Dec 5, 2025
1. Key changes introduced under IRS Notice 2025-72
Elimination of the “one-month deferral.”
Under prior rules, certain CFCs could close their fiscal year one month earlier than their U.S. shareholders, creating a timing deferral for U.S. tax reporting. Notice 2025-72 eliminates this option. All foreign entities must now align their fiscal year with the U.S. shareholder’s calendar year.
Reallocation of foreign taxes for short taxable years.
To prevent distortions created by shortened fiscal periods (short taxable years), the notice introduces a proportional allocation mechanism. This ensures that foreign taxes paid by a CFC are correctly spread between the short year and the following full year, enabling an accurate calculation of the Foreign Tax Credit (FTC).
Impact on passive income, GILTI/Subpart F, and currency conversion rules.
The notice also affects how global income is recognized for U.S. tax purposes, particularly in areas such as GILTI, Subpart F inclusions, deferred tax accounting, and functional currency translation under Section 987.
2. Who is affected?
U.S. citizens or residents who own or control foreign entities (CFCs) located in Costa Rica, Latin America, Europe, or elsewhere.
Multinational corporate groups subject to international consolidation rules.
Expatriates holding foreign investments, shares, or business interests, whether directly or through foreign holding structures.
3. Operational and tax consequences
Mandatory alignment of fiscal year-ends for foreign entities with their U.S. shareholders.
Reassessment of foreign tax allocation to ensure accurate FTC claims, avoid double taxation, and maintain compliance.
Potential adjustments to taxable income for individuals receiving passive income, dividends, or profits from foreign entities.
Heightened documentation requirements, particularly for Forms 5471, 8938, 1116, and supporting foreign financial statements.
Greater scrutiny of currency translation, intercompany balances, and deferred tax positions for multinational groups.
Relevance for U.S. expatriates and global structures including Costa Rica
Even when living abroad, U.S. expatriates remain fully taxable by the IRS. Many maintain ownership in Costa Rican companies, Latin American structures, or investment entities abroad. Under Notice 2025-72, these structures face increased regulatory pressure:
Foreign companies owned by U.S. expats in Costa Rica must now align fiscal periods, recalculate foreign taxes, and adjust reporting for GILTI/Subpart F.
International family offices and business groups must review the impact on cross-border dividend flows, retained earnings, and foreign-tax pools.
Estate and succession planning may need re-evaluation if assets are held through foreign entities impacted by the new recognition rules.
Taxpayers with both Costa Rican-source and foreign-source income must ensure accurate currency conversion, allocation, and documentation to avoid IRS penalties or double taxation events.
Given Costa Rica’s territorial tax system and the global nature of U.S. taxation, proper coordination between both jurisdictions is now more important than ever.
IRS Notice 2025-72 represents a significant shift in how U.S. taxpayers must manage their international structures. Both individuals and multinational groups need to proceed proactively: reassessing entity structures, reviewing accounting and tax calendars, optimizing FTC strategies, and preparing for stricter compliance requirements in 2026 and beyond.
At EAS LATAM, we recommend conducting an immediate structural and tax diagnostic of all foreign entities controlled by U.S. shareholders. Aligning fiscal year-ends, recalculating foreign taxes, and updating reporting processes will mitigate risk, protect assets, and support a consistent international tax strategy.