The Treasury Department and the IRS released Notice 2025-75. The notice said that the agencies are set to release proposed
regulations on the transition rule for
dividends in section 70354(c)(2) of the One, Big, Beautiful Bill Act (OBBBA).
The
transition rule changes the application of section 951(a)(2)(B) of the Internal Revenue
Code for certain taxable years of foreign corporations starting before
Jan. 1, 2026.
According to the notice, Sections 951(a)(1)(A) and 951A(a), as it was in effect prior to OBBBA's amendments, required each US shareholder of a controlled foreign corporation (CFC) to include amounts in gross income based on the CFC's certain income.
Under the proposed regulations, any amount that is treated as a distribution received by any other person as a
dividend under section 951(a)(2)(B), as in effect before the amendments made by the
OBBBA, would be a dividend paid when applying the
transition rule.
For instance, any gain included in the gross income of any person
as a dividend under section 1248 would be treated as a dividend to which the transition
rule could apply. This approach is intended to ensure symmetry between “distributions
received as a dividend” under section 951(a)(2)(B) and “dividends paid” under the transition rule.
The notice stated that for purposes of the transition rule and regardless of whether the person has any Federal income tax liability for any taxable year, a US person subject to Federal income tax would mean any US person as specified by section 7701(a)(30) except for (i) a domestic partnership, (ii) an S corporation, (iii) a domestic grantor trust, or a bona fide resident of Guam, the Commonwealth of the Northern Mariana Islands, or the US Virgin Islands.
A US person subject to Federal income tax would also include any nonresident alien who chooses to be treated as a resident of the US under section 6013(g) or (h).