Material U.S. legal and regulatory developments — August 20, 2026. Two developments meet the materiality threshold today, principally for cross-border tax planning, asset transactions, construction and federal contracting, and SBA eligibility.

Primary source: Treasury/IRS — Application of Section 250(b)(3)(A)(i)(VII) to Sales or Other Dispositions of Property, REG-117130-25. Comment deadline: October 5, 2026.

Treasury and the IRS published proposed regulations on August 20, 2026 implementing the 2025 amendments to IRC §250. For taxable years beginning after December 31, 2025, domestic corporations generally receive a 33.34% deduction for qualifying foreign-derived deduction eligible income (FDDEI). However, the 2025 legislation excludes from deduction-eligible income gains from sales or other dispositions of intangible property and property of a type subject to depreciation, amortization, or depletion. The statutory exclusion applies to relevant dispositions occurring after June 16, 2025, and Treasury proposes the regulations generally to apply from that date once finalized.

The proposal adopts a broad approach to depreciable business assets. Property that was previously depreciated remains excluded even if it is subsequently remanufactured, refurbished, or converted into inventory — Treasury rejected a proposal to limit the exclusion merely to depreciation recapture. Related-party carryover-basis transactions are also subject to an anti-abuse rule.

By contrast, property that has always been held as inventory is generally not excluded merely by this provision. The line between inventory and depreciable business assets is therefore commercially significant and will require asset-by-asset analysis in cross-border transactions.

The distinction between a disposition and a continuing-use arrangement is commercially important. Treasury proposes applying ordinary federal income-tax principles to determine whether a transaction is a sale or disposition; the special exclusion does not automatically encompass leases or licenses. This means that structuring a transaction as a license or lease — rather than an outright sale — may preserve FDDEI eligibility, subject to the other §250 foreign-customer and foreign-use conditions being satisfied.

The proposal retains special treatment for copyrighted articles, including certain software and digital-content transactions, which are not treated as intangible property merely because copyrighted IP underlies the product. These transactions may therefore remain capable of generating FDDEI if the other §250 conditions are satisfied. Software and technology companies should separately analyze whether a given transaction constitutes a sale of IP, a sale of a copyrighted article, or a license — the §250 result can differ materially depending on the characterization.

Treasury states that taxpayers may rely on the proposed regulations before finalization, provided that the taxpayer and all relevant related parties apply the proposal consistently in its entirety.

Cross-border asset sales and carve-outs: U.S. corporations selling machinery, aircraft, equipment, IP, or other business assets to foreign purchasers should re-model the expected §250 benefit before signing. The deduction that was previously available on gains from such sales may be substantially reduced or eliminated under the proposed rules.

Transaction structuring: Cross-border asset sales, carve-outs, and internal restructurings may generate materially different tax results from licenses, leases, or sales of ordinary inventory. Transaction documents and tax diligence should preserve evidence of each asset's depreciation and inventory history.

Related-party restructurings: Transactions designed to alter asset character — for example, converting depreciable property into inventory before a foreign sale — require particular caution given the anti-abuse rule.

Software and technology: Companies should separately analyze whether a transaction constitutes a sale of IP, a copyrighted article, or a license rather than assuming a uniform §250 result across all technology-related dispositions.

Turkish companies with U.S. subsidiaries: Turkish-owned U.S. corporations that regularly sell equipment, machinery, or IP to foreign affiliates or customers should review their §250 planning in light of these proposed changes. The exclusion of depreciable asset gains from FDDEI may require restructuring planned dispositions as licenses or leases to preserve the deduction.

Primary source: SBA — Small Business Size Standards, RIN 3245-AI67. Comment deadline: September 21, 2026.

The SBA published a proposed rule replacing the current industry-size framework with 338 revised size standards. The proposal represents the most comprehensive overhaul of SBA size standards in decades and would affect eligibility for small-business set-asides, subcontracting programs, and SBA loan programs across virtually every sector of the U.S. economy.

The proposal moves from nearly 1,000 highly granular six-digit NAICS standards and exceptions to a combination of four- and five-digit industry standards. Key structural changes include:

• Removal of size-standard exceptions that currently apply to specific sub-industries within broader NAICS categories
• Conversion of numerous industries from revenue-based to employee-based thresholds
• New methodology that considers national industry size, geographic markets, and international competition — rather than relying primarily on SBA loan and procurement data
• Inflation and productivity adjustment: Monetary thresholds would incorporate productivity growth in addition to inflation, resulting in higher revenue ceilings in many sectors

The proposal is deliberately expansionary. SBA states that it will generally not reduce existing size standards, even where its methodology suggests a reduction, and specifically notes that existing standards have become too restrictive in sectors including construction. SBA estimates the proposal would:

• Create approximately 114,541 newly eligible small businesses, increasing the total qualifying population by about 1.8%
• Bring approximately 37,002 firms that held more than 105,000 federal contracts worth roughly $71 billion in FY2025 within the small-business definition under the proposed standards

Construction companies and engineering firms are among the sectors specifically identified by SBA as having overly restrictive current standards. The proposed changes could meaningfully expand the pool of construction contractors eligible for small-business set-asides, 8(a) program participation, HUBZone preferences, and SBA-backed financing.

For firms currently above SBA limits: Companies that previously exceeded SBA size thresholds should rerun their size analyses against the proposed NAICS thresholds. Firms that regain small-business status under the final rule would become eligible for set-aside contracts, subcontracting credit, and SBA loan programs from which they were previously excluded.

For existing small contractors: The expansion of the eligible pool means substantially more competition for reserved federal work. Existing small contractors should assess how the proposed changes affect their competitive positioning in their primary NAICS categories.

For prime contractors: Prime contractors with small-business subcontracting plans should consider updating supplier-diversity and subcontracting databases to reflect the expanded eligible population. Acquisition and joint-venture diligence should continue to account for SBA affiliation rules — a higher standalone threshold does not eliminate affiliation risk, and the affiliation analysis remains unchanged by the size-standard revision.

Turkish companies establishing U.S. subsidiaries to pursue federal contracting opportunities should monitor the final rule closely. The proposed changes could affect:

• SBA 7(a) and CDC/504 loan eligibility for U.S. subsidiaries of Turkish companies, depending on how affiliation with the Turkish parent is treated
• Set-aside eligibility for U.S. subsidiaries that are majority-owned by foreign entities — SBA affiliation rules generally aggregate the revenues or employees of all affiliates, including foreign parents, when determining size
• Joint venture structures with U.S. small businesses, where the Turkish partner's size and affiliation status affects the joint venture's eligibility

Turkish companies should consult U.S. counsel before assuming that a newly eligible size threshold translates directly into small-business status, given the affiliation rules that apply to foreign-owned entities.

August 20 brings two proposed rules with significant cross-border implications. The Treasury/IRS Section 250 proposal narrows the FDDEI deduction for asset and IP sales in ways that will require immediate re-modeling of cross-border transaction economics for U.S. corporations with foreign customers. The SBA size-standard overhaul is the most significant expansion of small-business eligibility in years and will reshape competitive dynamics in federal procurement — particularly in construction and engineering — once finalized.

Both proposals are open for public comment and are not yet final. ULF New York is monitoring both rulemakings and will update this analysis as the comment process and finalization proceed.