On December 13, 2018, the US Internal Revenue Service released an initial set of proposed regulations addressing a number of open issues under the Base Erosion Anti-Abuse Tax (BEAT) rules. The proposed regulations are scheduled to apply to 2018 tax years. The proposed regulations provide favorable guidance on payments to US branches and the application of the BEAT to services eligible for the service cost method, but transfer-priced at a markup. The proposed regulations also contain a number of rules likely to be challenging to taxpayers, including tracing excess interest to worldwide liabilities, flooring taxable income at zero when a taxpayer has a net operating loss carryover and excluding qualified derivative payments from the denominator of the base erosion percentage. Mark Leeds of the New York office of Mayer Brown explores the proposed regulations under the BEAT rules in this Legal Update, which was published in the January 7, 2019 issue of Tax Notes magazine.