OBBBA International Tax Transition Rules

The OBBBA enacted several targeted changes to the international tax rules. While most provisions apply to tax years beginning on or after Dec. 31, 2025, certain transition rules apply to certain 2025 transactions.

On Dec. 4, the IRS issued Notice 2025-75, regarding the Section 951 transition rule for pro rata share income inclusion; Notice 2025-77, regarding the Section 960 foreign tax credit (FTC) disallowance on certain Section 951A previously taxed earnings and profits (PTEP) distributions; and Notice 2025-78, regarding the Section 250 exclusion from deduction-eligible income (DEI). The notices implement the OBBBA’s transition rules for these provisions and preview forthcoming proposed regulations.

Taxpayers can rely on these notices until proposed regulations are issued, provided they apply the rules in each notice fully and consistently.

Notice 2025-75 and Notice 2025-78 also request public comments, which are due Feb. 2, 2026.

Crowe observation

Each notice reflects a clear bifurcation in tax treatment, requiring separate considerations for periods before and after the respective cutoff dates.

Notice 2025-75

Before the OBBBA, a U.S. shareholder’s pro rata share of a controlled foreign corporation’s (CFC’s) subpart F income and tested items was determined under Section 951(a)(2) (with Section 951A cross‑references), including a reduction under Section 951(a)(2)(B) for dividends made to a person other than the U.S. shareholder during the CFC’s tax year.

Notice 2025-75 provides a transition rule for applying Section 951(a)(2)(B) to dividends paid on or before June 28, 2025, and during the CFC’s tax year that includes that date, or after June 28, 2025, and before a foreign corporation’s first tax year beginning after Dec. 31, 2025. Under the transition rule, the Section 951(a)(2)(B) reduction is denied to the extent that the dividend does not increase taxable income of a U.S. person subject to federal income tax after applying exclusions and dividend received deduction rules.

The notice also:

• Provides entity-specific definitions of taxable income for the transition rule (for example, rules for regulated investment companies, real estate investment trusts, and tax-exempt entities)
• Establishes look-through rules for partnerships and S corporations
• Addresses coordination for lower-tier-to-upper-tier CFC dividends and extraordinary reduction mechanics under Treasury Regulation Section 1.245A-5
• Requires a statement to be attached to Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” explaining why amounts remain treated as dividends for Section 951(a)(2)(B) after applying the transition rule

U.S. shareholders acquiring CFC stock during the transition window should identify whether any pre-June 28, 2025, dividend increases taxable income for a U.S. person.

Notice 2025-77

Notice 2025-77 addresses the new Section 960(d)(4), which disallows a credit for 10% of foreign income taxes allocated to distributions of Section 951A PTEP attributable to a U.S. shareholder’s taxable year ending after June 28, 2025. Accordingly, Section 960(d)(4) effectively reduces available FTCs for distributions of post-June 28, 2025, PTEP.

Notice 2025-77 explains that foreign gross income and foreign income taxes related to a distribution, including withholding taxes, must be allocated and apportioned to the appropriate PTEP group under the rules in Treasury Regulation Section 1.861-20. U.S. shareholders should track whether their Section 951A inclusions fall in taxable years ending on or before June 28, 2025, or after June 28, 2025, and compute the 10% disallowance on taxes tied to post-cutoff PTEP distributions. Notice 2025-77 also provides an example that illustrates allocation and apportionment of foreign gross income and foreign income taxes to Section 951A PTEP groups pre- and post-June 28, 2025.

Crowe observation

Accurate subledgering of PTEP accounts and associated withholding taxes will be more critical for U.S. shareholders receiving distribution of PTEP from CFCs.

Notice 2025-78

For purposes of the Section 250(a) deduction, Section 250(b)(3)(A) excludes certain categories of gross income when computing DEI. The OBBBA added a new exclusion for income and gain from sales or other dispositions of certain property after June 16, 2025. Notice 2025-78 clarifies that the new exclusion applies to intangibles (including Section 367(d) deemed dispositions but excluding copyrighted articles) and other property that is or was depreciable, amortizable, or depletable by the seller, and that income from sales of inventory, leases, and licenses remains within DEI.

The notice provides that, for mixed transactions, taxpayers should separately identify and allocate consideration to inventory and excluded property under existing arm’s-length and allocation principles to avoid inappropriately excluding inventory-related income from DEI. Additionally, the notice includes a principal purpose antiavoidance rule that disregards or recharacterizes arrangements designed to circumvent the DEI exclusion, such as converting excluded property into inventory through intercompany transactions. It also provides concrete examples to narrow uncertainty.

Crowe observation

For outbound transfers of intangibles or depreciable property occurring after June 16, 2025, the characterization of the property and the applicable treatments under general tax principles should be reviewed.

Looking ahead

The ability to rely on these three notices provides much-need guidance for 2025 transition rules. While the notices provide certainty, taxpayers should keep abreast of the latest developments as the guidance process progresses. In the meantime, taxpayers should assess data readiness for applying the rules in light of the specific cutoff dates and consult tax advisers to evaluate how the transition rules impact their particular facts and circumstances.