interest by FDE to USTB, if FP’s USTB
treats the payment of interest by FDE to USTB as
income that is effectively connected with the conduct
of a trade or business in the United States pursuant
to section 864 or as profits attributable to a U.S. per-
manent establishment of a tax treaty resident, and if
DC receives a withholding certificate from FP with
respect to the payment, then the exception in para-
graph (b)(3)(iii) of this section applies. Accordingly,
the payment from DC, through FDE, to USTB is not
a base erosion payment even though the payment is
to the USTB of FP, a foreign related party. The acqui-
sition of depreciable property by DC, through FDE,
from FP is a base erosion payment under paragraph
(b)(1)(ii) of this section because there is a payment to
a foreign related party in connection with the acqui-
sition by the taxpayer of property of a character sub-
ject to the allowance for depreciation and the excep-
tion in paragraph (b)(3)(iii) of this section does not
apply because FP’s income from the sale of the de-
preciable property is not effectively connected with
the conduct of FP’s trade or business in the United
States. See §1.59A-2 for the application of the ag-
gregation rule with respect to DC and FP’s USTB.
(2) Example 2: Interest allocable under §1.882-
5—(i) Facts. FC, a foreign corporation, has income
that is effectively connected with the conduct of a
trade or business within the United States. FC de-
termines its interest expense under the three-step
process described in §1.882-5(b) through (d) with
a total interest expense of $125x. The total interest
expense is comprised of interest expense of $100x
on U.S.- booked liabilities ($60x paid to a foreign
related party and $40x paid to unrelated persons) and
$25x of interest on excess U.S.-connected liabilities.
FC has average worldwide interest expense (not in-
cluding interest expense on U.S.-booked liabilities)
of $500x, of which $100x is interest expense paid to
a foreign related party. FC is an applicable taxpayer
with respect to its effectively connected income. As-
sume all of the interest expense is deductible in the
current taxable year and that none of the interest is
subject to the effectively connected income excep-
tion in paragraph (b)(3)(iii) of this section.
(ii) Analysis. Under paragraph (b)(4)(i) of this
section, the total amount of interest expense deter-
mined under §1.882-5 that is a base erosion payment
is $65x ($60x + 5x). FC has $60x of interest on U.S.-
booked liabilities that is paid to a foreign related par-
ty and that is treated as a base erosion payment under
paragraph (b)(4)(i)(A)(2) of this section. Addition-
ally, $5x of the $25x of interest expense on excess
U.S.-connected liabilities is treated as a base erosion
payment under paragraph (b)(4)(i)(A)(3) of this sec-
tion ($25x * ($100x / $500x)).

Bulletin No. 2019–52 1487 December 23, 2019
(3) Example 3: Interaction with section
163(j)—(i) Facts. Foreign Parent (FP) is a foreign
corporation that owns all of the stock of DC, a do-
mestic corporation that is an applicable taxpayer.
DC does not conduct a utility trade or business as
described in section 163(j)(7)(A)(iv), an electing
real property trade or business as described in sec-
tion 163(j)(7)(B), or an electing farming business
as described in section 163(j)(7)(C). In Year 1, DC
has adjusted taxable income, as defined in sec-
tion 163(j)(8), of $1000x and pays the following
amounts of business interest expense: $420x that
is paid to unrelated Bank, and $360x that is paid to
FP. DC does not earn any business interest income
or incur any floor plan financing interest expense in
Year 1. None of the exceptions in paragraph (b)(3)
of this section apply, and the interest is not subject
to withholding.
(ii) Analysis—(A) Classification of business
interest. In Year 1, DC is permitted to deduct only
$300x of business interest expense under section
163(j)(1) ($1000x x 30%). Paragraph (c)(4)(ii)(B) of
this section provides that for purposes of paragraph
(c)(1) of this section the deduction is treated first as
foreign related business interest expense and domes-
tic related business interest expense (here, only FP);
and second as unrelated business interest expense
(Bank). As a result, the $300x of business interest
expense that is permitted under section 163(j)(1) is
treated entirely as the business interest paid to the re-
lated foreign party, FP. All of DC’s $300x deductible
interest is treated as an add-back to modified taxable
income in the Year 1 taxable year for purposes of
§1.59A-4(b)(2)(i).
(B) Ordering rules for disallowed business inter-
est expense carryforward. Under section 163(j)(2),
the $480x of disallowed business interest ($420x +
$360x - $300x) is carried forward to the subsequent
year. Under paragraph (c)(4)(ii)(B)(1) and (2) of
this section, the disallowed business interest carry-
forward is correspondingly treated first as unrelated
business interest expense, and second pro-rata as for-
eign related business interest expense and domestic
related business interest expense. As a result, $420x
of the $480x disallowed business interest expense
carryforward is treated first as business interest ex-
pense paid to Bank and the remaining $60x of the
$480x disallowed business interest expense carryfor-
ward is treated as interest paid to FP and as an add-
back to modified taxable income.
(4) Example 4: Interaction with section 163(j);
carryforward—(i) Facts. The facts are the same as
in paragraph (d)(3) of this section (the facts in Ex-
ample 3), except that in addition, in Year 2, DC has
adjusted taxable income of $250x, and pays the fol-
lowing amounts of business interest expense: $50x
that is paid to unrelated Bank, and $45x that is paid
to FP. DC does not earn any business interest income
or incur any floor plan financing interest expense in
Year 2. None of the exceptions in paragraph (b)(3) of
this section apply.
(ii) Analysis—(A) Classification of business in-
terest. In Year 2, for purposes of section 163(j)(1),
DC is treated as having paid or accrued total busi-
ness interest expense of $575x, consisting of $95x
business interest expense actually paid in Year 2 and
$480x of business interest expense that is carried for-
ward from Year 1. DC is permitted to deduct $75x
of business interest expense in Year 2 under the lim-
itation in section 163(j)(1) ($250x x 30%). Section
1.163(j)-5(b)(2) provides that, for purposes of sec-
tion 163(j), the allowable business interest expense is
first attributed to amounts paid or accrued in the cur-
rent year, and then attributed to amounts carried over
from earlier years on a first-in-first-out basis from
the earliest year. Accordingly, the $75x of deductible
business interest expense is deducted entirely from
the $95x business interest expense incurred in Year 2
for section 163(j) purposes. Because DC’s business
interest expense deduction is limited under section
163(j)(1) and because DC’s total business interest
expense is attributable to more than one taxable year,
paragraph (c)(4)(ii)(B)(2) of this section provides
that the ordering rule in paragraph (c)(4)(ii)(B)(1)
of this section is applied separately to each annual
amount of section 163(j) disallowed business interest
expense carryforward. With respect to the Year 2 lay-
er, which is deducted first, paragraph (c)(4)(ii)(B) of
this section provides that, for purposes of paragraph
(c)(1) of this section, the Year 2 $75x deduction is
treated first as foreign related business interest ex-
pense and domestic related business interest expense
(here, only FP, $45x); and second as unrelated busi-
ness interest expense (Bank, $30x). Consequentially,
all of the $45x deduction of business interest expense
that was paid to FP in Year 2 is treated as a base ero-
sion tax benefit and an add-back to modified taxable
income for the Year 2 taxable year for purposes of
§1.59A-4(b)(2)(i).
(B) Ordering rules for disallowed business inter-
est expense carryforward. The disallowed business
interest expense carryforward of $20x from Year 2 is
correspondingly treated first as business interest ex-
pense paid to Bank under paragraph (c)(4)(i) of this
section. The disallowed business interest expense
carryforward of $480x from the Year 1 layer that is
also not allowed as a deduction in Year 2 remains
treated as $420x paid to Bank and $60 paid to FP.
(5) Example 5: Interaction with section 163(j);
carryforward—(i) Facts. The facts are the same as in
paragraph (d)(4) of this section (the facts in Example
4), except that in addition, in Year 3, DC has adjusted
taxable income of $4000x and pays no business in-
terest expense. DC does not earn any business inter-
est income or incur any floor plan financing interest
expense in Year 3.
(ii) Analysis. In Year 3, DC is treated as having
paid or accrued total business interest expense of
$500x, consisting of $480x of business interest ex-
pense that is carried forward from Year 1 and $20x
of business interest expense that is carried forward
from Year 2 for purposes of section 163(j)(1). DC
is permitted to deduct $1200x of business interest
expense in Year 3 under the limitation in section
163(j)(1) ($4000x x 30%). For purposes of section
163(j), DC is treated as first deducting the business
interest expense from Year 1 then the business inter-
est expense from Year 2. See §1.163(j)-5(b)(2). Be-
cause none of DC’s $500x business interest expense
is limited under section 163(j), the stacking rule in
paragraph (c)(4)(ii) of this section for allowed and
disallowed business interest expense does not apply.
For purposes of §1.59A-4(b)(2)(i), DC’s add-back to
modified taxable income is $60x determined by the
classifications in paragraph (c)(4)(i)(A) of this sec-
tion ($60x treated as paid to FP from Year 1).
(6) Example 6: Interaction with section 163(j);
partnership—(i) Facts. The facts are the same as in
paragraph (d)(4) of this section (the facts in Exam-
ple 4), except that in addition, in Year 2, DC forms a
domestic partnership (PRS) with Y, a domestic cor-
poration that is not related to DC within the meaning
of §1.59A-1(b)(17). PRS does not conduct a utility
trade or business as described in section 163(j)(7)(A)
(iv), an electing real property trade or business as de-
scribed in section 163(j)(7)(B) or an electing farming
business as described in section 163(j)(7)(C) subject
to section 163(j). PRS is not a small business de-
scribed in section 163(j)(3). DC and Y are equal part-
ners in partnership PRS. In Year 2, PRS has ATI of
$100x and $48x of business interest expense. $12x
of PRS’s business interest expense is paid to Bank,
and $36x of PRS’s business interest expense is paid
to FP. PRS allocates the items comprising its $100x
of ATI $50x to DC and $50x to Y. PRS allocates its
$48x of business interest expense $24x to DC and
$24x to Y. DC classifies its $24x of business interest
expense as $6x unrelated business interest expense
(Bank) and $18x as foreign related business inter-
est expense (FP) under paragraph (c)(4)(i)(B) of this
section. Y classifies its $24x of business interest ex-
pense as entirely unrelated business interest expense
of Y (Bank and FP) under paragraph (c)(4)(i)(B) of
this section. None of the exceptions in paragraph (b)
(3) of this section apply.
(ii) Partnership level analysis. In Year 2, PRS’s
section 163(j) limit is 30 percent of its ATI, or $30x
($100x x 30 percent). Thus, PRS has $30x of deduct-
ible business interest expense and $18x of excess
business interest expense ($48x - $30x). The $30x
of deductible business interest expense is includible
in PRS’s non-separately stated income or loss, and is
not subject to further limitation under section 163(j)
at the partners’ level.
(iii) Partner level allocations analysis. Pursuant
to §1.163(j)-6(f)(2), DC and Y are each allocated
$15x of deductible business interest expense and $9x
of excess business interest expense. At the end of
Year 2, DC and Y each have $9x of excess business
interest expense from PRS, which under §1.163(j)-6
is not treated as paid or accrued by the partner until
such partner is allocated excess taxable income or
excess business interest income from PRS in a suc-
ceeding year. Pursuant to §1.163(j)-6(e), DC and Y,
in computing their limit under section 163(j), do not
increase any of their section 163(j) items by any of
PRS’s section 163(j) items.
(iv) Partner level allocations for determining
base erosion tax benefits. The $15x of deductible
business interest expense allocated to DC is treated
first as foreign related business interest expense (FP)
under paragraph (c)(4)(ii)(B) of this section. DC’s
excess business interest expense from PRS of $9x is
classified first as the unrelated business interest ex-
pense with respect to Bank ($6x) and then as the re-
maining portion of the business interest expense paid
to FP ($3x, or $18x - $15x). Under paragraph (c)(4)
(ii)(B)(3) of this section, these classifications of the
PRS items apply irrespective of the classifications of
DC’s own interest expense as set forth in paragraph
(d)(4) of this section (Example 4).
(v) Computation of modified taxable income. For
Year 2, DC is treated as having incurred base erosion
tax benefits of $60x, consisting of the $15x base ero-

December 23, 2019 1488 Bulletin No. 2019–52
sion tax benefit with respect to its interest in PRS that
is computed in paragraph (d)(6)(iii) of this section
(Example 6) and $45x that is computed in paragraph
(d)(4) of this section (Example 4).
(7) Example 7: Transfers of property to related
taxpayers—(i) Facts. FP is a foreign corporation that
owns all of the stock of DC1 and DC2, both domes-
tic corporations. DC1 and DC2 are both members of
the same aggregate group but are not members of the
same consolidated tax group under section 1502. In
Year 1, FP sells depreciable property to DC1. On the
first day of the Year 2 tax year, DC1 sells the depre-
ciable property to DC2.
(ii) Analysis—(A) Year 1. The acquisition of de-
preciable property by DC1 from FP is a base erosion
payment under paragraph (b)(1)(ii) of this section
because there is a payment to a foreign related party
in connection with the acquisition by the taxpayer of
property of a character subject to the allowance for
depreciation.
(B) Year 2. The acquisition of the depreciable
property in Year 2 by DC2 is not itself a base erosion
payment because DC2 did not acquire the property
from a foreign related party. However, under para-
graph (b)(2)(viii) of this section any depreciation
expense taken by DC2 on the property acquired from
DC1 is a base erosion payment and a base erosion tax
benefit under paragraph (c)(1)(ii) of this section be-
cause the acquisition of the depreciable property was
a base erosion payment by DC1 and the property was
sold to a member of the aggregate group; therefore,
the depreciation expense continues as a base erosion
tax benefit to DC2 as it would have been to DC1 if it
continued to own the property.
§1.59A-4 Modified taxable income.
(a) Scope. Paragraph (b)(1) of this sec-
tion provides rules for computing modi-
fied taxable income. Paragraph (b)(2) of
this section provides rules addressing how
base erosion tax benefits and net operat-
ing losses affect modified taxable income.
Paragraph (b)(3) of this section provides
a rule for a holder of a residual interest in
a REMIC. Paragraph (c) of this section
provides examples illustrating the rules
described in this section.
(b) Computation of modified taxable
income—(1) In general. The term mod-
ified taxable income means a taxpayer’s
taxable income, as defined in section
63(a), determined with the additions de-
scribed in paragraph (b)(2) of this sec-
tion. Notwithstanding the foregoing, the
taxpayer’s taxable income may not be re-
duced to an amount less than zero as a re-
sult of a net operating loss deduction al-
lowed under section 172. See paragraphs
(c)(1) and (2) of this section (Examples
1 and 2).
(2) Modifications to taxable income.
The amounts described in this paragraph
(b)(2) are added back to a taxpayer’s tax-
able income to determine its modified tax-
able income.
(i) Base erosion tax benefits. The
amount of any base erosion tax benefit as
defined in §1.59A-3(c)(1).
(ii) Certain net operating loss deduc-
tions. The base erosion percentage, as
described in §1.59A-2(e)(3), of any net
operating loss deduction allowed to the
taxpayer under section 172 for the taxable
year. For purposes of determining mod-
ified taxable income, the net operating
loss deduction allowed does not exceed
taxable income before taking into account
the net operating loss deduction. See para-
graph (c)(1) and (2) of this section (Exam-
ples 1 and 2). The base erosion percentage
for the taxable year that the net operating
loss arose is used to determine the addi-
tion under this paragraph (b)(2)(ii). For a
net operating loss that arose in a taxable
year beginning before January 1, 2018,
the base erosion percentage for the taxable
year is zero.
(3) Rule for holders of a residual in-
terest in a REMIC. For purposes of para-
graph (b)(1) of this section, the limitation
in section 860E(a)(1) is not taken into ac-
count in determining the taxable income
amount that is used to compute modified
taxable income for the taxable year.
(c) Examples. The following examples
illustrate the rules of paragraph (b) of this
section.
(1) Example 1: Current year loss—(i) Facts. A
domestic corporation (DC) is an applicable taxpay-
er that has a calendar taxable year. In 2020, DC has
gross income of $100x, a deduction of $80x that is
not a base erosion tax benefit, and a deduction of
$70x that is a base erosion tax benefit. In addition,
DC has a net operating loss carryforward to 2020 of
$400x that arose in 2016.
(ii) Analysis. DC’s starting point for comput-
ing modified taxable income is $(50x), computed
as gross income of $100x, less a deduction of $80x
(non-base erosion tax benefit) and a deduction of
$70x (base erosion tax benefit). Under paragraph (b)
(2)(ii) of this section, DC’s starting point for com-
puting modified taxable income does not take into
account the $400x net operating loss carryforward
because the allowable deductions for 2020, not
counting the NOL deduction, exceed the gross in-
come for 2020. DC’s modified taxable income for
2020 is $20x, computed as $(50x) + $70x base ero-
sion tax benefit.
(2) Example 2: Net operating loss deduction—(i)
Facts. The facts are the same as in paragraph (c)(1)
(i) of this section (the facts in Example 1), except that
DC’s gross income in 2020 is $500x.
(ii) Analysis. DC’s starting point for comput-
ing modified taxable income is $0x, computed as
gross income of $500x, less: a deduction of $80x
(non-base erosion tax benefit), a deduction of $70x
(base erosion tax benefit), and a net operating loss
deduction of $350x (which is the amount of taxable
income before taking into account the net operating
loss deduction, as provided in paragraph (b)(2)(ii) of
this section ($500x - $150x)). DC’s modified taxable
income for 2020 is $70x, computed as $0x + $70x
base erosion tax benefit. DC’s modified taxable in-
come is not increased as a result of the $350x net
operating loss deduction in 2020 because the base
erosion percentage of the net operating loss that
arose in 2016 is zero under paragraph (b)(2)(ii) of
this section.
§1.59A-5 Base erosion minimum tax
amount.
(a) Scope. Paragraph (b) of this section
provides rules regarding the calculation
of the base erosion minimum tax amount.
Paragraph (c) of this section describes the
base erosion and anti-abuse tax rate appli-
cable to the taxable year.
(b) Base erosion minimum tax
amount—(1) In general. For each tax-
able year, an applicable taxpayer must
determine its base erosion minimum tax
amount.
(2) Calculation of base erosion mini-
mum tax amount. With respect to any ap-
plicable taxpayer, the base erosion mini-
mum tax amount for any taxable year is,
the excess (if any) of—
(i) An amount equal to the base erosion
and anti-abuse tax rate multiplied by the
modified taxable income of the taxpayer
for the taxable year, over
(ii) An amount equal to the regular tax
liability as defined in §1.59A-1(b)(16) of
the taxpayer for the taxable year, reduced
(but not below zero) by the excess (if any)
of-
(A) The credits allowed under chapter
1 of subtitle A of the Code against regular
tax liability over
(B) The sum of the credits described in
paragraph (b)(3) of this section.
(3) Credits that do not reduce regular
tax liability. The sum of the following
credits are used in paragraph (b)(2)(ii)
(B) of this section to limit the amount by
which the credits allowed under chapter 1
of subtitle A of the Internal Revenue Code
reduce regular tax liability—
(i) Taxable years beginning on or be-
fore December 31, 2025. For any taxable

Bulletin No. 2019–52 1489 December 23, 2019
year beginning on or before December 31,
2025—
(A) The credit allowed under section
38 for the taxable year that is properly al-
locable to the research credit determined
under section 41(a);
(B) The portion of the applicable sec-
tion 38 credits not in excess of 80 percent
of the lesser of the amount of those appli-
cable section 38 credits or the base erosion
minimum tax amount (determined without
regard to this paragraph (b)(3)(i)(B)); and
(C) Any credits allowed under sections
33, 37, and 53.
(ii) Taxable years beginning after De-
cember 31, 2025. For any taxable year
beginning after December 31, 2025, any
credits allowed under sections 33, 37, and
53.
(c) Base erosion and anti-abuse tax
rate—(1) In general. For purposes of cal-
culating the base erosion minimum tax
amount, the base erosion and anti-abuse
tax rate is—
(i) Calendar year 2018. For taxable
years beginning in calendar year 2018,
five percent.
(ii) Calendar years 2019 through 2025.
For taxable years beginning after Decem-
ber 31, 2018, through taxable years begin-
ning before January 1, 2026, 10 percent.
(iii) Calendar years after 2025. For
taxable years beginning after December
31, 2025, 12.5 percent.
(2) Increased rate for banks and reg-
istered securities dealers—(i) In general.
In the case of a taxpayer that is a member
of an affiliated group (as defined in sec-
tion 1504(a)(1)) that includes a bank or a
registered securities dealer, the percentage
otherwise in effect under paragraph (c)(1)
of this section is increased by one percent-
age point.
(ii) De minimis exception to increased
rate for banks and registered securities
dealers. Paragraph (c)(2)(i) of this sec-
tion does not apply to a taxpayer that is a
member of an affiliated group (as defined
in section 1504(a)(1)) that includes a bank
or registered securities dealer if, in that
taxable year, the total gross receipts of the
affiliated group attributable to the bank or
the registered securities dealer (or attribut-
able to all of the banks and registered se-
curities dealers in the group, if more than
one) represent less than two percent of the
total gross receipts of the affiliated group,
as determined under §1.59A-2(d).
(3) Application of section 15 to tax
rates in section 59A—(i) New tax. Section
15 does not apply to any taxable year that
includes January 1, 2018.
(ii) Change in tax rate pursuant to sec-
tion 59A(b)(1)(A). Section 15 does not
apply to any taxable year that includes
January 1, 2019.
(iii) Change in rate pursuant to sec-
tion 59A(b)(2). Section 15 applies to the
change in tax rate pursuant to section
59A(b)(2)(A).
§1.59A-6 Qualified derivative payment.
(a) Scope. This section provides ad-
ditional guidance regarding qualified de-
rivative payments. Paragraph (b) of this
section defines the term qualified deriva-
tive payment. Paragraph (c) of this section
provides guidance on certain payments
that are not treated as qualified derivative
payments. Paragraph (d) defines the term
derivative for purposes of section 59A.
Paragraph (e) of this section provides ex-
amples illustrating the rules of this sec-
tion.
(b) Qualified derivative payment—(1)
In general. A qualified derivative payment
means any payment made by a taxpayer to
a foreign related party pursuant to a deriv-
ative with respect to which the taxpayer—
(i) Recognizes gain or loss as if the de-
rivative were sold for its fair market value
on the last business day of the taxable year
(and any additional times as required by
the Internal Revenue Code or the taxpay-
er’s method of accounting);
(ii) Treats any gain or loss so recog-
nized as ordinary; and
(iii) Treats the character of all items of
income, deduction, gain, or loss with re-
spect to a payment pursuant to the deriva-
tive as ordinary.
(2) Reporting requirements—(i) In
general. No payment is a qualified deriv-
ative payment under paragraph (b)(1) of
this section for any taxable year unless
the taxpayer (whether or not the taxpay-
er is a reporting corporation as defined in
§1.6038A-1(c)) reports the information
required in §1.6038A-2(b)(7)(ix) for the
taxable year. To report its qualified deriva-
tive payments, a taxpayer must include the
payment in the aggregate amount of qual-
ified derivative payments on Form 8991
(or successor).
(ii) Failure to satisfy the reporting re-
quirement. If a taxpayer fails to satisfy the
reporting requirement described in para-
graph (b)(2)(i) of this section with respect
to any payments, those payments are not
eligible for the qualified derivative pay-
ment exception described in §1.59A-3(b)
(3)(ii) and are base erosion payments
unless an exception in §1.59A-3(b)(3)
otherwise applies. A taxpayer’s failure to
report a payment as a qualified derivative
payment does not impact the eligibility
of any other payment which the taxpayer
properly reported under paragraph (b)(2)
(i) of this section from being a qualified
derivative payment.
(iii) Reporting of aggregate amount of
qualified derivative payments. The aggre-
gate amount of qualified derivative pay-
ments is the sum of the amount described
in paragraph (b)(3) of this section for each
derivative. To the extent that the taxpayer
is treated as receiving a payment, as deter-
mined in §1.59A-2(e)(3)(vi), for the tax-
able year with respect to a derivative, the
payment is not included in the aggregate
qualified derivative payments.
(iv) Transition period for qualified de-
rivative payment reporting. Before para-
graph (b)(2)(i) of this section is applica-
ble, a taxpayer will be treated as satisfying
the reporting requirement described sec-
tion 59A(h)(2)(B) to the extent that the
taxpayer reports the aggregate amount of
qualified derivative payments on Form
8991 (or successor). See §1.6038A-2(g)
(applicability date for §1.6038A-2(b)(7)
(ix)). Until paragraph (b)(2)(i) of this sec-
tion is applicable, paragraph (b)(2)(ii) of
this section will not apply to a taxpayer
who reports the aggregate amount of qual-
ified derivative payments in good faith.
(3) Amount of any qualified derivative
payment—(i) In general. The amount of
any qualified derivative payment excluded
from the denominator of the base erosion
percentage as provided in §1.59A-2(e)
(3)(ii)(C) is determined as provided in
§1.59A-2(e)(3)(vi).
(ii) Net qualified derivative payment
that includes a payment that is a base ero-
sion payment. Any net amount determined
in paragraph (b)(3)(i) of this section must

December 23, 2019 1490 Bulletin No. 2019–52
be reduced by any gross items that are
treated as a base erosion payment pursu-
ant to paragraph (c) of this section.
(c) Exceptions for payments otherwise
treated as base erosion payments. A pay-
ment does not constitute a qualified deriv-
ative payment if—
(1) The payment would be treated as a
base erosion payment if it were not made
pursuant to a derivative, including any in-
terest, royalty, or service payment; or
(2) In the case of a contract that has
derivative and nonderivative components,
the payment is properly allocable to the
nonderivative component.
(d) Derivative defined—(1) In gener-
al. For purposes of this section, the term
derivative means any contract (including
any option, forward contract, futures con-
tract, short position, swap, or similar con-
tract) the value of which, or any payment
or other transfer with respect to which, is
(directly or indirectly) determined by ref-
erence to one or more of the following:
(i) Any share of stock in a corporation;
(ii) Any evidence of indebtedness;
(iii) Any commodity that is actively
traded;
(iv) Any currency; or
(v) Any rate, price, amount, index, for-
mula, or algorithm.
(2) Exceptions. The following contracts
are not treated as derivatives for purposes
of section 59A.
(i) Direct interest. A derivative con-
tract does not include a direct interest in
any item described in paragraph (d)(1)(i)
through (v) of this section.
(ii) Insurance contracts. A derivative
contract does not include any insurance,
annuity, or endowment contract issued by
an insurance company to which subchap-
ter L applies (or issued by any foreign cor-
poration to which the subchapter would
apply if the foreign corporation were a
domestic corporation).
(iii) Securities lending and sale-repur-
chase transactions—(A) Multi-step trans-
actions treated as financing. For purposes
of paragraph (d)(1) of this section, a de-
rivative does not include any securities
lending transaction, sale-repurchase trans-
action, or substantially similar transaction
that is treated as a secured loan for federal
tax purposes. Securities lending transac-
tion and sale-repurchase transaction have
the meanings provided in §1.861-2(a)(7).
(B) Special rule for payments associat-
ed with the cash collateral provided in a
securities lending transaction or substan-
tially similar transaction. For purposes of
paragraph (d)(1) of this section, a deriv-
ative does not include the cash collateral
component of a securities lending trans-
action (or the cash payments pursuant to
a sale-repurchase transaction, or similar
payments pursuant to a substantially simi-
lar transaction).
(C) Anti-abuse exception for certain
transactions that are the economic equiv-
alent of substantially unsecured cash bor-
rowing. For purposes of paragraph (d)
(1) of this section, a derivative does not
include any securities lending transaction
or substantially similar transaction that
is part of an arrangement that has been
entered into with a principal purpose of
avoiding the treatment of any payment
with respect to that transaction as a base
erosion payment and that provides the tax-
payer with the economic equivalent of a
substantially unsecured cash borrowing.
The determination of whether the secu-
rities lending transaction or substantially
similar transaction provides the taxpayer
with the economic equivalent of a sub-
stantially unsecured cash borrowing takes
into account arrangements that effectively
serve as collateral due to the taxpayer’s
compliance with any U.S. regulatory re-
quirements governing such transaction.
(3) American depository receipts. For
purposes of section 59A, American depos-
itory receipts (or any similar instruments)
with respect to shares of stock in a foreign
corporation are treated as shares of stock
in that foreign corporation.
(e) Examples. The following examples
illustrate the rules of this section.
(1) Example 1: Notional principal contract as
QDP—(i) Facts. Domestic Corporation (DC) is a
dealer in securities within the meaning of section
475. On February 1, 2019, DC enters into a contract
(Interest Rate Swap) with Foreign Parent (FP), a for-
eign related party, for a term of five years. Under the
Interest Rate Swap, DC is obligated to make a pay-
ment to FP each month, beginning March 1, 2019,
in an amount equal to a variable rate determined
by reference to the prime rate, as determined on
the first business day of the immediately preceding
month, multiplied by a notional principal amount of
$50x. Under the Interest Rate Swap, FP is obligat-
ed to make a payment to DC each month, beginning
March 1, 2019, in an amount equal to 5% multiplied
by the same notional principal amount. The Inter-
est Rate Swap satisfies the definition of a notional
principal contract under §1.446-3(c). DC recognizes
gain or loss on the Interest Rate Swap pursuant to
section 475. DC reports the information required to
be reported for the taxable year under §1.6038A-2(b)
(7)(ix).
(ii) Analysis. The Interest Rate Swap is a deriv-
ative as described in paragraph (d) of this section
because it is a contract that references the prime
rate and a fixed rate for determining the amount of
payments. The exceptions described in paragraph
(c) of this section do not apply to the Interest Rate
Swap. Because DC recognizes ordinary gain or loss
on the Interest Rate Swap pursuant to section 475(d)
(3), it satisfies the condition in paragraph (b)(1)(ii)
of this section. Because DC satisfies the requirement
relating to the information required to be reported
under paragraph (b)(2) of this section, any payment
to FP with respect to the Interest Rate Swap will be
a qualified derivative payment. Therefore, under
§1.59A-3(b)(3)(ii), the payments to FP are not base
erosion payments.
(2) Example 2: Securities lending anti-abuse
rule—(i) Facts. (A) Foreign Parent (FP) is a foreign
corporation that owns all of the stock of domestic
corporation (DC) and foreign corporation (FC).
FP and FC are foreign related parties of DC under
§1.59A-1(b)(12) but not members of DC’s aggre-
gate group. On January 1 of year 1, with a principal
purpose of providing financing to DC without DC
making a base erosion payment to FC, FC lends 100x
U.S. Treasury bills with a remaining maturity of 11
months (Securities A) to DC (Securities Lending
Transaction 1) for a period of six months. Pursuant
to the terms of Securities Lending Transaction 1,
DC is obligated to make substitute payments to FC
corresponding to the interest payments on Securities
A. DC does not post cash collateral with respect to
Securities Lending Transaction 1, and no other ar-
rangements of FC or DC effectively serve as collat-
eral under any U.S. regulatory requirements govern-
ing the transaction. Immediately thereafter, DC sells
Securities A for cash.
(B) On June 30 of year 1, FC lends 100x U.S.
Treasury bills with a remaining maturity of 11 months
(Securities B) to DC (Securities Lending Transaction
2) for a period of six months. Pursuant to the terms
of Securities Lending Transaction 2, DC is obligated
to make substitute payments to FC corresponding to
the interest payments on Securities B. Immediately
thereafter, DC sells Securities B for cash and uses the
cash to purchase U.S. Treasury bills with a remaining
maturity equal to the Securities A bills that DC then
transfers to FC in repayment of Securities Lending
Transaction 1.
(ii) Analysis. Securities Lending Transaction 1
and Securities Lending Transaction 2 are not treat-
ed as derivatives for purposes of paragraph (d)(1) of
this section because the transactions are part of an ar-
rangement that has been entered into with a principal
purpose of avoiding the treatment of any payment
with respect to Securities Lending Transaction 1 and
Securities Lending Transaction 2 as a base erosion
payment and provides DC with the economic equiv-
alent of a substantially unsecured cash borrowing by
DC. As a result, pursuant to paragraph (d)(2)(iii)(C)
of this section, the substitute payments made by DC
to FC with respect to Securities A and Securities B
are not eligible for the exception in §1.59A-3(b)(3)
(ii) (qualified derivative payment).

Bulletin No. 2019–52 1491 December 23, 2019
§1.59A-7 Application of base erosion and
anti-abuse tax to partnerships.
(a) Scope. This section provides rules
regarding how partnerships and their part-
ners are treated for purposes of making
certain determinations under section 59A,
including whether there is a base erosion
payment or base erosion tax benefit. All
references to partnerships in this section
include domestic and foreign partnerships.
This section applies to payments to a part-
nership and payments from a partnership
as well as transfers of partnership inter-
ests (as defined in paragraph (c)(3)(iv)
of this section). The aggregate principle
described in this section does not override
the treatment of partnership items under
any Code section other than section 59A.
The aggregate principles provided in this
section apply without regard to any tax
avoidance purpose relating to a particular
partnership. See §1.701-2(e). Paragraph
(b) of this section describes how the aggre-
gate approach to partnerships applies for
purposes of certain section 59A determi-
nations. Paragraph (c) of this section pro-
vides rules for determining whether there
is a base erosion payment with respect to
a payment to or from a partnership. Para-
graph (d) of this section provides rules for
determining the base erosion tax benefits
of a partner. Paragraph (e) of this section
provides additional rules relating to the
application of section 59A to partnerships.
Paragraph (f) of this section provides a
rule for determining whether a person is a
foreign related party. Paragraph (g) of this
section provides examples that illustrate
the application of the rules of this section.
(b) Application of section 59A to part-
nerships. The purpose of this section is
to provide a set of operating rules for the
application of section 59A to partnerships
and partners in a manner consistent with
the purposes of section 59A. Except for
purposes of determining a partner’s base
erosion tax benefits under paragraph (d)
(1) of this section and whether a taxpay-
er is a registered securities dealer under
paragraph (e)(3) of this section, section
59A determinations are made at the part-
ner level in the manner described in this
section. The provisions of section 59A
must be interpreted in a manner consis-
tent with this approach. If a transaction is
not specifically described in this section,
whether the transaction gives rise to a base
erosion payment or base erosion tax ben-
efit is determined in accordance with the
principles of this section and the purposes
of section 59A.
(c) Base erosion payment. For purpos-
es of determining whether a taxpayer has
made a base erosion payment as described
in §1.59A-3(b), the taxpayer must treat a
payment to or from a partnership as made
to or from each partner and the assets and
liabilities of the partnership as assets and
liabilities of each partner. This paragraph
(c) provides specific rules for determining
whether a partner has made or received a
payment, including as a result of a part-
nership interest transfer (as defined in
paragraph (c)(3)(iv) of this section).
(1) Payments made by or to a partner-
ship. For purposes of determining wheth-
er a payment or accrual by a partnership
is a base erosion payment described in
§1.59A-3(b)(1)(i), any amount paid or
accrued by the partnership (including any
guaranteed payment described in section
707(c)) is treated as paid or accrued by
each partner based on the partner’s distrib-
utive share of the item of deduction with
respect to that amount. For purposes of
determining whether a payment or accrual
to a partnership is a base erosion payment
described in §1.59A-3(b)(1)(i) or (iii), any
amount paid or accrued to the partner-
ship (including any guaranteed payment
described in section 707(c)) is treated as
paid or accrued to each partner based on
the partner’s distributive share of the item
of income with respect to that amount. See
paragraph (e)(1) of this section to deter-
mine the partner’s distributive share.
(2) Transfers of certain property. When
a partnership transfers property, each part-
ner is treated as transferring its propor-
tionate share of the property transferred
for purposes of determining whether there
is a base erosion payment described in
§1.59A-3(b)(1)(ii) or (iv). When a part-
nership acquires property, each partner is
treated as acquiring its proportionate share
of the property acquired for purposes of
determining whether there is a base ero-
sion payment described in §1.59A-3(b)(1)
(ii) or (iv). For purposes of this paragraph
(c)(2), a transfer of property does not in-
clude a transfer of a partnership interest
(as defined in paragraph (c)(3)(iv) of this
section). See paragraph (c)(3) of this sec-
tion for rules applicable to transfers of
partnership interests. See paragraphs (g)
(2)(v) and (vi) of this section (Example 5
and Example 6) for examples illustrating
the application of this paragraph (c)(2).
(3) Transfers of a partnership inter-
est—(i) In general. A transfer of a partner-
ship interest (as defined in paragraph (c)
(3)(iv) of this section) is generally treated
as a transfer by each partner in the part-
nership of its proportionate share of the
partnership’s assets to the extent of any
change in its proportionate share of any
partnership asset, as well as any assump-
tion of associated liabilities by the partner.
Paragraphs (c)(3)(ii) and (iii) of this sec-
tion provide rules for applying the general
rule to transfers of a partnership interest
by a partner and issuances of a partnership
interest by the partnership for contributed
property, respectively. See paragraph (g)
(2)(vii) of this section (Example 7) for an
example illustrating the application of this
paragraph (c)(3)(i).
(ii) Transfers of a partnership interest
by a partner. A transfer of a partnership
interest (as defined in paragraph (c)(3)(iv)
of this section) by a partner is treated as a
transfer by the transferor to the recipient
of the transferor’s proportionate share of
each of the partnership assets and an as-
sumption by the recipient of the transfer-
or’s proportionate share of the partnership
liabilities. If the partner’s entire partner-
ship interest is not transferred, only the
proportionate share of each of the partner-
ship assets and liabilities associated with
the transferred partnership interest is treat-
ed as transferred and assumed. See para-
graphs (g)(2)(iii), (iv), and (vi) of this sec-
tion (Example 3, Example 4, and Example
6) for examples illustrating the application
of this paragraph (c)(3)(ii).
(iii) Certain issuances of a partnership
interest by a partnership. If a partnership
issues an interest in the partnership in ex-
change for a contribution of property to
the partnership, the contributing partner
is treated as exchanging a portion of the
contributed property and assuming any
liabilities associated with the transferred
partnership interest for a portion of the
partners’ pre-contribution interests in the
partnership’s assets and the partners’ as-
sumption of any liabilities transferred to
the partnership. For purposes of this para-
graph (c)(3)(iii), a reference to the “part-

December 23, 2019 1492 Bulletin No. 2019–52
nership’s assets” includes the assets con-
tributed by the contributing partner and
any other assets that are contributed to the
partnership at the same time. Each partner
whose proportionate share in a partnership
asset (including the assets contributed to
the partnership as part of the transaction)
is reduced as a result of the transaction
is treated as transferring the asset to the
extent of the reduction, and each person
who receives a proportionate share or an
increased proportionate share in an asset
as a result of the transaction is treated as
receiving an asset to the extent of the in-
crease, proportionately from the partners’
reduced interests. For example, if a person
contributes property to a partnership in
which each of two existing partners has a
50 percent pro-rata interest in the partner-
ship in exchange for a one-third pro-rata
partnership interest, each of the pre-contri-
bution partners is treated as transferring a
one-third interest in their share of existing
partnership assets to the contributing part-
ner, and the contributing partner is treated
as transferring a one-third interest in the
contributed assets to each of the original
partners. See paragraphs (g)(2)(i) and (ii)
of this section (Example 1 and Example 2)
for additional examples illustrating the ap-
plication of this paragraph (c)(3)(iii).
(iv) Partnership interest transfers de-
fined. For purposes of paragraphs (c)(3)
and (4) of this section, a transfer of a part-
nership interest includes any issuance of a
partnership interest by a partnership; any
sale of a partnership interest; any increase
or decrease in a partner’s proportionate
share of any partnership asset as a result
of a contribution of property or services to
a partnership, a distribution, or a redemp-
tion; or any other transfer of a proportion-
ate share of any partnership asset (other
than a transfer of a partnership asset that
is not a partnership interest by the part-
nership to a person not acting in a partner
capacity), whether by a partner or the part-
nership (including as a result of a deemed
or actual sale or a capital shift).
(4) Increased basis from a distribution.
If a distribution of property from a part-
nership to a partner results in an increase
in the tax basis of either the distributed
property or other partnership property,
such as under section 732(b) or 734(b),
the increase in tax basis attributable to a
foreign related party is treated as if it was
newly purchased property acquired by the
taxpayer (to the extent of its proportion-
ate share) from the foreign related party
that is placed in service when the distri-
bution occurs. See §1.734-1(e). This in-
creased basis treated as newly purchased
property is treated as acquired with a base
erosion payment, unless an exception in
§1.59A-3(b) applies. For this purpose, in
the case of a distribution to a foreign re-
lated party, the increased basis in the re-
maining partnership property that is treat-
ed as newly purchased property is entirely
attributable to the foreign related party. In
the case of a distribution to a taxpayer, the
increased basis in the distributed property
that is treated as newly purchased prop-
erty is attributable to each foreign related
party in proportion to the foreign related
party’s proportionate share of the asset
immediately before the distribution. If
the distribution is to a person other than
a taxpayer or a foreign related party, there
is no base erosion payment caused by the
distribution under this paragraph (c)(4).
See paragraphs (g)(2)(vii), (viii), and (ix)
of this section (Example 7, Example 8, and
Example 9) for examples illustrating the
application of this paragraph (c)(4).
(5) Operating rules applicable to base
erosion payments—(i) Single payment
characterized as separate transactions.
If a single transaction is partially charac-
terized in one manner and partially char-
acterized in another manner, each part of
the transaction is separately analyzed. For
example, if a contribution of property to a
partnership is partially treated as a contri-
bution and partially treated as a disguised
sale, the contribution and sale are sepa-
rately analyzed under paragraph (c) of this
section.
(ii) Ordering rule with respect to trans-
fers of a partnership interest. If a part-
nership interest is transferred (within the
meaning of paragraph (c)(3)(iv) of this
section), paragraph (c)(3) of this sec-
tion first applies to determine the assets
deemed transferred by the transferor(s) to
the transferee(s) and liabilities deemed as-
sumed by the parties. Then, to the extent
applicable (such as where a partnership
makes a contribution in exchange for an
interest in another partnership or when a
partnership receives an interest in another
partnership as a contribution to it), para-
graph (c)(2) of this section applies for
purposes of determining the proportionate
share of the property received by the part-
ners in a partnership. See paragraph (g)(2)
(vi) of this section (Example 6) for an il-
lustration of this rule.
(iii) Consideration for base erosion
payment or property resulting in base
erosion tax benefits. When a partnership
pays or receives property, services, or oth-
er consideration, each partner is deemed
to pay or receive the property, services,
or other consideration paid or received
by the partnership for purposes of deter-
mining if there is a base erosion payment,
except as otherwise provided in paragraph
(c) of this section. See paragraphs (g)(2)
(v) and (vi) of this section (Example 5 and
Example 6) for illustrations of this rule.
(iv) Non-cash consideration. When
both parties to a transaction use non-cash
consideration, each party must separate-
ly apply paragraph (c) of this section to
determine its base erosion payment with
respect to each property. For example,
if two partnerships, each with a domes-
tic corporation and a foreign corporation
as partners, all of whom are related, ex-
change depreciable property, each transfer
of property would be separately analyzed
to determine whether it is a base erosion
payment.
(d) Base erosion tax benefit for part-
ners—(1) In general. A partner’s distribu-
tive share of any deduction or reduction in
gross receipts attributable to a base erosion
payment (including as a result of sections
704(b) and (c), 707(a) and (c), 732(b) and
(d), 734(b) and (d), 737, 743(b) and (d),
and 751(b)) is the partner’s base erosion
tax benefit, subject to the exceptions in
§1.59A-3(c)(2). See paragraph (e)(1) of
this section to determine the partner’s
distributive share for purposes of section
59A. A partner’s base erosion tax benefit
may be more than the partner’s base ero-
sion payment. For example, if a partner-
ship makes a payment to a foreign related
party of its domestic partner to acquire
a depreciable asset, and the partnership
specially allocates more depreciation de-
ductions to a partner than its proportionate
share of the asset, the partner’s base ero-
sion tax benefit includes the specially al-
located depreciation deduction even if the
total allocated deduction exceeds the part-
ner’s share of the base erosion payment
made to acquire the asset. Base erosion

Bulletin No. 2019–52 1493 December 23, 2019
tax benefits are determined separately for
each asset, payment, or accrual, as appli-
cable, and are not netted with other items.
A taxpayer determines its base erosion tax
benefits for non-partnership items pursu-
ant to §1.59A-3(c).
(2) Exception for base erosion tax
benefits of certain small partners—(i) In
general. For purposes of determining a
partner’s amount of base erosion tax bene-
fits attributable to a base erosion payment
made by a partnership, a partner does not
take into account its distributive share of
any base erosion tax benefits from the
partnership for the taxable year if –
(A) The partner’s interest in the part-
nership represents less than ten percent of
the capital and profits of the partnership at
all times during the taxable year;
(B) The partner is allocated less than
ten percent of each partnership item of in-
come, gain, loss, deduction, and credit for
the taxable year; and
(C) The partner’s interest in the part-
nership has a fair market value of less than
$25 million on the last day of the partner’s
taxable year, determined using a reason-
able method.
(ii) Attribution. For purposes of para-
graph (d)(2)(i) of this section, a partner’s
interest in a partnership or partnership
item is determined by adding the inter-
ests of the partner and any related party
of the partner (as determined under sec-
tion 59A), taking into account any inter-
est owned directly, indirectly, or through
constructive ownership (applying the sec-
tion 318 rules as modified by section 59A
(except section 318(a)(3)(A) through (C)
will also apply so as to consider a Unit-
ed States person as owning stock that is
owned by a person who is not a United
States person), but excluding any interest
to the extent already taken into account).
(e) Other rules for applying section 59A
to partnerships—(1) Partner’s distribu-
tive share. For purposes of section 59A,
each partner’s distributive share of an item
of income or deduction of the partnership
is determined under sections 704(b) and
(c) and takes into account amounts de-
termined under other provisions of the
Code, including but not limited to sections
707(a) and (c), 732(b) and (d), 734(b) and
(d), 737, 743(b) and (d), and 751(b). See
§1.704-1(b)(1)(iii) regarding the applica-
tion of section 482. These amounts are
calculated separately for each payment or
accrual on a property-by-property basis,
including for purposes of section 704(c),
and are not netted. For purposes of sec-
tion 59A, a partner’s distributive share
of a reduction to determine gross income
is equal to a proportionate amount of the
partnership’s reduction to determine gross
income corresponding to the partner’s
share of the partnership gross receipts (as
determined under paragraph (e)(2)(i) of
this section) related to that reduction.
(2) Gross receipts—(i) In general. For
purposes of section 59A, each partner in
the partnership includes a share of part-
nership gross receipts in proportion to the
partner’s distributive share (as determined
under sections 704(b) and (c)) of items of
gross income that were taken into account
by the partnership under section 703 or
704(c) (such as remedial or curative items
under §1.704-3(c) or (d)).
(ii) Foreign corporation. See
§1.59A-2(d)(2) for gross receipts of for-
eign corporations.
(3) Registered securities dealers. If a
partnership, or a branch of the partner-
ship, is a registered securities dealer, each
partner is treated as a registered securities
dealer unless the partner’s interest in the
registered securities dealer would satis-
fy the criteria for the exception in para-
graph (d)(2) of this section. For purposes
of applying the de minimis exception in
§1.59A-2(e)(2)(iii), a partner takes into
account its distributive share of the rele-
vant partnership items.
(4) Application of sections 163(j) and
59A(c)(3) to partners. See §1.59A-3(c)
(4).
(5) Tiered partnerships. In the case
of one or more partnerships owning an
interest in another partnership (or part-
nerships), the rules of this section apply
successively to each partnership and its
partners in the chain of ownership. Para-
graphs (d)(2) and (f) of this section and
the small partner exception in paragraph
(e)(3) of this section apply only to a part-
ner that is not itself a partnership.
(f) Foreign related party. With respect
to any person that owns an interest in a
partnership, the related party determina-
tion in section 59A(g) applies at the part-
ner level.
(g) Examples. The following examples
illustrate the application of this section.
(1) Facts. The following facts are as-
sumed for purposes of the examples.
(i) DC is a domestic corporation that is
an applicable taxpayer for purposes sec-
tion 59A.
(ii) FC is a foreign corporation that is a
foreign related party with respect to DC.
(iii) UC is a domestic corporation that
is not related to DC and FC.
(iv) Neither FC nor any partnership in
the examples is (or is treated as) engaged
in a U.S. trade or business or has a perma-
nent establishment in the United States.
(v) All payments apply to a taxable
year beginning after December 31, 2017.
(vi) Unless otherwise stated, all al-
locations are pro-rata and satisfy the re-
quirements of section 704(b) and all the
partners have equal interests in the part-
nership.
(vii) Unless otherwise stated, depre-
ciable property acquired and placed in
service by the partnership has a remain-
ing recovery period of five years and is
depreciated under the alternative depreci-
ation system of section 168(g) using the
straight line method. Solely for purposes
of simplifying the calculations in these ex-
amples, assume the applicable convention
rules in section 168(d) do not apply.
(viii) No exception under §1.59A-3(b)
or (c) applies to any amount paid or ac-
crued.
(2) Examples—(i) Example 1: Contri-
butions to a partnership on partnership
formation—(A) Facts. DC and FC form
partnership PRS, with each contribut-
ing depreciable property that has a fair
market value and tax basis of $100x,
Property A and Property B, respectively.
Therefore, the property contributed by
FC, Property B, will generate $20x of an-
nual section 704(b) and tax depreciation
deductions for five years. The deprecia-
tion deductions will be allocated $10x to
each of DC and FC each year. Before the
transactions, for purposes of section 59A,
DC is treated as owning a 100 percent in-
terest in Property A and a zero percent
interest in Property B, and FC is treat-
ed as owning a 100 percent interest in
Property B and a zero percent interest in
Property A. After the formation of PRS,
for purposes of section 59A, DC and FC
are each treated as owning a 50 percent
proportionate share of each of Property A
and Property B.

December 23, 2019 1494 Bulletin No. 2019–52
(B) Analysis. The treatment of contributions of
property in exchange for an interest in a partnership
is described in paragraph (c)(3)(iii) of this section.
Under paragraph (c)(3)(iii) of this section, DC is
treated as exchanging a 50 percent interest in Proper-
ty A for a 50 percent proportionate share of Property
B. Under §1.59A-3(b)(1)(ii), the payment to acquire
depreciable property, Property B, from FC is a base
erosion payment. The base erosion tax benefit is the
amount of depreciation allocated to DC with respect
to Property B ($10x per year) and is not netted with
any other partnership item pursuant to paragraph (d)
(1) of this section.
(ii) Example 2: Section 704(c) and remedial al-
locations—(A) Facts. The facts are the same as in
paragraph (g)(2)(i)(A) of this section (the facts in
Example 1), except that Property B has a tax basis
of $40x and PRS adopts the remedial method under
§1.704-3(d).
(B) Analysis. The analysis and results are the
same as in paragraph (g)(2)(i)(B) of this section (the
analysis in Example 1), except that annual tax de-
preciation is $8x ($40x/5) and annual remedial tax
deduction allocation to DC is $2x (with $2x of re-
medial income to FC) for five years. Both the tax
depreciation and the remedial tax allocation to DC
are base erosion tax benefits to DC under paragraph
(d)(1) of this section.
(iii) Example 3: Sale of a partnership interest
without a section 754 election—(A) Facts. UC and
FC are equal partners in partnership PRS, the only
asset of which is Property A, a depreciable property
with a fair market value of $200x and a tax basis of
$120x. PRS does not have any section 704(c) assets.
DC purchases 50 percent of FC’s interest in PRS for
$50x. Prior to the sale, for section 59A purposes, FC
is treated as owning a 50 percent proportionate share
of Property A and DC is treated as owning no interest
in Property A. Following the sale, for section 59A
purposes, DC is treated as owning a 25 percent pro-
portionate share of Property A, all of which is treated
as acquired from FC. The partnership does not have
an election under section 754 in effect. Property A
will generate $24x of annual tax and section 704(b)
depreciation deductions for five years. The deprecia-
tion deductions will be allocated $12x to UC and $6x
to both FC and DC each year.
(B) Analysis. The sale of a partnership interest
by a partner is analyzed under paragraph (c)(3)(ii) of
this section. Under section (c)(3)(ii) of this section,
FC is treated as selling to DC 25 percent of Property
A. Under §1.59A-3(b)(1)(ii), the payment to acquire
depreciable property is a base erosion payment. Un-
der paragraph (d)(1) of this section, the base erosion
tax benefit is the amount of depreciation allocated to
DC with respect to the base erosion payment, which
would be the depreciation deductions allocated to
DC with respect to Property A. DC’s annual $6x de-
preciation deduction is its base erosion tax benefit
with respect to the base erosion payment.
(iv) Example 4: Sale of a partnership interest
with section 754 election—(A) Facts. The facts are
the same as in paragraph (g)(2)(iii)(A) of this section
(the facts in Example 3), except that the partnership
has an election under section 754 in effect. As a re-
sult of the sale, there is a $20x positive adjustment
to the tax basis in Property A with respect to DC
under section 743(b) (DC’s $50x basis in the PRS
interest less DC’s $30x share of PRS’s tax basis in
Property A). The section 743(b) step-up in tax basis
is recovered over a depreciable recovery period of
five years. Therefore, DC will be allocated a total
of $10x in annual depreciation deductions for five
years, comprised of $6x with respect to DC’s propor-
tionate share of PRS’s common tax basis in Property
A ($30x over 5 years) and $4x with respect to the
section 743(b) adjustment ($20x over 5 years).
(B) Analysis. The analysis is the same as in
paragraph (g)(2)(iii)(B) of this section (the analysis
in Example 3); however, because section 743(b) in-
creases the basis in Property A for DC by $20x, DC
is allocated additional depreciation deductions of
$4x per year as a result of the section 743(b) adjust-
ment and has an annual base erosion tax benefit of
$10x ($6x plus $4x) for five years under paragraph
(d)(1) of this section.
(v) Example 5: Purchase of depreciable proper-
ty from a partnership—(A) Facts. The facts are the
same as in paragraph (d)(2)(iii)(A) of this section
(the facts in Example 3), except that instead of DC
purchasing an interest in the partnership, DC pur-
chases Property A from the partnership for $200x.
(B) Analysis. DC must analyze whether the pur-
chase of the depreciable property from the partner-
ship is a base erosion payment under paragraph (c)
(2) of this section. Under paragraph (c)(2) of this
section, DC is treated as acquiring FC’s proportion-
ate share of Property A from FC. Because DC paid
the partnership for the partnership’s interest in Prop-
erty A, under paragraph (c)(5)(iii) of this section,
DC is treated as paying FC for FC’s proportionate
share of Property A. Under §1.59A-3(b)(1)(ii), the
payment to FC to acquire depreciable property is a
base erosion payment. DC’s base erosion tax benefit
is the amount of depreciation allocated to DC with
respect to the base erosion payment, which in this
case is the amount of depreciation deductions with
respect to the property acquired with a base erosion
payment, or the depreciation deductions from FC’s
(but not UC’s) proportionate share of the asset. See
§1.59A-7(d)(1).
(vi) Example 6: Sale of a partnership interest to a
second partnership—(A) Facts. FC, UC1, and UC2
are equal partners in partnership PRS1. DC and UC3
are equal partners in partnership PRS2. UC1, UC2,
and UC3 are not related to DC or FC. PRS1’s sole
asset is Property A, which is depreciable property
with a fair market value and tax basis of $300x. FC
sells its entire interest in PRS1 to PRS2 for $100.
For section 59A purposes, FC’s proportionate share
of Property A prior to the sale is one-third. Follow-
ing the sale, for section 59A purposes, PRS2’s pro-
portionate share of Property A is one-third and DC’s
proportionate share of Property A (through PRS2) is
one-sixth (50 percent of one-third).
(B) Analysis. Under paragraph (c)(5)(ii) of this
section (the ordering rule), FC’s transfer of its inter-
est in PRS1 is first analyzed under paragraph (c)(3)
of this section to determine how the transfer of the
partnership interest is treated. Then, paragraph (c)(2)
of this section applies to analyze how the acquisition
of property by PRS2 is treated. Under paragraph (c)
(3)(ii) of this section, FC is deemed to transfer its
proportionate share of PRS1’s assets, which is one-
third of Property A. Then, under paragraph (c)(2) of
this section, DC is treated as acquiring its proportion-
ate share of PRS2’s proportionate share of Property
A from FC, which is one-sixth (50 percent of one-
third). Under paragraph (c)(5)(iii) of this section, DC
is treated as paying for the property it is treated as ac-
quiring from FC. Therefore, DC’s deemed payment
to FC to acquire depreciable property is a base ero-
sion payment under §1.59A-3(b)(1)(ii). DC’s base
erosion tax benefit is equal to DC’s distributive share
of depreciation deductions that PRS2 allocates to DC
attributable to Property A. See §1.59A-7(d)(1).
(vii) Example 7: Distribution of cash by a part-
nership to a foreign related party—(A) Facts. DC,
FC, and UC are equal partners in a partnership, PRS,
the assets of which consist of cash of $90x and a
depreciable asset (Property A) with a fair market
value of $180x and a tax basis of $60x. Each part-
ner’s interest in PRS has a fair market value of $90x
($270x/3) and a tax basis of $50x. Assume that all
non-depreciable assets are capital assets, all depre-
ciable assets are nonresidential real property un-
der section 168, and that no depreciation has been
claimed prior to the transaction below. PRS has an
election under section 754 in effect. PRS distributes
the $90x of cash to FC in complete liquidation of its
interest, resulting in gain to FC of $40x ($90x minus
its tax basis in PRS of $50x) under section 731(a)(1)
and an increase to the tax basis of Property A under
section 734(b) of $40x. Prior to the distribution, for
section 59A purposes, each partner had a one-third
proportionate share of Property A. After the distri-
bution, for section 59A purposes, the remaining
partners each have a 50 percent proportionate share
of Property A. Each partner’s pro-rata allocation of
depreciation deductions with respect to Property A
is in proportion to each partner’s proportionate share
of Property A both before and after the distribution.
Half of the depreciation deductions attributable to
the $40x section 734(b) step-up will be allocated to
DC. In addition, DC’s proportionate share of Proper-
ty A increased from one-third to one-half and there-
fore DC will be allocated depreciation deductions
with respect to half of the original basis of $60x (or
$30x) instead of one-third of $60x (or $20x).
(B) Analysis. Distributions of property that cause
an increase in the tax basis of property that contin-
ues to be held by the partnership are analyzed under
paragraph (c)(4) of this section. The $40x increase
in the tax basis of Property A as a result of the dis-
tribution of cash to FC is treated as newly purchased
property acquired from FC under paragraph (c)(4) of
this section and therefore acquired with a base ero-
sion payment under §1.59A-3(b)(1)(ii) to DC to the
extent of DC’s proportionate share. DC’s base ero-
sion tax benefit is the amount of DC’s depreciation
deductions attributable to that base erosion payment,
which is DC’s distributive share of the depreciation
deductions with respect to the $40x increase in the
tax basis of Property A. See §1.59A-7(d)(1). In ad-
dition, FC transferred a partnership interest to DC
(as defined in paragraph (c)(3)(iv) of this section),
which is analyzed under paragraph (c)(3)(i) of this
section. Under paragraph (c)(3)(i) of this section,
DC is deemed to acquire a one-sixth interest in Prop-
erty A from FC (the increase in DC’s proportionate
share from one-third to one-half). DC’s base erosion
tax benefit from this additional one-sixth interest in
Property A is the amount of DC’s depreciation de-
ductions attributable to this interest.

Bulletin No. 2019–52 1495 December 23, 2019
(viii) Example 8: Distribution of property by a
partnership to a taxpayer—(A) Facts. The facts are
the same as paragraph (g)(2)(vii)(A) of this section
(the facts of Example 7), except that PRS’s depre-
ciable property consists of two assets, Property A
having a fair market value of $90x and a tax basis
of $60x and Property B having a fair market value
of $90x and a tax basis of zero. Instead of distrib-
uting cash to FC, PRS distributes Property B to DC
in liquidation of its interest, resulting in an increase
in the basis of the distributed Property B to DC of
$50x (from zero to $50x) under section 732(b) be-
cause DC’s tax basis in the PRS interest was $50x.
For section 59A purposes, prior to the distribution,
each partner had a one-third proportionate share of
Property B and after the distribution, the property is
wholly owned by DC.
(B) Analysis. Distributions of property that cause
an increase in the tax basis of property that is dis-
tributed to a taxpayer are analyzed under paragraph
(c)(4) of this section. Under paragraph (c)(4) of this
section, the $50x increase in tax basis is treated as
newly purchased property that was acquired with a
base erosion payment to the extent that the increase
in tax basis is attributable to FC. Under paragraph (c)
(4) of this section, the portion of the increase that is
attributable to FC is the proportionate share of the
Property B immediately before the distribution that
was treated as owned by FC. Immediately before the
distribution, FC had a one-third proportionate share
of Property B. Accordingly, one-third of the $50x in-
crease in the tax basis of Property B is treated as if it
was newly purchased property acquired by DC from
FC with a base erosion payment under §1.59A-3(b)
(1)(ii). DC’s base erosion tax benefit is the amount
of DC’s depreciation deductions with respect to the
base erosion payment, which in this case is the depre-
ciation deductions with respect to the one-third inter-
est in the increased basis treated as newly purchased
property deemed acquired from FC. See §1.59A-3(c)
(1). In addition, PRS transferred Property B to DC,
which is analyzed under paragraph (c)(2) of this
section. Prior to the distribution, DC, FC, and UC
each owned one-third of Property B. After the dis-
tribution, DC entirely owned Property B. Therefore,
under paragraph (c)(2) of this section, DC is treated
as acquiring one-third of Property B from FC. DC’s
depreciation deductions with respect to the one-third
of Property B acquired from FC (without regard to
the basis increase) is also a base erosion tax benefit.
(ix) Example 9: Distribution of property by a
partnership in liquidation of a foreign related par-
ty’s interest—(A) Facts. The facts are the same as
paragraph (g)(2)(viii)(A) (the facts of Example 8),
except that Property B is not distributed to DC and,
instead, Property A is distributed to FC in liquidation
of its interest, resulting in a tax basis in Property A
of $50x in FC’s hands under section 732(b) and a
section 734(b) step-up in Property B of $10x (be-
cause Property A’s tax basis was reduced from $60x
to $50x), allocable to DC and UC. For section 59A
purposes, prior to the distribution, each partner had
a one-third proportionate share of Property B and af-
ter the distribution, DC and UC each have a one-half
proportionate share of Property B.
(B) Analysis. Distributions of property that cause
an increase in the tax basis of property that contin-
ues to be held by the partnership are analyzed under
paragraph (c)(4) of this section. Under paragraph
(c)(4) of this section, because the distribution of
Property A to FC from PRS caused an increase in
the tax basis of Property B, the entire $10x increase
in tax basis is treated as newly purchased property
that was acquired with a base erosion payment under
§1.59A-3(b)(1)(ii). DC’s base erosion tax benefit is
the amount of DC’s depreciation deductions attrib-
utable to the base erosion payment, which is DC’s
distributive share of the depreciation deductions with
respect to the $10x increase in the tax basis of Prop-
erty B. See §1.59A-7(d)(1). In addition, under para-
graph (c)(3)(i) of this section, DC is deemed to ac-
quire a one-sixth interest in Property B from FC (the
increase in DC’s proportionate share from one-third
to one-half). While this increase is a base erosion
payment under §1.59A-3(b)(1)(ii), there is no base
erosion tax benefit from this additional one-sixth in-
terest in Property B because the tax basis in Property
B (without regard to the basis) is zero and therefore
the increase in DC’s proportionate share does not re-
sult in any additional depreciation deductions.
§1.59A-8 [Reserved].
§1.59A-9 Anti-abuse and
recharacterization rules.
(a) Scope. This section provides rules
for recharacterizing certain transactions
according to their substance for purposes
of applying section 59A and the section
59A regulations. Paragraph (b) of this
section provides specific anti-abuse rules.
Paragraph (c) of this section provides ex-
amples illustrating the rules of paragraph
(b) of this section.
(b) Anti-abuse rules—(1) Transactions
involving unrelated persons, conduits, or
intermediaries. If a taxpayer pays or ac-
crues an amount to one or more intermedi-
aries (including an intermediary unrelated
to the taxpayer) that would have been a
base erosion payment if paid or accrued
to a foreign related party, and one or more
of the intermediaries makes (directly or
indirectly) corresponding payments to or
for the benefit of a foreign related party
as part of a transaction (or series of trans-
actions), plan or arrangement that has as a
principal purpose of avoiding a base ero-
sion payment (or reducing the amount of
a base erosion payment), the role of the
intermediary or intermediaries is disre-
garded as a conduit, or the amount paid or
accrued to the intermediary is treated as a
base erosion payment, as appropriate.
(2) Transactions to increase the amount
of deductions taken into account in the de-
nominator of the base erosion percentage
computation. A transaction (or component
of a transaction or series of transactions),
plan or arrangement that has a principal
purpose of increasing the deductions taken
into account for purposes of §1.59A-2(e)
(3)(i)(B) (the denominator of the base
erosion percentage computation) is disre-
garded for purposes of §1.59A-2(e)(3).
(3) Transactions to avoid the appli-
cation of rules applicable to banks and
registered securities dealers. A transac-
tion (or series of transactions), plan or
arrangement that occurs among related
parties that has a principal purpose of
avoiding the rules applicable to certain
banks and registered securities dealers in
§1.59A-2(e)(2) (base erosion percentage
test for banks and registered securities
dealers) or §1.59A-5(c)(2) (increased
base erosion and anti-abuse tax rate for
banks and registered securities dealers)
is not taken into account for purposes of
§1.59A-2(e)(2) or §1.59A-5(c)(2).
(4) Nonrecognition transactions. If a
transaction (or series of transactions), plan
or arrangement, has a principal purpose of
increasing the adjusted basis of property
that a taxpayer acquires in a specified non-
recognition transaction, then §1.59A-3(b)
(3)(viii)(A) will not apply to the specified
nonrecognition transaction. For purposes
of this paragraph (b)(4), if a transaction
(or series of transactions), plan or arrange-
ment between related parties increases the
adjusted basis of property within the six
month period before the taxpayer acquires
the property in a specified nonrecogni-
tion transaction, the transaction (or series
of transactions), plan or arrangement is
deemed to have a principal purpose of
increasing the adjusted basis of property
that a taxpayer acquires in a nonrecogni-
tion transaction.
(c) Examples. The following examples
illustrate the application of this section.
(1) Facts. The following facts are as-
sumed for purposes of the examples.
(i) DC is a domestic corporation that is
an applicable taxpayer for purposes sec-
tion 59A.
(ii) FP is a foreign corporation that
owns all the stock of DC.
(iii) None of the foreign corporations
have income that is, or is treated as, ef-
fectively connected with the conduct of a
trade or business in the United States un-
der an applicable provision of the Internal
Revenue Code or regulations thereunder.

December 23, 2019 1496 Bulletin No. 2019–52
(iv) All payments occur in a taxable
year beginning after December 31, 2017.
(2) Example 1: Substitution of payments that are
not base erosion payments for payments that other-
wise would be base erosion payments through a con-
duit or intermediary—(i) Facts. FP owns Property 1
with a fair market value of $95x, which FP intends
to transfer to DC. A payment from DC to FP for
Property 1 would be a base erosion payment. Corp
A is a domestic corporation that is not a related party
with respect to DC. As part of a plan with a princi-
pal purpose of avoiding a base erosion payment, FP
enters into an arrangement with Corp A to transfer
Property 1 to Corp A in exchange for $95x. Pursuant
to the same plan, Corp A transfers Property 1 to DC
in exchange for $100x. Property 1 is subject to the
allowance for depreciation (or amortization in lieu of
depreciation) in the hands of DC.
(ii) Analysis. The arrangement between FP, DC,
and Corp A is deemed to result in a $95x base ero-
sion payment under paragraph (b)(1) of this section
because DC’s payment to Corp A would have been a
base erosion payment if paid to a foreign related par-
ty, and Corp A makes a corresponding payment to FP
as part of the series of transactions that has as a prin-
cipal purpose of avoiding a base erosion payment.
(3) Example 2: Alternative transaction to base
erosion payment—(i) Facts. The facts are the same
as in paragraph (c)(2)(i) of this section (the facts in
Example 1), except that DC does not purchase Prop-
erty 1 from FP or Corp A. Instead, DC purchases
Property 2 from Corp B, a domestic corporation that
is not a related party with respect to DC and that
originally produced or acquired Property 2 for Corp
B’s own account. Property 2 is substantially similar
to Property 1, and DC uses Property 2 in substan-
tially the same manner that DC would have used
Property 1.
(ii) Analysis. Paragraph (b)(1) of this section
does not apply to the transaction between DC and
Corp B because Corp B does not make a correspond-
ing payment to or for the benefit of FP as part of a
transaction, plan or arrangement.
(4) Example 3: Alternative financing source—(i)
Facts. On Date 1, FP loaned $200x to DC in ex-
change for Note A. DC pays or accrues interest annu-
ally on Note A, and the payment or accrual is a base
erosion payment within the meaning of §1.59A-3(b)
(1)(i). On Date 2, DC borrows $200x from Bank, a
corporation that is not a related party with respect to
DC, in exchange for Note B. The terms of Note B are
substantially similar to the terms of Note A. DC uses
the proceeds from Note B to repay Note A.
(ii) Analysis. Paragraph (b)(1) of this section
does not apply to the transaction between DC and
Bank because Bank does not make a corresponding
payment to or for the benefit of FP as part of the se-
ries of transactions.
(5) Example 4: Alternative financing source that
is a conduit—(i) Facts. The facts are the same as in
paragraph (c)(4)(i) of this section (the facts in Ex-
ample 3) except that in addition, as part of the same
plan or arrangement as the Note B transaction and
with a principal purpose of avoiding a base erosion
payment, FP deposits $250x with Bank. The differ-
ence between the interest rate paid by Bank to FP on
FP’s deposit and the interest rate paid by DC to Bank
is less than one percentage point. The interest rate
charged by Bank to DC would have differed absent
the deposit by FP.
(ii) Analysis. The transactions between FP, DC,
and Bank are deemed to result in a base erosion pay-
ment under paragraph (b)(1) of this section because
DC’s payment to Bank would have been a base ero-
sion payment if paid to a foreign related party, and
Bank makes a corresponding payment to FP as part
of the series of transactions that has as a principal
purpose of avoiding a base erosion payment. See
Rev. Rul. 87-89, 1987-2 C.B. 195, Situation 3.
(6) Example 5: Intermediary acquisition—(i)
Facts. FP owns all of the stock of DC1 and DC2,
each domestic corporations. FP is a manufacturer of
lawn equipment. DC1 is in the trade or business of
renting equipment to unrelated third parties. DC2 is
a dealer in property that capitalizes its purchases into
inventory and recovers the amount through cost of
goods sold. Before Date 1, in the ordinary course of
DC1’s business, DC1 acquired depreciable property
from FP that DC1 in turn rented to unrelated third
parties. DC1’s purchases from FP were base erosion
payments within the meaning of §1.59A-3(b)(1)(ii).
On Date 1, with a principal purpose of avoiding a
base erosion payment, FP and DC2 reorganized their
operations so that DC2 acquires the lawn equipment
from FP and immediately thereafter, DC2 resells the
lawn equipment to DC1.
(ii) Analysis. The transactions between FP, DC1,
and DC2 are deemed to result in a base erosion pay-
ment under paragraph (b)(1) of this section because
DC1’s payment to DC2 would have been a base ero-
sion payment if paid directly to FP, and DC2 makes
a corresponding payment to FP as part of a series of
transactions, plan, or arrangement that has a princi-
pal purpose of avoiding a base erosion payment from
DC1 to FP.
(7) Example 6: Offsetting transactions to in-
crease the amount of deductions taken into account
in the denominator of the base erosion percentage
computation—(i) Facts. With a principal purpose of
increasing the deductions taken into account by DC
for purposes of §1.59A-2(e)(3)(i)(B), DC enters into
a long position with respect to Asset with Financial
Institution 1 and simultaneously enters into a short
position with respect to Asset with Financial Insti-
tution 2. Financial Institution 1 and Financial Insti-
tution 2 are not related to DC and are not related to
each other.
(ii) Analysis. Paragraph (b)(2) of this section
applies to the transactions between DC and Finan-
cial Institution 1 and DC and Financial Institution
2. These transactions are not taken into account
for purposes of §1.59A-2(e)(3)(i)(B) because the
transactions have a principal purpose of increasing
the deductions taken into account for purposes of
§1.59A-2(e)(3)(i)(B).
(8) Example 7: Ordinary course transactions that
increase the amount of deductions taken into account
in the denominator of the base erosion percentage
computation—(i) Facts. DC, a financial institution,
enters into a long position with respect to stock in
Corporation with Person 1 and later on the same day
enters into a short position with respect to stock in
Corporation with Person 2. Person 1 and Person 2 are
not related to DC and are not related to each other.
DC entered into the positions in the ordinary course
of its business and did not have a principal purpose
of increasing the deductions taken into account by
DC for purposes of §1.59A-2(e)(3)(i)(B).
(ii) Analysis. Paragraph (b)(2) of this section
does not apply because the transactions between DC
and Person 1 and Person 2 were not entered into with
a principal purpose of increasing the deductions tak-
en into account by DC for purposes of §1.59A-2(e)
(3)(i)(B).
(9) Example 8: Transactions to avoid the appli-
cation of rules applicable to banks and registered se-
curities dealers—(i) Facts. DC owns all of the stock
of DC1 and Bank (an entity defined in section 581).
DC, DC1, and Bank are members of an affiliated
group of corporations within the meaning of section
1504(a) that elect to file a consolidated U.S. feder-
al income tax return. With a principal purpose of
avoiding the rules of §1.59A-2(e)(2) or §1.59A-5(c)
(2), DC and DC1 form a new partnership (PRS). DC
contributes all of its stock of Bank, and DC1 contrib-
utes cash, to PRS. DC, DC1, and Bank do not mate-
rially change their business operations following the
formation of PRS.
(ii) Analysis. Paragraph (b)(3) of this section
applies to transactions with respect to Bank because
the transactions with respect to PRS were entered
into with a principal purpose of avoiding the rules of
§1.59A-2(e)(2) or §1.59A-5(c)(2). The contribution
of Bank to a PRS is not taken into account, and Bank
will be deemed to be part of the affiliated group in-
cluding DC and DC1 for purposes of §1.59A-2(e)(2)
and §1.59A-5(c)(2).
(10) Example 9: Transactions that do not avoid
the application of rules applicable to banks and reg-
istered securities dealers—(i) Facts. The facts are
the same as the facts of paragraph (c)(9)(i) of this
section (the facts of Example 8), except that DC sells
90 percent of the stock of Bank to an unrelated party
in exchange for cash.
(ii) Analysis. Paragraph (b)(3) of this section
does not apply to DC’s sale of the stock of Bank
because the sale was not made with a principal
purpose of avoiding the rules of §1.59A-2(e)(2) or
§1.59A-5(c)(2). Bank will not be treated as part of
the affiliated group including DC and DC1 for pur-
poses of §1.59A-2(e)(2) and §1.59A-5(c)(2).
(11) Example 10: Acquisition of depreciable
property in a nonrecognition transaction—(i) Facts.
U, which is not a related party with respect to FP
or DC, owns Property 1 with an adjusted basis of
$50x and a fair market value of $100x. On Date 1,
FP purchases property, including Property 1, from U
in exchange for cash, and then FP contributes Prop-
erty 1 to DC in an exchange described in section 351.
Following the exchange, DC’s basis in Property 1 is
$100x.
(ii) Analysis. Paragraph (b)(4) of this section
does not apply to DC’s acquisition of Property 1
because the purchase of Property 1 from U (along
with the purchase of other property from U that FP
did not contribute to DC) did not have a principal
purpose of increasing the adjusted basis of property
that was subsequently transferred to DC. The trans-
action is economically equivalent to an alternative
transaction under which FP contributed $100x to
DC and then DC purchased Property 1 from U.
Further, the second sentence of paragraph (b)(4)
of this section (providing that certain transactions
are deemed to have a principal purpose of increas-

Bulletin No. 2019–52 1497 December 23, 2019
ing the adjusted basis of property that a taxpayer
acquires in a nonrecognition transaction) does not
apply because FP purchased Property 1 from an un-
related party.
(12) Example 11: Transactions between related
parties with a principal purpose of increasing the
adjusted basis of property—(i) Facts. The facts are
the same as paragraph (c)(11)(i) of this section (the
facts in Example 10), except that U is related to FP
and DC.
(ii) Analysis. Paragraph (b)(4) of this section
applies to DC’s acquisition of Property 1 because
the transaction that increased the adjusted basis of
Property 1 (the purchase of Property 1 from U) was
between related parties, and within six months DC
acquired Property 1 from FP in a specified nonrec-
ognition transaction. Accordingly, the purchase of
property from U is deemed to have a principal pur-
pose of increasing the adjusted basis of Property 1,
the exception in §1.59A-3(b)(3)(viii)(A) for speci-
fied nonrecognition transactions will not apply to the
contribution of Property 1 to DC, and DC’s depreci-
ation deductions with respect to Property 1 will be
base erosion tax benefits.
§1.59A-10 Applicability date.
Sections 1.59A-1 through 1.59A-9
apply to taxable years ending on or after
December 17, 2018. However, taxpay-
ers may apply these final regulations in
their entirety for taxable years beginning
after December 31, 2017, and ending
before December 17, 2018. In lieu of
applying these final regulations, taxpay-
ers may apply the provisions matching
§§1.59A-1 through 1.59A-9 from the In-
ternal Revenue Bulletin (IRB) 2019-02
(https://www.irs.gov/pub/irs-irbs/irb19-
02.pdf) in their entirety for all taxable
years ending on or before December 6,
2019.
Par. 3. Section 1.383-1 is amended by
adding two sentences at the end of para-
graph (d)(3)(i) to read as follows:
§1.383-1 Special limitations on certain
capital losses and excess credits.
* * * * *
(d) * * *
(3) * * *
(i) * * * The application of section 59A
is not a limitation contained in subtitle A
for purposes of this paragraph (d)(3)(i).
Therefore, the treatment of pre-change
losses and pre-change credits in the com-
putation of the base erosion minimum tax
amount will not affect whether such losses
or credits result in absorption of the sec-
tion 382 limitation and the section 383
credit limitation.
* * * * *
Par. 4. Section 1.1502-2 is revised to
read as follows:
§1.1502-2 Computation of tax liability.
(a) Taxes imposed. The tax liability of
a group for a consolidated return year is
determined by adding together—
(1) The tax imposed by section 11(a) in
the amount described in section 11(b)
on the consolidated taxable income for
the year (reduced by the taxable income of
a member described in paragraphs (a)(5)
through (8) of this section);
(2) The tax imposed by section 541 on
the consolidated undistributed personal
holding company income;
(3) If paragraph (a)(2) of this section
does not apply, the aggregate of the taxes
imposed by section 541 on the separate
undistributed personal holding company
income of the members which are person-
al holding companies;
(4) If neither paragraph (a)(2) nor (3)
of this section apply, the tax imposed by
section 531 on the consolidated accumu-
lated taxable income (see §1.1502–43);
(5) The tax imposed by section 594(a)
in lieu of the taxes imposed by section 11
on the taxable income of a life insurance
department of the common parent of a
group which is a mutual savings bank;
(6) The tax imposed by section 801 on
consolidated life insurance company tax-
able income;
(7) The tax imposed by section 831(a)
on consolidated insurance company tax-
able income of the members which are
subject to such tax;
(8) Any increase in tax described in
section 1351(d)(1) (relating to recoveries
of foreign expropriation losses); and
(9) The tax imposed by section 59A on
base erosion payments of taxpayers with
substantial gross receipts.
(b) Credits. A group is allowed as a
credit against the taxes described in para-
graph (a) of this section (except for para-
graph (a)(9) of this section) of this section:
the general business credit under section
38 (see §1.1502–3), the foreign tax credit
under section 27 (see §1.1502–4), and any
other applicable credits provided under
the Internal Revenue Code. Any increase
in tax due to the recapture of a tax cred-
it will be taken into account. See section
59A and the regulations thereunder for
credits allowed against the tax described
in paragraph (a)(9) of this section.
(c) Allocation of dollar amounts. For
purposes of this section, if a member or
members of the consolidated group are
also members of a controlled group that
includes corporations that are not mem-
bers of the consolidated group, any dol-
lar amount described in any section of
the Internal Revenue Code is apportioned
among all members of the controlled
group in accordance with the provisions
of the applicable section and the regula-
tions thereunder.
(d) Applicability date—This section
applies to taxable years for which the
original consolidated Federal income tax
return is due (without extension) after De-
cember 6, 2019.
Par. 5. Section 1.1502-4 is amended by
revising paragraph (d)(3) to read as fol-
lows:
§1.1502-4 Consolidated foreign tax
credit.
* * * * *
(d) * * *
(3) Computation of tax against which
credit is taken. The tax against which the
limiting fraction under section 904(a) is
applied will be the consolidated tax liabili-
ty of the group determined under §1.1502-
2, but without regard to paragraphs (a)(2),
(3), (4), (8), and (9) of that section, and
without regard to any credit against such
liability.
* * * * *
Par. 6. Section 1.1502-43 is amended
by revising paragraph (b)(2)(i)(A) to read
as follows:
§1.1502-43 Consolidated accumulated
earnings tax.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(A) The consolidated liability for
tax determined without §1.1502-2(a)(2)
through (4), and without the foreign tax
credit provided by section 27, over
* * * * *
Par. 7. Section 1.1502-47 is amended
by revising paragraph (f)(7)(iii) to read as
follows.

December 23, 2019 1498 Bulletin No. 2019–52
§1.1502-47 Consolidated returns by life-
nonlife groups.
* * * * *
(f) * * *
(7) * * *
(iii) Any taxes described in §1.1502-2
(other than by paragraphs (a)(1) and (6) of
that section).
* * * * *
Par. 8. Section 1.1502-59A is added to
read as follows:
§1.1502-59A Application of section
59A to consolidated groups.
(a) Scope. This section provides rules
for the application of section 59A and the
regulations thereunder (the section 59A
regulations) to consolidated groups and
their members (as defined in §1.1502-
1(h) and (b), respectively). Rules in the
section 59A regulations apply to consol-
idated groups except as modified in this
section. Paragraph (b) of this section pro-
vides rules treating a consolidated group
(rather than each member of the group) as
a single taxpayer, and a single applicable
taxpayer, as relevant, for certain purposes.
Paragraph (c) of this section coordinates
the application of the business interest
stacking rule under §1.59A-3(c)(4) to
consolidated groups. Paragraph (d) of this
section addresses how the base erosion
minimum tax amount is allocated among
members of the consolidated group. Para-
graph (e) of this section coordinates the
application of this section and §1.1502-
47. Paragraph (f) of this section sets forth
definitions. Paragraph (g) of this section
provides examples. Paragraph (h) of this
section provides the applicability date.
(b) Consolidated group as the appli-
cable taxpayer—(1) In general. For pur-
poses of determining whether the con-
solidated group is an applicable taxpayer
(within the meaning of §1.59A-2(b)) and
the amount of tax due pursuant to section
59A(a), all members of a consolidated
group are treated as a single taxpayer.
Thus, for example, members’ deductions
are aggregated in making the required
computations under section 59A. In ad-
dition, to ensure that intercompany trans-
actions (as defined in §1.1502-13(b)(1)
(i)) do not affect the consolidated group’s
base erosion percentage or base erosion
minimum tax amount, items resulting
from intercompany transactions are not
taken into account in making such com-
putations under section 59A. For example,
additional depreciation deductions result-
ing from intercompany asset sales are not
taken into account for purposes of apply-
ing the base erosion percentage test under
§1.59A-2(e).
(2) Consolidated group as member
of the aggregate group. The consolidat-
ed group is treated as a single member
of an aggregate group for purposes of
§1.59A-2(c).
(3) Related party determination. For
purposes of section 59A and the section
59A regulations, if a person is a related
party with respect to any member of a
consolidated group, that person is a relat-
ed party of the group and of each of its
members.
(c) Coordination of section 59A(c)
(3) and section 163(j) in a consolidated
group—(1) Overview. This paragraph
(c) provides rules regarding the applica-
tion of §1.59A-3(c)(4) to a consolidated
group’s section 163(j) interest deduction.
The classification rule in paragraph (c)
(3) of this section addresses how to de-
termine if, and to what extent, the group’s
section 163(j) interest deduction is a base
erosion tax benefit. These regulations
contain a single-entity classification rule
with regard to the deduction of the con-
solidated group’s aggregate current year
business interest expense (“BIE”), but a
separate-entity classification rule for the
deduction of the consolidated group’s dis-
allowed BIE carryforwards. Paragraph (c)
(3) of this section classifies the group’s
aggregate current year BIE deduction, in
conformity with §1.59A-3(c)(4), as con-
stituting domestic related current year
BIE deduction, foreign related current
year BIE deduction, or unrelated current
year BIE deduction. The allocation rules
in paragraph (c)(4) of this section then
allocate to specific members of the group
the domestic related current year BIE de-
duction, foreign related current year BIE
deduction, and unrelated current year BIE
deduction taken in the taxable year. Any
member’s current year BIE that is carried
forward to the succeeding taxable year
as a disallowed BIE carryforward is al-
located a status as domestic related BIE
carryforward, foreign related BIE carry-
forward, or unrelated BIE carryforward
under paragraph (c)(5) of this section. The
status of any disallowed BIE carryforward
deducted by a member in a later year is
classified on a separate-entity basis by the
deducting member under paragraph (c)
(3) of this section, based on the status al-
located to the member’s disallowed BIE
carryforward under paragraph (c)(5) of
this section. This paragraph (c) also pro-
vides rules regarding the consequences of
the deconsolidation of a corporation that
has been allocated a domestic related BIE
carryforward status, a foreign related BIE
carryforward status, or an unrelated BIE
carryforward status; and the consolidation
of a corporation with a disallowed BIE
carryforward classified as from payments
to a domestic related party, foreign related
party, or unrelated party.
(2) Absorption rule for the group’s
business interest expense. To determine
the amount of the group’s section 163(j)
interest deduction, and to determine the
year in which the member’s business in-
terest expense giving rise to the deduction
was incurred or accrued, see §§1.163(j)-
4(d) and 1.163(j)-5(b)(3).
(3) Classification of the group’s sec-
tion 163(j) interest deduction—(i) In
general. Consistent with §1.59A-3(c)(4)
(i) and paragraph (b) of this section, the
classification rule of this paragraph (c)
(3) determines whether the consolidated
group’s section 163(j) interest deduction
is a base erosion tax benefit. To the extent
the consolidated group’s business interest
expense is permitted as a deduction un-
der section 163(j)(1) in a taxable year, the
deduction is classified first as from busi-
ness interest expense paid or accrued to a
foreign related party and business interest
expense paid or accrued to a domestic re-
lated party (on a pro-rata basis); any re-
maining deduction is treated as from busi-
ness interest expense paid or accrued to an
unrelated party.
(ii) Year-by-year application of the
classification rule. If the consolidated
group’s section 163(j) interest deduction
in any taxable year is attributable to busi-
ness interest expense paid or accrued in
more than one taxable year (for example,
the group deducts the group’s aggregate
current year BIE, the group’s disallowed
BIE carryforward from year 1, and the
group’s disallowed BIE carryforward
from year 2), the classification rule in
paragraph (c)(3)(i) of this section applies

Bulletin No. 2019–52 1499 December 23, 2019
separately to each of those years, pursuant
to paragraphs (c)(3)(iii) and (iv) of this
section.
(iii) Classification of current year BIE
deductions. Current year BIE deductions
are classified under the section 59A reg-
ulations and this paragraph (c) as if the
consolidated group were a single taxpayer
that had paid or accrued the group’s aggre-
gate current year BIE to domestic related
parties, foreign related parties, and unre-
lated parties. The rules of paragraph (c)(4)
of this section apply for allocating current
year BIE deductions among members of
the consolidated group. To the extent the
consolidated group’s aggregate current
year BIE exceeds its section 163(j) limita-
tion, the rules of paragraph (c)(5) of this
section apply.
(iv) Classification of deductions of
disallowed BIE carryforwards. Each
member of the group applies the classifi-
cation rule in this paragraph (c)(3) to its
deduction of any part of a disallowed BIE
carryforward from a year, after the group
applies paragraph (c)(5) of this section to
the consolidated group’s disallowed BIE
carryforward from that year. Therefore,
disallowed BIE carryforward that is ac-
tually deducted by a member is classified
based on the status of the components of
that carryforward, assigned pursuant to
paragraph (c)(5) of this section.
(4) Allocation of domestic related cur-
rent year BIE deduction status and foreign
related current year BIE deduction sta-
tus among members of the consolidated
group—(i) In general. This paragraph (c)
(4) applies if the group has domestic re-
lated current year BIE deductions, foreign
related current year BIE deductions, or
both, as a result of the application of the
classification rule in paragraph (c)(3) of
this section. Under this paragraph (c)(4),
the domestic related current year BIE, for-
eign related current year BIE, or both, that
is treated as deducted in the current year
are deemed to have been incurred pro-rata
by all members that have current year BIE
deduction in that year, regardless of which
member or members actually incurred the
current year BIE to a domestic related par-
ty or a foreign related party.
(ii) Domestic related current year BIE
deduction—(A) Amount of domestic re-
lated current year BIE deduction status
allocable to a member. The amount of
domestic related current year BIE deduc-
tion status that is allocated to a member is
determined by multiplying the group’s do-
mestic related current year BIE deduction
(determined pursuant to paragraph (c)(3)
of this section) by the percentage of cur-
rent year BIE deduction allocable to such
member in that year.
(B) Percentage of current year BIE
deduction allocable to a member. The
percentage of current year BIE deduc-
tion allocable to a member is equal to the
amount of the member’s current year BIE
deduction divided by the amount of the
group’s aggregate current year BIE de-
duction.
(iii) Amount of foreign related current
year BIE deduction status allocable to a
member. The amount of foreign related
current year BIE deduction status that is
allocated to a member is determined by
multiplying the group’s foreign related
current year BIE deduction (determined
pursuant to paragraph (c)(3) of this sec-
tion) by the percentage of current year
BIE deduction allocable to such member
(defined in paragraph (c)(4)(ii)(B) of this
section).
(iv) Treatment of amounts as having
unrelated current year BIE deduction sta-
tus. To the extent the amount of a mem-
ber’s current year BIE that is absorbed
under paragraph (c)(2) of this section
exceeds the domestic related current year
BIE deduction status and foreign related
current year BIE deduction status allocat-
ed to the member under paragraph (c)(4)
(ii) and (iii) of this section, such excess
amount is treated as from payments or ac-
cruals to an unrelated party.
(5) Allocation of domestic related BIE
carryforward status and foreign related
BIE carryforward status to members of
the group—(i) In general. This paragraph
(c)(5) applies in any year the consolidated
group’s aggregate current year BIE ex-
ceeds its section 163(j) limitation. After
the application of paragraph (c)(4) of this
section, any remaining domestic related
current year BIE, foreign related current
year BIE, and unrelated current year BIE
is deemed to have been incurred pro-rata
by members of the group pursuant to the
rules in paragraph (c)(5)(ii), (iii), and (iv)
of this section, regardless of which mem-
ber or members actually incurred the busi-
ness interest expense to a domestic related
party, foreign related party, or unrelated
party.
(ii) Domestic related BIE carryfor-
ward—(A) Amount of domestic related
BIE carryforward status allocable to a
member. The amount of domestic related
BIE carryforward status that is allocated
to a member equals the group’s domestic
related BIE carryforward from that year
multiplied by the percentage of disal-
lowed BIE carryforward allocable to the
member.
(B) Percentage of disallowed BIE car-
ryforward allocable to a member. The
percentage of disallowed BIE carryfor-
ward allocable to a member for a taxable
year equals the member’s disallowed BIE
carryforward from that year divided by
the consolidated group’s disallowed BIE
carryforwards from that year.
(iii) Amount of foreign related BIE
carryforward status allocable to a mem-
ber. The amount of foreign related BIE
carryforward status that is allocated to a
member equals the group’s foreign related
BIE carryforward from that year multi-
plied by the percentage of disallowed BIE
carryforward allocable to the member (as
defined in paragraph (c)(5)(ii)(B) of this
section).
(iv) Treatment of amounts as having
unrelated BIE carryforward status. If a
member’s disallowed BIE carryforward
for a year exceeds the amount of domestic
related BIE carryforward status and for-
eign related BIE carryforward status that
is allocated to the member pursuant to
paragraphs (c)(5)(ii) and (iii) of this sec-
tion, respectively, the excess carryforward
amount is treated as from payments or ac-
cruals to an unrelated party.
(v) Coordination with section 381. If
a disallowed BIE carryforward is allo-
cated a status as a domestic related BIE
carryforward, foreign related BIE carry-
forward, or unrelated BIE carryforward
under the allocation rule of paragraph (c)
(5) of this section, the acquiring corpo-
ration in a transaction described in sec-
tion 381(a) will succeed to and take into
account the allocated status of the carry-
forward for purposes of section 59A. See
§1.381(c)(20)-1.
(6) Member deconsolidates from a con-
solidated group—(i) General rule. When
a member deconsolidates from a group
(the original group), the member’s disal-

December 23, 2019 1500 Bulletin No. 2019–52
lowed BIE carryforwards retain their allo-
cated status, pursuant to paragraph (c)(5)
of this section, as a domestic related BIE
carryforward, foreign related BIE carry-
forward, or unrelated BIE carryforward
(as applicable). Following the member’s
deconsolidation, the status of the disal-
lowed BIE carryforwards of the remaining
members is not redetermined.
(ii) Gross receipts exception. This
paragraph (c)(6)(ii) applies if the origi-
nal group had insufficient gross receipts
to satisfy the gross receipts test under
§1.59A-2(d) and thus was not an applica-
ble taxpayer in the year in which the de-
consolidating member’s disallowed BIE
carryforward was incurred. If this para-
graph (c)(6)(ii) applies, the deconsolidat-
ing member may determine the status of
its disallowed BIE carryforward from that
year by applying the classification rule of
§1.59A-3(c)(4) solely to the interest pay-
ments or accruals of the deconsolidating
member, rather than by applying §1.1502-
59A(c)(3).
(iii) Failure to substantiate. If the de-
consolidating member fails to substantiate
a disallowed BIE carryforward as a do-
mestic related BIE carryforward, foreign
related BIE carryforward, or unrelated
BIE carryforward, then the disallowed
BIE carryforward is treated as a foreign
related BIE carryforward.
(7) Corporation joins a consolidated
group. If a corporation joins a consol-
idated group (the acquiring group), and
that corporation was allocated a domestic
related BIE carryforward status, foreign
related BIE carryforward status, or un-
related BIE carryforward status pursuant
to paragraph (c)(5) of this section from
another consolidated group (the original
group), or separately has a disallowed
BIE carryforward that is classified as
from payments or accruals to a domes-
tic related party, foreign related party, or
unrelated party, the status of the carryfor-
ward is taken into account in determin-
ing the acquiring group’s base erosion
tax benefit when the corporation’s disal-
lowed BIE carryforward is absorbed.
(d) Allocation of the base erosion min-
imum tax amount to members of the con-
solidated group. For rules regarding the
allocation of the base erosion minimum
tax amount, see section 1552. Allocations
under section 1552 take into account the
classification and allocation provisions of
paragraphs (c)(3) through (5) of this sec-
tion.
(e) [Reserved].
(f) Definitions. The following defini-
tions apply for purposes of this section –
(1) Aggregate current year BIE. The
consolidated group’s aggregate current
year BIE is the aggregate of all members’
current year BIE.
(2) Aggregate current year BIE deduc-
tion. The consolidated group’s aggregate
current year BIE deduction is the aggre-
gate of all members’ current year BIE de-
ductions.
(3) Applicable taxpayer. The term ap-
plicable taxpayer has the meaning provid-
ed in §1.59A-2(b).
(4) Base erosion minimum tax amount.
The consolidated group’s base erosion
minimum tax amount is the tax imposed
under section 59A.
(5) Base erosion tax benefit. The term
base erosion tax benefit has the meaning
provided in §1.59A-3(c)(1).
(6) Business interest expense. The term
business interest expense, with respect to a
member and a taxable year, has the mean-
ing provided in §1.163(j)-1(b)(2), and
with respect to a consolidated group and a
taxable year, has the meaning provided in
§1.163(j)-4(d)(2)(iii).
(7) Consolidated group’s disallowed
BIE carryforwards. The term consolidat-
ed group’s disallowed BIE carryforwards
has the meaning provided in §1.163(j)-
5(b)(3)(i).
(8) Current year BIE. A member’s cur-
rent year BIE is the member’s business in-
terest expense that would be deductible in
the current taxable year without regard to
section 163(j) and that is not a disallowed
business interest expense carryforward
from a prior taxable year.
(9) Current year BIE deduction. A
member’s current year BIE deduction is
the member’s current year BIE that is per-
mitted as a deduction in the taxable year.
(10) Domestic related BIE carryfor-
ward. The consolidated group’s domestic
related BIE carryforward for any taxable
year is the excess of the group’s domestic
related current year BIE over the group’s
domestic related current year BIE deduc-
tion (if any).
(11) Domestic related current year
BIE. The consolidated group’s domestic
related current year BIE for any taxable
year is the consolidated group’s aggregate
current year BIE paid or accrued to a do-
mestic related party.
(12) Domestic related current year BIE
deduction. The consolidated group’s do-
mestic related current year BIE deduction
for any taxable year is the portion of the
group’s aggregate current year BIE de-
duction classified as from interest paid or
accrued to a domestic related party under
paragraph (c)(3) of this section.
(13) Domestic related party. A do-
mestic related party is a related party
that is not a foreign related party and is
not a member of the same consolidated
group.
(14) Disallowed BIE carryforward.
The term disallowed BIE carryforward
has the meaning provided in §1.163(j)-
1(b)(9).
(15) Foreign related BIE carryfor-
ward. The consolidated group’s foreign
related BIE carryforward for any taxable
year, is the excess of the group’s foreign
related current year BIE over the group’s
foreign related current year BIE deduction
(if any).
(16) Foreign related current year BIE.
The consolidated group’s foreign related
current year BIE for any taxable year is
the consolidated group’s aggregate current
year BIE paid or accrued to a foreign re-
lated party.
(17) Foreign related current year BIE
deduction. The consolidated group’s for-
eign related current year BIE deduction
for any taxable year is the portion of the
consolidated group’s aggregate current
year BIE deduction classified as from in-
terest paid or accrued to a foreign related
party under paragraph (c)(3) of this sec-
tion.
(18) Foreign related party. A foreign
related party has the meaning provided in
§1.59A-1(b)(12).
(19) Related party. The term relat-
ed party has the meaning provided in
§1.59A-1(b)(17), but excludes members
of the same consolidated group.
(20) Section 163(j) interest deduction.
The term section 163(j) interest deduction
means, with respect to a taxable year, the
amount of the consolidated group’s busi-
ness interest expense permitted as a de-
duction pursuant to §1.163(j)-5(b)(3) in
the taxable year.

Bulletin No. 2019–52 1501 December 23, 2019
(21) Section 163(j) limitation. The term
section 163(j) limitation has the meaning
provided in §1.163(j)-1(b)(31).
(22) Unrelated BIE carryforward. The
consolidated group’s unrelated BIE carry-
forward for any taxable year is the excess
of the group’s unrelated current year BIE
over the group’s unrelated current year
BIE deduction.
(23) Unrelated current year BIE. The
consolidated group’s unrelated current
year BIE for any taxable year is the con-
solidated group’s aggregate current year
BIE paid or accrued to an unrelated party.
(24) Unrelated current year BIE de-
duction. The consolidated group’s unre-
lated current year BIE deduction for any
taxable year is the portion of the group’s
aggregate current year BIE deduction
classified as from interest paid or accrued
to an unrelated party under paragraph (c)
(3) of this section.
(25) Unrelated party. An unrelated
party is a party that is not a related party.
(g) Examples. The following exam-
ples illustrate the general application of
this section. For purposes of the exam-
ples, a foreign corporation (FP) wholly
owns domestic corporation (P), which in
turn wholly owns S1 and S2. P, S1, and
S2 are members of a consolidated group.
The consolidated group is a calendar year
taxpayer.
(1) Example 1: Computation of the consolidat-
ed group’s base erosion minimum tax amount. (i)
The consolidated group is the applicable taxpay-
er—(A) Facts. The members have never engaged
in intercompany transactions. For the 2019 taxable
year, P, S1, and S2 were permitted the following
amounts of deductions (within the meaning of sec-
tion 59A(c)(4)), $2,400x, $1,000x, and $2,600x;
those deductions include base erosion tax benefits
of $180x, $370x, and $230x. The group’s consoli-
dated taxable income for the year is $150x. In ad-
dition, the group satisfies the gross receipts test in
§1.59A-2(d).
(B) Analysis. Pursuant to paragraph (b) of this
section, the receipts and deductions of P, S1, and
S2 are aggregated for purposes of making the com-
putations under section 59A. The group’s base ero-
sion percentage is 13% (($180x + $370x + $230x)/
($2,400x + $1,000x + $2,600x)). The consolidated
group is an applicable taxpayer under §1.59A-2(b)
because the group satisfies the gross receipts test and
the group’s base erosion percentage (13%) is higher
than 3%. The consolidated group’s modified taxable
income is computed by adding back the members’
base erosion tax benefits (and, when the consolidated
group has consolidated net operating loss available
for deduction, the consolidated net operating loss
allowed multiplied by the base erosion percentage)
to the consolidated taxable income, $930x ($150x +
$180x + $370x + $230x). The group’s base erosion
minimum tax amount is then computed as 10 percent
of the modified taxable income less the regular tax
liability, $61.5x ($930x × 10% - $150x × 21%).
(ii) The consolidated group engages in inter-
company transactions—(A) Facts. The facts are the
same as in paragraph (g)(1)(i)(A) of this section (the
facts in Example 1(i)), except that S1 sold various
inventory items to S2 during 2019. Such items are
depreciable in the hands of S2 (but would not have
been depreciable in the hands of S1) and continued
to be owned by S2 during 2019.
(B) Analysis. The result is the same as paragraph
(g)(1)(i)(A) of this section (the facts in Example
1(i)). Pursuant to paragraph (b)(2) of this section,
items resulting from the intercompany sale (for ex-
ample, gross receipts, depreciation deductions) are
not taken into account in computing the group’s
gross receipts under §1.59A-2(d) and base erosion
percentage under §1.59A-2(e)(3).
(2) Example 2: Business interest expense sub-
ject to section 163(j) and the group’s domestic re-
lated current year BIE and foreign related current
year BIE for the year equals its section 163(j) lim-
itation—(i) Facts. During the current year (Year
1), P incurred $150x of business interest expense to
domestic related parties; S1 incurred $150x of busi-
ness interest expense to foreign related parties; and
S2 incurred $150x of business interest expense to
unrelated parties. The group’s section 163(j) limita-
tion for the year is $300x. After applying the rules
in §1.163(j)-5(b)(3), the group deducts $150x of P’s
Year 1 business interest expense, and $75x each of
S1 and S2’s Year 1 business interest expense. As-
sume the group is an applicable taxpayer for purpos-
es of section 59A.
(ii) Analysis—(A) Application of the absorption
rule in paragraph (c)(2) of this section. Following
the rules in section 163(j), the group’s section 163(j)
interest deduction for Year 1 is $300x, and the entire
amount is from members’ Year 1 business interest
expense.
(B) Application of the classification rule in para-
graph (c)(3) of this section. Under paragraph (c)(3)
of this section, the group’s aggregate current year
BIE deduction of $300x is first classified as pay-
ments or accruals to related parties (pro-rata among
domestic related parties and foreign related parties),
and second as payments or accruals to unrelated par-
ties. For Year 1, the group has $150x of domestic re-
lated current year BIE and $150x of foreign related
current year BIE, and the group’s aggregate current
year BIE deduction will be classified equally among
the related party expenses. Therefore, $150x of the
group’s deduction is classified as domestic related
current year BIE deduction and $150x is classified as
a foreign related current year BIE deduction.
(C) Application of the allocation rule in para-
graph (c)(4) of this section. After the application of
the classification rule in paragraph (c)(3) of this sec-
tion, the group has $150x each of domestic related
current year BIE deduction and foreign related cur-
rent year BIE deduction from the group’s aggregate
current year BIE in Year 1. The domestic related cur-
rent year BIE deduction and foreign related current
year BIE deduction will be allocated to P, S1, and
S2 based on each member’s deduction of its Year 1
business interest expense.
(1) Allocations to P. The percentage of current
year BIE deduction attributable to P is 50% (P’s
deduction of its Year 1 current year BIE, $150x,
divided by the group’s aggregate current year BIE
deduction for Year 1, $300x). Thus, the amount of
domestic related current year BIE deduction status
allocated to P is $75x (the group’s domestic related
current year BIE deduction, $150x, multiplied by the
percentage of current year BIE deduction allocable
to P, 50%); and the amount of foreign related current
year BIE deduction status allocated to P is $75x (the
group’s foreign related current year BIE deduction,
$150x, multiplied by the percentage of current year
BIE deduction allocable to P, 50%).
(2) Allocations to S1 and S2. The percentage of
current year BIE deduction attributable to S1 is 25%
(S1’s deduction of its Year 1 current year BIE, $75x,
divided by the group’s aggregate current year BIE
deduction for Year 1, $300x). Thus, the amount of
domestic related current year BIE deduction status
allocated to S1 is $37.5x (the group’s domestic relat-
ed current year BIE deduction, $150x, multiplied by
the percentage of current year BIE deduction alloca-
ble to S1, 25%); and the amount of foreign related
current year BIE deduction status allocated to S1 is
$37.5x (the group’s foreign related current year BIE
deduction, $150x, multiplied by the percentage of
current year BIE deduction allocable to S1, 25%).
Because S2 also deducted $75 of its Year 1 current
year BIE, S2’s deductions are allocated the same
pro-rata status as those of S1 under this paragraph
(f)(2)(ii)(C)(2).
(D) Application of the allocation rule in para-
graph (c)(5) of this section. Although the group
will have disallowed BIE carryforwards after Year
1 (the group’s aggregate current year BIE of $450x
($150x + $150x + $150x) exceeds the section 163(j)
limitation of $300x), all of the domestic related cur-
rent year BIE and foreign related current year BIE in
Year 1 has been taken into account pursuant to the
classification rule in paragraph (c)(3) of this section.
Thus, under paragraph (c)(5)(iv) of this section, each
member’s disallowed BIE carryforward is treated as
from payments or accruals to unrelated parties.
(3) Example 3: Business interest expense subject
to section 163(j)—(i) The group’s domestic related
current year BIE and foreign related current year
BIE for the year exceeds its section 163(j) limitation.
(A) Facts. During the current year (Year 1), P in-
curred $60x of business interest expense to domestic
related parties; S1 incurred $40x of business interest
expense to foreign related parties; and S2 incurred
$80x of business interest expense to unrelated par-
ties. The group’s section 163(j) limitation for the
year is $60x. After applying the rules in §1.163(j)-
5(b)(3), the group deducts $20x each of P, S1, and
S2’s current year business interest expense. Assume
the group is an applicable taxpayer for purposes of
section 59A.
(B) Analysis—(1) Application of the absorption
rule in paragraph (c)(2) of this section. Following
the rules in section 163(j), the group’s section 163(j)
interest deduction is $60x, and the entire amount is
from members’ Year 1 business interest expense.
(2) Application of the classification rule in
paragraph (c)(3) of this section. Under paragraph
(c)(3) of this section, the group’s $60x of aggre-
gate current year BIE deduction is first classified

December 23, 2019 1502 Bulletin No. 2019–52
as payments or accruals to related parties (pro-rata
among domestic related parties and foreign related
parties), and second as payments or accruals from
unrelated parties. The group’s total related party in-
terest expense in Year 1, $100x (sum of the group’s
Year 1 domestic related current year BIE, $60x, and
the group’s Year 1 foreign related current year BIE,
$40x), exceeds the group’s aggregate current year
BIE deduction of $60x. Thus, the group’s aggre-
gate current year BIE deduction will be classified,
pro-rata, as from payments or accruals to domes-
tic related parties and foreign related parties. Of
the group’s aggregate current year BIE deduction
in Year 1, $36x is classified as a domestic related
current year BIE deduction (the group’s aggregate
current year BIE deduction, $60x, multiplied by the
ratio of domestic related current year BIE over the
group’s total Year 1 related party interest expense
($60x / ($60x+$40x))); and $24x of the group’s ag-
gregate current year BIE deduction is classified as
a foreign related current year BIE deduction (the
group’s section 163(j) interest deduction, $60x,
multiplied by the ratio of foreign related current
year BIE over the group’s total Year 1 related party
interest expense ($40x / ($60x+$40x))).
(3) Application of the allocation rule in para-
graph (c)(4) of this section. After the application of
the classification rule in paragraph (c)(3) of this sec-
tion, the group has $36x of domestic related current
year BIE deduction and $24x of foreign related cur-
rent year BIE deduction from the group’s aggregate
current year BIE in Year 1. The domestic related cur-
rent year BIE deduction and foreign related current
year BIE deduction will be allocated to P, S1, and S2
based on each member’s current year BIE deduction
in Year 1.
(i) Allocation of the group’s domestic related
current year BIE deduction status. Because each
member is deducting $20x of its Year 1 business in-
terest expense, all three members have the same per-
centage of current year BIE deduction attributable to
them. The percentage of current year BIE deduction
attributable to each of P, S1, and S2 is 33.33% (each
member’s current year BIE deduction in Year 1,
$20x, divided by the group’s aggregate current year
BIE deduction for Year 1, $60x). Thus, the amount
of domestic related current year BIE deduction sta-
tus allocable to each member is $12x (the group’s
domestic related current year BIE deduction, $36x,
multiplied by the percentage of current year BIE de-
duction allocable to each member, 33.33%).
(ii) Allocations of the group’s foreign related
current year BIE deduction status. The amount of
foreign related current year BIE deduction status al-
locable to each member is $8x (the group’s foreign
related current year BIE deduction, $24x, multiplied
by the percentage of current year BIE deduction allo-
cable to each member, 33.33%, as computed earlier
in paragraph (f)(3) of this section (Example 3).
(4) Application of the allocation rule in para-
graph (c)(5) of this section. In Year 1 the group has
$60x of domestic related current year BIE, of which
$36x is deducted in the year (by operation of the
classification rule). Therefore, the group has $24x
of domestic related BIE carryforward. Similarly,
the group has $40x of foreign related current year
BIE in Year 1, of which $24x is deducted in the year.
Therefore, the group has $16x of foreign related BIE
carryforward. The $24x domestic related BIE carry-
forward status and $16x foreign related BIE carry-
forward status will be allocated to P, S1, and S2 in
proportion to the amount of each member’s disal-
lowed BIE carryforward.
(i) Allocation to P. The percentage of disallowed
BIE carryforward allocable to P is 33.33% (P’s Year
1 disallowed BIE carryforward, $40x ($60x - $20x),
divided by the group’s Year 1 disallowed BIE carry-
forward, $120x ($60x + $40x + 80x - $60x)). Thus,
the amount of domestic related BIE carryforward
status allocated to P is $8x (the group’s domestic
related BIE carryforward, $24x, multiplied by the
percentage of disallowed BIE carryforward alloca-
ble to P, 33.33%); and the amount of foreign related
BIE carryforward status allocated to P is $5.33x (the
group’s foreign related BIE carryforward, $16x, mul-
tiplied by the percentage of disallowed BIE carryfor-
ward allocable to P, 33.33%). Under paragraph (c)(5)
(iv) of this section, P’s disallowed BIE carryforward
that has not been allocated a status as either a do-
mestic related BIE carryforward or a foreign related
BIE carryforward will be treated as interest paid or
accrued to an unrelated party. Therefore, $26.67x
($40x P’s disallowed BIE carryforward - $8x do-
mestic related BIE carryforward status allocated to
P - $5.33x foreign related BIE carryforward status
allocated to P) is treated as interest paid or accrued
to an unrelated party.
(ii) Allocation to S1. The percentage of disal-
lowed BIE carryforward allocable to S1 is 16.67%
(S1’s Year 1 disallowed BIE carryforward, $20x
($40x - $20x), divided by the group’s Year 1 dis-
allowed BIE carryforward, $120x ($60x + $40x +
80x - $60x). Thus, the amount of domestic related
BIE carryforward status allocated to S1 is $4x (the
group’s domestic related BIE carryforward, $24x,
multiplied by the percentage of disallowed BIE car-
ryforward allocable to S1, 16.67%); and the amount
of foreign related BIE carryforward status allocated
to S1 is $2.67x (the group’s foreign related BIE car-
ryforward, $16x, multiplied by the percentage of dis-
allowed BIE carryforward allocable to S1, 16.67%).
Under paragraph (c)(5)(iv) of this section, S1’s
disallowed BIE that has not been allocated a status
as either a domestic related BIE carryforward or a
foreign related BIE carryforward will be treated as
interest paid or accrued to an unrelated party. There-
fore, $13.33x ($20x S1’s disallowed BIE carryfor-
ward - $4x domestic related BIE carryforward status
allocated to S1 - $2.67x foreign related BIE carryfor-
ward status allocated to S1) is treated as interest paid
or accrued to an unrelated party.
(iii) Allocation to S2. The percentage of dis-
allowed BIE carryforward allocable to S2 is 50%
(S2’s Year 1 disallowed BIE carryforward, $60x
($80x-$20x), divided by the group’s Year 1 dis-
allowed BIE carryforward, $120x ($60x+$40x-
+80x-$60x). Thus, the amount of domestic related
BIE carryforward status allocated to S2 is $12x (the
group’s domestic related BIE carryforward, $24x,
multiplied by the percentage of disallowed BIE car-
ryforward allocable to S2, 50%); and the amount of
foreign related BIE carryforward status allocated
to S2 is $8x (the group’s foreign related BIE car-
ryforward, $16x, multiplied by the percentage of
disallowed BIE carryforward allocable to S2, 50%).
Under paragraph (c)(5)(iv) of this section, S2’s disal-
lowed BIE that has not been allocated a status as ei-
ther a domestic related BIE carryforward or a foreign
related BIE carryforward will be treated as interest
paid or accrued to an unrelated party. Therefore,
$40x ($60x S2’s disallowed BIE carryforward - $12x
domestic related BIE carryforward status allocated
to S2 - $8x foreign related BIE carryforward status
allocated to S2) is treated as interest paid or accrued
to an unrelated party.
(ii) The group deducting its disallowed BIE car-
ryforwards—(A) Facts. The facts are the same as in
paragraph (g)(3)(i)(A) of this section (the facts in
Example 3(i)), and in addition, none of the members
incurs any business interest expense in Year 2. The
group’s section 163(j) limitation for Year 2 is $30x.
(B) Analysis—(1) Application of the absorption
rule in paragraph (c)(2) of this section. Following
the rules in section 163(j), each member of the group
is deducting $10x of its disallowed BIE carryforward
from Year 1. Therefore, the group’s section 163(j)
deduction for Year 2 is $30x.
(2) Application of the classification rule in para-
graph (c)(3) of this section. Under paragraph (c)(3)
(iv) of this section, to the extent members are deduct-
ing their Year 1 disallowed BIE carryforward in Year
2, the classification rule will apply to the deduction
in Year 2 after the allocation rule in paragraph (c)
(5) of this section has allocated the related and un-
related party status to the member’s disallowed BIE
carryforward in Year 1. The allocation required un-
der paragraph (c)(5) of this section is described in
paragraph (f)(3)(i)(B)(4) of this section.
(i) Use of P’s allocated domestic related BIE
carryforward status and foreign related BIE carry-
forward status. P has $40x of Year 1 disallowed BIE
carryforward, and P was allocated $8x of domestic
related BIE carryforward status and $5.33x of for-
eign related BIE carryforward status. In Year 2, P
deducts $10x of its Year 1 disallowed BIE carryfor-
ward. Under the classification rule of paragraph (c)
(3) of this section, P is treated as deducting pro-ra-
ta from its allocated status of domestic related BIE
carryforward and foreign related BIE carryforward.
Therefore, P is treated as deducting $6x of its allocat-
ed domestic related BIE carryforward ($10x × $8x
/ ($8x + $5.33x)), and $4x of its allocated foreign
related BIE carryforward ($10x × $5.33x / $8x +
$5.33x)). After Year 2, P has remaining $30x of Year
1 disallowed BIE carryforward, of which $2x has a
status of domestic related BIE carryforward, $1.33x
has the status of foreign related BIE carryforward,
and $26.67x of interest treated as paid or accrued to
unrelated parties.
(ii) Use of S1’s allocated domestic related BIE
carryforward status and foreign related BIE carry-
forward status. S1 has $20x of Year 1 disallowed
BIE carryforward, and S1 was allocated $4x of do-
mestic related BIE carryforward status and $2.67x of
foreign related BIE carryforward status. In Year 2,
S2 deducts $10x of its Year 1 disallowed BIE carry-
forward. Because S2’s deduction of its Year 1 disal-
lowed BIE carryforward, $10x, exceeds its allocated
domestic related BIE carryforward status ($4x) and
foreign related BIE carryforward status ($2.67x), all
of the allocated related party status are used up. After
Year 2, all of S1’s Year 1 disallowed BIE carryfor-
ward, $10x, is treated as interest paid or accrued to
an unrelated party.

Bulletin No. 2019–52 1503 December 23, 2019
(iii) Use of S2’s allocated domestic related BIE
carryforward status and foreign related BIE carry-
forward status. S2 has $60x of Year 1 disallowed
BIE carryforward, and S2 was allocated $12x of do-
mestic related BIE carryforward status and $8x of
foreign related BIE carryforward status. In Year 2,
S2 deducts $10x of its Year 1 disallowed BIE carry-
forward. Under the classification rule of paragraph
(c)(3) of this section, S2 is treated as deducting $6x
of its allocated domestic related BIE carryforward
($10x × $12x / ($12x + $8x)), and $4x of its allocat-
ed foreign related BIE carryforward ($10x × $8x /
$8x + $12x)). After Year 2, P has remaining $50x of
Year 1 disallowed BIE carryforward, of which $6x
has a status of domestic related BIE carryforward,
$4x has the status of foreign related BIE carryfor-
ward, and $40x of interest treated as paid or accrued
to unrelated parties.
(h) Applicability date. This section
applies to taxable years for which the
original consolidated Federal income tax
return is due (without extensions) after
December 6, 2019.
Par. 9. Section 1.1502-100 is amended
by revising paragraph (b) to read as fol-
lows:
§1.1502-100 Corporations exempt from
tax.
* * * * *
(b) The tax liability for a consolidated
return year of an exempt group is the tax
imposed by section 511(a) on the consol-
idated unrelated taxable income for the
year (determined under paragraph (c) of
this section), and by allowing the credits
provided in §1.1502-2(b).
* * * * *
Par. 10. Section 1.6038A-1 is amended
by
1. Re-designating paragraph (n)(2) as
paragraph (n)(2)(i) and adding a sub-
ject heading for newly re-designated
paragraph (n)(2)(i).
2. Adding a sentence to the end of new-
ly re-designated paragraph (n)(2)(i).
3. Adding paragraph (n)(2)(ii).
4. Revising the last sentence of para-
graph (n)(3).
The additions and revision read as fol-
lows:
§1.6038A-1 General requirements and
definitions.
* * * * *
(n) * * *
(2) Section 1.6038A-2—(i) In general.
* * * Section 1.6038A-2(a)(3), (b)(6), and
(b)(7) apply to taxable years ending on or
after December 17, 2018. However, tax-
payers may apply these final regulations
in their entirety for taxable years ending
before December 17, 2018.
(ii) Transition rule. No penalty under
sections 6038A(d) or 6038C(c) will apply
to a failure solely under §1.6038A-2(a)
(3), (b)(6), or (b)(7) that is corrected by
December 6, 2019.
(3) * * * For taxable years ending on or
before December 31, 2017, see §1.6038A-
4 as contained in 26 CFR part 1 revised as
of April 1, 2018.
* * * * *
Par. 11. Section 1.6038A-2 is amended
by
1. Revising the subject headings for
paragraphs (a) and (a)(1).
2. Revising paragraph (a)(2).
3. Adding paragraph (a)(3).
4. Revising paragraphs (b)(1)(ii), (b)(2)
(iv), and the second sentence of para-
graph (b)(3).
5. Redesignating paragraphs (b)(6)
through (9) as paragraphs (b)(8)
through (11).
6. Adding new paragraphs (b)(6) and
(7).
7. Revising paragraph (c) and the first
sentence of paragraph (d).
8. Removing the language “Paragraph
(b)(8)” from the second sentence of
paragraph (g) and adding the lan-
guage “Paragraph (b)(10)” in its
place.
9. Adding three sentences to the end of
paragraph (g).
The revisions and additions read as fol-
lows:
§1.6038A-2 Requirement of return.
(a) Forms required—(1) Form 5472. *
* *
(2) Reportable transaction. A report-
able transaction is any transaction of the
types listed in paragraphs (b)(3) and (4) of
this section, and, in the case of a reporting
corporation that is an applicable taxpayer,
as defined under §1.59A-2(b), any other
arrangement that, to prevent avoidance of
the purposes of section 59A, is identified
on Form 5472 as a reportable transaction.
However, except as the Secretary may
prescribe otherwise for an applicable tax-
payer, the transaction is not a reportable
transaction if neither party to the transac-
tion is a United States person as defined in
section 7701(a)(30) (which, for purposes
of section 6038A, includes an entity that is
a reporting corporation as a result of being
treated as a corporation under §301.7701-
2(c)(2)(vi) of this chapter) and the trans-
action—
(i) Will not generate in any taxable
year gross income from sources within the
United States or income effectively con-
nected, or treated as effectively connect-
ed, with the conduct of a trade or business
within the United States, and
(ii) Will not generate in any taxable
year any expense, loss, or other deduction
that is allocable or apportionable to such
income.
(3) Form 8991. Each reporting corpo-
ration that is an applicable taxpayer, as
defined under §1.59A-2(b), must make an
annual information return on Form 8991.
The obligation of an applicable taxpayer
to report on Form 8991 does not depend
on applicability of tax under section 59A
or obligation to file Form 5472.
(b) * * *
(1) * * *
(ii) The name, address, and U.S. tax-
payer identification number, if applicable,
of all its direct and indirect foreign share-
holders (for an indirect 25-percent for-
eign shareholder, explain the attribution
of ownership); whether any 25-percent
foreign shareholder is a surrogate foreign
corporation under section 7874(a)(2)(B)
or a member of an expanded affiliated
group as defined in section 7874(c)(1);
each country in which each 25-percent
foreign shareholder files an income tax re-
turn as a resident under the tax laws of that
country; the places where each 25-percent
shareholder conducts its business; and the
country or countries of organization, citi-
zenship, and incorporation of each 25-per-
cent foreign shareholder.
* * * * *
(2) * * *
(iv) The relationship of the reporting
corporation to the related party (including,
to the extent the form may prescribe, any
intermediate relationships).
(3) * * * The total amount of such transac-
tions, as well as the separate amounts for each
type of transaction described below, and, to
the extent the form may prescribe, any further
description, categorization, or listing of trans-

December 23, 2019 1504 Bulletin No. 2019–52
actions within these types, must be reported
on Form 5472, in the manner the form or its
instructions may prescribe. * * *
* * * * *
(6) Compilation of reportable trans-
actions across multiple related parties. A
reporting corporation must, to the extent
and in the manner Form 5472 or its in-
structions may prescribe, include a sched-
ule tabulating information with respect
to related parties for which the reporting
corporation is required to file Forms 5472.
The schedule will not require information
(beyond totaling) that is not required for
the individual Forms 5472. The schedule
may include the following:
(i) The identity and status of the related
parties;
(ii) The reporting corporation’s rela-
tionship to the related parties;
(iii) The reporting corporation’s report-
able transactions with the related parties;
and
(iv) Other items required to be report-
ed on Form 5472.
(7) Information on Form 5472 and
Form 8991 regarding base erosion pay-
ments. If any reporting corporation is
an applicable taxpayer, as defined under
§1.59A-2(b), it must report the informa-
tion required by Form 8991 and by any
Form 5472 it is required to file (including
the information required by their accom-
panying instructions), regarding:
(i) Determination of whether a taxpay-
er is an applicable taxpayer;
(ii) Computation of base erosion min-
imum tax amount, including computation
of regular tax liability as adjusted for pur-
poses of computing base erosion mini-
mum tax amount;
(iii) Computation of modified taxable
income;
(iv) Base erosion tax benefits;
(v) Base erosion percentage calcula-
tion;
(vi) Base erosion payments;
(vii) Amounts with respect to services
as described in §1.59A-3(b)(3)(i), includ-
ing a breakdown of the amount of the total
services cost and any mark-up component;
(viii) Arrangements or transactions de-
scribed in §1.59A-9;
(ix) Any qualified derivative payment,
including:
(A) The aggregate amount of qualified
derivative payments for the taxable year;
and
(B) A representation that all payments
satisfy the requirements of §1.59A-6(b)
(2); and
(x) Any other information necessary to
carry out section 59A.
* * * * *
(c) Method of reporting. All statements
required on or with the Form 5472 or Form
8991 under this section and §1.6038A-
5 must be in the English language. All
amounts required to be reported under
paragraph (b) of this section must be ex-
pressed in United States currency, with a
statement of the exchange rates used, and,
to the extent the forms may require, must
indicate the method by which the amount
of a reportable transaction or item was de-
termined.
(d) * * * A Form 5472 and Form 8991
required under this section must be filed
with the reporting corporation’s income
tax return for the taxable year by the due
date (including extensions) of that return.
* * *
* * * * *
(g) * * * Paragraph (b)(7)(ix) of this
section applies to taxable years beginning
on or after June 7, 2021. Before these fi-
nal regulations are applicable, a taxpayer
will be treated as satisfying the reporting
requirement described in §1.59A-6(b)
(2) only to the extent that it reports the
aggregate amount of qualified derivative
payments on Form 8991. See §1.59A-6(b)
(2)(iv) (transition period for qualified de-
rivative payment reporting).
§1.6038A-4 [Amended].
Par. 12. For each paragraph listed in
the table, remove the language in the “Re-
move” column from wherever it appears
and add in its place the language in the
“Add” column as set forth below and in
paragraph (f), designate Examples 1 and 2
as paragraphs (f)(1) and (2), respectively.
ParagraphRemoveAdd
(a)(1)$10,000$25,000
(a)(3)$10,000$25,000
(d)(1)$10,000$25,000
(d)(4)$10,000$25,000
(f)$10,000$25,000
(f)$30,000$75,000
(f)$90,000$225,000
§1.6655-5 [Amended].
Par. 13. Section 1.6655-5 is amended
in paragraph (e) by designating Examples
1 through 13 as paragraphs (e)(1) through
(13), respectively, and by removing the
language “§1.1502-2(h)” in newly des-
ignated paragraph (e)(10) and adding the
language“§1.1502-1(h)” in its place.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: November 13, 2019.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on De-
cember 2, 2019, 4:15 p.m., and published in the issue
of the Federal Register for December 6, 2019, 84
F.R. 66968)

Bulletin No. 2019–52 1505 December 23, 2019
Part III
2019 Required
Amendments List for
Qualified Retirement Plans
and § 403(b) Retirement
Plans
Notice 2019-64
I. PURPOSE
This notice sets forth the 2019 Re-
quired Amendments List (2019 RA List).
Beginning with the 2019 RA List, all Re-
quired Amendments Lists (RA Lists) will
apply to both individually designed plans
qualified under § 401(a) (qualified indi-
vidually designed plans) and individually
designed plans that satisfy the require-
ments of § 403(b) (§ 403(b) individually
designed plans).
Section 5 of Rev. Proc. 2016-37,
2016-29 I.R.B. 136, provides, generally,
that in the case of a qualified individually
designed plan, the remedial amendment
period for a disqualifying provision aris-
ing as a result of a change in qualification
requirements is extended to the end of
the second calendar year that begins after
the issuance of the RA List on which the
change in qualification requirements ap-
pears. Similarly, section 5 of Rev. Proc.
2019-39, 2019-42 I.R.B. 945, provides
that, with respect to a form defect in a §
403(b) individually designed plan, the re-
medial amendment period arising as a re-
sult of a change in § 403(b) requirements
ends on the last day of the second cal-
endar year that begins after the issuance
of the RA List on which the change in
§ 403(b) requirements appears. Pursuant
to these sections, December 31, 2021,
generally is the last day of the remedial
amendment period with respect to (1) a
disqualifying provision arising as a result
of a change in qualification requirements
that appears on the 2019 RA List and
(2) a form defect arising as a result of a
change in § 403(b) requirements that ap-
pears on the 2019 RA List. In addition,
under section 8.01 of Rev. Proc. 2016-37
and section 6.01 of Rev. Proc. 2019-39,
December 31, 2021, generally is also the
plan amendment deadline for a disqual-
ifying provision arising as a result of a
change in qualification requirements that
appears on the 2019 RA List and for a
form defect arising as a result of a change
in § 403(b) requirements that appears on
the 2019 RA List. Later dates may apply
to a governmental plan (as defined in §
414(d)) pursuant to sections 5.06(3) and
8.01 of Rev. Proc. 2016-37 and sections
5.03(2)(c) and 6.01 of Rev. Proc. 2019-
39. References to qualification require-
ments and to § 403(b) requirements in
Parts III and IV of this notice are referred
to, separately and collectively, as “re-
quirements.”
II. BACKGROUND
Section 401(b) of the Internal Revenue
Code (Code) provides a remedial amend-
ment period during which a plan may be
amended retroactively to comply with the
qualification requirements under § 401(a).
Section 1.401(b)-1 describes the disqual-
ifying provisions that may be amended
retroactively and the remedial amendment
period during which retroactive amend-
ments may be adopted. That regulation
also grants the Commissioner the discre-
tion to designate certain plan provisions as
disqualifying provisions and to extend the
remedial amendment period.
Sections 5.05(3) and 5.06(3) of Rev.
Proc. 2016-37 extend the remedial amend-
ment period for individually designed
plans to correct disqualifying provisions
that arise as a result of a change in qual-
ification requirements. Under section
5.05(3), the remedial amendment period
for a plan that is not a governmental plan
(as defined in § 414(d)) is extended to the
end of the second calendar year that be-
gins after the issuance of the RA List on
which the change in qualification require-
ments appears. Section 5.06(3) provides
a special rule for governmental plans that
may further extend the remedial amend-
ment period in some cases.
Section 8.01 of Rev. Proc. 2016-37
provides that the plan amendment dead-
line with respect to a disqualifying provi-
sion described in section 5 of Rev. Proc.
2016-37 is the date on which the remedial
amendment period ends with respect to
that disqualifying provision.
Section 21.02 of Rev. Proc. 2013-22,
2013-18 I.R.B. 985, establishes a remedial
amendment period that permits an eligible
employer to retroactively correct form de-
fects in its written § 403(b) plan.
Section 3 of Rev. Proc. 2017-18, 2017-
5 I.R.B. 743, provides that the remedial
amendment period for a form defect in a
§ 403(b) plan ends on March 31, 2020.
Thus, this § 403(b) remedial amendment
period applies to form defects first occur-
ring on or before March 31, 2020.
Section 5.01 of Rev. Proc. 2019-39 es-
tablishes a system of recurring remedial
amendment periods for § 403(b) individ-
ually designed plan form defects first oc-
curring after March 31, 2020.
Section 5.03(1)(c) of Rev. Proc. 2019-
39 provides that with respect to a form de-
fect relating to, or integral to, a change in §
403(b) requirements, the remedial amend-
ment period for a § 403(b) individually
designed plan that is not a governmental
plan (as defined in § 414(d)) ends on the
last day of the second calendar year that
begins after the issuance of the RA List on
which the change in requirements appears.
Section 5.03(2)(c) provides a special rule
for governmental plans that could further
extend the remedial amendment period in
some cases.
Section 6.01 of Rev. Proc. 2019-39 pro-
vides that the plan amendment deadline
with respect to a form defect in a § 403(b)
individually designed plan first occurring
after March 31, 2020, is the date on which
the remedial amendment period ends with
respect to that form defect.
Section 7 of Rev. Proc. 2019-39 extends
the § 403(b) remedial amendment period
with respect to form defects first occurring
on or before March 31, 2020, to the later
of (1) March 31, 2020, or (2) the end of
the remedial amendment period provided
under section 5 of Rev. Proc. 2019-39.
Section 9 of Rev. Proc. 2016-37 and
section 8.01 of Rev. Proc. 2019-39 pro-
vide that the Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (IRS) intend to publish
an RA List annually. In general, a change
in qualification requirements will not ap-

December 23, 2019 1506 Bulletin No. 2019–52
pear on an RA List until guidance with
respect to that change (including, in cer-
tain cases, model amendments) has been
provided in regulations or in other guid-
ance published in the Internal Revenue
Bulletin. However, in the discretion of
the Treasury Department and the IRS, a
change in qualification requirements may
be included on an RA List in other circum-
stances, such as in cases in which a stat-
utory change is enacted and the Treasury
Department and the IRS anticipate that no
guidance will be issued.
III. CONTENT AND
ORGANIZATION OF RA LIST
In general, an RA List includes statuto-
ry and administrative changes in require-
ments that are first effective during the
plan year in which the list is published.
1

However, an RA List does not include
guidance issued or legislation enacted af-
ter the list has been prepared and also does
not include:
• Statutory changes in requirements
for which the Treasury Department
and the IRS expect to issue guidance
(which would be included on an RA
List issued in a future year);
• Changes in requirements that permit
(but do not require) optional plan
provisions, in contrast to changes in
requirements that cause existing plan
provisions (which may include op-
tional plan provisions previously ad-
opted) to become disqualifying provi-
sions or § 403(b) form defects;
2
or
• Changes in the tax laws affecting
qualified individually designed plans
or § 403(b) individually designed
plans that do not change the require-
ments under § 401(a) or § 403(b)
(such as changes to the tax treatment
of plan distributions, or changes to
the funding requirements for quali-
fied individually designed plans).
The RA List is divided into two parts.
Part A covers changes in requirements that
generally would require an amendment to
most plans or to most plans of the type af-
fected by the change.
Part B includes changes in requirements
that the Treasury Department and the IRS
anticipate will not require amendments to
most plans, but might require an amend-
ment because of an unusual plan provi-
sion in a particular plan. For example, if
a change affects a particular requirement
that most plans incorporate by reference,
Part B would include the change because
a particular plan might not incorporate the
requirement by reference and, thus, might
include language inconsistent with the
change.
Annual, monthly, or other periodic
changes to (1) the various dollar limits
that are adjusted for cost of living increas-
es as provided in § 415(d) or other Code
provisions, (2) the spot segment rates used
to determine the applicable interest rate
under § 417(e)(3), and (3) the applica-
ble mortality table under § 417(e)(3), are
treated as included on the RA List for the
year in which such changes are effective
even though they are not directly refer-
enced on that RA List. The Treasury De-
partment and the IRS anticipate that few
plans have language that will need to be
amended on account of these changes.
The fact that a change in a requirement
is included on the RA List does not mean
that a plan must be amended as a result
of that change. Each plan sponsor must
determine whether a particular change in
a requirement requires an amendment to
its plan.
IV. 2019 REQUIRED AMENDMENTS
LIST
Part A. Changes in requirements that
generally would require an amendment
to most plans or to most plans of the type
affected by the change.
• Final regulations relating to hard-
ship distributions (84 FR 49651
(Sept. 23, 2019)). Plans (includ-
ing § 403(b) individually designed
plans) that (1) provide for a suspen-
sion of an employee’s elective defer-
rals or employee contributions as a
condition for obtaining a hardship
distribution of elective deferrals or
(2) do not require a representation
from an employee who requests a
hardship distribution that he or she
has insufficient cash or other liquid
assets reasonably available to satisfy
the need, must be amended as neces-
sary to eliminate the suspension and
provide for the representation, for
hardship distributions made on or af-
ter January 1, 2020.
Note: The prohibition on a qualified
plan’s or 403(b) plan’s suspension of
elective deferrals and employee con-
tributions as a condition for obtaining
a hardship distribution of elective
deferrals applies not only to the plan
making the hardship distribution but
also to all of the employer’s other
qualified plans, § 403(b) plans (and, if
the employer is an eligible employer
described in § 457(e)(1)(A), eligible
deferred compensation plans, as de-
scribed in § 457(b)).
• Final regulations regarding cash
balance/hybrid defined benefit plans
(79 FR 56442 (Sept. 19, 2014), 80
FR 70680 (Nov. 16, 2015)). Collec-
tively bargained cash balance/hybrid
defined benefit plans maintained pur-
suant to one or more collective bar-
gaining agreements ratified on or be-
fore November 13, 2015, and which
constitute collectively bargained
plans under § 1.436-1(a)(5)(ii)(B),
must be amended to the extent neces-
sary to comply with those portions of
the regulations regarding market rate
of return and other requirements that
first became applicable to the plan for
the plan year beginning on or after
the later of: (1) January 1, 2017, and
(2) the earlier of (a) January 1, 2019,
and (b) the date on which the last of
those collective bargaining agree-
ments terminates (determined with-
out regard to any extension thereof
on or after November 13, 2015). See
§ 1.411(b)(5)-1(f)(2)(i)(B)(3).
Note: The relief from the anti-cutback
requirements of § 411(d)(6) provided
in § 1.411(b)(5)-1(e)(3)(vi) applies
only to plan amendments that are
1
RA Lists also may include changes in requirements that were first effective in a prior year that were not included on a prior RA List under certain circumstances, such as changes in require-
ments that were issued or enacted after the prior year’s RA List was prepared.
2
The remedial amendment period and plan amendment deadline for discretionary changes to the terms of a qualified individually designed plan are governed by sections 5.05(2), 5.06(2),
and 8.02 of Rev. Proc. 2016-37. The remedial amendment period and plan amendment deadline for discretionary changes to the terms of a § 403(b) individually designed plan are governed
by sections 5.03(1)(b), 5.03(2)(b), and 6.02 of Rev. Proc. 2019-39. These deadlines for discretionary changes are not affected by the inclusion of a change in requirements on an RA List.

Bulletin No. 2019–52 1507 December 23, 2019
adopted before the effective date of
those regulations.
See also Notice 2016-67, 2016-47
I.R.B. 748, which addresses the ap-
plicability of the market rate of return
rules to implicit interest pension equi-
ty plans.
Part B. Other changes in requirements
that may require an amendment.
• None
V. DRAFTING INFORMATION
The principal author of this notice is
Angelique Carrington of the Office of
Associate Chief Counsel (Employee Ben-
efits, Exempt Organizations, and Em-
ployment Taxes). For further information
regarding this notice, contact Ms. Car-
rington at (202) 317-4148 (not a toll-free
number).
Foreign Currency Guidance
under Section 987
Notice 2019-65
SECTION 1. PURPOSE
This Notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to amend the regulations un-
der section 987 to defer the applicability
date of the final regulations under section
987, as well as certain related final and
temporary regulations, by one additional
year.
The final regulations under section
987 were identified in Notice 2017-38,
2017-30 I.R.B. 147 (July 24, 2017), as
significant tax regulations requiring addi-
tional review pursuant to Executive Order
13789. As part of that review, the Treasury
Department and the IRS are considering
changes to the final regulations that would
allow taxpayers to elect to apply alterna-
tive rules for transitioning to the final reg-
ulations and alternative rules for determin-
ing section 987 gain or loss as discussed
in the Second Report to the President on
Identifying and Reducing Tax Regulatory
Burdens published on October 16, 2017
(82 Fed. Reg. 48013).
SECTION 2. BACKGROUND
.01 Final and Temporary Regulations.
(1) The 2016 Final Regulations and the
Temporary Regulations.
On December 8, 2016, the Trea-
sury Department and the IRS published
Treasury Decision 9794 (81 Fed. Reg.
88806), which contains final regula-
tions relating to the determination of
the taxable income or loss of a taxpayer
with respect to a qualified business unit
(QBU) subject to section 987 (a section
987 QBU); the timing, amount, charac-
ter, and source of any section 987 gain
or loss; and amendments to existing reg-
ulations under sections 861, 985, 988 and
989 (the 2016 final regulations). On that
same date, the Treasury Department and
the IRS also published Treasury Decision
9795 (81 Fed. Reg. 88854), which con-
tains temporary regulations under section
987, including the following: rules relat-
ing to the recognition and deferral of for-
eign currency gain or loss under section
987 in connection with certain QBU ter-
minations and certain other transactions;
an annual deemed termination election
for a section 987 QBU; an elective meth-
od, available to taxpayers that make the
annual deemed termination election, for
translating all items of income or loss
with respect to a section 987 QBU at
the yearly average exchange rate; rules
regarding the treatment of section 988
transactions of a section 987 QBU; rules
regarding QBUs with the U.S. dollar as
their functional currency; rules regarding
combinations and separations of section
987 QBUs; rules regarding the trans-
lation of income used to pay creditable
foreign income taxes; and rules regard-
ing the allocation of assets and liabilities
of section 987 aggregate partnerships
(the temporary section 987 regulations).
Treasury Decision 9795 also contains
temporary regulations under section 988
requiring the deferral of certain section
988 loss that arises with respect to re-
lated-party loans (the temporary section
988 regulations, and with the temporary
section 987 regulations, the temporary
regulations). The Treasury Department
and the IRS concurrently published a no-
tice of proposed rulemaking by cross-ref-
erence to the temporary regulations. See
REG-128276-12, 81 Fed. Reg. 88882
(December 8, 2016).
(2) Deferral Notices.
On October 16, 2017, the Treasury
Department and the IRS published No-
tice 2017-57, 2017-42 I.R.B. 325 (Oc-
tober 16, 2017), announcing that future
guidance would defer the applicability
date of the 2016 final regulations and cer-
tain of the temporary regulations by one
year. On June 25, 2018, the Treasury De-
partment and the IRS published Notice
2018-57, 2018-26 I.R.B. 774 (June 25,
2018), announcing that future guidance
would defer the applicability date of the
2016 final regulations and certain of the
temporary regulations by one additional
year.
(3) The 2019 Final Regulations.
On May 13, 2019, the Treasury Depart-
ment and the IRS published Treasury De-
cision 9857 (84 Fed. Reg. 20790), which
finalized the temporary regulations deal-
ing with combinations and separations of
section 987 QBUs and the recognition and
deferral of foreign currency gain or loss
under section 987 in connection with cer-
tain QBU terminations and certain other
transactions (the 2019 final regulations).
Treasury Decision 9857 also withdrew
temporary regulations under §1.987-7T
regarding the allocation of assets and li-
abilities of certain partnerships. All other
portions of the temporary regulations re-
main outstanding.
.02 Applicability Dates.
(1) The 2016 Final Regulations.
The 2016 final regulations were effec-
tive on December 7, 2016. Dates of appli-
cability for §§1.987-1 through 1.987-10
are provided in §1.987-11(a). Specifical-
ly, §1.987-11(a) states that, except as oth-
erwise provided in §1.987-11, §§1.987-1
through 1.987-10 apply to taxable years
beginning on or after one year after the
first day of the first taxable year follow-
ing December 7, 2016. Corresponding
provisions under sections 861, 985, 988,
and 989 also apply to taxable years be-

December 23, 2019 1508 Bulletin No. 2019–52
ginning on or after one year after the first
day of the first taxable year following
December 7, 2016. See §§1.861-9T(g)(2)
(vi); 1.985-5(g); 1.988-1(i); 1.988-4(b)
(2)(ii); 1.989(a)-1(b)(4); 1.989(a)-1(d)
(4). Following the amendments to such
regulations described in Notice 2017-57
and Notice 2018-57, the 2016 final reg-
ulations would apply to taxable years
beginning on or after the first day of the
first taxable year following December 7,
2019.
(2) The Temporary Regulations.
Similarly, §§1.987-1T (other than
§§1.987-1T(g)(2)(i)(B) and (g)(3)(i)(H)),
1.987-3T, 1.987-6T, 1.988-1T, and 1.988-
2T(i) (the related temporary regulations)
apply to taxable years beginning on or af-
ter one year after the first day of the first
taxable year following December 7, 2016.
See §§1.987-1T(h); 1.987-3T(f); 1.987-
6T(d); 1.988-1T(j); 1.988-2T(j). Follow-
ing the amendments described in Notice
2017-57 and Notice 2018-57, the related
temporary regulations and the portions
of the notice of proposed rulemaking that
cross-referenced the related temporary
regulations (the related proposed regula-
tions) would apply to taxable years begin-
ning on or after the first day of the first
taxable year following December 7, 2019.
All other provisions in the temporary reg-
ulations are subject to different applicabil-
ity dates. See §§1.987-1T(h) (concerning
§§1.987-1T(g)(2)(i)(B) and (g)(3)(i)(H));
1.987-8T(g); 1.988-2T(j).
(3) The 2019 Final Regulations.
The 2019 final regulations were effec-
tive on May 13, 2019. Dates of applica-
bility for the 2019 final regulations are
provided in §§1.987-2(e), 1.987-4(h), and
1.987-12(j). Specifically, §§1.987-2(e)(2)
and 1.987-4(h)(2) provide that §§1.987-
2(c)(9), 1.987-4(c)(2), and 1.987-4(f) ap-
ply to taxable years beginning on or after
the day that is three years after the first day
of the first taxable year following Decem-
ber 7, 2016. Thus, §§1.987-2(c)(9), 1.987-
4(c)(2), and 1.987-4(f) of the 2019 final
regulations would also apply to taxable
years beginning on or after the first day of
the first taxable year following December
7, 2019.
Section 1.987-12(j) generally pro-
vides that, subject to certain exceptions,
§1.987-12 applies to any deferral event
or outbound loss event that occurs on or
after January 6, 2017 and to any deferral
event or outbound loss event that occurs
as a result of an entity classification elec-
tion made under §301.7701-3 filed on or
after January 6, 2017, and that is effective
before January 6, 2017.
(4) Early Application.
A taxpayer may apply the 2016 final
regulations, the related temporary regu-
lations, the related proposed regulations,
and §§1.987-2(c)(9), 1.987-4(c)(2), and
1.987-4(f) of the 2019 final regulations
to taxable years beginning after Decem-
ber 7, 2016, provided the taxpayer con-
sistently applies those regulations to such
taxable years with respect to all section
987 QBUs directly or indirectly owned
by the taxpayer on the transition date
as well as all section 987 QBUs direct-
ly or indirectly owned on the transition
date by members that file a consolidated
return with the taxpayer or by any con-
trolled foreign corporation, as defined
in section 957, in which a member owns
more than 50 percent of the voting power
or stock value, as determined under sec-
tion 958(a). See §§1.861-9T(g)(2)(vi);
1.985-5(g); 1.987-1T(h); 1.987-2(e)(2);
1.987-3T(f); 1.987-4(h)(2); 1.987-6T(d);
1.987-11(b); 1.988-1(i); 1.988-1T(j);
1.988-2T(j); 1.988-4(b)(2)(ii); 1.989(a)-
1(b)(4); 1.989(a)-1(d)(4).
The transition date is the first day of
the first taxable year to which §§1.987-1
through 1.987-10 are applicable with re-
spect to a taxpayer under §1.987-11. Sec-
tion 1.987-11(c).
SECTION 3. AMENDED
APPLICABILITY DATE
The Treasury Department and the
IRS intend to amend §§1.861-9T, 1.985-
5, 1.987-11, 1.988-1, 1.988-4, and
1.989(a)-1 of the 2016 final regulations
and §§1.987-2 and 1.987-4 of the 2019
final regulations to apply to taxable years
beginning on or after the first day of
the first taxable year following Decem-
ber 7, 2020 (the amended applicability
date). Thus, following the amendments
described in this notice, for a taxpayer
whose first taxable year after December
7, 2020, begins on January 1, 2021, the
2016 final regulations and §§1.987-2(c)
(9), 1.987-4(c)(2), and 1.987-4(f) of the
2019 final regulations would apply for
the taxable year beginning on January 1,
2021.
The related temporary regulations,
which expire on December 6, 2019, will
not become applicable. After the related
temporary regulations expire, the amend-
ed applicability date will apply for pur-
poses of the related proposed regulations.
A taxpayer may choose to apply the
2016 final regulations, the related tempo-
rary regulations (if applicable), the related
proposed regulations, and §§1.987-2(c)
(9), 1.987-4(c)(2), and 1.987-4(f) of the
2019 final regulations to a taxable year
beginning after December 7, 2016 and
before the amended applicability date
provided the taxpayer consistently applies
those regulations to such taxable years
with respect to all section 987 QBUs di-
rectly or indirectly owned by the taxpayer
on the transition date as well as all section
987 QBUs directly or indirectly owned on
the transition date by members that file a
consolidated return with the taxpayer or
by any controlled foreign corporation, as
defined in section 957, in which a member
owns more than 50 percent of the voting
power or stock value, as determined under
section 958(a).
SECTION 4. TAXPAYER
RELIANCE
Before the issuance of the amendments
to the regulations described in section 3
of this Notice, taxpayers may rely on the
provisions of this Notice regarding those
proposed amendments.
SECTION 5. DRAFTING
INFORMATION
The principal author of this Notice is
Azeka J. Abramoff of the Office of Asso-
ciate Chief Counsel (International). For
further information regarding this Notice,
contact Azeka J. Abramoff at (202) 317-
6938 (not a toll-free number).

Bulletin No. 2019–52 1509 December 23, 2019
Reporting of Positive Tax
Basis Capital Accounts
not Required Until 2020
Partnership Taxable
Years; Net Unrecognized
Section 704(c) Gain or
Loss Defined; Publicly
Traded Partnerships not
Required to Report Net
Unrecognized Section
704(c) Gain or Loss;
Certain Reporting of
Section 465 At-Risk
Activities not Required Until
2020 Partnership Taxable
Years; Penalty Relief
Notice 2019-66
BACKGROUND
This notice provides that the require-
ment to report partners’ shares of partner-
ship capital on the tax basis method will
not be effective for 2019 (for partnership
taxable years beginning in calendar 2019)
but will be effective beginning in 2020
(for partnership taxable years that begin
on or after January 1, 2020). For 2019,
partnerships and other persons must re-
port partner capital accounts consistent
with the reporting requirements in the
2018 forms and instructions, including
the requirement to report negative tax ba-
sis capital accounts on a partner-by-part-
ner basis. This notice also clarifies the
2019 requirement for partnerships and
other persons to report a partner’s share
of “net unrecognized Section 704(c) gain
or loss” by defining this term for purposes
of the reporting requirement. Additional-
ly, this notice exempts publicly traded
partnerships from the requirement to re-
port their partners’ shares of net unrec-
ognized Section 704(c) gain or loss until
further notice. This notice also provides
that the requirement added by the draft
instructions for 2019 for partnerships to
report to partners information about sep-
arate “Section 465 at-risk activities” will
not be effective until 2020. Finally, this
notice provides relief from certain re-
porting penalties imposed by the Internal
Revenue Code (Code).
REPORTING PARTNER TAX BASIS
CAPITAL ACCOUNTS
A draft of the 2019 Form 1065,
Schedule K-1, Item L, and a draft of the
2019 Form 8865, Schedule K-1, Item F,
both released September 30, 2019, and
related draft instructions for the 2019
Form 1065, U.S. Return of Partnership
Income (to which the draft instructions
for the 2019 Form 8865, Return of U.S.
Persons With Respect to Certain For-
eign Partnerships, refer), and the 2019
Form 1065, Schedule K-1, both released
October 29, 2019, proposed to require
partner tax basis capital reporting by all
partnerships and certain other persons
and to prohibit the reporting of partner
capital under section 704(b) of the Code
(Section 704(b)), generally accepted ac-
counting principles (GAAP), or any oth-
er method for 2019.
Based on comments received, the
Department of the Treasury (Treasury
Department) and the Internal Revenue
Service (IRS) have become aware that
certain persons required to file Forms
1065 or 8865 may be unable to timely
comply with the requirement to report
partner capital on the tax basis method
for 2019. This notice provides that part-
nerships and other persons required to
furnish and file Form 1065, Schedule K-1
or Form 8865, Schedule K-1, will not
be required to report partner capital ac-
counts in Item L of the 2019 Form 1065,
Schedule K-1, or in Item F of the 2019
Form 8865, Schedule K-1, using the tax
basis method for 2019.
Instead, partnerships and other per-
sons must report partner capital accounts
for 2019 consistent with the reporting
requirements for the 2018 Forms 1065,
Schedule K-1, or 8865, Schedule K-1, as
applicable. This means that partnerships
and other persons may continue to report
partner capital accounts on Forms 1065,
Schedule K-1, Item L, or 8865, Schedule
K-1, Item F, using any method available
in 2018 (tax basis, Section 704(b), GAAP,
or any other method) for 2019. These part-
nerships and other persons must include
a statement identifying the method upon
which a partner’s capital account is re-
ported. The final instructions for the 2019
Forms 1065, Schedule K-1, Item L and
8865, Schedule K-1, Item F, are expected
to include additional details on how such
reporting should be done.
For 2019 partnership taxable years,
partner “tax basis capital” must be calcu-
lated as provided in the 2018 Form 1065
and Schedule K-1 instructions. Beginning
with the 2018 partnership taxable year, if
a partner’s tax basis capital was negative
at the beginning or end of a partnership’s
taxable year, a partnership or other person
is required to report on line 20 of a part-
ner’s Schedule K-1, using Code AH, such
partner’s beginning and ending tax basis
capital. Partnerships and other persons
who follow this notice and report partner
capital accounts for 2019 in Item L of the
Form 1065, Schedule K-1, or in Item F of
the Form 8865, Schedule K-1, by using a
method other than the tax basis method
must continue to comply with the require-
ment in the 2018 forms and instructions
with respect to negative tax basis capital
accounts.
The IRS website for Form 1065 Fre-
quently Asked Questions (FAQs), “Neg-
ative Tax Basis Capital Account Report-
ing Requirements,” provides guidance
on the calculation of a partner’s tax basis
capital account in FAQ 2, and, for clarity,
the definition of tax basis capital includes
(A)(v) and (B)(vii) of FAQ 2. Addition-
ally, in lieu of following the definition of
tax basis capital in FAQ 2, partnerships
and other persons may instead use the
partner outside basis safe harbor ap-
proach referenced in FAQ 6. If a partner-
ship or other person uses the safe harbor
approach, the partnership or other person
must attach a statement to the partner’s
Schedule K-1 with the information de-
scribed in (2)(d)(iii) of FAQ 8. Other
than the information described in (2)(d)
(iii) of FAQ 8, the remainder of FAQ 8 is
inapplicable for 2019, including the pen-
alty relief and extension of time to file
described therein, which applied only
for 2018. The FAQs are found at: https://
www.irs.gov/businesses/partnerships/
form-1065-frequently-asked-questions.
In preparation for filing partnership tax
returns for the 2020 taxable year, further
guidance will be published that provides,
and requests comments on, the definition
of partner tax basis capital.

December 23, 2019 1510 Bulletin No. 2019–52
REPORTING PARTNERS’ SHARES
OF NET UNRECOGNIZED SECTION
704(c) GAIN OR LOSS
A draft of the 2019 Forms 1065,
Schedule K-1, Item N and 8865, Sched-
ule K-1, Item G, released September 30,
2019, and related draft instructions for
the 2019 Form 1065 (to which the draft
instructions for the 2019 Form 8865 re-
fer), and the 2019 Form 1065, Schedule
K-1, both released October 29, 2019,
proposed to require partnerships to re-
port partners’ shares of net unrecognized
Section 704(c) gain or loss as of the be-
ginning and end of the partnership’s 2019
taxable year. The draft instructions to
these forms did not include a definition
of “net unrecognized Section 704(c) gain
or loss.” Solely for purposes of complet-
ing the 2019 Forms 1065, Schedule K-1,
Item N, and 8865, Schedule K-1, Item
G, this notice defines a partner’s share
of “net unrecognized Section 704(c) gain
or loss” as the partner’s share of the net
(net means aggregate or sum) of all un-
recognized gains or losses under section
704(c) of the Code (Section 704(c)) in
partnership property, including Section
704(c) gains and losses arising from re-
valuations of partnership property.
Commenters have requested additional
guidance with respect to Section 704(c)
computations, such as guidance with re-
spect to the issues described in Notice
2009-70, 2009-34 I.R.B. 255. For purpos-
es of reporting for 2019, partnerships and
other persons should generally resolve
these issues in a reasonable manner, con-
sistent with prior years’ practice for pur-
poses of applying Section 704(c) to part-
ners.
Net unrecognized Section 704(c) gain
or loss reporting will not apply to public-
ly traded partnerships (defined in section
7704 of the Code) and their partners for
2019, and thereafter, until further notice.
AT-RISK ACTIVITY REPORTING
The draft of the 2019 Form 1065,
Item K, released September 30, 2019,
requires partnerships to indicate if they
have aggregated activities for purpos-
es of the at-risk limitation rules under
section 465 of the Code (Section 465).
The draft of the instructions for the 2019
Form 1065, Schedule K-1 (to which the
draft instructions for the 2019 Form 8865
refer), released October 29, 2019, includ-
ed a new paragraph at page 12, At-Risk
Limitations, At-Risk Activity Reporting
Requirements, that would expressly re-
quire partnerships or other persons that
have items of income, loss, or deduction
reported on the Schedule K-1 from more
than one activity that may be subject to
limitation under Section 465 at the part-
ner level to report certain additional in-
formation separately for each activity on
an attachment to a partner’s Schedule
K-1. The new paragraph would require
the partnership or other person to identify
the at-risk activity, the items of income,
loss, or deduction for the activity, other
items of income, loss, or deduction, part-
nership liabilities, and any other infor-
mation that relates to the activity, such as
distributions and partner loans. This re-
quirement in the draft instructions for the
2019 Form 1065 is in addition to long-
standing at-risk reporting requirements
included in the instructions to the Form
1065. See Part II, Information About the
Partner; Item K Partner’s Share of Lia-
bilities.
Based on comments received, the Trea-
sury Department and the IRS have be-
come aware that certain partnerships and
other persons may be unable to timely
comply with the newly added requirement
to report additional information about
each at-risk activity separately for 2019.
Partnerships and other persons required to
furnish and file Form 1065, Schedule K-1,
or Form 8865, Schedule K-1, will not be
required to report information for each at-
risk activity separately for 2019 that was
not previously required to be reported for
the 2018 partnership taxable year. Part-
nerships must still indicate in Item K on
Form 1065 whether they have aggregated
activities for Section 465 at-risk purposes
for 2019.
Nothing in this notice relieves partner-
ships and partners from complying with
the requirements of Form 6198, At-Risk
Limitations, for 2019. In particular, part-
nerships must continue to comply with the
instructions to Form 6198 for 2019, which
require partnerships to furnish their part-
ners with a separate statement of income,
expenses, and deductions for each at-risk
and not-at-risk activity.
PENALTY RELIEF
Taxpayers who follow the provisions
of this notice will not be subject to any
penalty for reporting in accordance with
the guidance provided in this notice, in-
cluding a penalty under section 6722 for
failure to furnish correct payee statements,
section 6698 for failure to file a partner-
ship return that shows required informa-
tion, and section 6038 for failure to fur-
nish information required on a Schedule
K-1 (Form 8865).
CONTACT INFORMATION
The principal author of this notice is
Kara Altman of the Office of the Associate
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice, contact Kara Altman
at 202-317-5576 (not a toll-free number).
Updated Mortality
Improvement Rates and
Static Mortality Tables for
Defined Benefit Pension
Plans for 2021
Notice 2019-67
PURPOSE
This notice specifies updated mortality
improvement rates and static mortality ta-
bles to be used for defined benefit pension
plans under § 430(h)(3)(A) of the Internal
Revenue Code (Code) and section 303(h)
(3)(A) of the Employee Retirement In-
come Security Act of 1974, Pub. L. No.
93-406, as amended (ERISA). These up-
dated mortality improvement rates and
static tables, which are being issued pur-
suant to the regulations under § 430(h)(3)
(A), apply for purposes of calculating the
funding target and other items for valua-
tion dates occurring during the 2021 cal-
endar year.
This notice also includes a modified
unisex version of the mortality tables
for use in determining minimum present
value under § 417(e)(3) of the Code and
section 205(g)(3) of ERISA for distribu-

Bulletin No. 2019–52 1511 December 23, 2019
tions with annuity starting dates that occur
during stability periods beginning in the
2021 calendar year.
BACKGROUND
Section 412 of the Code provides min-
imum funding requirements that generally
apply for defined benefit plans. Section
412(a)(2) provides that § 430 sets forth
the minimum funding requirements that
apply to defined benefit plans that are not
multiemployer plans or CSEC plans. Sec-
tion 430(a) defines the minimum required
contribution for such a plan by reference
to the plan’s funding target for the plan
year. Under § 430(d)(1), a plan’s funding
target for a plan year generally is the pres-
ent value of all benefits accrued or earned
under the plan as of the first day of that
plan year.
Section 430(h)(3) provides rules re-
garding the mortality tables that general-
ly are used under § 430. Under § 430(h)
(3)(A), except as provided in § 430(h)(3)
(C) or (D), the Secretary is to prescribe by
regulation mortality tables to be used in
determining any present value or making
any computation under § 430. Those ta-
bles are to be based on the actual experi-
ence of pension plans and projected trends
in that experience. Section 430(h)(3)(B)
requires the Secretary to revise any table
in effect under § 430(h)(3)(A) at least ev-
ery 10 years to reflect the actual experi-
ence of pension plans and projected trends
in that experience.
Section 430(h)(3)(C) provides that,
upon request by a plan sponsor and ap-
proval by the Secretary, substitute mortal-
ity tables that meet the applicable require-
ments may be used in lieu of the standard
mortality tables provided under § 430(h)
(3)(A). Section 430(h)(3)(D) provides for
the use of separate mortality tables with
respect to certain individuals who are en-
titled to benefits on account of disability.
Mortality Tables for Purposes of § 430
Section 1.430(h)(3)-1 provides rules
regarding the mortality tables used under
§ 430(h)(3)(A) for plan years beginning
on or after January 1, 2018. The mortal-
ity tables used under § 430(h)(3)(A) are
based on the tables in the RP-2014 Mor-
tality Tables Report,
3
adjusted for mortali-
ty improvement. Section 1.430(h)(3)-1(d)
sets forth base mortality tables with a base
year of 2006.
Section 1.430(h)(3)-1(a) permits plan
sponsors to apply the projection of mor-
tality improvement in either of two ways:
through use of static tables that are updat-
ed annually to reflect expected improve-
ments in mortality or through use of gen-
erational tables. Section 1.430(h)(3)-1(a)
(2)(i)(C) provides that, for valuation dates
occurring in years after 2018, updated
mortality improvement rates that take into
account new data for mortality improve-
ment trends of the general population,
along with static mortality tables that re-
flect those updated mortality improvement
rates, will be provided through guidance
published in the Internal Revenue Bul-
letin. Notice 2018-2, 2018-2 I.R.B. 281,
and Notice 2019-26, 2019-15 I.R.B. 943,
provide mortality improvement rates and
static mortality tables that apply for val-
uation dates occurring during 2019 and
2020, respectively.
Section 1.430(h)(3)-2 provides rules
for the use of substitute mortality tables
that are based on the mortality experience
of the plan. Pursuant to § 1.430(h)(3)-2(c)
(3)(ii), substitute mortality tables are de-
veloped using the mortality improvement
rates used under § 1.430(h)(3)-1.
Application of These Tables for Other
Funding Rules
Section 431 provides the minimum
funding standards for multiemployer
plans described in § 414(f) that are subject
to § 412. Section 431(c)(6)(D)(iv) pro-
vides that the Secretary may by regulation
prescribe mortality tables to be used in
determining current liability for purposes
of § 431(c)(6)(B). Section 1.431(c)(6)-1
provides that the same mortality assump-
tions that apply for purposes of § 430(h)
(3)(A) and § 1.430(h)(3)-1(a)(2) are used
to determine a multiemployer plan’s cur-
rent liability for purposes of applying the
full-funding rules of § 431(c)(6). For this
purpose, a multiemployer plan may ap-
ply either the static mortality tables or the
generational mortality tables (as updated
pursuant to §1.430(h)(3)-1(a)(2)(i)(C) and
(a)(3)).
Section 433 provides the minimum
funding standards for CSEC plans de-
scribed in § 414(y). Section 433(h)(3)
(B)(i) provides that the Secretary may by
regulation prescribe mortality tables to
be used in determining current liability
for purposes of § 433(c)(7)(C). Section
1.433(h)(3)-1(a) provides that the mortal-
ity tables described in § 430(h)(3)(A) are
to be used to determine current liability
under § 433(c)(7)(C).
Application of Mortality Tables for
Minimum Present Value Requirements
under § 417(e)(3)
Section 417(e)(3) generally provides
that the present value of certain acceler-
ated forms of benefit under a qualified
pension plan (including single-sum distri-
butions) must not be less than the present
value of the accrued benefit using applica-
ble interest rates and the applicable mor-
tality table. Section 417(e)(3)(B) defines
the term “applicable mortality table” as
the mortality table specified for the plan
year under § 430(h)(3)(A) (without regard
to § 430(h)(3)(C) or (D)), modified as ap-
propriate by the Secretary.
Rev. Rul. 2007-67, 2007-2 CB 1047,
provides that, except as otherwise stated
in future guidance, the applicable mortal-
ity table under § 417(e)(3) is a static mor-
tality table set forth in published guidance
that is developed based on a fixed blend
of 50 percent of the static male combined
mortality rates and 50 percent of the stat-
ic female combined mortality rates used
under § 1.430(h)(3)-1. Rev. Rul. 2007-67
also provides that the applicable mortality
table for a calendar year applies to distri-
butions with annuity starting dates that
occur during stability periods that begin
during that calendar year.
MORTALITY IMPROVEMENT RATES
FOR 2021
The mortality improvement rates for
valuation dates occurring during 2021
3
The RP-2014 Mortality Tables Report, as revised November 2014, is available at https://www.soa.org/Files/Research/Exp-Study/research-2014-rp-report.pdf.

December 23, 2019 1512 Bulletin No. 2019–52
are the mortality improvement rates in
the Mortality Improvement Scale MP-
2019 Report (issued by the Retirement
Plans Experience Committee (RPEC) of
the Society of Actuaries and available
at https://www.soa.org/resources/expe-
rience-studies/2019/mortality-improve-
ment-scale-mp-2019/).
STATIC MORTALITY TABLES FOR
2021
The static mortality tables that apply
under § 430(h)(3)(A) for valuation dates
occurring during 2021 are set forth in the
appendix to this notice. The mortality
rates in these tables have been developed
from the methodology and base mortality
rates set forth in § 1.430(h)(3)-1(c) and
(d) using the mortality improvement rates
specified in the previous section of this
notice.
The static mortality table that applies
under § 417(e)(3) for distributions with
annuity starting dates occurring during
stability periods beginning in 2021 is set
forth in the appendix to this notice in the
column labeled “Unisex.” The mortality
rates in this table are derived from the
mortality tables specified under § 430(h)
(3)(A) for 2021 in accordance with the
procedures set forth in Rev. Rul. 2007-
67.
REQUEST FOR COMMENTS
As provided in § 430(h)(3)(B), the
Department of the Treasury (Treasury
Department) is required to revise the
mortality tables used under § 430(h)(3)
(A) at least every 10 years to reflect the
actual mortality experience of pension
plans and projected trends in that ex-
perience.
4
On October 23, 2019, RPEC
released the Pri-2012 Private Retire-
ment Plans Mortality Tables Report (the
Pri-2012 Mortality Tables Report).
5
The
mortality tables in that report are based
on a study of mortality experience of pri-
vate-sector defined benefit pension plans
in the United States covering calendar
years 2010 through 2014. Comments are
requested as to whether there are other
studies of actual mortality experience of
individuals covered by pension plans and
projected trends in that experience that
should be considered for use in develop-
ing mortality tables for future use under
§ 430.
6
For example, should the mortality
tables under § 430(h)(3)(A) be developed
taking into account studies that examine
the mortality experience of individuals
covered by large public-sector pension
plans, such as RPEC’s Pub-2010 Public
Retirement Plans Mortality Tables Re-
port?
7
In addition, comments are request-
ed as to which of the tables in the Pri-
2012 Mortality Tables Report should be
used to develop § 430(h)(3)(A) mortality
tables, if the Pri-2012 Mortality Tables
Report were to be used for that purpose.
For example, should the § 430(h)(3)(A)
mortality tables include separate retiree
and contingent survivor tables, as are
provided in the Pri-2012 Mortality Ta-
bles Report?
Any comments must be received by
February 28, 2020. Taxpayers may submit
comments electronically via the Federal
eRulemaking Portal at www.regulations.
gov (indicate IRS and Notice 2019-0053).
Alternatively, taxpayers may submit hard
copy submissions to:
CC:PA:LPD:PR (Notice 2019-67), Room
5203, Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C., 20044
Submissions may be hand-delivered Mon-
day through Friday between the hours of 8
a.m. and 4 p.m. to:
CC:PA:LPD:PR (Notice 2019-67), Couri-
er’s Desk, Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attn: CC:PA:LPD:PR
All comments received will be available
for public inspection on www.regulations.
gov.
Drafting Information
The principal authors of this notice are
Arslan Malik and Linda S. F. Marshall of
the Office of the Associate Chief Coun-
sel (Employee Benefits, Exempt Orga-
nizations, and Employment Taxes). For
further information regarding this notice,
contact Arslan Malik or Linda Marshall at
(202) 317-6700 (not a toll-free number).
4
The Treasury Department is required to review the mortality tables used to determine the current liability for multiemployer plans and CSEC plans every 5 years under §§ 431(c)(6)(D)(vi)
and 433(h)(3)(B)(ii), respectively.
5
The Pri-2012 Mortality Tables Report is available at https://www.soa.org/globalassets/assets/files/resources/experience-studies/2019/pri-2012-mortality-tables-report.pdf).
6
The mortality tables developed for future use under § 430 would also be used for the other purposes specified in this notice for which the mortality tables under § 430 are used.
7
The Pub-2010 Public Retirement Plans Mortality Report is available at https://www.soa.org/globalassets/assets/files/resources/research-report/2019/pub-2010-mort-report.pdf.

Bulletin No. 2019–52 1513 December 23, 2019
APPENDIX
Mortality Tables for 2021
Valuation Dates Occurring During 2021 and Distributions Subject to
§ 417(e)(3) with Annuity Starting Dates During Stability Periods Beginning in 2021
MaleMaleMaleFemaleFemaleFemaleUnisex
Age
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021 Optional
Combined
Table for
Small Plans
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021
Optional Combined
Table for Small
Plans
2021
Table for Distribu-
tions Subject to §
417(e)(3)
00.0036380.0036380.0036380.0031910.0031910.0031910.003415
10.0002130.0002130.0002130.0002000.0002000.0002000.000207
20.0001460.0001460.0001460.0001320.0001320.0001320.000139
30.0001220.0001220.0001220.0000990.0000990.0000990.000111
40.0000960.0000960.0000960.0000750.0000750.0000750.000086
50.0000850.0000850.0000850.0000690.0000690.0000690.000077
60.0000770.0000770.0000770.0000640.0000640.0000640.000071
70.0000690.0000690.0000690.0000600.0000600.0000600.000065
80.0000590.0000590.0000590.0000560.0000560.0000560.000058
90.0000480.0000480.0000480.0000520.0000520.0000520.000050
100.0000410.0000410.0000410.0000490.0000490.0000490.000045
110.0000430.0000430.0000430.0000510.0000510.0000510.000047
120.0000660.0000660.0000660.0000600.0000600.0000600.000063
130.0000870.0000870.0000870.0000680.0000680.0000680.000078
140.0001090.0001090.0001090.0000760.0000760.0000760.000093
150.0001310.0001310.0001310.0000840.0000840.0000840.000108
160.0001530.0001530.0001530.0000910.0000910.0000910.000122
170.0001770.0001770.0001770.0000970.0000970.0000970.000137
180.0002020.0002020.0002020.0001030.0001030.0001030.000153
190.0002300.0002300.0002300.0001070.0001070.0001070.000169
200.0002560.0002560.0002560.0001080.0001080.0001080.000182
210.0002900.0002900.0002900.0001120.0001120.0001120.000201
220.0003240.0003240.0003240.0001140.0001140.0001140.000219
230.0003490.0003490.0003490.0001200.0001200.0001200.000235
240.0003660.0003660.0003660.0001250.0001250.0001250.000246
250.0003560.0003560.0003560.0001290.0001290.0001290.000243
260.0003520.0003520.0003520.0001350.0001350.0001350.000244
270.0003550.0003550.0003550.0001430.0001430.0001430.000249
280.0003640.0003640.0003640.0001510.0001510.0001510.000258
290.0003790.0003790.0003790.0001610.0001610.0001610.000270
300.0003970.0003970.0003970.0001750.0001750.0001750.000286
310.0004200.0004200.0004200.0001890.0001890.0001890.000305
320.0004460.0004460.0004460.0002060.0002060.0002060.000326
330.0004710.0004710.0004710.0002230.0002230.0002230.000347
340.0004940.0004940.0004940.0002410.0002410.0002410.000368
350.0005150.0005150.0005150.0002580.0002580.0002580.000387
360.0005310.0005310.0005310.0002740.0002740.0002740.000403
370.0005480.0005480.0005480.0002920.0002920.0002920.000420

December 23, 2019 1514 Bulletin No. 2019–52
MaleMaleMaleFemaleFemaleFemaleUnisex
Age
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021 Optional
Combined
Table for
Small Plans
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021
Optional Combined
Table for Small
Plans
2021
Table for Distribu-
tions Subject to §
417(e)(3)
380.0005660.0005660.0005660.0003110.0003110.0003110.000439
390.0005860.0005860.0005860.0003320.0003320.0003320.000459
400.0006110.0006110.0006110.0003540.0003540.0003540.000483
410.0006380.0006450.0006380.0003770.0003750.0003770.000508
420.0006720.0007310.0006730.0004030.0004260.0004030.000538
430.0007160.0008660.0007180.0004330.0005060.0004330.000576
440.0007680.0010450.0007730.0004670.0006150.0004670.000620
450.0008300.0012690.0008400.0005050.0007530.0005070.000674
460.0009030.0015380.0009200.0005490.0009220.0005550.000738
470.0009870.0018560.0010150.0006000.0011260.0006130.000814
480.0010820.0022260.0011230.0006560.0013680.0006800.000902
490.0011880.0026560.0012480.0007180.0016520.0007570.001003
500.0013070.0031500.0013900.0007890.0019820.0008490.001120
510.0014400.0033750.0015360.0008690.0020940.0009410.001239
520.0015910.0036170.0017300.0009610.0022340.0010560.001393
530.0017500.0038550.0019510.0010650.0024040.0011920.001572
540.0019290.0041080.0022100.0011830.0026070.0013520.001781
550.0021330.0043860.0025980.0013140.0028450.0016040.002101
560.0023720.0046970.0031100.0014580.0031160.0019320.002521
570.0026550.0050480.0035600.0016140.0034230.0022300.002895
580.0029910.0054420.0040700.0017810.0037660.0025510.003311
590.0033880.0058870.0046340.0019560.0041430.0029100.003772
600.0038500.0063820.0052760.0021400.0045500.0033340.004305
610.0043840.0069300.0059980.0023350.0049900.0038760.004937
620.0049890.0075290.0067930.0025400.0054600.0044670.005630
630.0056680.0081810.0076540.0027570.0059540.0051610.006408
640.0064260.0088920.0084860.0029920.0064900.0058050.007146
650.0072560.0096540.0093740.0032450.0070650.0065120.007943
660.0080850.0105000.0103360.0035940.0077070.0073440.008840
670.0089910.0114300.0113100.0039800.0084160.0081350.009723
680.0099940.0124690.0123800.0044180.0092230.0089940.010687
690.0111190.0136490.0135770.0049120.0101310.0099360.011757
700.0123630.0149640.0148960.0054740.0111660.0109730.012935
710.0137700.0164650.0164020.0061140.0123410.0121510.014277
720.0153550.0181670.0181090.0068390.0136680.0134830.015796
730.0171350.0200930.0200390.0076660.0151740.0149960.017518
740.0191450.0222820.0222330.0086040.0168750.0167070.019470
750.0214070.0247650.0247210.0096700.0188020.0186470.021684
760.0239530.0275910.0275530.0108900.0210100.0208720.024213
770.0268050.0307960.0307650.0122870.0235440.0234290.027097
780.0300080.0344470.0344240.0138700.0264370.0263520.030388

Bulletin No. 2019–52 1515 December 23, 2019
MaleMaleMaleFemaleFemaleFemaleUnisex
Age
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021 Optional
Combined
Table for
Small Plans
2021
Non-Annuitant
Table
2021
Annuitant
Table
2021
Optional Combined
Table for Small
Plans
2021
Table for Distribu-
tions Subject to §
417(e)(3)
790.0335800.0385860.0385730.0156750.0297680.0297200.034147
800.0375910.0433160.0433160.0177360.0336230.0336230.038470
810.0395010.0484490.0484490.0195000.0378520.0378520.043151
820.0431050.0542920.0542920.0228810.0426620.0426620.048477
830.0484630.0609500.0609500.0279390.0482040.0482040.054577
840.0556120.0685410.0685410.0346930.0545170.0545170.061529
850.0645990.0771160.0771160.0431830.0616690.0616690.069393
860.0755380.0868680.0868680.0534550.0697760.0697760.078322
870.0883870.0978230.0978230.0655410.0789090.0789090.088366
880.1032300.1100930.1100930.0794810.0891010.0891010.099597
890.1200370.1237270.1237270.0952720.1003870.1003870.112057
900.1388670.1388670.1388670.1129500.1129500.1129500.125909
910.1548650.1548650.1548650.1265570.1265570.1265570.140711
920.1713500.1713500.1713500.1409820.1409820.1409820.156166
930.1878760.1878760.1878760.1560900.1560900.1560900.171983
940.2044310.2044310.2044310.1717500.1717500.1717500.188091
950.2207140.2207140.2207140.1879120.1879120.1879120.204313
960.2392770.2392770.2392770.2054610.2054610.2054610.222369
970.2581990.2581990.2581990.2237900.2237900.2237900.240995
980.2778830.2778830.2778830.2428640.2428640.2428640.260374
990.2981130.2981130.2981130.2625980.2625980.2625980.280356
1000.3186890.3186890.3186890.2828070.2828070.2828070.300748
1010.3394570.3394570.3394570.3033880.3033880.3033880.321423
1020.3600800.3600800.3600800.3240290.3240290.3240290.342055
1030.3803630.3803630.3803630.3446430.3446430.3446430.362503
1040.3999760.3999760.3999760.3648300.3648300.3648300.382403
1050.4184690.4184690.4184690.3846800.3846800.3846800.401575
1060.4363370.4363370.4363370.4040770.4040770.4040770.420207
1070.4531870.4531870.4531870.4222970.4222970.4222970.437742
1080.4691110.4691110.4691110.4395970.4395970.4395970.454354
1090.4838710.4838710.4838710.4558860.4558860.4558860.469879
1100.4977690.4977690.4977690.4710330.4710330.4710330.484401
1110.5028210.5028210.5028210.4852280.4852280.4852280.494025
1120.5020610.5020610.5020610.4982550.4982550.4982550.500158
1130.5013050.5013050.5013050.5035690.5035690.5035690.502437
1140.5006020.5006020.5006020.5016040.5016040.5016040.501103
1150.5000000.5000000.5000000.5000000.5000000.5000000.500000
1160.5000000.5000000.5000000.5000000.5000000.5000000.500000
1170.5000000.5000000.5000000.5000000.5000000.5000000.500000
1180.5000000.5000000.5000000.5000000.5000000.5000000.500000
1190.5000000.5000000.5000000.5000000.5000000.5000000.500000
1201.0000001.0000001.0000001.0000001.0000001.0000001.000000

December 23, 2019 1516 Bulletin No. 2019–52
Part IV
Notice of Proposed
Rulemaking
Additional Rules Regarding
Base Erosion and Anti-
Abuse Tax
REG-112607-19
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations that provide guid-
ance regarding the base erosion and an-
ti-abuse tax imposed on certain large
corporate taxpayers with respect to cer-
tain payments made to foreign related
parties. The proposed regulations would
affect corporations with substantial gross
receipts that make payments to foreign
related parties.
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 4, 2020.
ADDRESSES: Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-112607-19) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury (Treasury Department) and the IRS
will publish for public availability any
comment received to its public docket,
whether submitted electronically or in
hard copy. Send hard copy submissions
to: CC:PA:LPD:PR (REG-112607-19),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-112607-19), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue NW, Washing-
ton, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed reg-
ulations, Sheila Ramaswamy, Azeka J.
Abramoff, or Karen Walny at (202) 317-
6938; concerning submissions of com-
ments and requests for a public hearing,
Regina Johnson at (202) 317-6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to 26 CFR part 1 under sec-
tions 59A and 6031 of the Internal Rev-
enue Code (the “Code”). The Tax Cuts
and Jobs Act, Pub. L. 115-97 (2017) (the
“Act”), which was enacted on December
22, 2017, added section 59A to the Code.
Section 59A imposes on each applicable
taxpayer a tax equal to the base erosion
minimum tax amount for the taxable year
(the “base erosion and anti-abuse tax” or
“BEAT”).
The Act also added reporting obliga-
tions regarding this tax for 25-percent
foreign-owned corporations subject to
section 6038A and foreign corporations
subject to section 6038C and addressed
other issues for which information report-
ing under those sections is important to
tax administration.
On December 21, 2018, the Treasury
Department and the IRS published pro-
posed regulations (REG-104259-18) un-
der section 59A, and proposed amend-
ments to 26 CFR part 1 under sections
383, 1502, 6038A, and 6655 in the Fed-
eral Register (83 FR 65956) (the “2018
proposed regulations”). On December 6,
2019, the Treasury Department and the
IRS published final regulations (the “final
regulations”) under sections 59A, 383,
1502, 6038A, and 6655. These proposed
regulations propose other regulations un-
der sections 59A and 6031.
Explanation of Provisions
I. Overview
These proposed regulations provide
guidance under sections 59A and 6031 re-
garding certain aspects of the BEAT. Part
II of this Explanation of Provisions de-
scribes proposed modifications to the rules
set forth in the final regulations relating to
how a taxpayer determines its aggregate
group for purposes of determining gross
receipts and the base erosion percentage.
Part III of this Explanation of Provisions
describes proposed regulations providing
an election to waive deductions. Part IV of
this Explanation of Provisions describes
proposed regulations addressing the appli-
cation of the BEAT to partnerships.
II. Determination of a Taxpayer’s
Aggregate Group
For certain purposes, including the
determination of gross receipts described
in section 59A(e)(2) and the base erosion
percentage described in section 59A(c)
(4), section 59A(e)(3) and §1.59A-1(b)(1)
generally aggregate a group of corpora-
tions (“aggregate group”) on the basis of
persons treated as a single employer un-
der section 52(a), which treats members
of the same controlled group of corpora-
tions (as defined in section 1563(a) with
certain modifications) as one person. To
determine gross receipts, section 59A(e)
(2) requires the application of rules sim-
ilar to, but not necessarily the same as,
section 448(c)(3)(B), (C), and (D). The
2018 proposed regulations provided rules
for determining the aggregate group for
applying the gross receipts test as well as
the base erosion percentage test. General-
ly, the 2018 proposed regulations provid-
ed that each taxpayer determines its gross
receipts and base erosion percentage by
reference to its own taxable year, taking
into account the results of other members
of its aggregate group during that taxable
year. See 2018 proposed §1.59A-2(d)(2).
Comments to the 2018 proposed reg-
ulations recommended that the determi-
nation of gross receipts and the base ero-
sion percentage of a taxpayer’s aggregate
group be made on the basis of the taxpay-
er’s taxable year and the taxable year of
each member of its aggregate group that
ends with or within the applicable tax-
payer’s taxable year (the “with-or-within
method”). In response to the comments to

Bulletin No. 2019–52 1517 December 23, 2019
the 2018 proposed regulations, the final
regulations generally adopt the with-or-
within method. §1.59A-2(c)(3). The final
regulations do not include specific rules
regarding how the with-or-within meth-
od applies in certain situations. These
proposed regulations provide guidance
regarding certain applications of the ag-
gregate group rules and request comments
regarding these rules in light of the with-
or-within method.
A. Rules relating to the determination of
gross receipts for a short taxable year
The 2018 proposed regulations provid-
ed guidance regarding the determination
of gross receipts for purposes of section
59A. In the case of a taxpayer that has
a short taxable year, the 2018 proposed
regulations annualized the gross receipts
of the taxpayer by multiplying the gross
receipts for the short taxable year by 365
and dividing the result by the number of
days in the short taxable year. See 2018
proposed §1.59A-2(d)(7).
One comment to the 2018 proposed
regulations expressed concern that deter-
mining the gross receipts of a taxpayer
by annualizing a short taxable year could
yield inappropriate results when com-
bined with the rule providing that any ref-
erence to a taxpayer includes a reference
to its predecessor. For example, the com-
ment asserted that if the taxpayer has a full
taxable year but a predecessor had a short
taxable year, it is not clear whether the tax-
able year of the predecessor should be an-
nualized first and then combined with the
year of the taxpayer or whether the taxable
years of the taxpayer and its predecessor
should be combined first, in which case no
annualization may be necessary. The final
regulations do not include a rule on short
taxable years. Instead, and to allow tax-
payers an additional opportunity to com-
ment, these proposed regulations provide
updated guidance with respect to short
taxable years (in particular, for situations
when an aggregate group has a member
with a short taxable year).
In the case of a taxpayer that has a
short taxable year, solely for purposes of
section 59A, these proposed regulations
continue to annualize the gross receipts
of the taxpayer by multiplying the gross
receipts for the short taxable year by 365
and dividing the result by the number of
days in the short taxable year. Proposed
§1.59A-2(c)(5). However, the Treasury
Department and the IRS recognize that
the with-or-within method in §1.59A-2(c)
(3) must be adjusted to prevent the under-
statement or overstatement of the gross
receipts, base erosion tax benefits, and
deductions of an aggregate group in the
case of a taxpayer with a short taxable
year. For example, the with-or-within
method would completely exclude the
taxable year of certain members of an ag-
gregate group if the taxable year of those
members did not end with or within the
taxpayer’s short taxable year.
1
In oth-
er instances, the with-or-within method
combined with an annualization approach
might over-count the gross receipts of
other aggregate group members if the
method is applied by annualizing the full
taxable years of the other members of the
aggregate group that end with or within
the taxpayer’s short taxable year. Specif-
ically, the regulation’s requirement that a
taxpayer annualize gross receipts when
it has a short taxable year could be read
to mean that gross receipts of aggregate
group members (which may have full tax-
able years that end with or within the tax-
payer’s taxable year) also be annualized
on the basis of the taxpayer’s short taxable
year, which could result in over-counting.
In light of these concerns, these proposed
regulations provide that a taxpayer with a
short taxable year must use a reasonable
approach to determine the base erosion
percentage of its aggregate group and
whether the taxpayer or its aggregate
group satisfies the gross receipts test and
base erosion percentage in section 59A. A
reasonable approach should neither over-
count nor under-count the gross receipts,
base erosion tax benefits, and deductions
of the aggregate group of the taxpayer.
The Treasury Department and the IRS
request comments on whether more spe-
cific guidance is needed, and if so, the
best approach for determining the gross
receipts and base erosion percentage of an
aggregate group for purposes of section
59A when the applicable taxpayer or an-
other member of an aggregate group has
a short taxable year. The approach should
neither over-count nor under-count the
gross receipts, base erosion tax benefits,
and deductions of the aggregate group.
The approach should also appropriately
account for short taxable years that result
from a change in a taxpayer’s taxable year
end (in which case the preceding and fol-
lowing taxable years would be full taxable
years) and short taxable years that result
from changes in ownership, such as a join-
ing or leaving a consolidated group (in
which case the preceding or succeeding
taxable year may also be a short taxable
year).
B. Members leaving and joining an
aggregate group
A member may join or leave the ag-
gregate group of a taxpayer because of a
change in ownership of the member such
as a sale of the member to a third party.
A comment to the 2018 proposed regula-
tions requested clarity on whether the de-
termination of gross receipts and the base
erosion percentage of an aggregate group
takes into account the gross receipts, base
erosion tax benefits, and deductions of a
member of the aggregate group for the
period before the member joins the group
or the period after the member leaves the
group. In response to this comment, the
proposed regulations provide guidance
that clarifies the treatment of members
that join or leave the aggregate group of
a taxpayer.
To determine the gross receipts and the
base erosion percentage of a taxpayer with
respect to its aggregate group for purpos-
es of section 59A, these proposed regula-
tions take into account only items of mem-
bers that occur during the period that they
1
For example, assume FC, a foreign corporation, wholly owns DC1, DC2, and DC3, each domestic corporations. DC1, DC2, and DC3 each have a calendar year taxable year. Pursuant to the
with-or-within method, DC1 includes in its aggregate group for Year 1 the taxable years of DC2 and DC3 ending on December 31, Year 1. Subsequently, DC1 changes its taxable year end
to November 30. Accordingly, DC1 has a short taxable year beginning January 1, Year 2 and ending November 30, Year 2. No taxable year of DC2 or DC3 ends with or within the taxable
year of DC1 ending November 30, Year 2. Nonetheless, it would not be appropriate to wholly exclude the gross receipts, base erosion tax benefits, and deductions of DC2 and DC3 from the
aggregate group of DC1 for the taxable year ending November 30, Year 2.

December 23, 2019 1518 Bulletin No. 2019–52
were members of the taxpayer’s aggregate
group. Proposed §1.59A-2(c)(4). Items of
members that occur before a member joins
an aggregate group of a taxpayer or after
a member leaves an aggregate group of a
taxpayer are not taken into account by the
taxpayer. Solely for purposes of determin-
ing which items occurred while a corpora-
tion was a member of an aggregate group
under section 59A, a corporation is treated
as having a deemed taxable year end when
the corporation joins or leaves an aggre-
gate group of a taxpayer. The taxpayer
may determine items attributable to this
deemed short taxable year by either deem-
ing a close of the corporation’s books or,
in the case of items other than extraordi-
nary items (as defined in §1.1502-76(b)(2)
(ii)(C)), making a pro-rata allocation. See
proposed §1.59A-2(c)(4). For an illustra-
tion of this proposed rule, see proposed
§1.59A-2(f)(2), Example 2.
C. Consolidated groups
A comment to the 2018 proposed reg-
ulations expressed concern that gross re-
ceipts arising from intercompany trans-
actions (as defined in §1.1502-13(b)(1))
might be treated as gross receipts of the
selling member (S) when S deconsoli-
dates from a consolidated group (original
consolidated group) and separately joins a
different aggregate group (new aggregate
group). For purposes of section 59A, the
comment to the 2018 proposed regula-
tions recommended that the gross receipts
resulting from intercompany transactions
in which S engaged while a member of
the original consolidated group should not
be counted even after S becomes a mem-
ber of the new aggregate group, despite S
no longer being a member of the original
consolidated group.
The Treasury Department and the IRS
are studying whether it is appropriate to
continue to eliminate gross receipts re-
sulting from intercompany transactions
when members deconsolidate and join a
different aggregate group. Furthermore,
the Treasury Department and the IRS are
aware of more general questions regard-
ing the proper treatment of gross receipts
when members join or deconsolidate from
a consolidated group. These issues are
currently under study, and the proposed
regulations reserve on such issues. The
Treasury Department and the IRS request
comments on the appropriate treatment of
a deconsolidating member’s gross receipts
history as it relates to the original consol-
idated group and the acquiring consol-
idated group in the context of the BEAT
aggregate group.
D. Predecessors
For purposes of determining gross
receipts, the 2018 proposed regulations
provided that a reference to a taxpayer in-
cludes a reference to any predecessor of
the taxpayer. 2018 proposed §1.59A-2(c)
(6)(i). The Treasury Department and the
IRS, however, recognize that the aggre-
gate groups of a taxpayer and its predeces-
sor may overlap. As a result, an interpre-
tation of the predecessor rule that simply
adds the gross receipts of the predecessor
to the gross receipts of the taxpayer’s
aggregate group could result in double
counting of the gross receipts of corpo-
rations that are members of both aggre-
gate groups. These proposed regulations
clarify that, for purposes of section 59A,
the gross receipts of those corporations
included in both aggregate groups are not
double counted. Proposed §1.59A-2(c)(6)
(ii). The Treasury Department and the IRS
request comments on appropriate methods
of taking into account predecessors for
purposes of determining gross receipts of
an applicable taxpayer’s aggregate group.
An appropriate method should avoid dou-
ble-counting and address whether to take
into account the taxable year of a prede-
cessor in determining whether to annual-
ize a short taxable year of a taxpayer.
III. Election to Waive Allowable
Deductions
The final regulations provide that, in
general, the base erosion percentage for
a taxable year is computed by dividing
(1) the aggregate amount of base erosion
tax benefits (the “numerator”) by (2) the
sum of the aggregate amount of deduc-
tions allowed plus certain other base ero-
sion tax benefits (the “denominator”). See
§1.59A-2(e)(3). In general, and consistent
with section 59A(c)(2), the final regula-
tions provide that a base erosion tax ben-
efit is any deduction that is allowed under
chapter 1 of subtitle A of the Code for the
taxable year with respect to a base ero-
sion payment. See §1.59A-3(c)(1)(i). The
final regulations, consistent with section
59A(d)(1), define one category of a base
erosion payment as any amount paid or
accrued by the taxpayer to a foreign relat-
ed party of the taxpayer and with respect
to which a deduction is allowable under
chapter 1 of subtitle A of the Internal Rev-
enue Code. §1.59A-3(b)(1)(i).
Comments to the 2018 proposed regu-
lations requested that the final regulations
clarify that allowable deductions that a
taxpayer declines to claim on its tax re-
turn are not “allowed” deductions, and
therefore, the foregone deductions are not
base erosion tax benefits. These proposed
regulations provide that a taxpayer may
forego a deduction and that those fore-
gone deductions will not be treated as a
base erosion tax benefit if the taxpayer
waives the deduction for all U.S. federal
income tax purposes and follows specified
procedures. Proposed §1.59A-3(c)(6). If
the taxpayer waives a deduction for pur-
poses of section 59A, these proposed reg-
ulations provide that the taxpayer cannot
claim the deduction for any purpose of the
Code or regulations except as otherwise
provided under the proposed regulations.
See proposed §1.59A-3(c)(6)(ii).
The Treasury Department and the IRS
are concerned that in adopting this ap-
proach, absent certain procedural rules,
taxpayers that waive a deduction pursu-
ant to the proposed regulations to reduce
their amount of base erosion tax benefits
could benefit by using some or all of the
foregone deductions in a subsequent year,
while still benefiting from the reduction of
base erosion tax benefits made in the prior
year. Accordingly, proposed §1.59A-3(c)
(6) provides rules to address this concern.
The proposed regulations also include cer-
tain reporting rules concerning deductions
that are waived pursuant to the proposed
regulations, and provide guidance on the
time and manner for electing to waive de-
ductions. Proposed §1.59A-3(c)(6)(i) and
(iii).
Specifically, the proposed regulations
provide that as a baseline, all deductions
that could be properly claimed by a tax-
payer for the taxable year, determined
after giving effect to the taxpayer’s per-
missible method of accounting and to
any election, (such as the election under

Bulletin No. 2019–52 1519 December 23, 2019
section 173 to capitalize circulation ex-
penditures or the election under section
168(g)(7) to use the alternative depreci-
ation system of depreciation), are treated
as allowed deductions solely for purposes
of section 59A(c)(2)(A)(i), unless a tax-
payer elects to waive certain deductions.
See proposed §1.59A-3(c)(5) and (6). As
a result, if a taxpayer does not make an
election to waive a deduction that could
be properly claimed by a taxpayer for the
taxable year pursuant to the procedures
in proposed §1.59A-3(c)(6), and the de-
duction otherwise meets the definition of
a base erosion tax benefit, the deduction
is treated as a base erosion tax benefit for
purposes of section 59A. Consequent-
ly, the deduction is taken into account in
the base erosion percentage, and is taken
into account as an adjustment to modified
taxable income. The proposed regulations
provide that if a taxpayer elects to waive
certain deductions, those deductions are
waived for all tax purposes (except for
certain purposes as explained in part III of
this Explanation of Provisions) and, thus,
are not taken into account as base erosion
tax benefits. Proposed §1.59A-3(c)(6)(ii)
(A)(1). The waiver applies only to the de-
duction, not to the underlying cost or ex-
pense. Thus, a waiver of any portion of a
deduction associated with a particular cost
or expense does not cause the correspond-
ing portion of that cost or expense not to
be a “cost” or “expense.”
A taxpayer may make the election to
waive deductions on its original filed Fed-
eral income tax return, by an amended
return, or during the course of an exam-
ination of the taxpayer’s income tax return
for the relevant tax year pursuant to pro-
cedures prescribed by the Commissioner.
Proposed §1.59A-3(c)(6)(iii). Unless the
Commissioner prescribes specific proce-
dures with respect to waiving deductions
during the course of an examination, the
same procedures that generally apply to
affirmative tax return changes during an
examination will apply. The Treasury De-
partment and the IRS request comments
related to the process for submitting an
election under the proposed regulations
during the course of an examination. The
information related to this waiver must be
reported on the appropriate forms, which
are expected to include Form 8991, Tax
on Base Erosion Payments of Taxpay-
ers With Substantial Gross Receipts, (or
a successor form). Until these proposed
regulations are final, a taxpayer choos-
ing to rely on these proposed regulations
may attach a statement to the Form 8991
to make this election and include the in-
formation listed in proposed §1.59A-3(c)
(6)(i) on that statement. A taxpayer makes
the election on an annual basis, and the
taxpayer does not need the consent of the
Commissioner if the taxpayer chooses not
to make the election for a subsequent tax-
able year. The proposed regulations pro-
vide that the election to waive a deduction
pursuant to proposed §1.59A-3(c)(6) is
disregarded for determining (1) the tax-
payer’s overall method of accounting or
the taxpayer’s method of accounting for
any item; (2) whether a change in the tax-
payer’s overall plan of accounting or the
taxpayer’s treatment of a material item is
a change in method of accounting under
section 446(e) and §1.446-1(e); and (3)
the amount allowable for depreciation
or amortization for purposes of section
167(c) and section 1016(a)(2) or (3), and
any other adjustment to basis under sec-
tion 1016(a). Proposed §1.59A-3(c)(6)
(ii)(B)(1)-(3). The proposed regulations
also provide that the election to waive de-
ductions does not constitute a method of
accounting under section 446. Proposed
§1.59A-3(c)(6)(ii)(C).
In addition, the proposed regulations
provide that the waiver of deductions is
treated as occurring before the allocation
and apportionment of deductions under
§§1.861-8 through -14T and 1.861-17
(such as for purposes of section 904). Pro-
posed §1.59A-3(c)(6)(ii)(A)(2). However,
the waiver of a deduction for interest ex-
pense that is directly allocable to income
produced by a particular asset should not
result in the allocation and apportionment
of additional interest expense to that as-
set. Accordingly, the proposed regulations
provide that to the extent a deduction for
certain interest expense is waived that
would have been directly allocated and re-
sulted in a reduction of value of any asset
for purposes of allocating and apportion-
ing other interest expense, the asset value
is still reduced as if the deduction had not
been waived. Proposed §1.59A-3(c)(6)(ii)
(A)(3).
The waiver of a deduction is also disre-
garded for purposes of applying the exclu-
sive apportionment rule in §1.861-17(b),
in determining the geographic source
where the research and experimental ac-
tivities that account for more than fifty
percent of the amount of the deduction
for research and experimentation was per-
formed. Proposed §1.59A-3(c)(6)(ii)(B)
(4). For example, if this exclusive appor-
tionment rule would not apply in the ab-
sence of waiving deductions for research
and experimentation performed outside
the United States, then waiving those de-
ductions will not result in the exclusive
apportionment rule applying (on the basis
of a smaller pool of deducted expenses,
more than fifty percent of which relate to
research and experimentation performed
in the United States).
The waiver of a deduction is also dis-
regarded for purposes of determining the
price of a controlled transaction under sec-
tion 482. Proposed §1.59A-3(c)(6)(ii)(B)
(5). Accordingly, in determining whether
a deduction that a taxpayer reports on its
Federal income tax return with respect to
a controlled transaction clearly reflects the
taxpayer’s income with respect to the con-
trolled transaction, the IRS will consider
the amount waived as if it were actually
deducted. In addition, if a taxpayer applies
a transfer pricing method that uses costs
or expenses as an input (such as the cost
plus method described in §1.482-3(d)),
the costs or expenses associated with
waived deductions continue to be treated
as “costs” or “expenses” for purposes of
the section 482 regulations because the
waiver impacts the deductible amount
only, not the amount of the underlying
cost or expense.
Furthermore, the waiver of a deduction
is disregarded for purposes of determin-
ing: (1) the amount of a taxpayer’s earn-
ings and profits, (2) any item as necessary
to prevent a taxpayer from receiving the
benefit of a waived deduction, and (3)
any other item that is expressly iden-
tified in published guidance. Proposed
§1.59A-3(c)(6)(ii)(B)(6)-(8).
To ensure a taxpayer is not able to re-
duce the amount of its base erosion tax
benefits via a waiver of deductions in a
prior year and then recover the waived de-
ductions in a subsequent year by making
an accounting method change, the pro-
posed regulations provide that, by mak-
ing the election to waive deductions, the

December 23, 2019 1520 Bulletin No. 2019–52
taxpayer agrees that if a change in method
of accounting is made with respect to an
item that had been waived, the previous-
ly waived portion of the item is not taken
into account in determining the amount
of adjustment under section 481(a). Pro-
posed §1.59A-3(c)(6)(ii)(D). For an illus-
tration of this proposed rule, see proposed
§1.59A-3(d), Example 9. More general-
ly, the Treasury Department and the IRS
are studying the treatment of changes in
method of accounting and the related
section 481 adjustments for purposes of
the BEAT. To the extent that a negative
adjustment under section 481(a) relates
to an increase in an item that would be
a base erosion tax benefit, it is expected
that the section 481(a) adjustment would
also be taken into account as a base ero-
sion tax benefit. In addition, the Treasury
Department and the IRS are considering
other consequences of adjustments under
section 481(a), including (a) how positive
adjustments under section 481(a) are tak-
en into account for BEAT purposes and
(b) whether a waiver similar to the waiv-
er provided in proposed §1.59A-3(c)(6)
should be permitted with respect to nega-
tive section 481(a) adjustments.
The Treasury Department and the IRS
request comments regarding the election
to waive deductions, including the report-
ing requirements and additional rules nec-
essary to prevent a taxpayer from claim-
ing a waived deduction in a subsequent
year. The Treasury Department and the
IRS also request comments on the effect
of adjustments under section 481(a) on the
BEAT, including in the context of waived
items.
IV. Application of the BEAT to
Partnerships
A. Allocations by a partnership of income
instead of deductions
In general, the final regulations treat
deductions allocated by the partnership
to an applicable taxpayer resulting from
a base erosion payment as a base erosion
tax benefit. However, the Treasury De-
partment and the IRS are cognizant that
a partner in a partnership can obtain a
similar economic result if the partnership
allocates income items away from the
partner instead of allocating a deduction
to the partner through curative allocations.
To the extent the partnership places a tax-
payer in such an economically equivalent
position by allocating less income to that
partner in lieu of allocating a deduction to
the partner through curative allocations,
the proposed regulations provide that
the partner is similarly treated as having
a base erosion tax benefit to the extent
of that substitute allocation. Proposed
§1.59A-7(b)(5)(v).
B. Effectively connected income (“ECI”)
Comments to the 2018 proposed regu-
lations recommended that contributions of
depreciable (or amortizable) property by
a foreign related party to a partnership (in
which an applicable taxpayer is a partner)
or distributions of depreciable or amortiz-
able property by a partnership (in which
a foreign related party is a partner) to an
applicable taxpayer be excluded from the
definition of a base erosion payment to the
extent that the foreign related party would
receive (or would be expected to receive)
allocations of income from that partner-
ship interest that would be taxable to the
foreign related party as ECI.
The Treasury Department and the IRS
are considering additional guidance to
address the treatment of a contribution
by a foreign person to a partnership en-
gaged in a U.S. trade or business, as well
as transfers of partnership interests by a
foreign person and transfers of property
by the partnership with a foreign person
as a partner to a related U.S. person. The
Treasury Department and the IRS request
comments addressing how these issues
should be addressed, including rules to en-
sure that the foreign partner is treating the
items allocated with respect to the proper-
ty and any gain from the property as ECI.
C. Partnership anti-abuse rules
1. Derivatives on partnership interests
Section 1.59A-9(b) of the final regu-
lations provides that certain transactions
that have a principal purpose of avoiding
section 59A will be disregarded or deemed
to result in a base erosion payment. These
proposed regulations provide an addition-
al anti-abuse rule relating to derivatives
on partnership interests. See proposed
§1.59A-9(b)(5). The rule provides that a
taxpayer is treated as having a direct inter-
est in the partnership interest or asset if the
taxpayer acquires a derivative on a part-
nership interest or asset with a principal
purpose of eliminating or reducing a base
erosion payment.
2. Allocations by a partnership to prevent
or reduce a base erosion payment
The proposed regulations also provide
an additional anti-abuse rule to prevent a
partnership from allocating items of in-
come with a principal purpose of eliminat-
ing or reducing the base erosion payments
to a taxpayer not acting in a partner capaci-
ty on amounts paid to or accrued by a part-
nership that do not change the economic
arrangement of the partners. For example,
assume that a domestic corporation and
a third party both pay equal amounts to
a partnership with a foreign related par-
ty partner and an unrelated partner (each
having equal interests in the partnership)
for services. If the partnership allocates
the income it receives from the domestic
corporation to the unrelated partner while
allocating an equivalent amount of income
from the third party to the foreign related
party partner with a principal purpose of
eliminating the domestic corporation’s
base erosion payment, the domestic cor-
poration must determine its base erosion
payment as if the allocations had not been
made and the partners shared the income
proportionately. As a result, half of the do-
mestic corporation’s payment would be a
base erosion payment.
D. Return of a partnership with respect to
base erosion payments and base erosion
tax benefits
Pursuant to section 6031 and
§1.6031(a)-1(a), a domestic partnership
must file a return of partnership income for
each taxable year on the form prescribed
for the partnership return. Pursuant to
§1.6031(a)-1(b), with limited exceptions,
a foreign partnership that has gross in-
come that is, or is treated as, effectively
connected with the conduct of a trade or
business within the United States or gross
income (including gains) derived from
sources within the United States must file
a partnership return for its taxable year in

Bulletin No. 2019–52 1521 December 23, 2019
accordance with the rules for domestic
partnerships (such a foreign partnership, a
“reporting foreign partnership”). The part-
nership return must contain the informa-
tion required by the prescribed form and
the accompanying instructions. The IRS
plans to update Form 1065, Schedule K,
and Schedule K-1 to incorporate certain
information that will be necessary for its
partners to complete their Form 8991 or
a successor form. The IRS expects that
these revisions to the Form 1065, Sched-
ule K, and Schedule K-1 will track the in-
formation required by the Form 8991.
As a result of these planned revisions, a
domestic partnership and a reporting for-
eign partnership will be required to report
the information required by Form 8991.
See §1.6031(a)-1(a) and (b)(1)(i). Pro-
posed §1.6031(a)-1(b)(7) provides that
United States partners must determine the
relevant information with respect to the
base erosion payments and base erosion
tax benefits of a foreign partnership that
is not required to file a partnership return.
For a partnership that is required to file a
Form 1065 and Schedule K-1, the Com-
missioner is expected to receive sufficient
information to examine the accuracy of
the partners’ liability under section 59A,
including as a result of items allocated to
the partner by the partnership. For a for-
eign partnership that is not required to file
a Form 1065 and Schedule K-1, proposed
§1.6031(a)-1(b)(7) is intended to ensure
that the Commissioner receives similar in-
formation from the partners of that foreign
partnership.
Proposed Applicability Date
The rules in the section 59A proposed
regulations generally apply to taxable years
beginning on or after the date that final reg-
ulations are filed with the Federal Regis-
ter. The rules in proposed §§1.59A-7(c)(5)
(v) and (g)(2)(x) and 1.59A-9(b)(5) and (6)
apply to taxable years ending on or after
December 2, 2019. As proposed, the sec-
tion 59A regulations will permit taxpayers
to apply the rules therein in their entirety
for taxable years beginning after December
31, 2017, and before the regulations ap-
ply. See section 7805(b)(7). If a taxpayer
applies the 2018 proposed regulations to a
taxable year ending on or before December
6, 2019, the determination as to whether
the taxpayer is applying these proposed
regulations in their entirety to such taxable
year is made without regard to the appli-
cation of §1.59A-2(c)(2)(ii), (c)(4), (c)(5),
and (c)(6).
In addition, taxpayers may rely on the
rules in the section 59A proposed regu-
lations in their entirety for taxable years
beginning after December 31, 2017, and
before the final regulations are applicable.
The rules in the section 6031(a) pro-
posed regulations generally apply to tax-
able years ending on or after the date that
final regulations are filed with the Federal
Register.
Special Analyses
Regulatory Planning and Review –
Economic Analysis
Executive Orders 13563 and 12866
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmoniz-
ing rules, and of promoting flexibility. The
Executive Order 13771 designation for
any final rule resulting from the proposed
regulation will be informed by comments
received. The preliminary Executive Or-
der 13771 designation for this proposed
regulation is regulatory.
These proposed regulations have been
designated as subject to review under
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) (MOA) between the Treasury De-
partment and the Office of Management
and Budget (OMB) regarding review of
tax regulations. The Office of Informa-
tion and Regulatory Affairs (OIRA) has
designated these proposed regulations as
significant under section 1(b) of the MOA.
Accordingly, these proposed regulations
have been reviewed by OIRA.
A. Background
The Tax Cuts and Jobs Act of 2017
(the “Act”) added new section 59A, which
imposes a Base Erosion and Anti-Abuse
Tax (“BEAT”) on certain deductions paid
or accrued to foreign related parties. By
taxing such payments, the BEAT “aims to
level the playing field between U.S. and
foreign-owned multinational corporations
in an administrable way.” Senate Commit-
tee on Finance, Explanation of the Bill, S.
Prt. 115-20, at 391 (November 22, 2017).
In plain language, the tax is levied only
on corporations with substantial gross re-
ceipts (a determination referred to as the
gross receipts test) and for which the rele-
vant deductions are three percent or high-
er (two percent or higher in the case of
certain banks or registered securities deal-
ers) of their total deductions (with certain
exceptions), a determination referred to as
the base erosion percentage test. This cut-
off for the base erosion percentage test is
referred to in these Special Analyses as the
base erosion threshold.
A taxpayer that satisfies both the gross
receipts test and the base erosion percent-
age test is referred to as an applicable tax-
payer. A taxpayer is not an applicable tax-
payer, and thus does not have any BEAT
liability, if its base erosion percentage is
less than the base erosion threshold.
Additional features of the BEAT also
enter its calculation. The BEAT operates
as a minimum tax, so an applicable tax-
payer is only subject to additional tax un-
der the BEAT if the tax at the BEAT rate
multiplied by the taxpayer’s modified tax-
able income exceeds the taxpayer’s regu-
lar tax liability, reduced by certain credits.
Because of this latter provision, the BEAT
formula has the effect of imposing the
BEAT on the amount of those tax credits.
In general, tax credits are subject to the
BEAT except the research credit under
section 41, and a portion of low income
housing credits, renewable electricity pro-
duction credits under section 45, and cer-
tain investment tax credits under section
46. Notably, this means that the foreign
tax credit is currently subject to the BEAT.
In taxable years beginning after December
31, 2025, all tax credits are subject to the
BEAT.
B. Need for the proposed regulations
Section 59A does not explicitly state
whether an amount that is permitted as a
deduction under the Code or regulations

December 23, 2019 1522 Bulletin No. 2019–52
but that is not claimed as a deduction on
a taxpayer’s tax return is potentially a
base erosion tax benefit for purposes of
the BEAT and the base erosion percent-
age test. Comments recommended that
the Treasury Department and the IRS
clarify the treatment of amounts that are
allowable as a deduction but not claimed
as a deduction on a taxpayer’s tax return.
These proposed regulations are needed to
respond to these comments and to clari-
fy the treatment of these amounts under
section 59A. The proposed regulations are
also needed to clarify certain aspects of
the rules set forth in the final regulations
relating to how a taxpayer determines its
aggregate group for purposes of determin-
ing gross receipts and the base erosion
percentage, and how the BEAT applies to
partnerships.
C. Overview of the proposed regulations
The proposed regulations provide tax-
payers an election to waive deductions
that would otherwise be taken into ac-
count in determining whether the taxpay-
er is an applicable taxpayer subject to the
BEAT. This change is analyzed in part D
of these Special Analyses.
These proposed regulations also in-
clude modifications to the rules set forth
in the final regulations relating to how a
taxpayer determines its aggregate group
for purposes of determining gross receipts
and the base erosion percentage, and how
the BEAT applies to partnerships. These
latter modifications to the existing final
rule are not expected to result in any sub-
stantial changes in taxpayer behavior.
D. Economic Analysis
1. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of
the proposed regulations compared to a
no-action baseline that reflects anticipated
Federal income tax-related behavior in the
absence of these proposed regulations.
2. Economic Effects of the Election
to Waive Deductions (Part III of the
Explanation of Provisions)
a. Background and Alternatives
Considered
Section 59A does not explicitly state
whether an amount that is permitted as a
deduction under the Code or regulations
but that is not claimed as a deduction on
the taxpayer’s tax return is potentially a
base erosion tax benefit for the purposes
of the base erosion percentage test. A tax-
payer may find waiving certain deductions
advantageous if the waived deductions
lower the taxpayer’s base erosion per-
centage below the base erosion threshold,
thus making section 59A inapplicable to
the taxpayer. Comments recommended
that the Treasury Department and the IRS
clarify the treatment of allowable amounts
that are not claimed as a deduction on the
taxpayer’s tax return for purposes of sec-
tion 59A.
To address concerns about the treat-
ment of these amounts permitted as deduc-
tions under law, the Treasury Department
and the IRS considered two alternatives
for the proposed guidance: (1) providing
that all deductions that could be properly
claimed by a taxpayer for the taxable year
are taken into account for purposes of the
base erosion percentage test (and for other
purposes of the BEAT) even if a deduction
is not claimed on the taxpayer’s tax return
(the “alternative regulatory approach”);
or (2) providing that an allowable deduc-
tion that a taxpayer does not claim on its
tax return is not taken into account in the
base erosion percentage test or for other
purposes of the BEAT, provided that cer-
tain procedural steps are followed. The
proposed regulations adopt the latter ap-
proach.
Under the alternative regulatory ap-
proach, base erosion payments allowable
as deductions but not claimed by a tax-
payer would nonetheless be taken into
account in the base erosion percentage.
Thus, a taxpayer could not avoid satisfy-
ing the base erosion percentage test by not
claiming certain deductions. Under the
proposed regulations, base erosion pay-
ments allowable as deductions but waived
by a taxpayer are not taken into account in
the base erosion percentage test, assuming
certain procedural steps are followed. The
waived deductions are waived for all U.S.
federal income tax purposes and thus,
for example, the deductions are also not
allowed for regular income tax purposes.
If the taxpayer is not an applicable tax-
payer because it waives deductions so as
not to satisfy the base erosion percentage
test, the taxpayer may continue to claim
deductions for base erosion payments that
are not waived, provided these deductions
would otherwise be allowed.
b. Example
Consider a U.S.-parented multinational
enterprise that satisfies the gross receipts
test and that is not a bank or registered se-
curities dealer. The U.S. corporation has
gross income from domestic sources of
$1000x and also has a net global intangi-
ble low-taxed income (“GILTI”) inclusion
of $500x.
2
The taxpayer has $870x of de-
ductions pertinent to this example that are
not base erosion tax benefits and $30x of
deductions that are base erosion tax bene-
fits. It is also assumed that the amount of
foreign tax credits permitted under section
904(a) is $105x. This taxpayer’s regular
U.S. taxable income is $600x ($1000x +
$500x - $870x - $30x), its regular U.S.
tax rate is 21.0 percent, and its regular
U.S. tax liability is $21x ($600x X 21%
= $126x, less foreign tax credits of $105x
($126x - $105x)).
Under the alternative regulatory ap-
proach, the taxpayer is an applicable tax-
payer because its base erosion percentage
is 3.33 percent ($30x / $900x), which is
greater than the three percent base erosion
threshold. Because the taxpayer is subject
to the BEAT, it must further compute its
modified taxable income, which is $630x
— its regular U.S. taxable income ($600x)
plus its base erosion tax benefits ($30x).
2
For simplification of this example, the $500x GILTI income is presented as the net of the global intangible low-tax income amount of the domestic corporation under section 951A, plus
the section 78 gross up amount for foreign taxes, less the GILTI deduction under section 250(a)(1)(B). The deduction under section 250(a)(1)(B) is not taken into account in determining the
base erosion percentage. See section 59A(c)(4)(B)(i).

Bulletin No. 2019–52 1523 December 23, 2019
The taxpayer determines its base erosion
minimum tax amount as the excess of the
BEAT rate (10 percent) multiplied by its
modified taxable income $63x ($630x X
10%) over its regular U.S. tax liability
of $21x, which is equal to $42x ($63x -
$21x). In this example the total U.S. tax
bill is $63x ($21x of regular tax and $42x
of BEAT).
Under the proposed regulations, this
taxpayer would have the option to waive
all or part of its deductions that are base
erosion payments so that its base erosion
percentage would fall below the base ero-
sion threshold. Specifically, the taxpay-
er could waive $3.10x of its deductions
that are base erosion payments, yielding
a base erosion percentage of less than
the three percent base erosion thresh-
old (base erosion tax benefits = $26.90x
($30x - $3.10x); base erosion percentage
= $26.90x/($870x + $26.90x) = 2.99%).
After taking into account this waiver, the
taxpayer’s regular taxable income would
increase to $603.10x ($1000x + $500x -
$870x - $26.90x), and its regular tax liabil-
ity would increase to $21.65x ($603.10x
X 21% = $126.65, less foreign tax credits
of $105x = $21.65x).
3
The waiver is valu-
able to this taxpayer because its tax bill in
this simple example is lower by $41.35x
($63x - $21.65x).
This example shows the difference in
tax liability caused by allowing deduc-
tions to be waived and thus, the difference
between the proposed regulations and the
alternative regulatory approach. The next
part D.2.c of these Special Analyses dis-
cusses the behavioral incentives and eco-
nomic effects that can result from this tax
treatment.
c. Economic Effects of these Proposed
Regulations
The proposed regulations effectively
allow a taxpayer to make payments that
would be base erosion payments without
becoming an applicable taxpayer. This
provision reduces the effective tax on base
erosion payments for at least some taxpay-
ers, relative to the alternative regulatory
approach. Because of this reduction, the
proposed regulations may lead to a high-
er amount of base erosion payments than
under the alternative regulatory approach.
Any additional base erosion payments
under the proposed regulations would
come from taxpayers who, under the alter-
native regulatory approach, would not be
applicable taxpayers but would be close
to being applicable taxpayers; that is, they
would have base erosion percentages that
were close to but below the base erosion
threshold.
Taxpayers that would be applicable
taxpayers under the alternative regulato-
ry approach will not increase their base
erosion payments under the proposed
regulations. To see this point, consider an
applicable taxpayer under the alternative
regulatory approach with base erosion
payments of $Y. If this taxpayer were to
increase its base erosion payments by $10
and reduce its non-base erosion payments
by $10 (that is, it has substituted base
erosion payments for non-base erosion
payments), its tax bill would generally in-
crease by $1. The fact that this taxpayer
chose base erosion payments of $Y rather
than $Y+10 suggests that this substitution
would be worth less than $1 to the tax-
payer. The substitution is not worth the
increased tax. Next consider this taxpayer
under the proposed regulations. If it elects
to waive sufficient deductions such that
it is not an applicable taxpayer, then the
marginal increase in its tax bill from the
hypothetized substitution is $2.10. Thus,
if this increase in base erosion payments
(and substitution away from non-base ero-
sion payments) is not worthwhile to the
taxpayer under the alternative regulatory
approach, it will not be worthwhile under
the proposed regulations.
This example suggests that to the extent
that there is any increase in base erosion
payments under the proposed regulations,
it will not come from taxpayers that would
be applicable taxpayers under the alterna-
tive regulatory approach and will instead
come from those taxpayers that would not
be applicable taxpayers under the alterna-
tive regulatory approach. These taxpayers
would be able, under the proposed regu-
lations, to take on activities that increase
their base erosion payments but, by waiv-
ing all or part of the deduction for these
activities, avoid crossing the base erosion
threshold. This is the set of taxpayers that
will be the source of any economic effects
arising from the proposed regulations.
As a result of the ability to waive de-
ductions in the proposed regulations, tax-
payers may change business behavior in
two possible ways. First, businesses may
expand economic activities in the United
States even if those activities result in pay-
ments to foreign related parties (i.e., base
erosion payments). For example, under the
alternative regulatory approach a multina-
tional enterprise may decide not to open
an office or manufacturing plant in the
United States if that incremental activity
also resulted in incremental base erosion
payments that would cause the taxpayer to
become an applicable taxpayer. Under the
proposed regulations, this business can
expand its activities in the U.S. and avoid
becoming an applicable taxpayer, provid-
ed it waived sufficient deductions to stay
below the base erosion threshold.
Second, businesses already operating
in the United States may not be discour-
aged from structuring transactions as base
erosion payments under the proposed
regulations. Under the alternative regula-
tory approach, a business might conduct
its transactions through unrelated parties
rather than with a foreign related party
so that its base erosion percentage would
remain below the base erosion threshold.
Under the proposed regulations, this busi-
ness could use a foreign related party rath-
er than an unrelated party for these trans-
actions, without paying the BEAT, again
provided it waived sufficient deductions
to stay below the base erosion threshold.
In each of these cases, a business adopt-
ing these strategies would be presumed to
accrue a non-tax, economic benefit from
using a foreign related party rather than an
unrelated party to conduct this aspect of its
business. Under the proposed regulations,
there is no U.S. tax-related benefit tax as-
sociated with transacting with a foreign
related party and thus any decisions made
by a business to make a base erosion pay-
ment would occur because of the econom-
3
Although the waiver increases the taxpayer’s regular taxable income, the taxpayer’s gross income (in the context of this example) is unchanged. Thus, only the tax liability needs to be
compared across the regulatory approaches to determine whether the taxpayer would benefit from waiving deductions.

December 23, 2019 1524 Bulletin No. 2019–52
ic advantage it provides to the business,
rather than that payment being avoided,
diverted or otherwise distorted because
it would result in the taxpayer becom-
ing an applicable taxpayer subject to the
BEAT. This economic advantage might
arise, for example, because the business
has a closer relationship with the foreign
related party and its transactions with the
foreign related party provide enhanced
managerial control. This economic benefit
accruing to this business would generally
be beneficial to the U.S. economy; this is
particularly true in the first case described
in the preceding paragraphs. While tax-
payers may have compliance costs related
to deciding whether to waive deductions
and ensuring that procedural rules are fol-
lowed, any changes in compliance costs
are expected to be small because the ac-
counting required for the relevant deduc-
tions is essentially the same under both the
proposed regulations and the alternative
regulatory approach.
Note that under the proposed regula-
tions, a taxpayer would in general face
a marginal tax rate that is 21 percentage
points higher on its base erosion payments
than on comparable deductions that are
not base erosion payments. Economic
analysis would conclude that the business
will undertake a base erosion payment
rather than a non-base erosion payment
only if it provides a non-tax benefit at
least this large. Businesses will choose a
different mix of base erosion and non-base
erosion payments under the alternative
regulatory approach, but an analogous in-
ference about the marginal value of a base
erosion payment here (and thus of the dif-
ference between the proposed regulations
and the alternative regulatory approach)
is more complex because the marginal
tax incurred by base erosion payments
near the base erosion threshold depends
on (i) how close the taxpayer would be to
the threshold; (ii) the quantity of its base
erosion payments that are below the base
erosion threshold and subject to tax if the
base erosion threshold is exceeded; and
(iii) other factors affecting the potential
BEAT liability. Because of these factors,
the difference in the non-tax value to busi-
nesses of a marginal base erosion payment
between the proposed regulations and al-
ternative regulatory approach is complex
and not readily inferred.
This said, as a general matter, for tax-
payers who chose to waive deductions un-
der the proposed regulations in order not
to be applicable taxpayers, the Treasury
Department and the IRS expect that rela-
tive to the alternative regulatory approach,
the proposed regulations would tend to:
• Reduce tax costs of additional eco-
nomic activity in the United States by
those taxpayers in the situation where
additional economic activity in the
United States would tend to increase
base erosion payments;
• Reduce tax-related incentives for
otherwise economically inefficient
business, contractual or accounting
changes designed to avoid the taxpay-
er being an applicable taxpayer;
• Continue to fulfill the general intent
and purpose of the statute by not
providing tax incentives for certain
large corporations to make deductible
payments to foreign related parties in
excess of 3 percent of the taxpayer’s
deductions; and
• Reduce the number of taxpayers that
are applicable taxpayers and the over-
all amount of BEAT collected. This
revenue effect is likely to be offset
to some degree by the fact that some
taxpayers are likely to elect to waive
allowable deductions.
The Treasury Department and the IRS
have not attempted to provide a quantita-
tive estimate of the economic consequenc-
es of the proposed regulations relative to
the alternative regulatory approach. Any
increase in base erosion payments under
the proposed regulations depends on the
number of taxpayers that would be close
to the base erosion threshold under the al-
ternative regulatory approach, the quantity
of base erosion payments they would have
under the alternative regulatory approach,
and, most importantly, the economic value
provided by those base erosion payments
relative to alternative economic decisions.
These items are difficult to estimate with
any reasonable precision in part because
they involve economic activities, includ-
ing potential new economic activity in
the United States, that cannot be readi-
ly inferred from existing data or models
available to the Treasury Department and
the IRS.
In the absence of such quantitative es-
timates, the Treasury Department and the
IRS have undertaken a qualitative analy-
sis of the economic effects of the proposed
regulations relative to the alternative regu-
latory approach.
The Treasury Department and the IRS
solicit comments on these findings and
more generally on the economic effects
of these proposed regulations. The Trea-
sury Department and the IRS particular-
ly solicit data, other evidence, or models
that could be used to enhance the rigor of
the process by which the final regulations
might be developed.
d. Number of Affected Taxpayers
These proposed regulations affect all
corporate taxpayers that satisfy the gross
receipts test, base erosion percentage test,
and have base erosion payments. The
Treasury Department and the IRS project
that 3,500 – 4,500 taxpayers may be ap-
plicable taxpayers under the BEAT. This
estimate is based on the number of filers
that (1) filed the Form 1120 series of tax
returns (except for the Form 1120-S), (2)
filed a Form 5471 or Form 5472, and (3)
reported gross receipts of at least $500
million. Because an applicable taxpayer
is defined under section 59A(e)(1)(A) as a
corporation other than a regulated invest-
ment company, a real estate investment
trust, or an S corporation, the Treasury
Department and the IRS have determined
that taxpayers who filed the Form 1120
series of tax returns will be most likely to
be affected by these proposed regulations.
Additionally, the Treasury Department
and the IRS estimated the number of fil-
ers likely to make payments to a foreign
related party based on filers of the Form
1120 series of tax returns who also filed
a Form 5471 or Form 5472 to determine
the number of respondents. Finally, be-
cause an applicable taxpayer is defined
under section 59A(e)(1)(B) as a taxpayer
with average annual gross receipts of at
least $500 million for the 3-taxable-year
period ending with the preceding taxable
year, the Treasury Department and the IRS
estimated the scope of Affected Taxpayers
based on the amount of gross receipts re-
ported by taxpayers filing the Form 1120
series of tax returns.
These projections are based solely on
data with respect to the taxpayer, without
taking into account any members of the

Bulletin No. 2019–52 1525 December 23, 2019
taxpayer’s aggregate group. As many as
100,000 – 110,000 additional taxpayers
may be applicable taxpayers as a result
of being members of an aggregate group.
4

This estimate is based on the number of
taxpayers who filed a Form 1120 and also
filed a Form 5471 or a Form 5472, but
without regard to the gross receipts test.
Current data do not permit an estimate of
the number of taxpayers that would be
close to the base erosion threshold.
E. Paperwork Reduction Act
The collections of information in
these proposed regulations with re-
spect to section 59A are in proposed
§§1.59A-3(c)(5), and 1.6031(a)-1(b)(7).
The collection of information in pro-
posed §§1.59A-3(c)(5) is an election
to waive deductions allowed under the
Code. The election to waive deductions
is made by a taxpayer on its original or
amended income tax return. A taxpayer
makes the election on an annual basis by
completing Form 8991 or as provided in
applicable instructions. The IRS is con-
templating making additional changes
to the Form 8991 to take these proposed
regulations into account.
The collection of information in pro-
posed §1.6031(a)-1(b)(7) requires a part-
ner in a foreign partnership that: (1) is not
required to file a partnership return and
(2) has made a payment or accrual that
is treated as a base erosion payment of a
partner under §1.59A-7(b)(2), to provide
the information necessary to report any
base erosion payments on Form 8991. The
IRS intends that this information will be
collected by completing Form 8991, Tax
on Base Erosion Payments of Taxpayers
With Substantial Gross Receipts, Form
1065, and Schedule K-1. The IRS is con-
templating making revisions to Form
1065, Schedule K, and Schedule K-1 to
take these proposed regulations into ac-
count.
For purposes of the Paperwork Reduc-
tion Act, the reporting burden associated
with the collections of information with
respect to section 59A, will be reflected in
the Paperwork Reduction Act Submission,
associated with Form 8991 (OMB control
number 1545-0123).
The current status of the Paperwork
Reduction Act submissions related to
BEAT is provided in the following table.
The BEAT provisions are included in ag-
gregated burden estimates for the OMB
control numbers listed below which, in
the case of 1545-0123, represents a total
estimated burden time, including all oth-
er related forms and schedules for corpo-
rations, of 3.157 billion hours and total
estimated monetized costs of $58.148
billion ($2017). The burden estimates
provided in the OMB control numbers
below are aggregate amounts that relate
to the entire package of forms associat-
ed with the OMB control number, and
will in the future include but not isolate
the estimated burden of only the BEAT
requirements. These numbers are there-
fore unrelated to the future calculations
needed to assess the burden imposed by
the proposed regulations. The Treasury
Department and IRS urge readers to
recognize that these numbers are dupli-
cates and to guard against overcounting
the burden that international tax provi-
sions imposed prior to the Act. No bur-
den estimates specific to the proposed
regulations are currently available. The
Treasury Department has not estimated
the burden, including that of any new
information collections, related to the
requirements under the proposed regu-
lations. Those estimates would capture
both changes made by the Act and those
that arise out of discretionary authority
exercised in the proposed regulations.
The Treasury Department and the IRS
request comments on all aspects of infor-
mation collection burdens related to the
proposed regulations. In addition, when
available, drafts of IRS forms are posted
for comment at https://apps.irs.gov/app/
picklist/list/draftTaxForms.htm.
4
These estimates are based on current tax filings for taxable year 2017 and do not yet include the BEAT. At this time, the Treasury Department and the IRS do not have readily available data
to determine whether a taxpayer that is a member of an aggregate group will meet all tests to be an applicable taxpayer for purposes of the BEAT.
FormType of Filer
OMB Num-
ber(s)
Status
Form 8991
Business (NEW
Model)
1545-0123Published in the FRN on 10/11/18. Public Comment period closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Related New or Revised Tax Forms
NewRevision of existing formNumber of respondents (2018, estimated)
Form 8991Y3,500 – 4,500
The number of respondents in the Re-
lated New or Revised Tax Forms table
was estimated by Treasury’s Office of Tax
Analysis based on data from IRS Com-
pliance Planning and Analytics using tax
return data for tax years 2015 and 2016.
Data for Form 8991 represent preliminary
estimates of the total number of taxpay-
ers which may be required to file the new
Form 8991. Only certain large corporate
taxpayers with gross receipts of at least
$500 million are expected to file this form.
F. Regulatory Flexibility Act
It is hereby certified that these regula-
tions will not have a significant economic
impact on a substantial number of small
entities within the meaning of section

December 23, 2019 1526 Bulletin No. 2019–52
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6). This certification is
based on the fact that these regulations
will primarily affect aggregate groups of
corporations with average annual gross
receipts of at least $500 million and that
make payments to foreign related parties.
Generally only large businesses both have
substantial gross receipts and make pay-
ments to foreign related parties.
Notwithstanding this certification, the
Treasury Department and the IRS invite
comments from the public about the im-
pact of this proposed rule on small enti-
ties.
Pursuant to section 7805(f), these reg-
ulations will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business.
G. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions be-
fore issuing a final rule that includes any
Federal mandate that may result in expen-
ditures in any one year by a state, local, or
tribal government, in the aggregate, or by
the private sector, of $100 million in 1995
dollars, updated annually for inflation.
In 2019, that threshold is approximately
$154 million. This rule does not include
any Federal mandate that may result in ex-
penditures by state, local, or tribal govern-
ments, or by the private sector in excess of
that threshold.
H. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. This proposed rule
does not have federalism implications and
does not impose substantial direct compli-
ance costs on state and local governments
or preempt state law within the meaning
of the Executive Order.
Comments and Request for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “Addresses”
heading. The Treasury Department and
the IRS request comments on all aspects of
the proposed rules. See also parts II and III
of the Explanation of Provisions (request-
ing specific comments related to the ag-
gregate group rules in light of the with-or-
without method and the election to waive
allowable deductions, respectively) and
parts II.C., II.D., and IV.B. of the Expla-
nation of Provisions (requesting specific
comments related to the appropriate treat-
ment of a deconsolidating member’s gross
receipts history, appropriate methods of
taking into account predecessors and suc-
cessors for purposes of determining gross
receipts of an applicable taxpayer’s aggre-
gate group, and the treatment of transac-
tions involving partnerships engaged in a
U.S. trade or business, respectively).
All comments will be available at www.
regulations.gov or upon request. A public
hearing will be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in the Federal Register.
Drafting Information
The principal authors of the proposed
regulations are Azeka J. Abramoff, Shei-
la Ramaswamy and Karen Walny of the
Office of Associate Chief Counsel (Inter-
national). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2 Section1.59A-2, as added in a fi-
nal rule published elsewhere in this issue
of the Federal Register, effective Decem-
ber 6, 2019, is amended by adding para-
graphs (c)(2)(ii), (c)(4) through (6), and
paragraph (f)(2) to read as follows:
§1.59A-2 Applicable taxpayer.
* * * * * *
(c) * * *
(2) * * *
(ii) Change in the composition of an
aggregate group. A change in ownership
of the taxpayer (for example, a sale of the
taxpayer to a third party) does not cause
the taxpayer to leave its own aggregate
group. Instead, any members of the tax-
payer’s aggregate group before the change
in ownership that are no longer members
following the change in ownership are
treated as having left the taxpayer’s ag-
gregate group, and any new members
that become members of the taxpayer’s
aggregate group following the change in
ownership are treated as having joined the
taxpayer’s aggregate group. A change in
ownership of another member of the ag-
gregate group of the taxpayer (for exam-
ple, a sale of the member to a third party)
may result in the member joining or leav-
ing the aggregate group of the taxpayer.
See paragraph (c)(4) of this section for the
treatment of members joining or leaving
the aggregate group of a taxpayer.
* * * * *
(4) Periods before and after a corpora-
tion is a member of an aggregate group.
Solely for purposes of this section, to de-
termine the gross receipts and the base ero-
sion percentage of the aggregate group of
a taxpayer, the taxpayer takes into account
only the portion of another corporation’s
taxable year during which the corporation
is a member of the aggregate group of the
taxpayer. The gross receipts of an aggre-
gate group of a taxpayer attributable to
a member of the aggregate group are not
reduced as a result of the member leav-
ing the aggregate group of the taxpayer.
Solely for purposes of this paragraph (c),
when a member joins or leaves the aggre-
gate group of a taxpayer in a transaction
that does not result in the member having
a taxable year-end, the member is treated
as having a taxable year end (deemed tax-
able year-end) immediately before joining
or leaving the group. For purposes of this

Bulletin No. 2019–52 1527 December 23, 2019
paragraph (c)(4), a corporation that has a
deemed taxable year-end may determine
gross receipts, base erosion tax benefits,
and deductions attributable to that year by
either treating the corporation’s books as
closing at the deemed taxable year-end or,
in the case of items other than extraordi-
nary items (as defined in §1.1502-76(b)(2)
(ii)(C)), allocating those items on a pro-ra-
ta basis without a closing of the books.
(5) Treatment of short taxable year.
Solely for purposes of this section, if a
taxpayer has a taxable year of fewer than
12 months (a short period), gross receipts
are annualized by multiplying the gross
receipts for the short period by 365 and
dividing the result by the number of days
in the short period. When a taxpayer has a
taxable year that is a short period, the tax-
payer must use a reasonable approach to
determine the gross receipts and base ero-
sion percentage of its aggregate group for
the short period. A reasonable approach
should neither over-count nor under-count
the gross receipts, base erosion tax bene-
fits, and deductions of the aggregate group
of the taxpayer, even if the taxable year
of a member or members of the aggre-
gate group does not end with or within the
short period.
(6) Treatment of predecessors—(i) In
general. Solely for purposes of this sec-
tion, in determining gross receipts under
paragraph (d) of this section, any refer-
ence to a taxpayer includes a reference
to any predecessor of the taxpayer. For
this purpose, a predecessor includes the
distributor or transferor corporation in a
transaction described in section 381(a) in
which the taxpayer is the acquiring corpo-
ration.
(ii) No duplication. If the taxpayer
or any member of its aggregate group is
also a predecessor of the taxpayer or any
member of its aggregate group, the gross
receipts, base erosion tax benefits, and de-
ductions of each member are taken into
account only once.
* * * * *
(f) * * *
(2) Example 2: Member leaving an
aggregate group—(i) Facts. Parent Cor-
poration wholly owns Corporation 1 and
Corporation 2. Each corporation is a do-
mestic corporation and a calendar year
taxpayer that does not file a consolidated
return. The aggregate group of Corpora-
tion 1 includes Parent Corporation and
Corporation 2. At noon on June 30, Year
1, Parent Corporation sells the stock of
Corporation 2 to Corporation 3, an unre-
lated domestic corporation, in exchange
for cash consideration. Before the acqui-
sition, Corporation 3 was not a member
of an aggregate group. Corporation 2 and
Corporation 3 do not file a consolidated
return.
(ii) Analysis. (A) For purposes of sec-
tion 59A, to determine the gross receipts
and base erosion percentage of the aggre-
gate group of Corporation 1 for calendar
Year 1, Corporation 2 is treated as having
a taxable year end immediately before
noon on June 30, Year 1, as a result of
the sale. The aggregate group of Corpo-
ration 1 takes into account only the gross
receipts, base erosion tax benefits, and
deductions of Corporation 2 attributable
to the period from January 1 to immedi-
ately before noon on June 30 of Year 1.
The same results apply to the aggregate
group of Parent Corporation for calendar
Year 1.
(B) For purposes of section 59A, to
determine the gross receipts and base
erosion percentage of the aggregate
group of Corporation 2 for calendar Year
1, each of Parent Corporation, Corpora-
tion 1, and Corporation 3 are treated as
having a taxable year end at immediately
before noon on June 30, Year 1. Because
Corporation 2 does not have a short tax-
able year, paragraph (c)(5) of this sec-
tion does not apply. The aggregate group
of Corporation 2 takes into account the
gross receipts, base erosion tax benefits,
and deductions of Parent Corporation
and Corporation 1 attributable to the pe-
riod from January 1 to immediately be-
fore noon on June 30 of Year 1, and the
gross receipts, base erosion tax benefits,
and deductions of Corporation 3 attribut-
able to the period from noon on June 30
to December 31 of Year 1.
Par. 3. Sections 1.59A-3, as added in a
final rule published elsewhere in this issue
of the Federal Register, effective Decem-
ber 6, 2019, is amended by adding para-
graphs (c)(5) and (6) and (d)(8) and (9) to
read as follows:
§1.59A-3 Base erosion payments and
base erosion tax benefits.
* * * * *
(c) * * *
(5) Allowed deduction. Solely for pur-
poses of paragraph (c)(1) of this section,
all deductions that could be properly
claimed by a taxpayer for the taxable year
(determined after giving effect to the tax-
payer’s permissible method of accounting
and to any election, such as the election
under section 173 to capitalize circulation
expenditures or the election under section
168(g)(7) to use the alternative depreci-
ation system of depreciation) are treated
as allowed deductions under chapter 1 of
subtitle A of the Internal Revenue Code.
(6) Election to waive allowed deduc-
tions—(i) In general. Solely for purposes
of paragraph (c)(1) of this section, if a tax-
payer elects to waive certain deductions,
the amount of allowed deductions as de-
fined in paragraph (c)(5) of this section is
reduced by the amount of deductions that
are properly waived under this paragraph
(c)(6)(i). To make this election, a taxpayer
must provide information related to each
deduction waived as required by applica-
ble forms and instructions issued by the
Commissioner, including—
(A) A detailed description of the item
or property to which the deduction relates,
including sufficient information to identi-
fy that item or property on the taxpayer’s
books and records;
(B) The date on which, or period in
which, the waived deduction was paid or
accrued;
(C) The provision of the Internal Reve-
nue Code (and regulations, as applicable)
that allows the deduction for the item or
property to which the election relates;
(D) The amount of the deduction that is
claimed for the taxable year with respect
to the item or property;
(E) The amount of the deduction being
waived for the taxable year with respect to
the item or property;
(F) A description of where the deduc-
tion is reflected (or would have been re-
flected) on the Federal income tax return
(schedule and line number); and
(G) The name, EIN (if applicable), and
country of organization of the foreign re-
lated party that is or will be the recipient
of the payment that generates the deduc-
tion.
(ii) Effect of election to waive deduc-
tion—(A) In general—(1) Consistent
treatment. Except as otherwise provided
in this paragraph (c)(6)(ii), any deduction

December 23, 2019 1528 Bulletin No. 2019–52
waived under paragraph (c)(6) of this
section is treated as having been waived
for all purposes of the Code and regula-
tions.
(2) No allocation and apportionment
of waived deductions. The waiver of
deductions described in this paragraph
(c)(6) is treated as occurring before the
allocation and apportionment of deduc-
tions under §§1.861-8 through -14T and
1.861-17 (such as for purposes of section
904).
(3) Effect of waiver of deductions de-
scribed in §§1.861-10 and §1.861-10T.
To the extent that any waived deduction is
interest expense that would have been di-
rectly allocated under the rules of §§1.861-
10 or §1.861-10T and would have resulted
in the reduction of value of any assets for
purposes of allocating other interest ex-
pense under §§1.861-9 and 1.861-9T, the
value of the assets is reduced to the same
extent as if the taxpayer had not elected to
waive the deduction.
(B) Effect of the election to waive de-
ductions disregarded for certain purposes.
If a taxpayer makes the election to waive a
deduction, in whole or in part, under para-
graph (c)(6)(i) of this section, the election
is disregarded for determining—
(1) The taxpayer’s overall method of
accounting, or the taxpayer’s method of
accounting for any item, under section
446 and the regulations in this part under
section 446;
(2) Whether a change in the taxpay-
er’s overall plan of accounting or the tax-
payer’s treatment of a material item is a
change in method of accounting under
section 446(e) and §1.446-1(e);
(3) The amount allowable under subti-
tle A of the Code for depreciation or amor-
tization for purposes of section 167(c) and
section 1016(a)(2) or section 1016(a)(3)
and any other adjustment to basis under
section 1016(a);
(4) For purposes of applying the exclu-
sive apportionment rule in §1.861-17(b),
the geographic source where the research
and experimental activities which account
for more than fifty percent of the amount
of the deduction for research and experi-
mentation was performed;
(5) The application of section 482 and
the regulations under section 482;
(6) The amount of the taxpayer’s earn-
ings and profits; and
(7) Any other item as necessary to pre-
vent a taxpayer from receiving the benefit
of a waived deduction.
(C) Not a method of accounting. The
election described in paragraph (c)(6)(i)
of this section is not a method of account-
ing under section 446 and the regulations
in this part under section 446.
(D) Effect of the election in determin-
ing section 481(a) adjustments. A taxpay-
er making the election described in para-
graph (c)(6)(i) of this section agrees that
if the method of accounting for a waived
deduction is changed, the amount of ad-
justment taken into account under section
481(a)(2) is determined without regard to
the election described in paragraph (c)(6)
(i) of this section. As a result, a waived
deduction has no effect on the amount of
a section 481(a) adjustment compared to
what the adjustment would have been if
the deduction had not been waived.
(iii) Time and manner for election to
waive deduction. A taxpayer may make the
election described in paragraph (c)(6)(i)
of this section on its original filed Federal
income tax return. In addition, a taxpayer
may elect to waive deductions or increase
the amount of deductions waived pursu-
ant to the election described in paragraph
(c)(6)(i) of this section on an amended
Federal income tax return filed within the
later of 3 years from the date the original
return was filed, taking into account sec-
tion 6501(b)(1), for the taxable year for
which the election is made or the period
described in section 6501(c)(4), or during
the course of an examination of the tax-
payer’s income tax return for the relevant
tax year pursuant to procedures prescribed
by the Commissioner. However, a taxpay-
er may not decrease the amount of deduc-
tions waived by the election, or otherwise
revoke the election that is described in
paragraph (c)(6)(i) of this section on any
amended Federal income tax return or
during the course of an examination. To
make the election, a taxpayer must com-
plete the appropriate part of Form 8991,
Tax on Base Erosion Payments of Taxpay-
ers With Substantial Gross Receipts, (or
successor), including the information de-
scribed in paragraph (c)(6)(i) of this sec-
tion and any other information required by
the form or instructions. A taxpayer makes
the election described in paragraph (c)(6)
(i) of this section on an annual basis, and
the taxpayer does not need the consent of
the Commissioner if the taxpayer chooses
not to make the election for a subsequent
taxable year. The election described in
paragraph (c)(6)(i) of this section may not
be made in any other manner (for exam-
ple, by filing an application for a change
in accounting method).
(d) * * *
(8) Example 8: Effect of election to waive deduc-
tion on method of accounting—(i) Facts. DC, a do-
mestic corporation, purchased and placed in service
a depreciable asset (Asset A) from a foreign related
party on the first day of its taxable year 1 for $100x.
DC elects to use the alternative depreciation system
under section 168(g) to depreciate all properties
placed in service during taxable year 1. Asset A is
not eligible for the additional first year depreciation
deduction. Beginning in taxable year 1, DC depre-
ciates Asset A under the alternative depreciation
system using the straight-line depreciation method,
a 5-year recovery period, and the half-year conven-
tion. This depreciation method, recovery period, and
convention are permissible for Asset A under section
168(g). On its timely filed original Federal income
tax return for taxable year 1, DC does not elect to
waive any deductions and DC claims a depreciation
deduction of $10x for Asset A. On its timely filed
original Federal income tax return for taxable year 2,
DC does not elect to waive any deductions and DC
claims a depreciation deduction of $20x for Asset A.
During taxable year 3, DC files an amended return
for taxable year 1 to elect to waive the depreciation
deduction for Asset A and reports in accordance with
paragraph (c)(6)(i) of this section with its amend-
ed return for taxable year 1 that the amount of the
waived depreciation deduction for Asset A is $10x
and the amount of the claimed depreciation deduc-
tion is $0x.
(ii) Analysis— Pursuant to paragraph (c)(6)(ii)
(B)(1) of this section, DC’s election to waive the
depreciation deduction for Asset A for taxable year
1 is disregarded for determining DC’s method of ac-
counting for Asset A. Accordingly, after DC’s elec-
tion to waive the depreciation deduction for Asset A
for taxable year 1, DC’s method of accounting for
depreciation for Asset A continues to be the straight-
line depreciation method, a 5-year recovery period,
and the half-year convention. Pursuant to paragraph
(c)(6)(ii)(C) of this section, the election made by DC
in taxable year 3 on its amended return for taxable
year 1 is not a method of accounting.
(9) Example 9: Change of accounting method
when taxpayer has waived a deduction—(i) Facts.
DC, a domestic corporation, purchased and placed in
service a depreciable asset (Asset B) from a foreign
related party on the first day of its taxable year 1 for
$100x. DC elects to use the alternative depreciation
system under section 168(g) to depreciate all proper-
ties placed in service during taxable year 1. Asset B
is not eligible for the additional first year deprecia-
tion deduction. Beginning in taxable year 1, DC de-
preciates Asset B under the alternative depreciation
system using the straight-line depreciation method, a
10-year recovery period, and the half-year conven-
tion. Under this method of accounting, the deprecia-
tion deductions for Asset B are $5x for taxable year

Bulletin No. 2019–52 1529 December 23, 2019
1 and $10x for taxable year 2. However, for taxable
years 1 and 2, DC elects to waive $3x and $6x, re-
spectively, of the depreciation deductions for Asset B
and reports the information required under paragraph
(c)(6)(i) of this section with its returns. In taxable
year 3, DC realizes that the correct recovery period
for Asset B is 5 years. If DC had used the correct
recovery period for Asset B, the depreciation deduc-
tions for Asset B would have been $10x for taxable
year 1 and $20x for taxable year 2. DC timely files
a Form 3115 to change its method of accounting for
Asset B from a 10-year recovery period to a 5-year
recovery period, beginning with taxable year 3. DC
was not under examination as of the date on which it
timely filed this Form 3115.
(ii) Analysis—(A) Computation of the sec-
tion 481(a) adjustment. In determining the net
negative section 481(a) adjustment for this method
change, DC compares the depreciation deductions
under its present method of accounting to the de-
preciation deductions under its proposed method of
accounting. Pursuant to paragraph (c)(6)(ii)(D) of
this section, DC agreed that, by making the election
to waive depreciation deductions for Asset B, DC
will not take into account the fact that depreciation
deductions for Asset B were waived under para-
graph (c)(6)(i) of this section. Accordingly, DC’s net
negative section 481(a) adjustment for this method
change is $15x, which is calculated by determining
the difference between the depreciation deductions
for Asset B for taxable years 1 and 2 under DC’s
present method of accounting ($15x) and the depre-
ciation deductions that would have been allowable
for Asset B for taxable years 1 and 2 under DC’s pro-
posed method of accounting ($30x).
(B) Computation of basis adjustments. Pursuant
to paragraph (c)(6)(ii)(B)(3) of this section, DC’s
elections to waive the depreciation deductions for
Asset B for taxable years 1 and 2 are disregarded for
determining the amount allowable for depreciation
for purposes of section 1016(a)(2). The amount al-
lowable for depreciation of Asset B is determined
based on the proper method of computing depreci-
ation for Asset B. Accordingly, Asset B’s adjusted
basis at the end of taxable year 1 is $90x ($100x -
$10x) and at the end of taxable year 2 is $70x ($90x
- $20x).
Par. 4. Section 1.59A-7, as added in a
final rule published elsewhere in this issue
of the Federal Register, effective Decem-
ber 6, 2019, is amended by adding para-
graphs (c)(5)(v) and (g)(2)(x) to read as
follows:
§1.59A-7 Application of base erosion
and anti-abuse tax to partnerships.
* * * * *
(c) * * *
(5) * * *
(v) Allocations of income in lieu of de-
ductions. If a partnership adopts the cu-
rative method of making section 704(c)
allocations under §1.704-3(c), the alloca-
tion of income to the contributing partner
in lieu of a deduction allocation to the
non-contributing partner is treated as a
deduction for purposes of section 59A in
an amount equal to the income allocation.
See paragraph (g)(2)(x) of this section
(Example 10) for an example illustrating
the application of this paragraph (c)(5)(v).
* * * * *
(g) * * *
(2) * * *
(x) Example 10: Section 704(c) and curative al-
locations—(A) Facts. The facts are the same as in
paragraph (d)(2)(ii)(A) of this section (the facts in
Example 2), except that DC’s property is not depre-
ciable, PRS uses the traditional method with curative
allocations under §1.704-3(c), and the curative allo-
cations are to be made from operating income. Also
assume that the partnership has $20x of gross operat-
ing income in each year and a curative allocation of
the operating income satisfies the “substantially the
same effect” requirement of §1.704-3(c)(3)(iii)(A).
(B) Analysis. The analysis and results are the
same as in paragraph (d)(2)(i)(B) of this section (the
analysis in Example 1), except that actual depreci-
ation is $8x ($40x/5) per year and the ceiling rule
shortfall under §1.704-3(b)(1) of $2x per year is cor-
rected with a curative allocation of income from DC
to FC is $2x per year. Solely for U.S. federal income
tax purposes, each year FC is allocated $12x of total
operating income and DC is allocated $8x of operat-
ing income. Both the actual depreciation deduction
to DC and the curative allocation of income from DC
are base erosion tax benefits to DC under paragraph
(d)(1) of this section.
Par. 5. Section1.59A-9, as added in a
final rule published elsewhere in this issue
of the Federal Register, effective Decem-
ber 6, 2019, is amended by adding para-
graphs (b)(5) and (6) to read as follows:
§1.59A-9 Anti-abuse and recharacter-
ization rules.
* * * * *
(b) * * *
(5) Transactions involving derivatives
on a partnership interest. If a taxpayer
acquires a derivative on a partnership in-
terest (or partnership assets) as part of a
transaction (or series of transactions), plan
or arrangement that has as a principal pur-
pose of avoiding a base erosion payment
(or reducing the amount of a base erosion
payment) and the partnership interest (or
partnership assets) would have resulted in
a base erosion payment had the taxpayer
acquired that interest (or partnership as-
set) directly, then the taxpayer is treated
as having a direct interest instead of a
derivative interest for purposes of apply-
ing section 59A. A derivative interest in a
partnership includes any contract (includ-
ing any financial instrument) the value of
which, or any payment or other transfer
with respect to which, is (directly or indi-
rectly) determined in whole or in part by
reference to the partnership, including the
amount of partnership distributions, the
value of partnership assets, or the results
of partnership operations.
(6) Allocations to eliminate or reduce
a base erosion payment. If a partnership
receives (or accrues) income from a per-
son not acting in a partner capacity (in-
cluding a person who is not a partner) and
allocates that income to its partners with a
principal purpose of avoiding a base ero-
sion payment (or reducing the amount of a
base erosion payment) , then the taxpayer
transacting with the partnership will deter-
mine its base erosion payment as if the al-
locations had not been made and the items
of income had been allocated proportion-
ately. The preceding sentence applies only
when the allocations, in combination with
any related allocations, do not change the
economic arrangement of the partners to
the partnership.
* * * * *
Par. 6. Section 1.59A-10, as added in a
final rule published elsewhere in this issue
of the Federal Register, effective Decem-
ber 6, 2019, is revised to read as follows:
§1.59A-10 Applicability date.
(a) General applicability date. Sec-
tions 1.59A-1 through 1.59A-9, other
than the provisions described in the first
sentence of paragraph (b) of this section,
apply to taxable years ending on or after
December 17, 2018. However, taxpay-
ers may apply these regulations in their
entirety for taxable years beginning after
December 31, 2017, and ending before
December 17, 2018. In lieu of applying
these regulations, taxpayers may apply the
provisions matching §§1.59A-1 through
1.59A-9 from the Internal Revenue Bul-
letin (IRB) 2019-02 (https://www.irs.gov/
pub/irs-irbs/irb19-02.pdf) in their entirety
for all taxable years ending on or before
December 6, 2019.
(b) Exception. Sections 1.59A-2(c)(2)
(ii) and (c)(4) through (6) and 1.59A-3(c)
(5) and (6) apply to taxable years begin-
ning on or after December 6, 2019, and
§§1.59A-7(c)(5)(v) and 1.59A-9(b)(5) and
(6) apply to taxable years ending on or af-
ter December 2, 2019. However, taxpayers
may apply these provisions in their entirety
for taxable years beginning after December
31, 2017, and before the final regulations
are applicable. If a taxpayer is applying the

December 23, 2019 1530 Bulletin No. 2019–52
provisions described in the last sentence of
paragraph (a) of this section, the taxpayer’s
failure to apply §1.59A-2(c)(2)(ii) and (c)
(4) through (6) to taxable years ending on
or before December 6, 2019 is not taken
into account for purposes of applying the
preceding sentence.
* * * * *
Par. 7. Section 1.6031(a)-1 is amended
by adding paragraphs (b)(7) and (f)(3) to
read as follows:
§1.6031(a)-1 Return of partnership in-
come.
* * * * *
(b) * * *
(7) Filing obligation for certain part-
ners of certain foreign partnerships with
respect to base erosion payments. If a
foreign partnership is not required to file
a partnership return and the foreign part-
nership has made a payment or accrual that
is treated as a base erosion payment of a
partner as provided in §1.59A-7(b)(2), a
person required to file a Form 8991 (or suc-
cessor) who is a partner in the partnership
must provide the information necessary to
report any base erosion payments on Form
8991 (or successor) or the related instruc-
tions. This paragraph does not apply to any
partner described in §1.59A-7(b)(4).
* * * * *
(f) * * *
(3) Paragraph (b)(7) of this section ap-
plies to taxable years ending on or after
the date that final regulations are filed with
the Federal Register.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on De-
cember 2, 2019, 4:15 p.m., and published in the issue
of the Federal Register for December 6, 2019, 84
F.R. 67046)

Bulletin No. 2019–52 i December 23, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

December 23, 2019 ii Bulletin No. 2019–52
Numerical Finding List
1
Bulletin 2019–52
AOD:
2019-02, 2019-41 I.R.B. 806
2019-03, 2019-42 I.R.B. 934
Announcements:
2019-07, 2019-27 I.R.B. 62
2019-08, 2019-32 I.R.B. 621
2019-10, 2019-46 I.R.B. 1049
Notices:
2019-12, 2019-27 I.R.B. 57
2019-40, 2019-27 I.R.B. 59
2019-41, 2019-28 I.R.B. 256
2019-42, 2019-29 I.R.B. 352
2019-27, 2019-31 I.R.B. 484
2019-43, 2019-31 I.R.B. 487
2019-24, 2019-31 I.R.B. 489
2019-45, 2019-32 I.R.B. 593
2019-48, 2019-36 I.R.B. 678
2019-46, 2019-37 I.R.B. 695
2019-49, 2019-37 I.R.B. 699
2019-50, 2019-37 I.R.B. 700
2019-47, 2019-39 I.R.B. 731
2019-51, 2019-41 I.R.B. 866
2019-52, 2019-41 I.R.B. 869
2019-54, 2019-42 I.R.B. 935
2019-55, 2019-42 I.R.B. 937
2019-58, 2019-44 I.R.B. 1022
2019-56, 2019-45 I.R.B. 1046
2019-59, 2019-47 I.R.B. 1091
2019-60, 2019-49 I.R.B. 1292
2019-61, 2019-49 I.R.B. 1294
2019-63, 2019-51 I.R.B. 1390
2019-64, 2019-52 I.R.B. 1505
2019-65, 2019-52 I.R.B. 1507
2019-66, 2019-52 I.R.B. 1509
2019-67, 2019-52 I.R.B. 1510
Proposed Regulations:
REG-105476-18, 2019-27 I.R.B. 63
REG-106282-18, 2019-28 I.R.B. 259
REG-101828-19, 2019-29 I.R.B. 412
REG-106877-18, 2019-30 I.R.B. 441
REG-121508-18, 2019-30 I.R.B. 456
REG-105474-18, 2019-31 I.R.B. 493
REG-118425-18, 2019-31 I.R.B. 539
REG-130700-14, 2019-36 I.R.B. 681
REG-101378-19, 2019-37 I.R.B. 702
REG-104554-18, 2019-39 I.R.B. 737
REG-104870-18, 2019-39 I.R.B. 754
REG-102508-16, 2019-40 I.R.B. 777
REG-125710-18, 2019-40 I.R.B. 785
Proposed Regulations:—Continued
REG-106808-19, 2019-41 I.R.B. 912
REG-136401-18, 2019-42 I.R.B. 960
REG-104223-18, 2019-43 I.R.B. 989
REG-118784-18, 2019-44 I.R.B. 1024
REG-128246-18, 2019-44 I.R.B. 1037
REG-123112-19, 2019-47 I.R.B. 1104
REG-131071-18, 2019-48 I.R.B. 1217
REG-132210-18, 2019-48 I.R.B. 1232
REG-118378-19, 2019-50 I.R.B. 1310
REG-112607-19, 2019-52 I.R.B. 1516
Revenue Rulings:
2019-16, 2019-28 I.R.B. 96
2019-17, 2019-32 I.R.B. 583
2019-18, 2019-35 I.R.B. 668
2019-19, 2019-36 I.R.B. 674
2019-20, 2019-36 I.R.B. 675
2019-21, 2019-38 I.R.B. 708
2019-22, 2019-40 I.R.B. 776
2019-23, 2019-41 I.R.B. 807
2019-24, 2019-44 I.R.B. 1004
2019-25, 2019-45 I.R.B. 1042
2019-26, 2019-49 I.R.B. 1286
2019-27, 2019-51 I.R.B. 1378
2019-28, 2019-52 I.R.B. 1401
Revenue Procedures:
2019-24, 2019-29 I.R.B. 353
2019-28, 2019-32 I.R.B. 596
2019-29, 2019-32 I.R.B. 620
2019-30, 2019-33 I.R.B. 638
2019-31, 2019-33 I.R.B. 643
2019-32, 2019-33 I.R.B. 659
2019-33, 2019-34 I.R.B. 662
2019-34, 2019-35 I.R.B. 669
2019-23, 2019-38 I.R.B. 725
2019-36, 2019-38 I.R.B. 729
2019-37, 2019-39 I.R.B. 731
2019-35, 2019-41 I.R.B. 870
2019-38, 2019-42 I.R.B. 942
2019-39, 2019-42 I.R.B. 945
2019-40, 2019-43 I.R.B. 982
2019-41, 2019-44 I.R.B. 1022
2019-44, 2019-47 I.R.B. 1093
2019-43, 2019-48 I.R.B. 1107
2019-45, 2019-48 I.R.B. 1215
2019-42, 2019-49 I.R.B. 1298
2019-46, 2019-49 I.R.B. 1301
2019-48, 2019-51 I.R.B. 1392
Treasury Decisions:
9863, 2019-27 I.R.B. 1
9864, 2019-27 I.R.B. 6
9865, 2019-27 I.R.B. 27
9867, 2019-28 I.R.B. 98
Treasury Decisions:—Continued
9868, 2019-28 I.R.B. 252
9866, 2019-29 I.R.B. 261
9861, 2019-30 I.R.B. 433
9869, 2019-30 I.R.B. 438
9862, 2019-31 I.R.B. 477
9872, 2019-32 I.R.B. 585
9871, 2019-33 I.R.B. 624
9873, 2019-33 I.R.B. 630
9874, 2019-41 I.R.B. 809
9875, 2019-41 I.R.B. 856
9876, 2019-44 I.R.B. 1005
9877, 2019-44 I.R.B. 1007
9878, 2019-45 I.R.B. 1044
9879, 2019-47 I.R.B. 1052
9880, 2019-47 I.R.B. 1085
9881, 2019-49 I.R.B. 1288
9883, 2019-49 I.R.B. 1289
9885, 2019-52 I.R.B. 1418
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2019–52 iii December 23, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–52
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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