Disregarded Payment Loss (DPL) and Dual Consolidated Loss (DCL) – Interim Guidance IRS Notice 2025-44

Indhira Demorizi
Aug 23
2 min read

Updated: Aug 25

On August 20, 2025, the Treasury and IRS issued Notice 2025-44, providing interim guidance for U.S. multinational groups with foreign disregarded entities (e.g., foreign branches or foreign hybrid entities).

This guidance offers welcome relief to U.S. taxpayers who were preparing for the complex and burdensome application of the DPL rules. It also temporarily alleviates concerns about the impact of Pillar Two on DCLs, particularly regarding potential foreign use of the DCL.

Background

The final DPL regulations were issued in January 2025. These rules introduced a framework under which, in certain circumstances, disregarded payments could result in income inclusion for U.S. taxpayers—creating significant implementation challenges. The rules are scheduled to take effect for tax years beginning after January 1, 2026.

The DCL rules addressed in the notice focus on their interaction with Pillar Two, especially regarding the calculation of the effective tax rate under the GloBE Model Rules and the treatment of income offset by losses.

Key Highlights

Notice 2025-44 reflects a shift toward less burdensome U.S. international tax compliance, aiming to reduce administrative complexity and align with global tax developments. Key points include:

Proposed removal of the DPL rules, following public feedback citing complexity, uncertainty, high compliance costs, and questions about statutory authority.
Exception to the anti-avoidance rule for structures previously covered by the DPL rules.
Extended transition relief for DCL rules - Companies can continue to utilize DCLs in the U.S. without triggering recapture or limitation solely due to new foreign minimum tax regimes (such as GloBE or QDMTT) through at least 2028.
Reliance on the notice is permitted until proposed regulations are published.
Request for public comments on potential revisions to the “all or nothing” principle and the treatment of disregarded items for DCL purposes. Comments are due by October 21, 2025.

Forthcoming Regulations

The changes outlined in the notice aim to simplify compliance, address stakeholder concerns, and provide additional transition relief in response to ongoing international tax developments.

We recommend monitoring updates or future developments, including the proposed regulations that will be forthcoming from Treasury and the IRS.

How We Can Help

We help companies navigate the complexities of both U.S. and cross-border taxation, including performing GloBE calculations and, where applicable, evaluating interactions with U.S. tax rules.

This transition relief reduces near-term tax exposure and provides a valuable planning window to align tax strategies with global developments—supporting more informed and measured financial decision-making.

Key planning opportunities may include:

Strategic flexibility to assess and, if necessary, re-evaluate cross-border operations and tax strategies in alignment with broader business objectives.
An opportunity for finance and tax teams to enhance modeling, update compliance processes, and prepare for the full application of DCL rules after the transition period.

For more information, contact us.

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Disclaimer

The contents of this insight are intended for general information only. illumina CPA Group, Inc. is not, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

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