Treasury and the IRS on 19 August released proposed regulations under IRC Section 250 addressing "excluded property sales income," a new category of income excluded from foreign-derived deduction eligible income (FDDEI) under the One Big Beautiful Bill Act. "Excluded property sales income" includes income from the sale of certain intellectual property (IP) and other property of a type subject to depreciation, amortization or depletion by the seller.

The proposed regulations would treat property that is — or has been — of a character subject to depreciation as retaining that character in the seller's hands, even if later repurposed, remanufactured or refurbished into inventory and even if fully depreciated. This approach is consistent with that described in Notice 2025-78.

Also consistent with Notice 2025-78, income and gain from property that has always been held as inventory by the seller would not be treated as "excluded property sales income." However, the rules include an anti-abuse rule, under which property would retain its character for purposes of "excluded property sales income" in certain related-party transactions undertaken with a principal purpose of avoiding the "excluded property sales income" rules.

The proposed regulations would also clarify that FDDEI continues to be a subset of deduction-eligible income (DEI) and thus continues to be limited by the amount of DEI. In other words, a taxpayer's FDDEI could not exceed its DEI. Notice 2025-78 did not address this issue.

Importantly, the proposed regulations follow Notice 2025-78 in confirming that IP licenses, as determined under general US federal income tax principles, continue to qualify as DEI.

Taxpayers may rely on the proposed regulations before the date final regulations are published if they and their related parties apply them in their entirety and consistently. A Tax Alert is pending.

The US Tax Court in SIH Partners LLLP v. Commissioner recently held that a partnership was not entitled to qualified dividend income (QDI) treatment or foreign tax credits (FTCs) arising from a constructed basket swap transaction because the transaction was subject to the anti-abuse rule in Reg. Section 1.246-5(c)(1)(vi).

Although the court concluded that the taxpayer satisfied the regulations' mechanical substantial overlap test and also rejected the IRS's attempt to recast the transaction under substance-over-form principles, it nevertheless found that some of the stocks held in the swap virtually tracked the taxpayer's long positions. Moreover, the court found the swap transaction was entered into with a principal purpose of obtaining tax savings and generated anticipated tax benefits that significantly exceeded its expected pretax economic profits.

As a result, the court treated the taxpayer's positions as substantially similar or related property under IRC Section 246(c), causing the taxpayer to fail the holding-period requirements for both QDI treatment and FTC eligibility. A Tax Alert provides details.

President Trump announced a temporary delay "for a three day period" in the imposition of 50% tariffs on certain Canadian goods that were to take effect on 19 August. The President made the announcement in a Truth Social post on 18 August, writing that the two countries had reached a deal "subject to the finalization of documents."

Canadian Prime Minister Mark Carney issued a statement on 18 August confirming the delay in imposition of the US tariffs "until end of day, August 21." The Prime Minister indicated that "substantial progress has been made, although there is important work still to be done."