The Proposed DCL and DPL Rules: A Tale of Dreams and Nightmares

Last week, Treasury issued proposed regulations (REG-105128-23) under §1503(d) and §7701 (the “Proposed Regulations”) that address many issues that have been top of mind for taxpayers as foreign countries have begun enacting Pillar Two rules. These Proposed Regulations address how several U.S. tax rules apply in a Pillar Two world. In some situations, the Proposed Regulations provide a welcome relief to taxpayers. In many other situations, the Proposed Regulations create complex and punitive rules that may give taxpayers nightmares.

This article considers three aspects of the Proposed Regulations. First, it focuses on the new disregarded payment ...