Rev. Proc. 2020-30: Relief from creating foreign branch separate units under the dual consolidated loss rules

Relief from creating foreign branch separate units

The IRS today released an advance version of Rev. Proc. 2020-30 to address situations when a foreign branch separate unit will not be created as a result of travel restrictions and disruptions resulting from the coronavirus (COVID-19) pandemic.

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Rev. Proc. 2020-30 [PDF 22 KB] provides that certain “temporary activities” do not give rise to a foreign branch separate unit for purposes of the dual consolidated loss rules under section 1503(d) and do not create an obligation to file Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs).

Today’s revenue procedure defines the term “temporary activities” to mean activities of a taxpayer conducted by one or more individuals in a foreign country during any single consecutive period of up to 60 calendar days selected by the taxpayer within calendar year 2020, to the extent that the individual or individuals were temporarily present in the foreign country during the period and the activities would not have been conducted in the foreign country but for COVID-19 emergency travel disruptions with respect to the individual or individuals.

The following example is provided by Rev. Proc, 2020-30.

If an individual employed by or acting on behalf of a domestic corporation traveled to a foreign country on March 1, 2020, and as a result of restrictions implemented by, or recommendations of, the U.S. government or a foreign government in response to the COVID-19 emergency remained in the foreign country until April 27, 2020, then any activities conducted by the individual on behalf of  the domestic corporation during such period would constitute temporary activities, to the extent that, but for the restrictions or recommendations, the individual would have left, and would not have conducted the activities in, the foreign country.

The revenue procedure provides that a U.S. corporation that treats activities as temporary activities must retain contemporaneous documentation to establish that the activities are temporary activities (including to establish the up-to-60-day period during which the activities occur), and must be prepared to provide this documentation to the IRS upon request.

Rev. Proc. 2020-30 concludes that no inference is to be drawn as to whether activities of a taxpayer that are conducted by one or more individuals in a foreign country during calendar year 2020 and that would be temporary activities without regard to the 60-day limit give rise to a foreign branch as defined in Reg. section 1.367(a)-6T(g)(1) or a qualified business unit as defined in Reg. section 1.989(a)-1(b)(2)(ii).

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