IRS Issues Proposed Regulations on Previously Taxed Earnings and Profits

The IRS has issued proposed regulations on corporate treatment of previously taxed earnings and profits (PTEP) from foreign corporations and related basis adjustments, consequently preventing double taxation of the PTET.

The proposed regulations address the following issues under section 959 regulations:

• PTEP accounting under shareholder-level accounts;
• shareholder-level account adjustments;
• application of exclusions;
• PTEP to which a section 956 amount is allocated;
• allocating and apportioning current-year taxes to PTEP; and
• general successor transactions.

The proposed regulations also address the following issues under section 961 regulations:

• types of property units and basis;
• basis adjustments;
• tax consequences of positive derived basis;
• tax consequences of positive section 961(c) basis;
• gain recognition in transactions involving property units with negative basis; and
• United States shareholder inclusions for gain recognized under section 961(c).

The proposed regulations also address the following issues under section 951 regulations:

• foreign corporation-level rules for assigning covered items; and
• shareholder-level rules for allocating subpart F income.

The proposed regulations also address:

• section 986(c) regulations regarding foreign currency gain or loss with respect to PTEP;
• section 960 regulations regarding computation of foreign income taxes deemed paid by US shareholders of controlled foreign corporations;
• section 1502 regulations (regarding rules specific to members of a consolidated group); and
• other miscellaneous provisions.

The proposed regulations (REG-105479-18, RIN 1545-BO61) were released on 29 November 2024.