Treasury Defends Dividend Deduction Rules as ‘Narrowly Tailored’ (1)

Aug. 21, 2020, 8:17 PM

Treasury is standing by its position that 2019 temporary regulations for a business deduction don’t violate the Administrative Procedure Act.

The department defended its position in final rules released Friday (T.D. 9909; RIN: 1545-BP35) on the Section 245A dividends-received deduction. Section 245A limits the deduction a U.S.-based company can receive for dividends acquired from a foreign company in which it holds at least a 10% stake.

The Administrative Procedure Act governs the rule-making process and requires federal agencies to give notice and respond to significant comments for certain rules.

The U.S. Council of International Business said last fall that Treasury exceeded its authority when issuing 2019 temporary regulations (T.D. 9865) that applied retroactively and with immediate effect.

But Treasury said Friday that comments relating to the temporary regulations’ compliance with the APA “will not be further addressed.” The criticisms aren’t relevant to these final rules, which went through a 90-day notice-and-comment period, Treasury said.

Friday’s final rules are “narrowly tailored” to apply only when needed to ensure Section 245A is applied properly, Treasury said.

USCIB didn’t immediately return a request for comment Friday.

The IRS and Treasury have been working this year to finish up guidance tied to the 2017 tax law.

Treasury and IRS also issued a set of proposed rules (RIN: 1545-BP57) Friday.

The proposed rules coordinate an anti-abuse rule for a new category of foreign income—global intangible low-taxed income—under Section 951A with the anti-abuse rules of Section 245A.

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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