The US Congress is poised to return to session following the August recess for a short session in the run-up to the mid-term elections on 3 November. The House of Representatives returns from the recess on 31 August. The Senate will return to Washington on 14 September.

Recall that prior to adjourning, the House and Senate passed competing continuing resolutions to keep the Federal Government funded past the fiscal year-end on 30 September. The Senate Continuing Resolution (CR) funds the government until 11 December and the House version until 4 December. The two chambers will need to reach an agreement on the details of the CR during the September session.

It is unclear what, if any, tax legislation can be enacted before Congress next adjourns.

Treasury and the IRS on 25 August released proposed regulations (REG-115646-25) under IRC Sections 245A, 951, 951A and 951B that would implement changes made by the One Big Beautiful Bill Act (OBBBA) to pro-rata share rules that govern a US shareholder's inclusions of subpart F income, tested income or tested loss from a controlled foreign corporation (CFC). The rules are generally proposed to apply to tax years beginning after 31 December 2025.

Among the highlights, the proposed rules would expand on the OBBBA's new attribution approach under which a shareholder's pro-rata share would include subpart F and tested income attributable to stock it owned during a foreign corporation's tax year while the shareholder was a US shareholder and the corporation was a CFC. Recall the OBBBA eliminated the last-relevant-day rule that had governed the pro-rata share rules for over 60 years.

The proposed regulations also provide for determining the portion of a CFC's total subpart F or tested income attributable to a shareholder's stock based on the number of days it held the stock (i.e., day-count proration), rather than based on the CFC's income that arose during that period. This day-count proration approach follows the existing IRC Section 1248 regulations.

In addition, the proposed rules include mandatory and elective closing of the tax year. More specifically, taxpayers would be allowed to elect to close the foreign corporation's tax year if a "significant ownership variance" occurs. A significant ownership variance generally occurs if there is a 50% or greater decrease in ownership that occurs pursuant to the same plan.

Finally, Treasury and the IRS proposed terminating the extraordinary reduction rules in Reg. Section 1.245A-5(e) and (f), along with Reg. Section 1.1502-80(j), for tax years of foreign corporations beginning after 31 December 2025.

Taxpayers that follow the proposed regulations consistently — and in their entirety — may rely on them until they are finalized. A Tax Alert is forthcoming.

The IRS's Deputy Associate Chief Counsel (International) for Controversy and Litigation reportedly said that generic legal advice memorandum (GLAM) AM 2025-001 on the relationship between the general arm's-length standard and the specific periodic-adjustment rules "clarifies existing law rather than changing policy." Under the 2025 GLAM, exam teams should consider periodic adjustments when actual profits substantially exceed original pricing assumptions.

Speaking at a transfer pricing symposium in Washington, late last month, the official said the 2025 GLAM is "fully consistent" with IRC Section 482 and the final regulations, which are the "binding authorities governing periodic adjustments," and was not a change in the IRS's legal position. He also said that the GLAM revises and supersedes an earlier 2007 GLAM (AM 2007-007). While the 2025 GLAM reflects the IRS's current position, he noted, it cannot have retroactive effect. A Tax Alert provides details.

Trade negotiations between the United States and Canada broke down late on 21 August, and additional ad valorem duties of 50% on certain Canadian goods took effect on 22 August. The duties were imposed under Section 338 of the Tariff Act of 1930 by three proclamations signed on 20 July 026 — Proclamations 11046, 11047 and 11048 — addressing Canadian treatment of US alcoholic beverages, dairy and motor vehicles.

This is the first time Section 338 has been used to impose US tariffs. Proclamation 11056 had suspended the duties, originally scheduled to take effect 19 August, while the two governments worked toward a broader agreement; no agreement was reached before the suspension lapsed.

Canadian Prime Minister Mark Carney said Canada would match the US tariffs "dollar for dollar" to protect Canadian workers and businesses. In remarks on 22 August, the Prime Minister said the retaliatory measures would come into force on 8 September and would target sectors including steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. A Global Tax Alert provides details.