The IRS intends to amend the base erosion and anti-abuse tax (BEAT) regulations under Code Secs. 59A and 6038A to defer the applicability date of the reporting of qualified derivative payments (QDPs) until tax years beginning on or after January 1, 2027. Until these reporting rules apply, the current transition period rules for QDP reporting will continue to apply.
Background
Final BEAT regulations adopted with T.D. 9885 include rules under Code Secs. 59A and 6038A addressing the reporting of QDPs, which are not treated as base erosion payments for BEAT purposes. The final regulations generally apply to tax years ending on or after December 17, 2018.
In general, a payment qualifies for the QDP exception if the taxpayer satisfies certain reporting requirements. Reg. §1.6038A-2(b)(7)(ix) requires a taxpayer subject to the BEAT to report on Form 8991, Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts, the aggregate amount of QDPs for the tax year and make a representation that all payments satisfy the requirements of Reg. §1.59A-6(b)(2). If a taxpayer fails to satisfy these reporting requirements, those payments are not eligible for the QDP exception and are treated as base erosion payments, unless another exception applies.
The QDP reporting rules of Reg. §1.6038A-2(b)(7)(ix) apply to tax years beginning on or after June 7, 2021. Before these rules are applicable, there is a transition period during which a taxpayer is treated as satisfying the QDP reporting requirements to the extent that the taxpayer reports, in good faith, the aggregate amount of QDPs on Form 8991, Schedule A (Reg. §1.59A-6(b)(2)(iv) and Reg. §1.6038A-2(g)).
In Notice 2022-30, I.R.B. 2022-28, 70, the IRS announced the intention to extend the transition period through tax years beginning before January 1, 2025, while it is studying the interaction of the QDP exception, the BEAT netting rule in Reg. §1.59A-2(e)(3)(vi), and the QDP reporting requirements. The IRS has not yet issued regulations amending the applicability date of Reg. §1.6038A-2(g). Since the IRS continue to study these provisions, it has determined that it is appropriate to further extend the transition period.
Deferred Applicability Date of QDP Reporting and Taxpayer Reliance
The IRS intends to amend Reg. §1.6038A-2(g) to provide that the QDP reporting rules of Reg. §1.6038A-2(b)(7)(ix) will apply to tax years beginning on or after January 1, 2027. Until these rules apply, the transition period rules described above will continue to apply. Taxpayers may rely on this Notice before the amendments to the final regulations are issued.
Notice 2022-30 is modified, and as so modified, is superseded.
