Base Erosion and Anti-Abuse Tax Proposed Regulations Roadmap

The 2017 tax act (Pub. L. No. 115-97) added §59A to the Code, which changes the way that certain outbound payments made by certain taxpayers with substantial gross receipts are taxed.

On December 21, 2018, Treasury and the IRS proposed regulations (REG-104259-18) under §59A. The proposed regulations contain guidance regarding the determination of the tax on base erosion payments, rules for determining if a taxpayer is an applicable taxpayer subject to the BEAT, rules for determining the amount of base erosion payments and the amount of base erosion tax benefits arising from such payments; the proposed regulations also provide rules for determining the amount of modified taxable income, which is computed in part by reference to a taxpayer’s base erosion tax benefits and base erosion percentage of any net operating loss deduction. The proposed regulations also provide guidance for computing the base erosion minimum tax amount, which is computed by reference to modified taxable income. Guidance for applying the rules to partnerships is provided, as well as special rules specific to banks, registered securities dealers, and insurance companies. General rules regarding the application of the BEAT to consolidated groups are included in the regulations as well as a specific anti-abuse rule within the BEAT. Proposed amendments to regulations under §383 are included in the proposed regulations to address limitations on the loss corporation’s items under §382 and §383 in the context of BEAT. Finally, the proposed regulations describe reporting and record keeping requirements included in §59A.

This roadmap highlights key takeaways from the proposed regulations.