The Department of the Treasury and Internal Revenue Service (IRS) released a series of notices (Notices 2025-72, -75, -77, and -78) providing guidance on several international tax provisions enacted as part of the One Big Beautiful Bill Act (OBBBA). See here for prior coverage of the OBBBA changes to the international tax framework. 

The four notices address specific provisions of the OBBBA that were effective immediately or during the 2025 tax year. Each notice describes forthcoming proposed regulations and taxpayers may generally rely on the rules described in the notices until proposed regulations are issued. Collectively, Notices 2025-72, -75, and -77 address aspects of the OBBBA amendments to the technical rules applicable to controlled foreign corporations (CFCs) of U.S. shareholders, which were generally intended to smooth certain rough edges around the 2017 Tax Cuts and Jobs Act (TCJA) framework. Notice 2025-78 addresses the new exclusion of gain from outbound sales or dispositions of intangible or depreciable property from foreign-derived deduction eligible income (FDDEI) that qualifies for the section 250 deduction.

Notice 2025-72 – Section 898(c)(2) Repeal (Elimination of One-Month Deferral)

Notice 2025-72 provides transitional guidance following OBBBA's repeal of section 898(c)(2), which previously allowed specified foreign corporations to elect a taxable year beginning one month earlier than that of their majority U.S. shareholder. The repeal, effective for taxable years of specified foreign corporations beginning after November 30, 2025, creates a one-month taxable year for affected entities, referred to as the first required year. 

Section 70352(c) of the OBBBA provides a transition rule to address potential mismatches between foreign taxes and U.S. taxable years. For example, in cases where the foreign taxable year and the one-month first required year close on December 31, 2025, a full calendar year of foreign income taxes may accrue during a one-month tax year for U.S. tax purposes and may result in a tested loss in that first required year. To mitigate this misalignment, Notice 2025-72 describes proposed rules for allocating and apportioning foreign income taxes between the first required year and the succeeding taxable year. These rules apply only to specified foreign income taxes – foreign net income taxes accrued in the first required year for which the corporation is the section 901 taxpayer – and use allocation percentages based on the foreign law taxable income attributable to each period under principles similar to the consolidated return rules in Treas. Reg. §1.1502-76(b). The notice also addresses timing for foreign tax redeterminations and translation under sections 905(c) and 986(a).

Relatedly, the proposed regulations would modify the transition period for recognizing pretransition section 987 gain or loss under the amortization election in Treas. Reg. §1.987-10(e)(5)(ii)(A). The transition period would span 120 months, with any short taxable year ending before November 25, 2025, treated as 12 months for purposes of the election. 

The proposed section 898 regulations would apply to taxable years of a specified foreign corporation beginning after November 30, 2025, and the proposed section 987 regulations would apply to taxable years beginning after December 31, 2024, and ending on or after November 25, 2025. 

Treasury and the IRS request comments (due January 24, 2026) on the scope of foreign taxes subject to the allocation rules and whether other multi-year rules should be modified to account for section 898(c)(2) repeal.

Notice 2025-75 – Section 951(a)(2)(B) Transition Rule

The OBBBA made significant modifications to the section 951(a) rules under which a U.S. shareholder includes its pro rata share of subpart F income or net CFC tested income, effective for tax years beginning after December 31, 2025. Notice 2025-75 provides transitional guidance modifying section 951(a)(2)(B) for certain dividends paid by foreign corporations in taxable years beginning before January 1, 2026, i.e., prior to the effective date of the OBBBA amendments to section 951(a). 

Under prior law, a U.S. shareholder that owned stock of a CFC on the last day of the CFC's taxable year in which it was a CFC included in gross income its pro rata share of the CFC's subpart F and tested income. This amount could be reduced under section 951(a)(2)(B) for dividends received earlier in the year by other shareholders with respect to the same stock. For taxable years of foreign corporations beginning after January 1, 2026, the OBBBA replaces this framework with a time-and-ownership model that aligns the U.S. shareholder's inclusion to the period of ownership during which the shareholder owned the stock, was a U.S. shareholder, and the corporation was a CFC. Section 70354(c)(2) provides a transition rule for the period between OBBBA's enactment and the effective date of these changes. 

Under the transition rule, dividends paid during the transition period are ignored for section 951(a)(2)(B) purposes if they do not increase the taxable income of a U.S. person subject to federal income tax for the taxable year (U.S. taxable income). The transition period covers (i) dividends paid during a CFC's taxable year on or before June 28, 2025, if the taxpayer acquired the stock after that date, and (ii) dividends paid after June 28, 2025, but before the OBBBA changes apply to the foreign corporation. Notice 2025-75 provides detailed definitions for determining when a dividend is treated as increasing U.S. taxable income. This determination occurs after applying any exclusion or dividends-received deduction (DRD) that applies to the dividend. For example, if a DRD under section 245A applies, the dividend does not increase U.S. taxable income and is disregarded for section 951(a)(2)(B) purposes. Conversely, if the deduction is denied under Treas. Reg. §1.245A-5, the dividend increases U.S. taxable income and is treated as a dividend for section 951(a)(2)(B). The proposed regulations would require a U.S. shareholder to establish that a dividend increased its U.S. taxable income by attaching a statement to Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. 

The proposed rules would be applicable to taxable years of a CFC that include June 28, 2025, or begin after June 28, 2025, but before the CFC's first taxable year beginning after December 31, 2025. 

Comments on Notice 2025-75 are due by February 2, 2026.

Notice 2025-77 – Section 960(d)(4) (10 Percent FTC Haircut on Section 951A PTEP Distributions)

Notice 2025-77 describes proposed rules implementing new section 960(d)(4), which disallows a foreign tax credit for 10 percent of the foreign taxes paid or accrued (or deemed paid under section 960(b)(1)) with respect to any amount excluded from gross income under section 959(a) by reason of a section 951A(a) inclusion. This rule applies to distributions of previously taxed earnings and profits (PTEP) attributable to section 951A inclusions (section 951A PTEP). The proposed regulations would clarify that the 10 percent haircut applies only to foreign taxes paid or accrued on distributions of section 951A PTEP resulting from section 951A inclusions in a U.S. shareholder's taxable year ending after June 28, 2025, even if the underlying CFC's taxable year ended earlier. Foreign taxes on section 951A PTEP attributable to section 951A inclusions from earlier taxable years are not subject to the haircut, even if those taxes are paid or accrued after June 28, 2025. To implement these changes, Notice 2025-77 describes new tracking requirements that would divide section 951A PTEP between pre- and post-OBBBA pools, with the 10 percent haircut applying only to taxes apportioned under Treas. Reg. §1.861-20 to the latter. Similar rules would apply to reclassified section 951A PTEP, which represents a section 956 amount allocated to section 951A PTEP and excluded from gross income under section 959(a)(2). 

Treasury and the IRS did not request comments in Notice 2025-77.

Notice 2025-78 – Section 250(b)(3)(A)(i)(VII) (Exclusion for Certain Property Sales)

Notice 2025-78 provides guidance on OBBBA's new exclusion from deduction eligible income (DEI) for income and gain from the sale or other disposition of (i) intangible property and (ii) other property "of a type" that is subject to depreciation, amortization, or depletion by the seller. Effective for sale or other dispositions after June 16, 2025, the proposed regulations would confirm that the exclusion applies only to sales under general tax principles, including deemed sales and transactions subject to section 367(d)), and the exclusion does not apply to licenses or leases. "Other property" would be limited to (i) an asset that is (or has been) treated as property "of a character" subject to the allowance for depreciation under section 167, (ii) an asset that is (or has been) subject to an allowance for amortization, or (iii) an asset that is (or has been) subject to the allowance for depletion. Notice 2025-78 provides that, for this purpose, intangible property does not include copyrighted articles under Treas. Reg. §1.861-18(c)(3). The proposed regulations will include an anti-abuse rule for related-party transfers using carryover-basis transactions to circumvent the exclusion. Examples illustrate the application of the proposed rules to fully depreciated property, to assets that a taxpayer holds both in inventory and for use in its trade or business, and to consolidated group transactions. 

Comments on Notice 2025-78 are due by February 2, 2026.
 

For more information, please contact:

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

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

Jeffrey M. Tebbs, jtebbs@milchev.com, 202-626-1480

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

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