Par. 16. Section 1.952-1 is amended by adding paragraphs (c)(4), (c)(5), and (h) to read as follows:
* * * * *
(c) * * *
(4) Coordination of earnings and profits limitation with sections 959(b) and 961(c) —(i) In general. Distributions of previously taxed earnings and profits received by a controlled foreign corporation, and previously taxed earnings and profits resulting from the application of a controlled foreign corporation's section 961(c) basis to gain recognized by the controlled foreign corporation, are not included in the controlled foreign corporation's earnings and profits for the taxable year for purposes of the limitation in section 952(c)(1)(A). See paragraph (h) of this section (regarding excluding previously taxed earnings and profits from a controlled foreign corporation's gross income for purposes of determining its subpart F income).
(ii) Applicability date. Paragraph (c)(4)(i) of this section applies to taxable years of foreign corporations that begin on or after [date of publication of final regulations in the Federal Register ] or are early application years (as described in § 1.959-12(d)) and to taxable years of persons for which such taxable years of those foreign corporations are relevant.
(5) Transition rule for deficits of a domestic partnership that was an inclusion shareholder with respect to a controlled foreign corporation —(i) In general. For purposes of applying section 952(c)(1)(B) to any taxable year of a controlled foreign corporation, a United States shareholder that owns (within the meaning of section 958(a)) stock of the controlled foreign corporation by reason of an interest in a domestic partnership on the last day of the first taxable year of the controlled foreign corporation during which § 1.958-1(d) applies to the domestic partnership (or, if earlier, the last day of such taxable year on which the foreign corporation is a controlled foreign corporation) (transition date) takes into account its assigned portion of any prior year deficit (determined under paragraph (c)(5)(ii) of this section) for any taxable year of the controlled foreign corporation ending before the application of § 1.958-1(d) in determining the United States shareholder's pro rata share of a prior year deficit under section 952(c)(1)(B)(iv)(II), and the domestic partnership ceases to take into account such prior year deficit.
(ii) Assigned portion of prior year deficit. A United States shareholder's assigned portion of a prior year deficit is determined on the transition date by multiplying a domestic partnership's pro rata share of the prior year deficit (determined under section 952(c)(1)(B)(iv)(II) as of the close of the taxable year in which the deficit arose) by a fraction, the numerator of which is the liquidation value of the United States shareholder's interest in the partnership and the denominator of which is the aggregate liquidation value of all partners' interests in the partnership. For purposes of this fraction, the liquidation value of a partner's interest in the partnership is the amount of cash the partner would receive with respect to the interest if, on the transition date, the partnership (and any partnership through which the partner indirectly owns an interest in the partnership) sold all of its property for an amount of cash equal to the fair market value of the property (taking into account section 7701(g)), satisfied all of its liabilities (other than those described in § 1.752-7), paid an unrelated third party to assume all of its § 1.752-7 liabilities in a fully taxable transaction, and then the partnership (and any partnership through which the partner indirectly owns an interest in the partnership) liquidated.
(iii) Applicability date. This paragraph (c)(5) applies to taxable years of foreign corporations beginning on or after [date of publication of final regulations in the Federal Register ], and to taxable years of United States shareholders in which or with which such taxable years of foreign corporation end. A United States shareholder may apply this paragraph (c)(5) to a taxable year of a foreign corporation that precedes the taxable years described in the preceding sentence if each of the following conditions is satisfied—
(A) Consistent application condition. This paragraph (c)(5) is applied in its entirety to the taxable year and all succeeding taxable years of the foreign corporation, to all taxable years of United States shareholders to which such a taxable year of the foreign corporation is relevant, and to all taxable years of related foreign corporations that end on or after the later of the last day of the first taxable year of the foreign corporation to which this paragraph (c)(5) applies and the first day on which the foreign corporations are related. For purposes of the preceding sentence, foreign corporations are related if the foreign corporations bear a relationship to each other described in section 267(b).
(B) Open period of limitations condition. The period of limitations on assessment for each taxable year described in paragraph (c)(5)(iii)(A) of this section is open under section 6501.
(C) Written consent condition. Each United States shareholder described in paragraph (c)(5)(iii)(A) of this section provides to the foreign corporation a written statement in which the United States shareholder consents to apply the rules described in this paragraph (c)(5) to the taxable years of the United States shareholder described in paragraph (c)(5)(iii)(A) of this section and affirms that the period of limitations on assessment for each such taxable year is open under section 6501.
* * * * *
(h) Exclusions from gross income under sections 959(b) and 961(c). See §§ 1.959-4 and 1.961-9 for rules excluding previously taxed earnings and profits from a controlled foreign corporation's gross income for purposes of determining its subpart F income.