Tax

On August 20, 2026, the U.S. Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) issued proposed regulations (REG-117130-25) under Section 250 addressing the treatment of certain sales and other dispositions of property for purposes of determining foreign-derived deduction eligible income (“FDDEI”) (the “Proposed Regulations”).¹ The Proposed Regulations clarify the scope of the exclusions from deduction eligible income (“DEI”) for income and gain from certain sales or other dispositions of intangible property and depreciable, amortizable, or depletable property enacted as part of the One, Big, Beautiful Bill Act (the “OBBBA”).

Background on Section 250

Section 250 allows a domestic corporation a deduction for a percentage of its FDDEI, incentivizing U.S. corporations to export goods and services for non-U.S. purposes or to non-U.S. customers. FDDEI generally consists of DEI derived in connection with:

• property sold to a non U.S. person for foreign use, or 
• services provided to a person, or with respect to property, located outside the United States.

The OBBBA implemented the following changes to Section 250 as of June 4, 2025:

• For taxable years beginning after December 31, 2025, lowered the deduction from 37.5%  to 33.34% of FDDEI.
• Included new Section 250(b)(3)(A)(i)(VII), which excludes from DEI and FDDEI gain from the sale or other disposition of (i) intangible property, as defined in Section 367(d)(4), and (ii) other property that is subject to depreciation, amortization, or depletion by the seller, which, in each case, would:
  • be subject to Section 367(d) as a sale or disposition to a non-U.S. corporation; and
  • apply to transactions occurring after June 16, 2025.
• Clarified that the Section 250(b)(2)(E) definition of “sale,” which generally includes leases, licenses, exchanges, and other dispositions, would not apply for purposes of the foregoing Section 250(b)(3)(A)(i)(VII).
• Replaced the term “foreign derived intangible income” (“FDII”) with FDDEI and removed  components of the FDDEI computation in conformity with related changes to the Code.

Highlights of the Proposed Regulations

On December 4, 2025, Treasury and the IRS issued Notice 2025-78, which described rules expected to be included in forthcoming proposed regulations addressing the scope of the Section 250 changes. The Proposed Regulations generally follow the approach announced in Notice 2025-78. Key aspects are highlighted below.

“Sale” Is Determined Under General Federal Income Tax Principles

• The Proposed Regulations would clarify that a “sale or other disposition” for purposes of Section 250(b)(3)(A)(i)(VII) is determined under general U.S. federal income tax principles. The term would include deemed sales, other deemed dispositions, transactions or elections treated as dispositions for federal income tax purposes, and transactions subject to Section 367(d).
• Accordingly, unlike the broad definition of “sale” for Section 250 purposes, leases or licenses would not constitute a sale or other disposition for purposes of the Section 250(b)(3)(A)(i)(VII) exclusion from FDDEI.

Copyrighted Articles Are Not Treated as Intangible Property

• Copyrighted articles, as defined in Reg. §1.861-18(c)(3), include copies of digital content from which work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a device.
• Consistent with Notice 2025-78, the Proposed Regulations would confirm via examples that a copyrighted article is not intangible property for the purpose of the Section 250(b)(3)(A)(i)(VII)(aa) exclusion from FDDEI. The Proposed Regulation examples provide that: (i) a U.S. corporation that transfers exclusive and irrevocable rights in a copyright is treated as having sold the copyright notwithstanding the agreement being labeled as a license, resulting excluded property sales income; (ii) a nonexclusive and revocable license of the foregoing copyright would be treated as a license under general tax principles, resulting in no sale or other disposition for Section 250 purposes; and (iii) a transfer of copies of software or limited-duration transfers of such copies would constitute the sale of copyrighted articles (rather than the underlying copyright) and may be characterized as a lease, in each case, not resulting in excluded property sales income.  

Other Excluded Property for Section 250(b)(3)(A)(i)(VII) Purposes

• The Proposed Regulations would define “other excluded property” as property that is not intangible property and that, in the hands of the seller, is or has been (i) property of a character subject to the allowance for depreciation under Section 167, (ii) subject to an allowance for amortization, or (iii) subject to the allowance for depletion under Section 611. Thus, property that has always been held as inventory by the seller generally would not constitute other excluded property because such property has not been of a character subject to the allowance for depreciation in the seller’s hands.
• Treasury and the IRS also declined to adopt comments requesting an exception for previously depreciated property that is later materially transformed, refurbished, or remanufactured into inventory. Under the Proposed Regulations, property that has previously been depreciable in the seller’s hands generally does not lose its status as other excluded property merely because the seller subsequently repurposes, remanufactures, or refurbishes it into inventory.
• Further, the Proposed Regulations would provide that other excluded property retains its character in the hands of certain related parties if acquired pursuant to a basis-carryover transaction with a principal purpose of avoiding the application of Section 250(b)(3)(A)(i)(VII)(bb).

FDDEI Remains a Subset of DEI

• The OBBBA removed components of the former FDII calculation and the former foreign deduction ratio in Section 250, which was used to calculate the deduction. The Proposed Regulations would maintain that FDDEI is a subset of DEI and, thus, cannot exceed DEI.

Timing and Next Steps

The proposed regulations are open to public comments and requests for a public hearing until October 5, 2026. If finalized, the Proposed Regulations would generally apply to sales or other dispositions after June 16, 2025. The confirmation to Reg. §1.250(b)-1(c)(12) (clarifying that FDDEI is a subset of DEI) would apply to taxable years beginning after December 31, 2025. Until final regulations are published, taxpayers may rely on the Proposed Regulations, provided that the taxpayer apply the Proposed Regulations in their entirety and in a consistent manner.Weil Observation The Proposed Regulations reaffirm Treasury’s positions on several key areas identified in Notice 2025-78. The Proposed Regulations, if finalized, should provide taxpayers clarity regarding the treatment of income from sales of certain intangibles and inventory since the codification of the OBBBA. Furthermore, narrowing the “sale” definition with respect to excluded property sales should avoid requiring taxpayers to characterize similar transactions differently for Section 250 and other U.S. federal income tax purposes.