On August 20, 2025, the Department of the Treasury and the Internal Revenue Service (IRS) released Notice 2025-44 (the Notice), signaling forthcoming proposed regulations that would effectively rescind controversial rules that were finalized in January 2025 (the 2025 final regulations). Specifically, the forthcoming proposed regulations would (i) remove the disregarded payment loss (DPL) rules under Treas. Reg. §1.1503(d)-1(d), (ii) remove the deemed ordering rule in the dual consolidated loss (DCL) rules under Treas. Reg. §1.1503(d)-3(c)(3) that coordinates the application of the DPL and DCL rules, (iii) modify the anti-abuse rule of Treas. Reg. §1.1503(d)-1(f) to exclude structures that would have been addressed by the DPL rules, and (iv) extend the transition relief addressing the interaction between the DCL rules and the OECD's Global Anti-Base Erosion (GloBE) Model Rules (Pillar Two). These changes, as the Notice describes, were spurred by complexity, uncertainty, compliance cost, and questionable statutory authority. The Notice also solicits comments to the current "all or nothing" principle in the existing DCL rules, which can lead to punitive results in some circumstances. 

As discussed in previous coverage, the DCL rules target so-called "double-deduction outcomes" by preventing a DCL from being used both in the United States and abroad. As a general matter, a taxpayer is permitted to use a DCL to offset U.S. taxable income if it makes a domestic use election; the domestic use election, in turn, requires the taxpayer to certify it will not put the DCL to foreign use within a prescribed period. The cost of putting a DCL to foreign use is recapture, with an interest charge. The DPL rules, which were proposed in August 2024 and finalized at the end of the prior administration in January 2025, address so-called "deduction/no inclusion-outcomes" by requiring an income inclusion of amounts related to certain disregarded payments (i.e., payments between a disregarded entity and its owner that are deductible for foreign tax purposes but disregarded for U.S. federal tax purposes). The 2025 final regulations did not finalize provisions of the 2024 proposed regulations addressing the application of the DCL rules to top-up taxes under the income inclusion rule and undertaxed profits rule and qualified domestic minimum top-up taxes (GloBE Taxes), and the treatment of a DCL in computing GloBE income as a foreign use of such DCL. 

The DPL rules, and the attendant deemed ordering rule and anti-abuse rule, were slated to apply to taxable years beginning on or after January 1, 2026. The 2025 final regulations otherwise left the majority of the DCL rules in proposed form. (See previous coverage here.)The 2025 final regulations provided transition relief that excluded GloBE Taxes from the application of the DCL rules for "legacy DCLs" (i.e., DCLs incurred in taxable years beginning before August 31, 2025).

The forthcoming proposed regulations will be applicable to taxable years beginning on or after January 1, 2026, and the Notice permits reliance until the forthcoming proposed regulations are issued. The effect of these applicability dates is that the DPL rules will not go into effect. For the GloBE Taxes, the Notice extends the transition relief for DCLs incurred in tax years beginning before January 1, 2028. The Notice solicits comments on potential revisions to the "all or nothing" principle (i.e., the rule under which any amount of a DCL put to foreign use triggers recapture for the entire DCL) and on whether disregarded items should be considered for DCL purposes. Comments are due by October 21, 2025. 

This guidance not only represents a noteworthy about-face by Treasury and the IRS regarding the short-lived DPL rules, but it also underscores the continuing uncertainty with respect to the GloBE rules and U.S. taxpayers. The guidance also fits squarely within Treasury and the IRS's broader deregulatory agenda as described in the invitation for guidance plan items in Notice 2025-19. (See previous coverage here.) 

For more information, please contact:

Layla J. Asali, lasali@milchev.com, 202-626-5866

Rocco V. Femia, rfemia@milchev.com, 202-626-5823

Chadwick Rowland, crowland@milchev.com, 202-626-1589

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