TEI’s advocacy is one of the prime benefits of membership. By participating in the Institute’s advocacy efforts, you can help make the corporate tax system—in the United States and around the world—more efficient and less burdensome. Below are a few examples of TEI’s advocacy over the past several months. At the end of this column you can find a link to additional advocacy opportunities and information about how to get involved.
TEI filed lengthy comments on two Internal Revenue Service and US Department of the Treasury (together, the “government”) regulatory packages released in the second half of 2024. On the international tax side, the government released proposed regulations to address dual consolidated losses (DCLs), the interaction between DCLs and the Organisation for Economic Co-operation and Development’s Pillar Two project, and a new regime of “disregarded payment losses,” or DPLs. On the domestic tax side, TEI filed supplemental comments on Notice 2023-63 and Section 174 concerning the requirement to capitalize and amortize research and experimental expenditures.
For the proposed DCL regulations and the new DPL regime, TEI’s comments ran to twenty pages in three parts. First, TEI urged the government to reconsider the interaction of the DCL regime with top-up taxes under Pillar Two. TEI noted that the government introduced the DCL regime in the 1980s, when there was no global minimum tax similar to that proposed under Pillar Two, and that therefore many aspects of the DCL regime are no longer necessary and should be modified or eliminated. Second, TEI recommended adjustments to the general DCL regime, including modifying the scope and application of the regime’s anti-avoidance rule. And third, TEI recommended that the government withdraw the DPL rules or, at the very least, adjust the rules including the effective date of the regime and the scope of its consent mechanism.
TEI’s supplemental comments on Notice 2023-63 and Section 174 focused particularly on future proposed regulations related to software development. The comments addressed timing issues with respect to wage-specified research or experimental expenditures (SREs), the appropriate nexus for indirect costs to be considered SREs, and a reasonable analytical framework under Section 174. TEI also provided additional examples that would clarify which software-related costs need to be capitalized under Section 174. TEI’s comments also recommended that the government strive to maintain symmetry between the research credit under Section 41 and SREs under Section 174 where possible and particularly with respect to the compliance criteria for each.
In addition, in continuing with TEI’s long tradition of face-to-face meetings with tax authorities, the Institute’s Canadian Income and Commodity Tax Committees held their annual liaison meetings with representatives from the Canadian Department of Finance and Canada Revenue Agency on November 19 and 20. Information related to liaison meetings is regularly posted at www.tei.org/advocacy/liaison-meetings.
Finally, we expect 2025 to be an especially busy year for tax legislation in the United States, which should result in many opportunities for TEI to advocate on behalf of its members. The looming impact on the US fisc of the changing and expiring provisions of the Tax Cuts and Jobs Act (TCJA) will almost certainly require significant changes to the Code in 2025. Those, in turn, will spur regulatory action from the government. Moreover, several major regulatory projects are still in the works at the government since the original enactment of the TCJA in 2017 that TEI expects to comment on once the proposed regulations are promulgated.
If you would like to get involved in TEI’s advocacy or have an issue about which you would like TEI to advocate, please do not hesitate to reach out to any member of TEI’s legal staff, whose contact details can be found at www.tei.org/contact-us.
You can find all of TEI’s most recent advocacy efforts at www.tei.org/advocacy. TEI’s advocacy submissions will also be regularly posted on TEI Engage in the “All Members” group.
Ben Shreck is TEI tax counsel.
