Article
Guidance released on new exclusion of certain income from FDII under OBBBA
Jan. 7, 2026 · Authored by James C. Lawson, Nikki Grams
Notice 2025-78 has been released by the IRS and Treasury which further clarifies and expands upon the new exclusion of income or gain from the sale or disposition of certain intangible and other depreciable, amortizable or depletable property from deduction eligible income (DEI) for the purposes of the foreign derived intangible income (FDII) deduction (or rather foreign derived deduction eligible income (FDDEI) post-2025). This change will apply to sales and dispositions of in-scope property occurring after June 16, 2025.
Overview
Since the enactment of the Tax Cuts and Jobs Act (TCJA), C corporation taxpayers have generally been allowed a 37.5% deduction (i.e., the FDII deduction) for qualifying foreign export income (net of properly allocable and apportionable expenses). FDDEI generally includes income from qualifying export sales (or export services) that are ultimately consumed (or benefitted from) abroad. DEI (and FDDEI) have historically included income or gain from the sale or exchange of intangible property or tangible property that is of a depreciable, amortizable or depletable nature to persons outside the U.S.
The One Big Beautiful Bill Act (OBBBA) amends the FDII (FDDEI post-2025) deduction in a few ways, which includes its notable transition from FDII to FDDEI post-2025 due to the removal of the substance-based hurdle derived from qualified business asset investment (QBAI). For a complete review of all changes to the FDII deduction, please see
- Revamp and rebrand of the FDII regime
- 2025 Year-end tax considerations for international tax planning
- Key international tax provisions in the Senate-approved bill
The OBBBA change relevant here is the elimination of income or gain from the sale or disposition of intangible property or any other property of a type that is subject to depreciation, amortization or depletion by the seller from being DEI. This change applies to applicable sales or dispositions beginning after June 16, 2025, which is an earlier effective date than that of other changes to the FDII regime, which are generally applicable to taxable years beginning after Dec. 31, 2025.
Notice 2025-78
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.