IRS Foreign-Derived Income Guidance Rewards U.S.-Based Intangibles

Tax attorney Joshua Odintz was quoted in a Bloomberg Tax article analyzing new IRS guidance that tightens how companies can claim the foreign-derived deduction-eligible income (FDDEI) tax benefit on cross-border intellectual property (IP) transactions. First introduced as the foreign-derived intangible income deduction (FDII) in the Tax Cuts and Jobs Act of 2017, the FDDEI was renamed and expanded under the One Big Beautiful Bill Act (OBBBA) passed in July 2025. The guidance clarifies when IP arrangements are treated as sales versus licenses under U.S. tax principles, narrowing access to the deduction for effective sales of intangibles and pushing taxpayers to pay closer attention to how they structure software and patent deals. Mr. Odintz expressed the guidelines will be helpful for corporate taxpayers involved in these transactions.

"This is clearly a line that I think it's important to help draw, so that when taxpayers do decide to license software or a patent, etc., they understand there are limitations in order to qualify [for the deduction]," he said.

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