Tax Bytes: Week of September 21, 2026

Tax developments

Republican international tax package revives Tillis’ proposal with OBBBA updates

On September 17, 2026, Representative Ron Estes (R-Kan.) released the US Innovation and Global Competitiveness Act of 2026, a new package of international tax proposals addressing foreign tax credit rules and other international tax issues. The proposal closely tracks legislation Senator Tillis introduced in May 2025 but has been updated to reflect changes made by the One Big Beautiful Bill Act (OBBBA). We previously covered the key points from Senator Tillis’ bill in a prior Tax Byte. 

Among the variations from the 2025 bill, the proposal would:

• exclude jurisdictions imposing digital services taxes (DSTs) from the bill’s new BEAT exception for payments subject to at least 18.9% foreign tax; 
• create a new election governing the timing of foreign tax redetermination accruals; 
• repeal OBBBA’s exclusion of certain foreign inclusions from the section 163(j) adjusted taxable income calculation; 
• allow BEAT liability to be offset by general business credits;
• allow all corporations to offset corporate minimum tax with research credits; and
• grant Treasury authority to address potential double counting related to section 174 capitalization.

Notably, the proposal does not retain the foreign tax credit relief provision addressing the FTC final regulations’ nexus requirement that appeared in the 2025 bill, suggesting that lawmakers may no longer view such relief as necessary.

While the legislation’s prospects remain uncertain, the proposal signals the international tax changes that some congressional Republicans may continue to pursue in the wake of OBBBA.

NCTI almost works the way GILTI was advertised: Treasury and IRS propose new rules on expense allocation to the Section 951A category

On September 10, 2026, Treasury) and the IRS published proposed regulations, REG-117273-25 (Proposed Regulations), regarding the allocation and apportionment of deductions to foreign source section 951A category income (now net CFC taxable income (NCTI), and previously global intangible low-taxed income (GILTI)) for foreign tax credit (FTC) limitation purposes and for calculating foreign derived deduction eligible income (FDDEI) with respect to which a deduction is allowed under section 250(a)(1)(A).

The Proposed Regulations implement changes made by the OBBBA providing special rules that (1) limit allocation and apportionment of deductions to foreign source section 951A category income for FTC limitation purposes (thereby generally increasing the FTCs that may be claimed by taxpayers with respect to such income) and (2) exclude interest expense and research and experimental (R&E) expenditures from deductions that reduce FDDEI (thereby generally increasing taxpayers’ related deduction available under section 250). The Proposed Regulations would apply to taxable years beginning after December 31, 2025, and taxpayers may rely on the Proposed Regulations before finalization if applied consistently and in their entirety.

Read our full alert here. 

Rev. Proc. 2026-32 provides flexibility for treatment of R&D costs and long-term construction contracts post-OBBBA

The OBBBA made significant statutory changes to the treatment of domestic R&E expenditures under Sections 174 and 174A, as well as the treatment of certain residential construction contracts under Section 460. In order to implement these substantive changes to the treatment of such expenses, taxpayers needed the related procedural accounting method rules governing such costs to be updated. 

With the release of Rev. Proc. 2026-32, the IRS and Treasury have provided taxpayers with the procedural guidance needed to take advantage of OBBBA’s changes. Notably, Rev. Proc. 2026-32 extends the waiver of the five-year eligibility rule for certain accounting method changes related to domestic and foreign R&E expenditures through taxable years beginning before 2028, coordinates the section 481(a) adjustment period for Section 174A changes related to domestic R&E expenditures with the recovery of unamortized amount method adjustment period (either 1 or 2 years), and provides new automatic accounting method changes for certain residential construction contracts to change to an exempt contract method, where eligible, to take into account OBBBA’s changes to Section 460(e). Taxpayers with either R&E expenditures or residential construction costs should appreciate this timely guidance that provides enhanced flexibility to implement the favorable changes made by OBBBA to such expenses.

Read our full alert here. 

Tax Court denies motions to strike expert declarations in Airbnb transfer pricing discovery dispute: Implications for protective orders and expert witness opinions

In Airbnb, Inc. & Subsidiaries v. Commissioner, 167 T.C. No. 9 (September 2, 2026), the US Tax Court denied Airbnb’s motions to strike expert declarations (Declarations) from Monty G. Myers, a founder and chief executive officer of a software solution delivery and management company, whom the IRS had engaged to provide independent expert consulting and analysis in the case. The Declarations were submitted by the IRS in support of a pretrial discovery protective order motion. The Tax Court held, in an issue of first impression, that expert witness report requirements under Tax Court Rule 143(g) do not apply to declarations submitted in support of pretrial discovery motions. The opinion, authored by Judge Emin Toro, addresses two important areas of tax litigation: (1) the limits on expert witnesses offering legal opinions, and (2) the use of protective orders to govern discovery of sensitive materials.

Read our full alert here. 

Making every day count: Treasury and IRS issue Proposed Regulations on pro rata share rules for subpart F income and tested income/loss

On August 26, 2026, Treasury and the IRS published proposed regulations, REG-115646-25 (Proposed Regulations), implementing changes to sections 951(a),1 951A, and 951B, as enacted in the OBBBA.

The Proposed Regulations provide guidance on how a United States shareholder, as defined in section 951(b), calculates its pro rata share of a controlled foreign corporation’s (CFC) subpart F income, tested income, and tested loss, including rules related to closing CFC taxable years. The rules would generally apply for taxable years of foreign corporations beginning after December 31, 2025.

Read our full alert here. 

A Sirius shift (again): Fifth Circuit redetermines the limited partner exception to self-employment tax

On August 12, 2026, the Fifth Circuit decided K Alain, L.L.L.P. v. Commissioner (Sirius II), and in doing so withdrew its prior opinion in Sirius Solutions, L.L.L.P. v. Commissioner (Sirius I), both of which addressed the meaning of the term "limited partner" in section 1402(a)(13). 

Scrapping its prior holding that “limited partner” is “a partner in a limited partnership that has limited liability,” in Sirius II, the court drew closer to a functional test, concluding that the ordinary public meaning of "limited partner" is "a partner who plays no significant role in managing or running a business." The Fifth Circuit's decision may affect how partnerships evaluate the availability of the limited partner exception to self-employment tax, and it comes as the same issue continues to be litigated in other federal circuits. 

Read our full alert here. 

Recent Eversheds Sutherland Tax insights 

Dutch Budget Day 2026: Key Tax Changes for 2027

Dutch Supreme Court: Loss utilisation restriction also applies to latent losses

Ireland's New Path Forward: The Roadmap for the Taxation of Retail Investment

Irish Revenue updates section 980 guidance following the Cintra decision

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