On October 31, 2018, the IRS and the Treasury Department released proposed regulations to provide guidance on the operation of Section 956 of the Code in light of the participation exemption system adopted in last year’s federal tax reform legislation. The proposed regulations would effectively eliminate Section 956 inclusions for U.S. corporate parents of foreign subsidiaries to the extent that dividends received from such foreign subsidiaries would not have been subject to U.S. federal income tax on account of the new 100 percent deduction for dividends under Section 245A of the Code. These proposed regulations may affect how U.S. corporate taxpayers approach pledging stock or assets of foreign subsidiaries to support borrowings and whether Section 956 may be relied upon as a potential tool for crediting so-called “excess” foreign tax credits.