Entity Setup
Entity Setup Strategy: How Dual Consolidated Loss and Disregarded Payment Loss Rules Will Shape Your Holdings
Keep ahead of proposed IRS rules that could shift how dual consolidated losses and disregarded payments are treated—critical for international corporate groups with U.S. connections.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Overview
Notice 2025-44 introduces proposed changes to remove the **Disregarded Payment Loss (DPL)** rules and modify parts of the **Dual Consolidated Loss (DCL)** rules under § 1503(d). If your entity structure includes multiple tiers, foreign subsidiaries, or cross-border tax-aware operations, these changes may be highly relevant. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
## What the Proposed Rules Entail
- Removing the DPL rules under §1.1503(d)-1(d), meaning certain payments currently recognized as losses might no longer be disregarded in the same manner. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
- Modifying the DCL rules related to the so-called “deemed ordering rule” under §1.1503(d)-3(c)(3), including how income is offset by losses under the unified DCL/DPL regime. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
- Extending **transition relief** for certain taxes under the **Global Anti-Base Erosion (GloBE) Model Rules**, which are part of the broader global Pillar Two framework, for DCLs incurred before **August 31, 2025**. ([irs.gov](https://www.irs.gov/irb/2025-37_IRB?utm_source=openai))
## Why This Matters for Entity Structuring
- Affects how losses between entities are consolidated for U.S. federal tax purposes—can change group-wide tax exposure.
- Impact on international groups that use payments between affiliate entities: DPL rules often relate to payments disregarded for loss-matching; their removal broadens U.S. tax exposure.
- Strategic entity setup (LLCs, subsidiaries, holding companies) may need reevaluation in light of what losses are recognized and how.
## Actionable Steps
1. **Map your current entity-group structure**, especially foreign subsidiaries or related party payments.
2. **Calculate potential tax exposure** under both current and proposed rules to understand possible increased taxable income.
3. **Engage in public comment** if proposed regulations are still open for feedback—these rules could meaningfully shift practice.
4. **Consider restructuring or shifting intercompany activity** prior to rule changes becoming effective (if and when finalized).
5. **Track transition relief eligibility**, especially for amounts incurred **before August 31, 2025** under GloBE. Some relief may permit legacy treatment.
## Example
A multinational company has two U.S. entities and a foreign sister company. Under current DCL rules, losses in certain jurisdictions may offset income elsewhere; DPL may allow disregarded losses under payments forwards. With DPL removal and changes to ordering rules, this company may lose ability to offset income as before—leading to higher U.S. tax. Restructuring payments or adjusting foreign operations may help mitigate.
## Looking Ahead
- These proposals are **not yet finalized**. The IRS is seeking comments.
- Entities should stay abreast of Treasury/Federal Register postings. Effective dates will be critical.
- Potential alignment with global tax policy under Pillar Two/EU/OECD may influence final shape.
## Conclusion
For groups with domestic and international operations, proposed changes to DCL and DPL rules could reshape loss treatment and inter-affiliate payment structuring. Proactive analysis and careful planning could yield both compliance and tax optimization advantages.