This article applies to U.S. corporations with international business activities. The Treasury Department and the IRS finalized six regulations to the Tax Cut & Jobs Act (TCJA).

Abstract: A Government Accountability Office report published in June examines how the international provisions of the Tax Cuts and Jobs Act may be affecting U.S. corporations’ international business activities. This article summarizes some of the findings.

GAO Report Addresses International Provisions of the TCJA

The Government Accountability Office (GAO) published a report (GAO-21-277) in June that takes a close look at how the international provisions of the Tax Cuts and Jobs Act (TCJA) may be affecting U.S. corporations’ international business activities.

The report, which was undertaken at the request of the chairman of the Senate Finance Committee, also assesses the development of relevant regulations and guidance to implement the TCJA provisions by the U.S. Department of the Treasury and the IRS.

According to the GAO, it met with officials representing eight selected U.S. companies and found that there was “considerable uncertainty” in how the international provisions of the law may be affecting business planning decisions. “Some companies reported making specific changes, such as moving intellectual property back to the U.S. in response to a new deduction for income earned from certain foreign-derived sales of property or services attributed to assets located in the U.S.,” the report said.

Preliminary studies on a provision taxing net income earned by foreign subsidiaries exceeding a specified threshold of certain assets “hypothesized that this provision could encourage moving tangible property outside the U.S.,” the GAO said. “Other business representatives emphasized the importance of nontax factors in business planning decisions, such as entering foreign markets where executives believe potential customers may be located,” it added.

On the regulatory front, the report noted that, between December 2017 and October 2020, the Treasury Department and the IRS proposed eight regulations to implement four international provisions of the TCJA. Six were finalized. The agencies generally complied with legal requirements for issuing regulations and offered the public some opportunities to comment on guidance, it said.
“However, [the] Treasury and IRS did not fully address expectations set in government-wide guidance related to Paperwork Reduction Act burden estimates, economic analysis requirements for regulations and public comment on significant guidance,” the GAO said.

The GAO report cites several examples of the agencies’ shortcomings. The IRS generally didn’t provide specific estimates of the incremental paperwork burden of the TCJA’s international regulations. Instead, it estimated the total burden for all business tax forms.

Also, the anticipated economic benefits and costs of the agencies’ jointly devised regulations generally weren’t quantified. And the IRS provided no opportunity for public comment before issuing revenue procedures related to the TCJA’s international provisions.

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