It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

B is for BEAT regulations.

If BEAT regulations don’t ring a bell, don’t fret. It’s a relatively new concept – and it doesn’t apply to all taxpayers. But that doesn’t mean that you should ignore it. You should still know what’s happening with respect to US taxpayers, so here are a few things you ought to know.

BEAT stands for base erosion anti-abuse tax. It was introduced as part of the Taxpayer Cuts and Jobs Act (TCJA) in 2017, and you can now find it at Internal Revenue Code (IRC) section 59A. It’s basically an additional tax on certain large US corporations that acts like a minimum tax. It’s specifically targeted to US corporations that make deductible payments to foreign-related payments to reduce their overall tax bill. Generally, it applies to corporate taxpayers with average annual gross receipts of at least $500 million over three years – so not your average small business.

The whole idea of the BEAT Regs is to stop US corporations from using certain techniques to significantly reduce their corporate tax liability. The BEAT increases taxable income by eliminating tax-favored deductions to arrive at a modified taxable income (MTI). The BEAT is then applied to the MTI, and if it exceeds the regular tax, the excess is owed as an additional tax. The BEAT is effective for tax years beginning after 2017. The tax rate is generally 5% in 2018, 10% in 2019, and 12.5% in 2026. 

If that sounds vaguely familiar, it’s a little bit like the concept of the alternative minimum tax (AMT): eliminate tax preferences, and if they exceed your “normal” tax, you pay a minimum tax.

While the law itself didn’t attract a ton of conversation, BEAT Regs have captured a lot of attention of late.

So, let’s take a step back. Regs – or Treasury Regulations – are the tax regulations issued by the Internal Revenue Service (IRS). Regulations are the Treasury Department’s official interpretations of the Internal Revenue Code. In this case, the Regs are Treasury’s direction to corporate taxpayers (and their tax professionals) about how to calculate the tax.

Section 59A is not an easy Tax Code section to understand. As a result, the IRS has taken some time to issue Regs. In fact, it took the IRS more than a year to release proposed regulations; final regs were not published at the end of 2019 (you can see them here in the Federal Register). And there’s still more to come.

With all of that, you should know that this isn’t intended to be a white paper, and there are literally volumes that have been written about the BEAT Regs. But now you know the basics – what it is, who it applies to, and the intended purpose. The next time you’re at a cocktail party and BEAT Regs come up, you’ll do just fine.

You can find the rest of the series here:

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Author

Kelly Erb is a tax attorney and tax writer.

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