In a significant and welcome shift, the U.S. Treasury Department and the Internal Revenue Service (IRS) have announced plans to retract the controversial Disregarded Payment Loss (DPL) regulations that had been finalized just earlier this year. Crafted in the final days of the previous administration, these rules had sparked broad criticism from tax professionals and multinational firms for their complexity, uncertain authority, and potentially burdensome compliance demands. The proposed withdrawal reflects a responsive and iterative regulatory process—one that recognizes the real-world implications of applying new tax rules to sophisticated corporate structures. It also offers a moment for reflection on the delicate balance between closing loopholes and maintaining administrability in international tax frameworks.
Background & Context
The DPL rules were finalized in January 2025 and set to apply for taxable years beginning January 1, 2026. These rules were designed to prevent multinational corporations with foreign disregarded entities from achieving a “double-dip” offset—claiming deductions in both foreign and U.S. jurisdictions through hybrid payment structures.
Such payments—typically in the form of interest, royalties, or other structured payments—were disregarded for U.S. tax purposes but deductible in a foreign tax jurisdiction. The DPL rules sought to neutralize this asymmetry by requiring U.S. owners to include those disregarded payments in taxable income, effectively mimicking the treatment had the payments been regarded directly.
However, they also introduced additional complexity: taxpayers had to track DPLs via a cumulative register, submit certifications over multiple years, and navigate an intertwined set of exceptions—including a de minimis threshold, pre-August 2024 royalty carve-outs, and the “all or nothing” foreign use standard
What’s Changing—Notice 2025-44
On August 20, 2025, the IRS and Treasury issued Notice 2025-44, signaling their intention to withdraw the DPL rules entirely. The primary reasons cited include:
High complexity, uncertainty, and compliance cost, especially in unwinding preexisting corporate structures.
Concerns over legal authority and statutory alignment, with critics arguing that the DPL rules departed from longstanding interpretations and congressional intent under Section 1503(d) and related provisions.
Accordingly, new proposed regulations will outline the formal removal of:
The DPL rules under § 1.1503(d)-1(d);
Related modifications to the deemed ordering rule under § 1.1503(d)-3(c)(3);
Enforcement of the anti-avoidance rule tied exclusively to DPL structures
Extended Transition Relief
Notice 2025-44 doesn’t stop there—it also extends transition relief related to the interplay between Dual Consolidated Loss (DCL) rules and the OECD/G20 BEPS GloBE Model Rules. Specifically, the previously announced transition relief (initially applicable to losses incurred prior to August 31, 2025) will now cover taxable years beginning before January 1, 2028. This gives taxpayers significantly more time to align compliance systems and structures in light of evolving international tax regimes.
Why It Matters for Multinationals
For international firms structured around intricate disregarded entities, this news brings several practical implications:
Reduces regulatory burden in terms of tracking, reporting, and reversing prior structuring assumptions tied to DPL compliance.
Restores predictability for planning foreign-to-U.S. payment flows and financing arrangements.
Provides breathing space to digest ongoing changes under global minimum tax and GloBE frameworks, without layering on additional compliance obligations in the short term.
Conclusion
The proposed withdrawal of the DPL rules is a noteworthy tug-of-war between tax policy rigor and administrative feasibility. While the IRS and Treasury had arguably sought to close a gap that allowed dual deduction outcomes, the backlash highlighted the risks of overly complex regulation—especially when enacted with limited lead time for taxpayers to adapt. By stepping back, the agencies are signaling that they value stakeholder input and are willing to recalibrate in the face of valid concerns. As international tax frameworks continue to evolve—most notably through initiatives like GloBE and the global minimum tax—multinationals can take comfort in the added certainty of this regulatory pause. It remains essential, however, to stay engaged with developments in the DCL, hybrid mismatch, and GloBE arenas, all of which continue to shape the global tax landscape.
