The Internal Revenue Service (IRS) annually publishes its Priority Guidance Plan (PGP), outlining key areas of focus for tax regulation and guidance. A comparison of the 2023-2024 PGP and the 2024-2025 PGP offers insights into the IRS’s anticipated actions and areas of emphasis for the 2025 tax year. The PGP is categorized into 16 subject matter areas, including international taxation, which is further divided into seven subcategories. These subcategories cover various aspects of international tax law, ranging from anti-deferral regimes and inbound/outbound transactions to foreign tax credits and transfer pricing. The 2024-2025 PGP largely maintains the priorities of its predecessor, with some notable additions and removals, signaling the IRS’s continuing efforts to clarify and refine existing tax regulations, particularly those impacted by the Tax Cuts and Jobs Act (TCJA) of 2017.
The international taxation section of the PGP is a complex and dynamic area, reflecting the increasing globalization of businesses and investments. Both the 2023-2024 and 2024-2025 PGPs dedicate significant attention to regulations surrounding subpart F income, passive foreign investment companies (PFICs), and previously taxed earnings and profits (PTEP). These areas are crucial for multinational corporations and involve intricate rules for attributing income and preventing tax deferral on foreign earnings. The 2024-2025 PGP adds a new project aimed at streamlining the process for requesting private letter rulings for retroactive qualified electing fund (QEF) status for PFICs, indicating a focus on enhancing administrative efficiency and providing clarity for taxpayers. The continued presence of projects related to PTEP and subpart F demonstrates the ongoing effort to address complexities arising from the TCJA’s changes to international tax law.
Inbound and outbound transactions represent another significant focus area within the international taxation category. Regulations under Section 871(m), concerning withholding on dividend equivalent amounts, continue to be a priority, reflecting the challenges in applying these rules to complex financial instruments. Similarly, the treatment of hybrid instruments and tax-favored equity as financing transactions under Section 881-3 remains a key area for guidance. For outbound transactions, regulations addressing Section 245A, which allows for deductions of foreign-source dividends received by U.S. corporations, persist as a priority, along with regulations concerning the transfer of intangible property and the taxation of qualified business units (QBUs). These ongoing projects signify the IRS’s commitment to providing comprehensive guidance on the international tax implications of various business structures and transactions.
Foreign tax credits (FTCs) and transfer pricing are two further areas of substantial importance within international taxation. The 2024-2025 PGP maintains its focus on FTC regulations, particularly in relation to the global anti-base-erosion (GLOBE) rules, indicating the IRS’s ongoing efforts to align U.S. tax law with international standards. In the realm of transfer pricing, the 2024-2025 PGP introduces a new project aimed at developing a simplified approach for determining arm’s-length returns for marketing and distribution activities, aligning with the newly adopted OECD guidelines. This addition reflects a growing emphasis on streamlining transfer pricing regulations and reducing compliance burdens, especially for routine transactions.
The “Other” category within the international taxation section of the PGP encompasses a range of diverse topics, including treaty benefits, foreign currency contracts, withholding obligations, and reporting requirements. The 2024-2025 PGP introduces a new project focused on updating the list of countries with which the U.S. has information exchange agreements. This update reflects the ongoing international cooperation in combating tax evasion and promoting transparency. The continued prioritization of guidance on withholding agent obligations and digital asset reporting, in line with the OECD’s cryptoasset reporting framework, signifies the IRS’s commitment to adapting tax regulations to the evolving digital landscape and addressing the challenges posed by the increasing prevalence of cryptocurrencies.
In summary, the 2024-2025 PGP reveals a sustained focus on clarifying and refining existing international tax regulations, with an emphasis on addressing complexities introduced by the TCJA and aligning U.S. tax law with international standards. The addition of new projects related to QEF elections, transfer pricing simplification, and information exchange agreements underscores the IRS’s efforts to enhance administrative efficiency, reduce compliance burdens, and promote transparency in international tax matters. The continued prioritization of regulations concerning subpart F, PFICs, PTEP, inbound and outbound transactions, FTCs, and digital asset reporting highlights the ongoing challenges in navigating the complex and dynamic landscape of international taxation. The PGP serves as a roadmap for taxpayers and practitioners, providing valuable insight into the IRS’s priorities and anticipated regulatory developments for the upcoming tax year.
