The American Institute of CPAs is asking the Treasury Department and the Internal Revenue Service to simplify the “determine and document” requirement for taxes charged to controlled foreign corporations.
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In a letter earlier this month, the AICPA sent recommendations in response to Notice 2025-75, Transition Rule for Applying Section 951(a)(2)(B), one of the four international tax notices released in the wake of the One Big Beautiful Bill Act. The transition rule modifies the application of Section 951(a)(2)(B) for certain taxable years of foreign corporations beginning before Jan. 1, 2026.
The letter points out that U.S. taxpayers could face significant practical challenges in getting detailed tax information, especially when transactions have already closed and there is no longer a relationship with the buyer or no post-contractual obligation to provide post-closing tax certifications. Requiring taxpayers to obtain or reconstruct such information could result in inconsistencies that are not within the taxpayer’s control, the AICPA noted.
The letter suggests the IRS and the Treasury modify and simplify the “determine and document” requirement in the Notice by either eliminating or significantly paring back the documentation requirement or alternatively adopting a per se rule or safe harbor.
The AICPA recommends the IRS:
Eliminate or significantly pare back the documentation requirement regarding transactions where the dividend is required by law to be included in the gross income of a U.S. person and where no exclusion or deduction could reasonably apply.Alternatively adopt a per se rule or safe harbor under which the “determine and document” requirement does not apply to dividends received by certain U.S. persons for whom inclusion in taxable income is mandatory under the Tax Code. For all other situations, the Treasury and the IRS should clarify that federal income tax principles must be analyzed and the type of documentation is sufficient to demonstrate that the dividend increased taxable income, according to the AICPA.
“This guidance does not explain what level of analysis, substantiation or third-party information is required to complying with the ‘determine and document’ requirement,” said Reema Patel, senior manager for tax policy and advocacy for the AICPA, in a statement. “In addition, many transactions to which the transition rules apply have already closed, making the AICPA’s recommendations even more essential.”
Many transactions to which the transition rule in the notice applies have already closed, often prior to the issuance of the notice, the AICPA noted. “In these circumstances, taxpayers may face significant practical challenges in obtaining specific representations or detailed tax information from sellers regarding the ultimate tax treatment of dividends, particularly where the seller is unrelated, no longer has an ongoing relationship with the buyer, or is under no contractual obligation to provide post-closing tax certifications,” wrote AICPA Tax Executive Committee chair Cheri Freeh. “Requiring taxpayers to obtain or reconstruct such information after the fact may be impracticable or impossible, and could result in inconsistent compliance outcomes based on factors outside the taxpayer’s control.”
