Compliance
Compliance Essentials: What U.S. Businesses Should Know Under New Dual Consolidated Loss and DPL Regulations
The IRS is introducing new proposed regulations concerning Disregarded Payment Losses (DPL) and Dual Consolidated Losses (DCL), with significant implications for multinational corporations—this guide lays out what’s changing and how to be compliant.
By NomadicTax Research Team • 5-8 min read • November 20, 2025
## What Are DCL and DPL Regulations?
- **DCL (Dual Consolidated Loss)** rules prevent foreign‐based loss entities from reducing U.S. tax by shifting losses across borders.
- **DPL (Disregarded Payment Loss)** rules require that certain payments previously disregarded for tax purposes must now be included in taxable income. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
## New Proposed Regulations & Timing
- Proposed regulations intend to **remove** the existing DPL rules under section §1.1503(d)-1(d) and modify the DCL ordering rule under §1.1503(d)-3(c)(3). ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
- The **effective date** for DPL rule changes will be for taxable years beginning **on or after January 1, 2026**. The anti-avoidance rule for DCLs applies to taxable years ending on or after August 6, 2024. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
- The transition relief related to the DCL rules, particularly how they interact with the OECD’s GloBE Model Rules (Pillar Two), is being extended. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
## Action Steps for Businesses
- **Review Current Structures and Flows**: Corporations with foreign affiliates and entities that have been using loss shifting should model the impact of both existing and forthcoming rules.
- **Document Payments and Transactions Carefully**: Disregarded payments that were historically excluded may need to be included under the new regulations—ensure documentation supports classification.
- **Analyze Applicability of GloBE Rules**: The global minimum tax or Pillar Two rules intersect with DCL—coordinate with transfer pricing and international tax advisors.
## Practical Example
*TechCo*, a U.S. domestic corporation, owns a foreign affiliate that incurs losses. Under existing DCL rules, those losses offset U.S. income via loss shifting. But under the proposed rules, TechCo may no longer do so to the same extent: payments to the foreign affiliate might now trigger DPL inclusion, and the ordering rules limiting offsets are revised. An earlier shift of assets or reclassification of entities may reduce exposure **if completed before January 1, 2026**.
## Risks and Compliance Considerations
- Misclassifying payments could lead to retroactive tax liability.
- Penalties for failing to follow finalized rules once enacted can be substantial.
- Coordinate planning timelines with fiscal year ends, especially for companies with non-calendar fiscal years.
## Best Practices
- Establish a cross-functional team (tax, treasury, legal) to assess exposures and implement systems to capture required data.
- Use tax software that supports cross-border loss tracking and inclusion features.
- Stay updated on IRS notices and comment period proposals since these rules are still under review.
## Conclusion
These changes mark a significant tightening of rules around international loss use and payment classification. For businesses currently benefiting from cross-border arrangements, it’s essential to reevaluate before the rules take effect—compliance today can save large exposures tomorrow.