Bloomberg: IRS Issues Notice on Foreign Subsidiary Taxable Year Change:

The IRS announced Tuesday it intends to issue proposed regulations on the 2025 GOP tax law’s elimination of a rule that allowed certain foreign subsidiaries of US companies to elect their tax year.

Notice 2025-72 previews proposed regulations the agency will put out to clarify how companies can allocate their foreign taxes after the 2025 law eliminated the “one-month deferral rule” under Section 898(c) of the tax code.

Prior to the new law’s enactment, controlled foreign corporations, or CFCs, were able to elect a taxable year that begins one month before their US’s parent’s tax year. Controlled foreign corporations are foreign entities majority-owned by a US company.

The GOP tax law provision applies to CFCs for tax years beginning after Nov. 30, 2025. The new tax law stipulates that if any company is a “specified foreign corporation” as of Nov. 30, 2025, its first taxable year after Nov. 30 will end the same year as its “first required year,” which, for many companies is the end of 2025.

This gives these CFCs a taxable year of only one month, limiting a multinational company’s ability to take credits on taxes they’ve paid abroad.

To ameliorate this issue, the IRS on Tuesday provided guidance on a transition rule that would allow companies to allocate their foreign taxes across a lengthier period of time.

The IRS will allow affected companies to allocate their foreign taxes across the first required year and the succeeding taxable year.

The guidance breaks down when a company is required to allocate foreign tax—either the first required year or the succeeding taxable year—by groups of income.

For example, previously taxed earnings and profits, or PTEP, is an income group to which foreign income taxes will be allocated in the first required year.