Changes to IRC Sec. 898 Under the One Big Beautiful Bill Act

After several months of negotiations, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (OBBBA), was signed into law on July 4, 2025. Although the bill contained several provisions impacting international taxation, those provisions have not received the same attention as many other provisions. One such provision that has flown under the radar is the elimination of the IRC Sec. 898(c) election, effective for taxable years beginning after November 30, 2025. 

OBBBA Changes to IRC Sec. 898 

Prior to the passage of OBBBA, certain foreign corporations could elect to have a taxable year starting one month earlier than the taxable year of its US majority shareholder under IRC Sec. 898. This applied to foreign corporations that were more than 50% owned by a United States person. United States persons in this context include: 

• citizens and residents of the US,  
• domestic partnerships,  
• US domestic corporations,  
• non-foreign estates, and  
• non-foreign trusts.  

However, Section 70352 of the OBBBA eliminated the IRC Sec. 898(c) election. Now, these foreign corporations must align their taxable years with the years of their US majority shareholders. 

Transition Rule 

For all foreign corporations who have made the election, the OBBBA contains a transition provision to get the corporation onto the same taxable year as the majority shareholder. The transition rule provides that the foreign corporation’s first tax year beginning after November 30, 2025, shall end at the same time as the first tax year of the majority shareholder ending after such date. For example, if a US majority shareholder has a tax year ending on December 31 with a foreign corporation that elected to have a taxable year ending on November 30, the corporation would have a shortened tax year beginning December 1, 2025, and ending December 31, 2025. These transition rules will bring additional headaches, as discussed below. 

Planning, Compliance, and Complications 

If you are the owner of an entity that has previously made an IRC Sec. 898(c) election, this change requires immediate action. Compliance with the transition rule is just the tip of the iceberg. Allocating foreign taxes paid or accrued in the short tax year will most likely require taxpayers and their advisors trying to predict what the secretary of the treasury will deem appropriate. Furthermore, the change of a tax year, even by one month, is a major event from a planning perspective. Presumably anyone who made an IRC Sec. 898(c) election had a reason for doing so that now needs to be reevaluated. 

Even if you are the owner of a foreign corporation that hasn’t made an IRC Sec. 898(c) election, this is a good time to consider whether IRC Sec. 898 applies to your foreign corporation, and if so, whether you are in compliance. One potentially tricky compliance area of IRC Sec. 898(c) comes from tying the foreign corporate tax year to the “majority US shareholder.” In determining who constitutes a “majority US shareholder,” IRC Sec. 898(b)(2)(B) incorporates the attribution rules of IRC Sec. 958, which means it is possible to have more than one “majority US shareholder.” Where there is more than one “majority US shareholder,” there also comes the potential for multiple tax years for the foreign corporation that could apply under IRC Sec. 898. As the IRS has yet to finalize guidance on this issue, consulting with a tax advisor is prudent. 

Timing Issues    

With an effective date applying to tax years beginning after November 30, 2025, there is not much time before the transition rule comes into effect. As a further complication, the transition rule instructs the secretary of the treasury to issue guidance for allocating foreign taxes paid or accrued between the shortened year and any succeeding tax year. Four months to provide guidance is a difficult lift in normal circumstances. With the well-publicized reductions in IRS headcount, it will be even more difficult for the secretary to provide timely guidance. 

This is just one change to international tax law among many contained in the OBBBA. If you have a foreign corporation, reach out to your EisnerAmper tax advisor to discuss this and other recent legislative changes.