The IRS announced plans to issue regulations under the OBBBA, repealing the one-month deferral election for certain foreign corporations’ first tax year after 30 November 2025.
The US Internal Revenue Service (IRS) issued Notice 2025-72 on 25 November 2025, stating that the Treasury Department and IRS plan to issue proposed regulations under section 70352 of the “One Big Beautiful Bill Act” (OBBBA), which repeals section 898(c)(2) of the Internal Revenue Code (Code) and directs the Treasury Department and the IRS to issue guidance on the allocation of foreign taxes of foreign corporations affected by that repeal (forthcoming proposed section 898 regulations).
The notice also announced that the Treasury Department and the IRS intend to issue proposed regulations under section 987 (forthcoming proposed section 987 regulations) that will modify the election to recognise pretransition section 987 gain or loss ratably over the transition period pursuant to §1.987-10(e)(5)(ii)(A).
Section 898 provides rules for determining the required taxable year of any “specified foreign corporation.” A foreign corporation is a specified foreign corporation if it is treated as a controlled foreign corporation (CFC) for any purpose under subpart F of subchapter N of Chapter 1 of Subtitle A of the Code, and if any United States shareholder (as defined in section 951(b)) (US shareholder) owns (determined by applying the ownership rules of section 958) more than 50% of the stock of the CFC by vote or value on each testing day (majority US shareholder).1 See section 898(b).
Section 898(c)(1) generally requires a specified foreign corporation to have the same taxable year as the taxable year of its majority US shareholder (the majority US shareholder year). However, prior to the enactment of the OBBBA, section 898(c)(2) permitted a specified foreign corporation to elect a taxable year beginning one month earlier than the majority US shareholder year (one-month deferral election).
