Classification of Digital Content Transactions and Cloud Transactions

Source: DEPARTMENT OF THE TREASURY

Internal Revenue Service

Final regulations.

CFR Part: "26 CFR Part 1"

RIN Number: "RIN 1545-BM41"

Citation: "90 FR 2977"

Document Number: "TD 10022"

Page Number: "2977"

"Rules and Regulations"

Agency: "Internal Revenue Service (IRS), Treasury."

SUMMARY: This document contains final regulations modifying the rules for classifying transactions involving computer programs, including by applying the rules to transfers of digital content. These final regulations also provide rules for the classification of cloud transactions. These rules apply for purposes of the international provisions of the Internal Revenue Code and generally affect taxpayers engaging in transactions involving digital content or cloud transactions.

   DATES:

Effective date: These regulations are effective on January 14, 2025.

Applicability date: For dates of applicability, see [Sec.] SEC 1.861-18(i) and 1.861-19(e).

   FOR FURTHER INFORMATION CONTACT:

Christopher E. Fulle, [phone], or Michelle L. Ng, [phone] (not toll-free numbers).

   SUPPLEMENTARY INFORMATION:

Authority These final regulations are issued under the express delegation of authority under section 7805 of the Internal Revenue Code (Code). Section 7805(a) directs the Secretary of the Treasury or her delegate to prescribe all needful rules and regulations for the enforcement of that section and others in the Code, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

Background

On August 14, 2019, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) published proposed regulations (REG-130700-14) under section 861 of the Code in the Federal Register (84 FR 40317) (the proposed regulations). The Treasury Department and the IRS received written comments on the proposed regulations, and a public hearing was held on February 11, 2020. All written comments received in response to the proposed regulations are available at www.regulations.gov or upon request. Terms used but not defined in this preamble have the meaning provided in these final regulations.

These regulations (the final regulations) extend the classification rules in existing SEC 1.861-18 to transfers of digital content other than computer programs and clarify the source of income for certain transfers of digital content. The final regulations also clarify the classification of transactions involving on-demand network access to computing and other similar resources.

The final regulations retain the overall approach of the proposed...