The base erosion and anti-abuse tax (BEAT) is a minimum tax under Internal Revenue Code section 59A for large corporations that make deductible payments to foreign related parties. For tax years beginning after December 31, 2025, the rate is 10.5% of modified taxable income, up from 10%, and the tax applies only when that amount exceeds the company's regular tax after certain credits.
The One Big Beautiful Bill Act (Public Law 119-21, enacted July 4, 2025) set that 10.5% rate and removed the 12.5% rate and tighter credit rules that the 2017 law had scheduled for 2026. This guide explains who is subject to the base erosion and anti-abuse tax, what counts as a base erosion payment, how the calculation runs on Form 8991, and how a group can test its own exposure, with figures as of October 2026.
Congress added section 59A in the Tax Cuts and Jobs Act of 2017. A US corporation can lower its taxable income by paying interest, royalties or service fees to a foreign affiliate. Those deductions are legitimate under the regular rules, yet they move profit out of the US tax base. The BEAT adds the deductions back, applies a low flat rate to the larger figure, and collects the difference if the result is higher than the company's regular tax.
The statute imposes the tax "on each applicable taxpayer for any taxable year" and says it "shall be in addition to any other tax imposed by this subtitle" (26 U.S.C. 59A). It sits alongside the 15% corporate alternative minimum tax (CAMT), which is a separate computation based on financial statement income, so a large group may need to run both.
A corporation is an "applicable taxpayer" only if it passes all three parts of the definition in section 59A(e)(1):
Both numeric tests are measured at the group level. Section 59A(e)(3) treats all persons treated as a single employer under section 52(a) as one person, and it switches off the usual exclusion for foreign corporations when building that group. The IRS instructions add that foreign corporations stay out of the aggregate group except to the extent they have income effectively connected with a US trade or business. For a foreign person, only gross receipts tied to effectively connected income count toward the $500 million test.
The base erosion percentage is the aggregate base erosion tax benefits for the year divided by the taxpayer's total allowable deductions, which include those same benefits. Some deductions are left out of the denominator entirely: net operating loss deductions under section 172, the section 245A dividends received deduction, the section 250 deduction, and payments for services that qualify for the cost-only exception discussed below.
A group close to 3% should model the ratio each quarter. A single new intercompany loan or license can move it across the line, and once the group crosses, the full calculation applies for that year.
Section 59A(d)(1) defines a base erosion payment as "any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable." A related party includes a 25% owner, persons related to the taxpayer or that owner under sections 267(b) or 707(b)(1), and anyone related under section 482.
Common examples:
The IRS also notes that an expenditure to a foreign related party charged to capital under section 174 is a base erosion payment, with the benefit measured by the amortization allowed each year. For more on how OBBBA reshaped research cost recovery, see the guide to Section 174 after the One Big Beautiful Bill Act.
The regulations also let a taxpayer elect to waive deductions to stay under the threshold. Treasury Regulation section 1.59A-3(c)(6) permits a waiver "in whole or in part," and the waived amounts are reported on Schedule B of Form 8991 (26 CFR 1.59A-3). Waiving a deduction raises regular taxable income, so it only helps when the BEAT cost avoided is larger.
The computation has three steps.
Step 1: Modified taxable income. Start with regular taxable income and add back the base erosion tax benefits for the year, plus the base erosion percentage of any NOL deduction used.
Step 2: Apply the rate. Multiply modified taxable income by 10.5% for tax years beginning after 2025 (11.5% for groups with a bank or registered securities dealer).
Step 3: Compare with adjusted regular tax. Take regular tax liability and reduce it by credits, except that the research credit under section 41 and up to 80% of certain "applicable section 38 credits" are left in. The applicable section 38 credits are the low-income housing credit, the renewable electricity production credit and the energy portion of the investment credit. Any excess of the step 2 amount over this adjusted regular tax is the BEAT owed.
The credit treatment matters more than the rate for many groups. Before OBBBA, the law would have ended this carve-out for the research credit and applicable section 38 credits in years beginning after 2025. Public Law 119-21 struck that rule, so the carve-out continues. Foreign tax credits, however, still reduce regular tax for this comparison, which is why heavy foreign tax credit users tend to show BEAT exposure. The foreign tax credit guide explains how those credits are computed.
| Tax years beginning in | General rate | Bank or securities dealer groups |
|---|---|---|
| 2018 | 5% | 6% |
| 2019 through 2025 | 10% | 11% |
| 2026 and later | 10.5% | 11.5% |
The Form 8991 instructions confirm the schedule: "For tax years beginning during 2019 through 2025, the applicable rate is 10%. For tax years beginning during 2026 or later, the applicable rate is 10.5%," with rates "increased by 1%" for groups that include a bank or registered securities dealer (IRS Instructions for Form 8991). A fiscal-year corporation uses the rate for the year in which its tax year begins, so a year starting July 1, 2025 still uses 10%.
Assume a US subsidiary of a foreign-parented group, with a calendar 2026 tax year.
Applicable taxpayer tests
Base erosion tax benefits are $40M + $35M + $15M = $90 million. The $10 million of cost-only services comes out of the denominator, leaving $890 million. The base erosion percentage is $90M / $890M = 10.11%, above 3%, so the company is an applicable taxpayer.
BEAT computation
| Line | Amount |
|---|---|
| Regular taxable income | $150,000,000 |
| Add back base erosion tax benefits | $90,000,000 |
| Modified taxable income | $240,000,000 |
| Tentative BEAT at 10.5% | $25,200,000 |
| Regular tax at 21% | $31,500,000 |
| Credits claimed: research credit $6M, foreign tax credit $14M | $20,000,000 |
| Credits that reduce regular tax for BEAT ($20M minus the $6M research credit left in) | $14,000,000 |
| Adjusted regular tax liability | $17,500,000 |
| BEAT owed ($25.2M minus $17.5M) | $7,700,000 |
The company's regular tax after credits is $11.5 million, so total federal income tax becomes $19.2 million once the $7.7 million BEAT is added. Under the 10% rate that applied for 2025, the same facts would give a tentative BEAT of $24.0 million and a BEAT of $6.5 million, so the rate change adds $1.2 million. If the group had no foreign tax credit, adjusted regular tax would be the full $31.5 million and no BEAT would be due.
Form 8991 is where the calculation is reported. Its filing trigger is wider than the tax itself. Per the IRS, any corporation other than a RIC, REIT or S corporation "that has (or is a member of an aggregate group that has) annual gross receipts of at least $500 million in 1 or more of the 3 preceding tax years ending with the preceding tax year must file Form 8991" (IRS Instructions for Form 8991). A company can owe no BEAT and still have a filing obligation.
The form is attached to the income tax return and filed by its due date, including extensions. The main parts are:
The return itself points to the form through Question 22 of Schedule K on Form 1120 and Item DD on Form 1120-F. Filing calendars are covered in the guide to 1120 return due dates. The IRS also flags that the 2017 law raised the penalty for failing to furnish information or keep records under section 6038A from $10,000 to $25,000, which ties BEAT data to Form 5472 reporting for foreign-owned US corporations. The current form and instructions are posted on the IRS About Form 8991 page.
Planning around the BEAT starts with data. A group needs to tag each intercompany charge with its counterparty and payment type, and record whether it is deducted or capitalized into inventory.
What is the base erosion and anti-abuse tax rate for 2026? The rate is 10.5% of modified taxable income for tax years beginning after December 31, 2025, under section 59A as amended by Public Law 119-21. Groups that include a bank or registered securities dealer use 11.5%. The earlier scheduled increase to 12.5% no longer applies.
Who has to file Form 8991? Any corporation other than a RIC, REIT or S corporation that has, or belongs to an aggregate group with, annual gross receipts of at least $500 million in one or more of the three preceding tax years. Filing is required even if the base erosion percentage is below 3% and no BEAT is owed.
Does the BEAT apply to payments for inventory? Generally no. Amounts that reduce gross income, such as cost of goods sold, are excluded from base erosion payments. Depreciation on equipment bought from a foreign affiliate is included, though, because it produces a deduction.
Do foreign tax credits reduce BEAT exposure? They increase it. Foreign tax credits lower regular tax liability for the BEAT comparison, which makes it more likely that 10.5% of modified taxable income exceeds the adjusted figure. The research credit and up to 80% of certain energy and housing credits are kept out of that reduction.
Can an S corporation or REIT owe the BEAT? No. Section 59A(e)(1) excludes regulated investment companies, real estate investment trusts and S corporations from the definition of an applicable taxpayer.
Madras Accountancy supports US CPA firms and their corporate clients with international tax compliance work, including organizing intercompany payment data, preparing Form 8991 and related information returns, and reviewing returns before filing. To talk through a BEAT or cross-border reporting engagement, contact our team.
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