Key updates and insights of the PTEP proposed regulations

In brief

What happened?

Treasury and the IRS released, on November 29, proposed regulations on the treatment of previously taxed earnings and profits (PTEP) under Section 959 and several related provisions. The regulations provide rules addressing core aspects of the PTEP regime, such as increases and decreases to basis of stock and other property, foreign currency gain or loss, allocation of foreign tax credits, partnerships, and consolidated returns.

Why is it relevant?

The proposed regulations provide long-awaited guidance on PTEP, which has taken on increased significance after the enactment of the mandatory repatriation tax in Section 965 and global intangible low-taxed income (GILTI) in Section 951A as part of the 2017 Tax Cuts and Jobs Act (TCJA). The regulations are proposed to be effective for tax years of foreign corporations starting on or after the date final regulations are issued, except the rules implementing the provisions of Notice 2019-01 (discussed below) apply for tax years of US shareholders ending after December 14, 2018, and tax years of foreign corporations ending therein. Taxpayers may apply the proposed regulations (as finalized) early, subject to certain conditions. 

Actions to consider

Comments on the proposed regulations are due by March 3, 2025. Taxpayers should consider the applicability dates of the proposed regulations and the transition rules related to the new requirements to track PTEP accounts, dollar basis pools, and PTEP tax pools.