In a letter sent to the Treasury Department and the IRS, the American Institute of CPAs submitted recommendations regarding Notice 2025-75, Transition Rule for Applying Section 951(a)(2)(B), one of the four international tax notices released as part of H.R. 1, also known as 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.
According to Andersen Managing Director Joe Calianno, one of the compliance challenges is the documentation requirement outlined in the guidance for establishing that a dividend increases a U.S. individual’s taxable income. The notice instructs taxpayers to “determine and document” the effect of the dividend by attaching a statement for Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The statement must detail the amount of each dividend paid by a controlled foreign corporation subject to the transition rule but treated as a dividend for purposes of the pro rata share rules and explain why the shareholder filing the return is entitled to treat those amounts as a dividend.
The AICPA’s letter, dated Feb. 4, addresses how U.S. taxpayers may face significant practical challenges in obtaining detailed tax information, especially when transactions have already closed and there’s 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 after the fact may be impracticable or impossible, and could result in inconsistent compliance outcomes based on factors outside the taxpayer’s control,” Cheri Freeh, chair of the AICPA Tax Executive Committee, wrote in the letter.
The AICPA offered recommendations to 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 doesn’t apply to dividends received by certain U.S. persons for whom inclusion in taxable income is mandatory under the Internal Revenue Code. For all other situations, the Treasury Department 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.
- Specifically, provide that the documentation requirement is satisfied by a brief summary of the applicable federal income tax law explaining why the dividend isn’t excluded from taxable income, together with a concise description of the relevant facts, and that no representations, certifications, or other legal attestations from the dividend recipient or seller are required to be obtained or retained in connection with Form 5471 reporting.
“This guidance does not explain what level of analysis, substantiation, or third-party information is required to complying with the determine and document requirement,” Reema Patel, senior manager for tax policy and advocacy for the AICPA, said in a statement. “In addition, many transactions to which the transition rules apply have already closed, making the AICPA’s recommendations even more essential.”
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