The IRS has released three notices addressing changes under the One Big Beautiful Bill Act (OBBB) impacting international taxation. (Notice 2025-75; Notice 2025-77; Notice 2025-78, 12/4/2025)
Transition Rule for CFC Dividends
Notice 2025-75 announces the IRS’ intent to issue proposed regulations regarding the transition rule for dividends under § 70354(c)(2) of the OBBB. This notice provides guidance for U.S. shareholders of controlled foreign corporations (CFCs) and addresses how the transition rule modifies the application of IRC § 951(a)(2)(B) for certain taxable years of foreign corporations beginning before January 1, 2026. The notice provides background on the rules for determining Subpart F income and GILTI inclusions, and how § 951(a)(2)(B) reduces a U.S. shareholder’s pro rata share of CFC income for certain distributions.
The OBBB amends these rules for CFC years beginning after December 31, 2025, but for years before that, the transition rule applies. Specifically, the transition rule covers dividends paid or deemed paid on or before June 28, 2025, or after June 28, 2025, but before the first CFC year beginning after December 31, 2025. Under this rule, such dividends are not treated as dividends for § 951(a)(2)(B) purposes if they do not increase the taxable income of a U.S. person subject to federal income tax.
Taxpayers are required to follow specific documentation and reporting requirements, such as attaching a statement to Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, explaining why a dividend is treated as a dividend for section 951(a)(2)(B) after application of the transition rule.
The forthcoming regulations will apply to CFC taxable years that include June 28, 2025, or begin after June 28, 2025, but before the first CFC year beginning after December 31, 2025. Taxpayers may rely on the notice’s rules for dividends paid before the regulations are published, provided the taxpayer and its related parties follow the rules in their entirety and in a consistent manner for all dividends paid before the forthcoming proposed regulations are published.
Foreign Tax Credit Disallowance
The IRS also provided guidance, in Notice 2025-77, on OBBB changes to deemed-paid credit for foreign taxes paid or accrued by a CFC. Under IRC § 960, a domestic corporation that is a U.S. shareholder of a CFC may claim a foreign tax credit for foreign income taxes paid or accrued or deemed paid due to an IRC § 951A(a) inclusion. Under § 960(d), a domestic corporation is deemed to have paid foreign income taxes with respect to the § 951A inclusion where any amount is includible in the gross income of a domestic corporation under § 951A.
Previously, § 960(d)(1) reduced the amount of foreign income taxes deemed paid for § 951A inclusions by 20%. The OBBB changed the § 960(d)(1) reduction to 10%. In addition, the OBBB added IRC § 960(d)(4), which further disallows a credit for 10% of foreign income taxes paid or accrued on distributions of previously taxed earnings and profits (PTEP) resulting from § 951A inclusions.
The IRS clarifies in Notice 2025-77 that § 960(d)(4) applies to foreign income taxes paid or accrued, or deemed paid under § 960(b)(1), with respect to § 959(a) distributions where the PTEP results from a § 951A inclusion in a U.S. shareholder’s taxable year ending after June 28, 2025. However, if a U.S. shareholder has a § 951A inclusion in a taxable year ending on or before June 28, 2025, § 960(d)(4) will not apply to foreign income taxes related to that inclusion, even if those taxes are paid or accrued after June 28, 2025.
The IRS plans to release proposed regulations providing guidance on applying § 960(d)(4) and modify 2024 proposed PTEP regulations (89 FR 95362) to ensure consistency. However, taxpayers can rely on Section 3 of Notice 2025-77 for U.S. shareholder taxable years beginning before the proposed regulations are published.
New Rules for Calculating DEI
Finally, the IRS announced in Notice 2025-78 that it intends to issue proposed regulations clarifying the OBBB amendments to IRC § 250(b)(3), specifically the exclusion of income and gain from the sale or disposition of certain property from deduction eligible income (DEI).
Section 250(a)(1) allows a domestic corporation to deduct an amount equal to a percentage of its foreign-derived deduction eligible income (FDDEI). FDDEI is generally the domestic corporation’s DEI derived in connection with property sold to a non-U.S. person for foreign use, or services provided to any person or property not located within the U.S.
Before the OBBB, IRC § 250(b)(3)(A) defined DEI as gross income minus certain exclusions and deductions. IRC § 250(b)(5)(E) previously stated that “sold,” “sells,” and “sale” included any lease, license, exchange, or other disposition. The OBBB amended IRC § 250(b)(3)(A)(i) to add a new category of income excluded from DEI: income and gain from the sale or other disposition of intangible property and other property subject to depreciation, amortization, or depletion by the seller. The OBBB also amended IRC § 250(b)(5)(E) to specify that it does not apply for purposes of this new exclusion.
The forthcoming proposed regulations will address the definition of sale or other disposition, intangible property, and other excluded property. The regulations also will define the seller as the domestic corporation that sells or otherwise disposes of intangible property or other excluded property and specify a related-party anti-abuse rule.
The proposed regulations, once finalized, will apply to sales or other dispositions occurring after June 16, 2025. Taxpayers may rely on the rules described in Notice 2025-78, Section 3, for sales or other dispositions occurring before the forthcoming proposed regulations are published.
Comments Requested
The IRS is requesting comments on the rules discussed in Notice 2025-75 and Notice 2025-78 by February 2, 2026. No comment period was set for Notice 2025-77.
Comments can be submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (search for IRS-2025-0367 and IRS-2025-0268, respectively).
For more on the deemed-paid credit for corporate U.S. shareholders of CFCs, see Checkpoint’s Federal Tax Coordinator 2d ¶ O-4900. For calculating a domestic corporation’s Code Sec. 250 deduction for foreign-derived deduction eligible income (FDDEI) and net CFC tested income (NCTI), see Checkpoint’s Federal Tax Coordinator 2d ¶ O-3001.
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