IRS Proposes Rollback of Disregarded Payment and Dual Consolidated Loss Rules

The IRS and Treasury have announced plans to roll back the Disregarded Payment Loss (DPL) rules issued earlier this year, as well as certain provisions related to Dual Consolidated Losses (DCL). This move follows concerns from taxpayers and advisors about increased compliance burdens, legal authority, and the departure from long-standing international tax principles.

Background on Disregarded Entities and DPL

A disregarded entity is treated as an extension of its owner for U.S. tax purposes. Payments between disregarded entities under the same umbrella are considered “internal” and generally not recognized as income.

The proposed DPL regulations, set to take effect for tax years beginning on or after January 1, 2026, would have required certain domestic corporations to treat these payments as taxable income. The rules were designed to limit the use of disregarded entities to reduce international tax obligations by treating internal flows as “deemed income.”

Rolling back the regulations would temporarily ease these requirements and create exceptions to related anti-avoidance rules. Companies that restructured in anticipation of the DPL rules may not need to unwind those arrangements, reducing both uncertainty and compliance burdens.

Dual Consolidated Loss (DCL) Considerations

The rollback discussion also extends to the proposed DCL rules. A DCL is a loss that comes from a corporation that is considered a resident in two countries or a domestic company that has a separate foreign unit.

Current rules limit how these losses can be used to offset taxable income. Historically, the “all-or-nothing” principle has required full recapture of a DCL if used against foreign corporations or hybrid entities. Treasury and the IRS are now seeking feedback on whether this principle should be revised and how disregarded payments should factor into DCL calculations.

Next Steps and Public Comment

The IRS is accepting public comments on these proposed changes until October 21, 2025. Treasury and the IRS have expressed that they share industry concerns regarding compliance burdens and complexity, signaling a willingness to adjust rules in response to feedback.

At McGuire Sponsel, our Global Business Services team works alongside CPA firms to help their clients navigate complex international compliance and planning opportunities. Whether it’s understanding the impact of proposed regulations like DPL and DCL, or ensuring global structures remain tax-efficient, we provide clarity and confidence in a shifting regulatory environment.

If you’d like to discuss how these proposed changes may affect your clients—or need a partner to help simplify global tax compliance—connect with our team today.