# Prop. Treas. Reg. § 1.959-2: Accounting of previously taxed earnings and profits.

Proposed regulation, not in force. REG-105479-18, 89 FR 95362, published 2024-12-02 <https://www.federalregister.gov/documents/2024/12/02/2024-27227/previously-taxed-earnings-and-profits-and-related-basis-adjustments>. Interprets 26 U.S.C. § 959.

Par. 19. Section 1.959-2 is revised to read as follows:

(a) Scope. This section sets forth rules for shareholder-level and foreign corporation-level accounting of a foreign corporation's previously taxed earnings and profits. Paragraph (b) of this section provides the shareholder-level accounting rules. Paragraph (c) of this section provides rules relating to combined pool elections for certain covered shareholder-level accounts. Paragraph (d) of this section provides the foreign corporation-level accounting rules.

(b) Shareholder-level accounting —(1) In general. A covered shareholder that owns stock of a foreign corporation must establish and maintain annual PTEP accounts, dollar basis pools, and PTEP tax pools with respect to the foreign corporation in accordance with this paragraph (b) and the adjustments prescribed in § 1.959-3. The annual PTEP accounts track the foreign corporation's previously taxed earnings and profits with respect to the covered shareholder, the dollar basis pools track the basis in U.S. dollars of the previously taxed earnings and profits, and the PTEP tax pools track the U.S. dollar amount of any foreign income taxes associated with the previously taxed earnings and profits. See also § 1.1502-59(c)(2), treating members of a consolidated group as a single covered shareholder for purposes of section 959.

(2) Annual PTEP accounts —(i) In general. Each annual PTEP account must relate to a single taxable year of the foreign corporation and a single section 904 category. In addition, previously taxed earnings and profits within each annual PTEP account must be maintained in the foreign corporation's functional currency and assigned to the PTEP groups identified in the following table.

**Table 1 to Paragraph ( b )(2)( i ) of This Section—PTEP Groups**

| Section 959(c)(1) PTEP groups | Group | Description | Section 959(c)(2) PTEP groups | Group | Description |
| --- | --- | --- | --- | --- | --- |
| General section 959(c)(1) PTEP group | Earnings and profits described in section 959(c)(1) and not described in another PTEP group | Section 951(a)(1)(A) PTEP group | Earnings and profits described in section 959(c)(2) and not described in another PTEP group. |  |  |
| Reclassified section 951A PTEP group | Earnings and profits described in section 959(c)(1) and initially assigned to the section 951A PTEP group | Section 951A PTEP group | Earnings and profits described in section 959(c)(2) by reason of section 951A. |  |  |
| Reclassified section 245A(d) PTEP group | Earnings and profits described in section 959(c)(1) and initially assigned to the section 245A(d) PTEP group | Section 245A(d) PTEP group | Earnings and profits described in section 959(c)(2) by reason of an income inclusion to which section 245A(d) applies. |  |  |
| Reclassified section 965(a) PTEP group | Earnings and profits described in section 959(c)(1) and initially assigned to the section 965(a) PTEP group | Section 965(a) PTEP group | Earnings and profits described in section 959(c)(2) by reason of section 965(a). |  |  |
| Reclassified section 965(b) PTEP group | Earnings and profits described in section 959(c)(1) and initially assigned to the section 965(b) PTEP group | Section 965(b) PTEP group | Earnings and profits described in section 959(c)(2) by reason of section 965(b). |  |  |

(ii) Subgroups —(A) In general. To the extent required under § 1.959-3(c), previously taxed earnings and profits assigned to a PTEP group within an annual PTEP account must be further assigned to the taxable section 962 PTEP subgroup or taxable section 1411 subgroup. These subgroups track previously taxed earnings and profits that will be includible in gross income under section 962(d) or includible in net investment income under section 1411(c) when distributed to the covered shareholder, as applicable.

(B) Coordination rule. A subgroup described in paragraph (b)(2)(ii)(A) of this section is not treated as a separate PTEP group for purposes of establishing and maintaining dollar basis pools and PTEP tax pools.

(iii) Percentages with respect to section 965 previously taxed earnings and profits —(A) Adjusted applicable percentage. An adjusted applicable percentage must be established and maintained with respect to all previously taxed earnings and profits assigned to the reclassified section 965(a) PTEP group, reclassified section 965(b) PTEP group, section 965(a) PTEP group, and section 965(b) PTEP group and relating to a single section 904 category (therefore without regard to the taxable years to which the previously taxed earnings and profits relate). The adjusted applicable percentage tracks the percentage of a credit or deduction for foreign income taxes associated with previously taxed earnings and profits that is disallowed under § 1.965-5. See § 1.959-11(c)(3) for the initial determination of the adjusted applicable percentage and § 1.959-3(c)(3) for adjustments.

(B) Section 965(c) deduction percentage. A section 965(c) deduction percentage must be established and maintained with respect to all previously taxed earnings and profits assigned to the reclassified section 965(a) PTEP group and section 965(a) PTEP group and relating to a single section 904 category (therefore without regard to the taxable years to which the previously taxed earnings and profits relate). The section 965(c) deduction percentage tracks the percentage of foreign currency gain or loss with respect to previously taxed earnings and profits that is not recognized under § 1.986(c)-1. See § 1.959-11(c)(4) for the initial determination of the section 965(c) deduction percentage and § 1.959-3(c)(3) for adjustments.

(iv) Deemed taxable years. If previously taxed earnings and profits are distributed to an upper-tier foreign corporation or result from the application of section 961(c) basis to gain recognized by an upper-tier corporation, and the previously taxed earnings and profits relate to a taxable year of a lower-tier foreign corporation that includes one or more days on which the upper-tier foreign corporation did not exist, then, solely for purposes of the establishment and maintenance of annual PTEP accounts, the upper-tier corporation is treated as having the taxable year or taxable years it would have had if it were to have existed on those days, determined based on the manner in which it computes its taxable income for its initial taxable year.

(3) Dollar basis pools. Each dollar basis pool must relate to previously taxed earnings and profits assigned to a single PTEP group within a single annual PTEP account or, if a combined pool election applies to the covered shareholder, previously taxed earnings and profits assigned to a single PTEP group and relating to a single section 904 category (therefore without regard to the taxable years to which the previously taxed earnings and profits relate). Basis within each dollar basis pool must be maintained in U.S. dollars.

(4) PTEP tax pools —(i) In general. Each PTEP tax pool must relate to previously taxed earnings and profits assigned to a single PTEP group within a single annual PTEP account or, if a combined pool election applies to the covered shareholder, previously taxed earnings and profits assigned to a single PTEP group and relating to a single section 904 category (therefore without regard to the taxable years to which the previously taxed earnings and profits relate). Foreign income taxes within each PTEP tax pool must be maintained in U.S. dollars.

(ii) Creditable PTEP tax group. To the extent required under § 1.959-3(e), foreign income taxes within each PTEP tax pool must be assigned to the creditable PTEP tax group. This group tracks foreign income taxes that are eligible to be deemed paid under section 960(b).

(c) Combined pool elections —(1) In general. For purposes of paragraph (c) of this section, a combined pool election is made for a taxable year of a covered shareholder and, once made, remains in effect until revoked. The combined pool election applies with respect to each foreign corporation in which the covered shareholder owns stock, beginning as of the first day of the first taxable year of the foreign corporation that ends with or within the taxable year of the covered shareholder for which the combined pool election is made or, if later, the first day in which the covered shareholder owns stock of the foreign corporation.

(2) Revocation. A combined pool election may only be revoked with the consent of the Commissioner (and in the time and manner specified by the Commissioner), and such consent will be granted only in rare and unusual circumstances.

(3) Time and manner of making election —(i) In general. Except as otherwise provided by a form, instruction, publication, or other guidance, a covered shareholder makes a combined pool election by, for a transaction related to a timely filed (including extensions) original Federal income tax return of the covered shareholder, computing the dollar basis of, or foreign income taxes associated with, previously taxed earnings and profits consistent with a combined pool election.

(ii) Sixty-month limitation on a subsequent election. A covered shareholder is not permitted to make a combined pool election for any taxable year beginning less than 60 months after the last day that a previous combined pool election applied to the covered shareholder (or a predecessor).

(4) Converting to combined pools. As of the beginning of the first day that a covered shareholder's combined pool election applies with respect to a foreign corporation, each of the covered shareholder's dollar basis pools or PTEP tax pools with respect to the foreign corporation (a combined pool ) is equal to the sum of all of the dollar basis pools or PTEP tax pools, as applicable, that, immediately before the combined pool election applies, related to the same PTEP group and section 904 category to which the combined pool relates.

(d) Foreign corporation-level accounting —(1) Corporate PTEP accounts. Corporate PTEP accounts must be established and maintained with respect to a foreign corporation. Each corporate PTEP account must relate to a single covered shareholder, and previously taxed earnings and profits within a corporate PTEP account must be assigned to section 904 categories and the PTEP groups identified in the table to paragraph (b)(2)(i) of this section. A corporate PTEP account for a covered shareholder is equal to the aggregate of all previously taxed earnings and profits that are within such covered shareholder's annual PTEP accounts with respect to the foreign corporation. Thus, as a covered shareholder's annual PTEP accounts with respect to the foreign corporation are adjusted under § 1.959-3, the foreign corporation's corporate PTEP account for the covered shareholder and the foreign corporation's earnings and profits described in section 959(c)(1) or (c)(2) are also adjusted.

(2) Corporate PTEP tax pools. Corporate PTEP tax pools must be established and maintained by a foreign corporation. Each corporate PTEP tax pool must relate to a single covered shareholder, and foreign income taxes within a corporate PTEP tax pool must be assigned to section 904 categories and the PTEP groups identified in the table to paragraph (b)(2)(i) of this section. A corporate PTEP tax pool relating to a covered shareholder is equal to the aggregate of all foreign income taxes that are within that covered shareholder's PTEP tax pools with respect to the foreign corporation. Thus, as a covered shareholder's PTEP tax pools with respect to the foreign corporation are adjusted under § 1.959-3, the foreign corporation's corporate PTEP tax pool relating to the covered shareholder is also adjusted. Foreign income taxes within a corporate PTEP tax pool that are eligible to be deemed paid under section 960(b) are assigned to the creditable PTEP tax group within the covered shareholder's PTEP tax pools.

(3) Earnings and profits determined independently of previously taxed earnings and profits. A foreign corporation's earnings and profits are determined independently of the foreign corporation's previously taxed earnings and profits. Thus, for example, the extent to which a distribution is made out of a foreign corporation's earnings and profits is determined independently of the foreign corporation's corporate PTEP accounts. See section 316. Similarly, a foreign corporation's earnings and profits may be less than the foreign corporation's previously taxed earning and profits (with the result that the foreign corporation has a deficit in earnings and profits described in section 959(c)(3)).