The US Senate is in session for another week and set to adjourn on 10 August, joining the House, which began its August recess last week. Both the House and Senate will return to Washington in September after Labor Day for a relatively short session before adjourning in the run-up to the mid-term elections on 3 November.

The IRS, on 31 July 2026, released proposed regulations (REG-115145-25) addressing the repeal of the "one-month deferral election" in IRC Section 898(c)(2) by the One Big Beautiful Bill Act (OBBBA). The proposed regulations would allocate certain foreign income taxes that accrue during the mandatory, one-month "short year" caused by the repeal of the one-month deferral election, as outlined in Notice 2025-72, with some modification.

The proposed regulations also provide rules for determining the amount of foreign income taxes paid or accrued (or deemed paid) on previously-taxed-earnings-and-profits distributions resulting from an IRC Section 951A inclusion that are subject to the foreign tax credit disallowance under IRC Section 960(d)(4), as described in Notice 2025-77. A Tax Alert is forthcoming.

IRS officials this week provided insights on the use of artificial intelligence (AI) in transfer pricing as well as future guidance. First, an IRS official warned taxpayers that AI should not replace human judgment in transfer pricing analysis. Addressing an annual transfer pricing symposium in Washington on 29 July, the director of treaty and transfer pricing operations in the IRS Large Business and International Division was quoted as saying AI can "support your legal, economic, and factual judgment [but] it shouldn't replace that."

Regarding transfer pricing expert witnesses' use of AI, the IRS official said the expectation is that those experts will need to explain their processes — including inputs, assumption and methods — as well as the use of AI tools. She added the IRS will "want to see the formulas, absolutely, so that we can test them."

At the same symposium, the IRS associate chief counsel (international) was quoted as saying there are plans to amend the IRC Section 482 cost sharing regulations "in the very near term." The amendments reportedly will address the OBBBA changes to the research and experimental expense provisions in IRC Sections 174 and174A. No details were provided on the exact nature of the coming changes.

He was also quoted as saying the IRS plans to "relatively soon" release proposed regulations to implement the elective Pillar One Amount B regime. Amount B of Pillar One is intended to simplify and streamline the application of the arm's-length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.

Last December, the IRS issued Notice 2025-04 announcing plans to issue proposed regulations that would allow taxpayers to elect to apply the Amount B rules. The notice provided that taxpayers subject to US tax with respect to in-scope transactions could elect to apply the simplified and streamlined approach for tax years beginning on or after 1 January 2025. The US government reportedly is considering expanding the Amount B framework to cover certain digital transactions.

The United Nations (UN) on 20 July 2026 released the Draft Protocol on the Taxation of Income from Cross-Border Services and the Draft Protocol on the Prevention and Resolution of Tax Disputes as part of the UN Framework Convention on International Tax Cooperation negotiations. These are the first complete draft texts for the two early protocols being developed simultaneously with the Framework Convention. The following day, on 21 July, the UN released the Co-Leads' Draft Framework Convention.

The draft protocol on cross-border services would establish new source-based taxing rights over fees for services, automated digital services and insurance premiums, with several key elements, including withholding tax rates, still under negotiation.

The draft protocol on dispute prevention and resolution would introduce a range of new dispute-prevention and dispute-resolution mechanisms, including advance pricing arrangements, joint audits, mediation, conciliation and arbitration.

The draft texts will be discussed during the fifth substantive session of the Intergovernmental Negotiating Committee, scheduled to take place in New York from 3 to 13 August 2026. Subsequent revisions to the drafts are expected as negotiations continue toward the target of finalizing the Framework Convention and the two early protocols in 2027.

A Global Tax Alert provides details.