The New York State Bar Association’s Tax Section has recently released three new reports concerning (1) the “signing date rule” found in the Treasury Regulations describing the continuity of interest requirement for tax-free reorganizations under section 368, (2) the impact of section 68 and its cap on the availability of itemized deductions for taxpayers in the 37% bracket for trusts, estates, and their beneficiaries, and (3) the rules for determining a U.S. shareholder’s pro rata share of subpart F income.

• Report Number 1516 (Report on Extending the Signing Date Rule):

The Report discusses whether the “signing date rule” in Treasury Regulation § 1.368-1(e)(2), which applies for purposes of determining whether the “continuity of shareholder interest” requirement of Treasury Regulation § 1.368-1(e)(1) is satisfied, could be extended to determining whether a reverse subsidiary merger otherwise described in Section 368(a)(2)(E) of the Internal Revenue Code satisfies the control test of Section 368(a)(2)(E)(ii) (the “A2E Control Test”).

* * *

As discussed in the Report, (i) if Treasury and the Service determine that they have authority to do so, we recommend that they issue regulations extending the application of the signing date rule to the A2E Control Test, but (ii) if Treasury and the Service determine that they do not have such authority, we urge Treasury to seek such authority from Congress. In the latter case, in the interim, we suggest Treasury and the Service could, as a “backup” alternative, permit taxpayers to specifically designate in appropriate circumstances the shares of the target corporation that are being exchanged solely for acquiror stock and clarify that such economically reasonable terms of an exchange will be respected for purposes of determining whether a given transaction meets the A2E Control Test to qualify as a reorganization.

• Report Number 1517 (Report on the Impact of Revised Section 68 on Trusts, Estates and their Beneficiaries):

The Report discusses consequences to estates, trusts and their beneficiaries of the revisions to Section 68 that were recently enacted by P.L. 119-21, informally known as One Big Beautiful Bill Act (the “Act”). Under the Act, Section 68, for tax years beginning after 2025, will generally limit the tax savings from itemized deductions to the savings that would be achieved by an individual taxed at the 35% marginal income tax bracket.

It is unclear, at least in some cases, to what extent revised Section 68 was intended to apply to itemized deductions that are only available to trusts and estates. Examples include distribution deductions under Sections 651 and 661, charitable income tax deductions under Section 642(c), and administration expense deductions described in Section 67(e)(1). The Report discussed whether, and to what extent, as a policy matter, it makes sense to limit the foregoing deductions under section 68, as revised. The Report also makes certain recommendations, including as to regulatory or other guidance that the Treasury and the Internal Revenue Service could consider providing to clarify this if they determine they have the authority to do so.

• Report Number 1518 (Report on the Subpart F Pro Rata Share Rules and Merger and Acquisition Consideration):

The Report provides certain comments and recommendations of the Tax Section on the rules governing a United States shareholder’s pro rata share of a controlled foreign corporation’s (“CFC’s”) subpart F income under Section 951 of the Internal Revenue Code and related provisions in light of the changes enacted by the One Big Beautiful Bill Act of 2025 (the “OBBBA”). Special consideration is given to the application of these rules to mergers and acquisitions of CFCs.

These changes move the rules away from a mechanical test that generally applies to a CFC’s stockholders on the last day of its taxable year, shifting instead to a time- and ownership-based rule that more closely aligns a U.S. shareholder’s inclusions with its economic entitlements with respect to the CFC. However, the statutory rules are general in nature, and the statute directs the Secretary of the Treasury to issue regulations or other guidance necessary for the rules’ implementation. This Report analyzes the pro rata share and related rules in light of these developments and includes recommendations for their implementation.