AICPA Calls for Major Revisions to Dual Consolidated Loss Rules

The American Institute of CPAs has formally asked the U.S. Department of the Treasury and the IRS to revise the current regulatory approach to dual consolidated losses under Regs. Section 1.1503(d) 5.

This request is significant because the existing rules have long been considered one of the most complex and restrictive areas in international tax planning. The AICPA argues that the current structure discourages reasonable deductions, creates unnecessary barriers for U.S. multinational groups, and introduces compliance burdens that are disproportionate to the risks the rules were created to prevent.

For CPAs, tax attorneys, and business owners navigating global operations, the AICPA’s comments represent the beginning of what could be a meaningful shift in how cross border losses are treated. These changes would not only simplify compliance but may also open new planning windows that have been closed for decades.

What Happened

The AICPA submitted a detailed letter urging Treasury and the IRS to revisit the restrictive all or nothing rule that applies when a dual consolidated loss arises.

Under the current regulations, a dual consolidated loss cannot be used to offset domestic income unless a taxpayer can prove that no portion of the loss would ever be used to offset foreign income. If the taxpayer fails this standard, the loss deduction is denied entirely. According to the AICPA, this all or nothing structure is overly broad and often penalizes normal business operations where the potential for foreign use may be negligible or theoretical.

The AICPA is proposing a more focused exception that allows U.S. corporations to claim a portion of a dual consolidated loss when foreign use can be reasonably restricted. Their recommendation states that taxpayers should be permitted to deduct losses that clearly relate to U.S. business activity while still preventing opportunities for double dipping. This would represent a middle ground approach that reduces abuse without creating unnecessary compliance barriers.

Why It Matters

For multinational businesses, the rules surrounding dual consolidated losses determine whether losses generated by certain foreign affiliates can be deducted at the U.S. consolidated group level. The current regime creates significant uncertainty, especially for taxpayers with hybrid entities, disregarded entities, or structures involving multiple jurisdictions.

A more flexible rule could create meaningful change in several areas:

Timing and Value of Tax Deductions

Taxpayers could potentially deduct losses in the year they arise instead of deferring or losing the deduction entirely. This improves cash flow and reduces the effective tax rate for groups with foreign activity.

Reduced Documentation Burdens

The existing certification and monitoring requirements for dual consolidated losses are notoriously complex. A narrower rule would reduce the need for extensive annual reporting and would simplify long term compliance.

Planning Opportunities for International Structures

Businesses with cross border operations often structure activities to avoid dual consolidated loss outcomes. A more precise rule could expand planning options and simplify group structures.

Lower Risk of IRS Challenges

A clearer and more practical standard reduces the ambiguity that often leads to audits or disputes involving foreign use of losses.

What Is Next

Treasury and the IRS will review the AICPA’s recommendation. If they choose to act, the next step would be a notice of proposed rulemaking followed by a public comment period. Multinational groups should begin evaluating where these proposed changes could impact existing structures, loss positions, or future planning opportunities.

Professionals should also prepare to advise clients on how potential changes could affect disclosures, restructuring decisions, or long term tax modeling. Even if Treasury adopts only part of the AICPA’s proposal, the shift would still represent the most meaningful update to the dual consolidated loss rules in years.