[Federal Register Volume 86, Number 183 (Friday, September 24, 2021)]
[Rules and Regulations]
[Pages 52971-52973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20615]



[[Page 52971]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9956]
RIN 1545-BP91; RIN 1545-BP70


Guidance on the Treatment of Qualified Improvement Property Under 
Sections 250(b) and 951A(d) and Guidance Related to the Foreign Tax 
Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under sections 250 
and 951A addressing the calculation of qualified business asset 
investment (``QBAI'') for qualified improvement property (``QIP'') 
under the alternative depreciation system (``ADS''). This document also 
contains final regulations with transition rules relating to the impact 
on loss accounts of net operating loss (NOL) carrybacks allowed by 
reason of the Coronavirus Aid, Relief, and Economic Security Act (the 
``CARES Act''). The final regulations affect United States shareholders 
of controlled foreign corporations, domestic corporations eligible for 
the section 250 deduction, and taxpayers that claim credits or 
deductions for foreign income taxes.

DATES: 
    Effective date: These regulations are effective on September 24, 
2021.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.250-1(b), 1.904(f)-12(j)(7), and 1.951A-7(a).

FOR FURTHER INFORMATION CONTACT: Concerning Sec. Sec.  1.250(b)-1(b)(2) 
and 1.250(b)-2(e)(2), Lorraine Rodriguez at (202) 317-6726; concerning 
Sec.  1.904(f)-12, Jeffrey L. Parry at (202) 317-4916; concerning Sec.  
1.951A-3(e)(2), Jorge M. Oben at (202) 317-6934 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

I. Treatment of QIP Under Sections 250 and 951A

    On January 15, 2021, the Department of the Treasury (``Treasury 
Department'') and the IRS published proposed regulations (REG-111950-
20) under sections 250, 951A, 1297, and 1298 in the Federal Register 
(86 FR 4582, as corrected at 86 FR 12886) (the ``2021 proposed 
regulations''). The provisions in the 2021 proposed regulations under 
sections 250 and 951A, which were added to the Code in the Tax Cuts and 
Jobs Act, Public Law 115-97, 131 Stat. 2234 (2017), addressed the 
treatment of QIP under the ADS for purposes of calculating QBAI.
    The Treasury Department and the IRS received no written comments 
with respect to the proposed rules under sections 250 and 951A. A 
public hearing on the 2021 proposed regulations was not held because 
there were no requests to speak.
    This rulemaking finalizes the portion of the 2021 proposed 
regulations under sections 250 and 951A, but does not finalize the 
portions of the 2021 proposed regulations under sections 1297 and 1298 
(determining whether a foreign corporation is treated as a passive 
foreign investment company and the treatment of income and assets of a 
qualifying insurance corporation that is engaged in the active conduct 
of an insurance business). The Treasury Department and the IRS intend 
to finalize those portions of the 2021 proposed regulations separately.

II. Treatment of Net Operating Losses Incurred in Post-2017 Taxable 
Years That Are Carried Back to Pre-2018 Taxable Years

    On November 12, 2020, the Treasury Department and the IRS published 
proposed regulations (REG-101657-20) in the Federal Register (85 FR 
72078) (the ``2020 FTC proposed regulations''), which included 
revisions to the transition rules for post-2017 NOL carrybacks to pre-
2018 taxable years.
    The Treasury Department and the IRS received no written comments 
with respect to the proposed revisions to the transition rules that 
address post-2017 NOL carrybacks to pre-2018 taxable years. A public 
hearing on the 2020 FTC proposed regulations was held on April 7, 2021.
    This rulemaking finalizes the portion of the 2020 FTC proposed 
regulations that addresses the transition rules for post-2017 NOL 
carrybacks to pre-2018 taxable years. This rulemaking does not finalize 
any other portions of the 2020 FTC proposed regulations. The Treasury 
Department and the IRS intend to finalize those portions of the 2020 
FTC proposed regulations separately.

Summary of Comments and Explanation of Revisions

    The Treasury Department and the IRS received no written comments 
with respect to the proposed rules under sections 250 and 951A or the 
transition rules that address post-2017 NOL carrybacks to pre-2018 
taxable years. Therefore, those portions of the proposed regulations 
are being finalized without substantive change.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    These regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally 
requires that a federal agency obtain the approval of the OMB before 
collecting information from the public, whether such collection of 
information is mandatory, voluntary, or required to obtain or retain a 
benefit.
    There are no information collection requirements associated with 
these final regulations.

III. Regulatory Flexibility Act

    It is hereby certified that these final regulations 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).

A. Regulations Regarding the Treatment of QIP Under Sections 250 and 
951A

    The economic impact of the regulations regarding the treatment of 
QIP under sections 250 and 951A is not likely to be significant because 
these regulations merely clarify that the technical amendment to 
section 168 enacted in section 2307(a) of the CARES Act applies to 
determine the adjusted basis of property under section 951A(d)(3) as if 
it had originally been part of section 13204 of the Act. The 
clarification resolves an ambiguity and adopts the interpretation that 
does not require duplicative recordkeeping for the basis in this 
property. Therefore, this rule should reduce recordkeeping and 
compliance burdens that might otherwise apply. In addition, the 
regulations do not impose a collection of information burden on any 
person, including small entities. Accordingly, it is hereby certified 
that the regulations regarding the treatment of QIP under sections 250 
and 951A will not have a significant economic impact on a substantial 
number of small entities.

[[Page 52972]]

B. Foreign Tax Credit Transition Rules Addressing Post-2017 NOL 
Carrybacks to Pre-2018 Taxable Years

    The foreign tax credit transition rules addressing post-2017 NOL 
carrybacks to pre-2018 taxable years provide guidance needed to comply 
with statutory changes and affect individuals and corporations claiming 
foreign tax credits. Adequate data are not available at this time to 
certify that a substantial number of small entities would be 
unaffected. However, the Treasury Department and the IRS have 
determined that the regulations will not have a significant economic 
impact on domestic small business entities. Based on information from 
the Statistics of Income 2017 Corporate File, foreign tax credits as a 
percentage of three different tax-related measures of annual receipts 
(see Table for variables) by corporations are substantially less than 
the 3 to 5 percent threshold for significant economic impact.

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                                                                                                                    $5,000,000      $10,000,000     $50,000,000    $100,000,000
                                                                  Under $500,000  $500,000 under    $1,000,000         under           under           under           under       $250,000,000
                   Size (by business receipts)                          (%)       $1,000,000 (%)       under        $10,000,000     $50,000,000    $100,000,000    $250,000,000     or more (%)
                                                                                                  $5,000,000 (%)        (%)             (%)             (%)             (%)
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FTC/Total Receipts..............................................            0.12            0.00            0.00            0.00            0.01            0.01            0.02            0.28
FTC/(Total Receipts-Total Deductions)...........................            0.61            0.03            0.09            0.05            0.35            0.71            1.38            9.89
FTC/Business Receipts...........................................            0.84            0.00            0.00            0.00            0.01            0.01            0.02            0.05
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Source: Statistics of Income (2017) Form 1120.

    In addition, these final regulations do not impose a collection of 
information burden on any person, including small entities. 
Accordingly, it is hereby certified that the foreign tax credit 
transition rules addressing post-2017 NOL carrybacks to pre-2018 
taxable years will not have a significant economic impact on a 
substantial number of small entities.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notices of proposed rulemaking preceding these final regulations were 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comments on their impact on small business, and no 
comments were received.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures 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. These regulations do 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. These regulations do not have 
federalism implications and do not impose substantial direct compliance 
costs on state and local governments or preempt state law within the 
meaning of the Executive Order.

Drafting Information

    The principal authors of these regulations are Jorge M. Oben, 
Jeffrey L. Parry, and Larry R. Pounders of the Office of Associate 
Chief Counsel (International). However, other personnel from the 
Treasury Department and the IRS participated in their development.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, Notices, and other 
guidance cited in this document are published in the Internal Revenue 
Bulletin and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS website at https://www.irs.gov.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805.

0
Par. 2. Section 1.250-1 is amended by revising the first sentence of 
paragraph (b) and adding a sentence at the end of the paragraph to read 
as follows:


Sec.  1.250-1  Introduction.

* * * * *
    (b) * * * Except as otherwise provided in this paragraph (b), 
Sec. Sec.  1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 apply to 
taxable years beginning on or after January 1, 2021. * * * The last 
sentence in Sec.  1.250(b)-2(e)(2) applies to taxable years beginning 
after December 31, 2017.

0
Par. 3. Section 1.250(b)-2 is amended by adding a sentence at the end 
of paragraph (e)(2) to read as follows:


Sec.  1.250  (b)-2 Qualified business asset investment (QBAI).

* * * * *
    (e) * * *
    (2) * * * For purposes of applying section 250(b)(2)(B) and this 
paragraph (e), the technical amendment to section 168(g) (to provide a 
recovery period of 20 years for qualified improvement property for 
purposes of the alternative depreciation system) enacted in section 
2307(a) of the Coronavirus Aid, Relief, and Economic Security Act, 
Public Law 116-136 (2020) is treated as enacted on December 22, 2017.
* * * * *


Sec.  1.904-2   [Amended]

0
Par. 4. Section 1.904-2(j)(1)(iii)(D) is amended by removing the 
language ``Sec.  1.904(f)-12(j)(5)'' and adding in its place the 
language ``Sec.  1.904(f)-12(j)(6)''.

0
Par. 5. Section 1.904(f)-12 is amended by:
0
1. Removing paragraph (j)(6);
0
2. Redesignating paragraph (j)(5) as paragraph (j)(6); and
0
3. Adding new paragraphs (j)(5) and (j)(7);
    The additions read as follows:


Sec.  1.904(f)-12  Transition rules.

* * * * *
    (j) * * *

[[Page 52973]]

    (5) Treatment of net operating losses incurred in post-2017 taxable 
years that are carried back to pre-2018 taxable years--(i) In general. 
Except as provided in paragraph (j)(5)(ii) of this section, a net 
operating loss incurred in a taxable year beginning after December 31, 
2017 (a ``post-2017 taxable year''), which is carried back, pursuant to 
section 172, to a taxable year beginning before January 1, 2018 (a 
``pre-2018 carryback year''), will be carried back under the rules of 
Sec.  1.904(g)-3(b). For purposes of applying the rules of Sec.  
1.904(g)-3(b), income in a pre-2018 separate category in the taxable 
year to which the net operating loss is carried back is treated as if 
it included only income that would be assigned to the post-2017 general 
category. Therefore, any separate limitation loss created by reason of 
a passive category component of a net operating loss from a post-2017 
taxable year that is carried back to offset general category income in 
a pre-2018 carryback year will be recaptured in post-2017 taxable years 
as general category income, and not as a combination of general, 
foreign branch, and section 951A category income.
    (ii) Foreign source losses in the post-2017 separate categories for 
foreign branch category income and section 951A category income. Net 
operating losses attributable to a foreign source loss in the post-2017 
separate categories for foreign branch category income and section 951A 
category income are treated as first offsetting general category income 
in a pre-2018 carryback year to the extent available to be offset by 
the net operating loss carryback. If the sum of foreign source losses 
in the taxpayer's separate categories for foreign branch category 
income and section 951A category income in the year the net operating 
loss is incurred exceeds the amount of general category income that is 
available to be offset in the carryback year, then the amount of 
foreign source loss in each of the foreign branch and section 951A 
categories that is treated as offsetting general category income under 
this paragraph (j)(5)(ii), is determined on a proportionate basis. 
General category income in the pre-2018 carryback year is first offset 
by foreign source loss in the taxpayer's post-2017 separate category 
for general category income in the year the net operating loss is 
incurred before any foreign source loss in that year in the separate 
categories for foreign branch category income and section 951A category 
income is carried back to reduce general category income. To the extent 
a foreign source loss in a post-2017 separate category for foreign 
branch category income or section 951A category income offsets general 
category income in a pre-2018 taxable year under the rules of this 
paragraph (j)(5)(ii), no separate limitation loss account is created.
* * * * *
    (7) Applicability date. Except as otherwise provided in this 
paragraph (j)(7), this paragraph (j) applies to taxable years ending on 
or after December 31, 2017. Paragraph (j)(5) of this section applies to 
carrybacks of net operating losses incurred in taxable years beginning 
on or after January 1, 2018.

0
Par. 6. Section 1.951A-3 is amended by adding a sentence at the end of 
paragraph (e)(2) to read as follows:


Sec.  1.951A-3  Qualified business asset investment.

* * * * *
    (e) * * *
    (2) * * * For purposes of applying section 951A(d)(3) and this 
paragraph (e), the technical amendment to section 168(g) (to provide a 
recovery period of 20 years for qualified improvement property for 
purposes of the alternative depreciation system) enacted in section 
2307(a) of the Coronavirus Aid, Relief, and Economic Security Act, 
Public Law 116-136 (2020) is treated as enacted on December 22, 2017.
* * * * *

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.

    Approved: September 10, 2021.
Mark J. Mazur,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2021-20615 Filed 9-21-21; 4:15 pm]
BILLING CODE 4830-01-P