On August 3, 2026, the IRS published proposed regulations (REG-115145-25) covering two specific international tax issues. If you operate through a US LLC, a foreign corporation, or a controlled foreign corporation (CFC), you need to review the rules now and confirm how they affect your filings, foreign tax credit position, and earnings distributions.
These proposed regulations matter in particular if you are a UK or international seller with US-linked structures and you distribute earnings connected to Section 951A inclusions.
What REG-115145-25 Covers
The proposed regulations address two issues:
- Section 898(c) transition rules. These rules deal with the allocation of foreign taxes after the repeal of the one-month deferral election. As a result of that repeal, specified foreign corporations (SFCs) that used the one-month deferral now have a short tax year.
- Section 960(d)(4). These rules implement the 10% foreign tax credit disallowance on previously taxed earnings and profits (PTEP) distributions related to Section 951A inclusions for US shareholder tax years ending after June 28, 2025.
The proposed regulations also state that taxpayers may rely on them before final regulations are issued, provided they apply the rules consistently and completely.
1. Apply the 10% Disallowance Correctly
Section 960(d)(4) applies a 10% disallowance to foreign income taxes associated with PTEP distributions attributable to Section 951A inclusions.
In practical terms:
- You may have a PTEP distribution that is excluded from gross income under Section 959.
- Even so, 10% of the related foreign taxes is not creditable under these proposed rules.
- This applies for US shareholder tax years ending after June 28, 2025.
What you should do now
- Review PTEP distribution history tied to Section 951A inclusions.
- Recalculate foreign tax credit positions where distributions have been made or are planned.
- Update cash tax forecasts so the 10% non-creditable amount is reflected accurately.
This is especially important if your international group distributes earnings from CFCs into a US structure.
2. Fix Section 898(c) Transition Reporting
The proposed regulations also provide transition rules under Section 898(c) following the repeal of the one-month deferral election.
If an SFC previously used that election:
- The SFC now has a short tax year.
- Foreign taxes must be allocated under the transition framework in the proposed regulations.
- The allocation method you use can affect foreign tax credit outcomes and reporting accuracy.
Elections available under the proposed regulations
The proposed regulations include new elections, including:
- Income-group specific allocation
- Election not to allocate taxes
- Partnership CFTE allocation
What you should do now
- Identify entities that used the one-month deferral election.
- Confirm whether a short tax year now applies.
- Review foreign tax allocation methods against the proposed transition rules.
- Assess whether any available election improves filing accuracy or reduces unnecessary complexity.
If your structure includes foreign subsidiaries or CFCs, this step is essential to keep your US compliance position aligned.
3. Track the Comment Deadline and Reliance Option
The comment deadline for REG-115145-25 is September 17, 2026, which is 45 days after Federal Register publication.
Taxpayers may rely on the proposed regulations before finalization, but only if they apply them consistently and completely.
What you should do now
- Document whether you intend to rely on the proposed regulations now.
- Apply the same treatment across all affected entities and periods.
- Keep support for your allocation method, elections, and PTEP calculations.
- Escalate cross-border filing risks early if your group includes US LLCs, CFCs, or international holding structures.
Conclusion
REG-115145-25 is a targeted IRS proposal, but it has direct consequences for international sellers with US-linked entities and CFC structures. The immediate issues are clear: apply the 10% disallowance correctly, review any Section 898(c) transition exposure, and decide whether to rely on the proposed rules now.
At Sterlinx Global, we help you stay on top of ongoing compliance across bookkeeping, tax calculations, indirect tax filings, and year-end reporting. If your business trades across borders and needs structured support, contact us.
FAQs
What is REG-115145-25?
REG-115145-25 is the IRS proposed regulation package published on August 3, 2026. It addresses Section 898(c) transition rules after repeal of the one-month deferral election and Section 960(d)(4) rules for the 10% foreign tax credit disallowance on certain PTEP distributions.
How does the 10% disallowance work?
Under Section 960(d)(4), 10% of foreign income taxes related to PTEP distributions attributable to Section 951A inclusions is disallowed. That amount is not available as a foreign tax credit for affected US shareholder tax years ending after June 28, 2025.
Who is affected?
The rules affect taxpayers with cross-border structures involving US shareholders, CFCs, SFCs, and PTEP distributions linked to Section 951A inclusions. This can directly affect UK and international sellers using US LLCs or foreign corporate structures.
What elections are available?
The proposed regulations include elections for income-group specific allocation, an election not to allocate taxes, and partnership CFTE allocation in the Section 898(c) transition context.
When are comments due?
Comments are due by September 17, 2026.
Can taxpayers rely on the proposed regulations now?
Yes. Taxpayers may rely on the proposed regulations before they are finalized, provided they apply the rules consistently and completely.
