# Prop. Treas. Reg. § 1.959-3: Adjustments to shareholder-level accounts. Proposed regulation, not in force. REG-105479-18, 89 FR 95362, published 2024-12-02 . Interprets 26 U.S.C. § 959. Par. 20. Section 1.959-3 is revised to read as follows: (a) Scope. This section provides the adjustments under section 959 to shareholder-level accounts with respect to a foreign corporation. Paragraph (b) of this section provides the general rule, pursuant to which shareholder-level accounts (annual PTEP accounts, dollar basis pools, and PTEP tax pools) are adjusted with respect to a foreign corporation to reflect income inclusions relating to, and transactions occurring within, the foreign corporation's taxable year. Paragraph (c) of this section describes adjustments to annual PTEP accounts. Paragraph (d) of this section describes adjustments to dollar basis pools. Paragraph (e) of this section describes adjustments to PTEP tax pools. Paragraph (f) of this section provides timing rules for when adjustments are treated as made. Paragraph (g) of this section provides an ordering rule for the application of this section to tiered foreign corporations. See also § 1.959-2(d)(1) and (2), providing that as shareholder-level accounts are adjusted with respect to a foreign corporation under this section, the foreign corporation-level accounts are consequently also adjusted. (b) In general. To reflect income inclusions and transactions related to a taxable year of a foreign corporation (such taxable year for which this section is being applied, the relevant taxable year ), a covered shareholder's annual PTEP accounts, dollar basis pools, and PTEP tax pools with respect to the foreign corporation must be adjusted in accordance with the rules in this section. (c) Adjustments to annual PTEP accounts —(1) In general —(i) Increases for amounts included in gross income under section 951(a)(1)(A). If the foreign corporation is a controlled foreign corporation and the covered shareholder includes in gross income its pro rata share of the corporation's subpart F income for the relevant taxable year under section 951(a)(1)(A) (including by reason of section 245A(e)(2) or 964(e)(4), but not including an amount described in section 959(e)), then, for each annual PTEP account that relates to the relevant taxable year and a section 904 category to which a portion of the inclusion is assigned (determined at the level of the covered shareholder, thus after the application of § 1.904-4(c)), add an amount of previously taxed earnings and profits equal to such portion to the annual PTEP account. Assign such previously taxed earnings and profits to the section 951(a)(1)(A) PTEP group, except assign previously taxed earnings and profits to the section 245A(d) PTEP group to the extent section 245A(d) applies to the inclusion giving rise to the previously taxed earnings and profits ( see sections 245A(e)(3) and 964(e)(4)). If applicable, further assign previously taxed earnings and profits to a PTEP subgroup in accordance with paragraph (c)(2) of this section. (ii) Increases for amounts included in gross income under section 951A(a). If the foreign corporation is a controlled foreign corporation and the covered shareholder includes in gross income the portion of its GILTI inclusion amount that is treated as with respect to the corporation for the relevant taxable year under section 951A(a) and (f)(2), then, for each annual PTEP account that relates to the relevant taxable year and a section 904 category to which a portion of the inclusion is assigned (determined at the level of the covered shareholder, thus after the application of § 1.904-4(c)), add an amount of previously taxed earnings and profits equal to such portion to the annual PTEP account. Assign such previously taxed earnings and profits to the section 951A PTEP group. If applicable, further assign previously taxed earnings and profits to a PTEP subgroup in accordance with paragraph (c)(2) of this section. (iii) Increases for receipt of distributed previously taxed earnings and profits. If, during the relevant taxable year, previously taxed earnings and profits with respect to the covered shareholder are distributed to the foreign corporation in a covered distribution (determined under § 1.959-4), then add such distributed previously taxed earnings and profits to the annual PTEP accounts in accordance with paragraph (c)(3) of this section. (iv) Increases for previously taxed earnings and profits resulting from section 961(c) basis. If, during the relevant taxable year, previously taxed earnings and profits with respect to the covered shareholder result from the application of positive section 961(c) basis to covered gain recognized by the foreign corporation (determined under § 1.961-9), then add such resulting previously taxed earnings and profits to the annual PTEP accounts in accordance with paragraph (c)(3) of this section. (v) Decreases for current year taxes. If previously taxed earnings and profits are added to a PTEP group within an annual PTEP account pursuant to paragraph (c)(1)(iii) or (iv) of this section, then reduce the previously taxed earnings and profits in that PTEP group by the amount of the current year taxes allocated and apportioned under § 1.959-6 to the corresponding PTEP group of the foreign corporation. The corresponding PTEP group of the foreign corporation is the PTEP group of the foreign corporation that is of the same type as the increased PTEP group and that is within a corporate PTEP account of the foreign corporation that is with respect to the covered shareholder. If the PTEP group of that type in multiple annual PTEP accounts increases pursuant to paragraph (c)(1)(iii) or (iv) of this section, apportion the amount of the current year taxes allocated and apportioned under § 1.959-6 to the corresponding PTEP group of the foreign corporation among those increased PTEP groups under the principles of § 1.861-20. (vi) Decreases for distributed previously taxed earnings and profits. If, during the relevant taxable year, the foreign corporation distributes previously taxed earnings and profits with respect to the covered shareholder in a covered distribution (determined under § 1.959-4), then remove such distributed previously taxed earnings and profits from the annual PTEP accounts. (vii) Increases for amounts included in gross income as a dividend under section 1248(a) or (f). If, during the relevant taxable year, gain recognized by the covered shareholder is included in gross income as a dividend under section 1248(a) or (f) by reason of earnings and profits of the foreign corporation, then, for each annual PTEP account that relates to the relevant taxable year and a section 904 category to which a portion of the inclusion is assigned (determined at the level of the covered shareholder, thus after the application of § 1.904-4(c)), add an amount of previously taxed earnings and profits equal to such portion to the annual PTEP account ( see section 959(e)). Assign such previously taxed earnings and profits to the section 951(a)(1)(A) PTEP group, except assign previously taxed earnings and profits to the section 245A(d) PTEP group to the extent section 245A(d) applies to the inclusion giving rise to the previously taxed earnings and profits (including by reason of section 245A(e)(3)). If applicable, further assign previously taxed earnings and profits to a PTEP subgroup in accordance with paragraph (c)(2) of this section. (viii) Decreases with respect to transferor covered shareholder for transferred previously taxed earnings and profits. If, during the relevant taxable year, previously taxed earnings and profits of the foreign corporation transfer from the covered shareholder in a general successor transaction (determined under § 1.959-7), then remove such transferred previously taxed earnings and profits from the annual PTEP accounts. (ix) Increases with respect to successor covered shareholder for transferred previously taxed earnings and profits. If, during the relevant taxable year, previously taxed earnings and profits of the foreign corporation transfer to the covered shareholder in a general successor transaction (determined under § 1.959-7), then add such transferred previously taxed earnings and profits to the annual PTEP accounts in accordance with paragraph (c)(3) of this section. (x) Reassignments for previously taxed earnings and profits to which a section 956 amount is allocated. If the foreign corporation is a controlled foreign corporation and a portion of the covered shareholder's section 956 amount with respect to the corporation for the relevant taxable year is allocated to previously taxed earnings and profits (determined under § 1.959-5), then reassign such previously taxed earnings and profits from a section 959(c)(2) PTEP group to the section 959(c)(1) PTEP group in the same row in the table in § 1.959-2(b)(2)(i). If applicable, further assign previously taxed earnings and profits to the PTEP subgroup to which they relate. See paragraph (c)(4) of this section in the case of certain acquisitions of stock to which a section 956 amount of another shareholder is attributable. (xi) Increases for amounts included in gross income under section 951(a)(1)(B). If the foreign corporation is a controlled foreign corporation and the covered shareholder includes in gross income a portion of its section 956 amount with respect to the corporation for the relevant taxable year under section 951(a)(1)(B), then, for each annual PTEP account that relates to the relevant taxable year and a section 904 category to which a portion of the inclusion is assigned (determined at the level of the covered shareholder, thus after the application of § 1.904-4(c)), add an amount of previously taxed earnings and profits equal to such portion to the annual PTEP account. Assign such previously taxed earnings and profits to the general section 959(c)(1) PTEP group. If applicable, further assign previously taxed earnings and profits to a PTEP subgroup in accordance with paragraph (c)(2) of this section. See paragraph (c)(4) of this section in the case of certain acquisitions of stock to which a section 956 amount of another shareholder is attributable. (2) Assignment to PTEP subgroups —(i) Taxable section 962 PTEP subgroup. If the covered shareholder is an individual and an election under § 1.962-2 applies to the covered shareholder's income inclusions under section 951(a) or 951A(a) for the relevant taxable year, then further assign a portion of previously taxed earnings and profits added pursuant to paragraph (c)(1)(i), (ii), or (xi) of this section (section 951(a) or 951A(a) inclusions) to the taxable section 962 PTEP subgroup. The portion of previously taxed earnings and profits assigned to the taxable section 962 PTEP subgroup is equal to the excess of the previously taxed earnings and profits over the income tax paid under this chapter on the income inclusions giving rise to the previously taxed earnings and profits (determined by translating such tax into the foreign corporation's functional currency at the exchange rate at which the income inclusion is translated into U.S. dollars under section 989(b)). (ii) Taxable section 1411 PTEP subgroup. If the covered shareholder is an individual, estate, or trust, then further assign previously taxed earnings and profits added pursuant to paragraph (c)(1)(i), (ii), (vii), and (xi) of this section (section 951(a), 951A(a), or 1248(a) or (f) inclusions) to the taxable section 1411 PTEP subgroup to the extent the income inclusion giving rise to the previously taxed earnings and profits is not taken into account in determining net investment income under § 1.1411-4(a)(1)(i). (3) Preserving the character of previously taxed earnings and profits —(i) In general. Add previously taxed earnings and profits that are described in paragraph (c)(1)(iii), (iv), or (ix) of this section (previously taxed earnings and profits received in a distribution, resulting from section 961(c) basis, or transferred to the covered shareholder) and that relate to a single section 904 category and single taxable year to the annual PTEP account that relates to such section 904 category and such taxable year or a taxable year (including a deemed taxable year) that ends with, or closest to, the last day of such taxable year, as applicable. Assign the previously taxed earnings and profits to the PTEP group, and if applicable PTEP subgroup, to which they relate. See § 1.959-4, 1.959-7, or 1.961-9 for rules determining the character of previously taxed earnings and profits received, transferred, or resulting from section 961(c) basis, respectively. (ii) Recalculate percentages with respect to section 965 previously taxed earnings and profits —(A) In general. If applicable in adding previously taxed earnings and profits described in paragraph (c)(1)(iii), (iv), or (ix) of this section (previously taxed earnings and profits received in a distribution, resulting from section 961(c) basis, or transferred to the covered shareholder) to annual PTEP accounts relating to the same section 904 category, recalculate an adjusted applicable percentage or section 965(c) deduction percentage with respect to relevant previously taxed earnings and profits within such annual PTEP accounts so that the percentage is a weighted average of— ( 1 ) The adjusted applicable percentage or section 965(c) deduction percentage with respect to relevant previously taxed earnings and profits within the annual PTEP accounts immediately before the addition; and ( 2 ) The adjusted applicable percentage or section 965(c) deduction percentage with respect to relevant previously taxed earnings and profits added to the annual PTEP accounts. (B) Determining the weighted average. The weighted average is determined as the sum of the product of each percentage described in paragraph (c)(3)(ii)(A)( 1 ) or ( 2 ) of this section and the amount of previously taxed earnings and profits described in that paragraph, divided by the sum of the amounts of previously taxed earnings and profits described in those paragraphs. (4) Certain acquisitions of stock to which a section 956 amount is attributable. If the covered shareholder acquires ownership of stock of the foreign corporation during the relevant taxable year but on or after the last relevant day of the relevant taxable year (for example, in a general successor transaction), and a portion of a section 956 amount of a United States shareholder is attributable to such stock, then treat such portion of the section 956 amount and any inclusion thereof in gross income of the United States shareholder as being of the covered shareholder for purposes of paragraphs (c)(1)(x) and (xi) of this section. (5) Currency rule. All adjustments to annual PTEP accounts are made in the functional currency of the foreign corporation, determined, as applicable, by translating an inclusion described in paragraph (c)(1)(ii) of this section into functional currency at the average exchange rate for the relevant taxable year ( see § 1.951A-5(b)(3)) and by translating previously taxed earnings and profits described in paragraph (c)(1)(iii) of this section into functional currency at the spot rate on the day of the distribution ( see section 989(b)). See also § 1.961-9 (determining previously taxed earnings and profits described in paragraph (c)(1)(iv) of this section in functional currency), and § 1.959-6 (determining current year taxes described in paragraph (c)(1)(v) of this section in functional currency). (d) Adjustments to dollar basis pools —(1) In general —(i) Increases for U.S. dollar amount of income inclusions under sections 951(a), 951A(a), and 1248(a) or (f). For each addition pursuant to paragraph (c)(1)(i), (ii), (vii), or (xi) of this section of previously taxed earnings and profits relating to a single dollar basis pool, add an amount of basis equal to the income inclusion under section 951(a), 951A(a), or 1248(a) or (f) giving rise to such previously taxed earnings and profits to the dollar basis pool. (ii) Increases for dollar basis of received or resulting previously taxed earnings and profits. For each addition pursuant to paragraph (c)(1)(iii) or (iv) of this section of previously taxed earnings and profits relating to a single dollar basis pool, add the dollar basis of such previously taxed earnings and profits (determined under § 1.959-4 or 1.961-9, as applicable) to the dollar basis pool. (iii) Decreases for current year taxes. For each reduction pursuant to paragraph (c)(1)(v) of this section to previously taxed earning and profits relating to a single dollar basis pool, reduce the basis in the dollar basis pool by the amount of the current year taxes giving rise to the reduction. (iv) Decreases for dollar basis of distributed or transferred previously taxed earnings and profits. For each removal pursuant to paragraph (c)(1)(vi) or (viii) of this section of previously taxed earnings and profits relating to a single dollar basis pool, remove the dollar basis of such previously taxed earnings and profits (determined under § 1.959-4 or 1.959-7, as applicable) from the dollar basis pool. (v) Increases for dollar basis of transferred previously taxed earnings and profits, adjusted for foreign currency gain or loss. For each addition pursuant to paragraph (c)(1)(ix) of this section of previously taxed earnings and profits relating to a single dollar basis pool, add the dollar basis of such previously taxed earnings and profits (determined under § 1.959-7 and adjusted in accordance with the next sentence) to the dollar basis pool. In applying the preceding sentence, increase (or decrease) the dollar basis of transferred previously taxed earnings and profits by foreign currency gain (or foreign currency loss) that the transferor covered shareholder recognizes with respect to the previously taxed earnings and profits. In addition, determine such foreign currency gain or loss without regard to § 1.986-1(c)(3)(i) and (ii) (limitations for previously taxed earnings and profits resulting from section 965) and by treating the deemed covered shareholder in the same manner as a covered shareholder. (vi) Adjustments for dollar basis of previously taxed earnings and profits to which a section 956 amount is allocated. For each reassignment pursuant to paragraph (c)(1)(x) of this section of previously taxed earnings and profits relating to a single dollar basis pool, remove the dollar basis of such previously taxed earnings and profits (determined under § 1.959-5) from the dollar basis pool relating to the section 959(c)(2) PTEP group from which the previously taxed earnings and profits are reassigned and add such basis to the dollar basis pool relating to the section 959(c)(1) PTEP group to which the previously taxed earnings and profits are reassigned. (2) Currency rule. All adjustments to dollar basis pools are made in U.S. dollars, determined, as applicable, by translating inclusions described in paragraph (d)(1)(i) of this section into U.S. dollars in accordance with section 989(b) and current year taxes described in paragraph (d)(1)(iii) of this section into U.S. dollars in accordance with section 986(a) and § 1.986(a)-1. (e) Adjustments to PTEP tax pools —(1 ) In general —(i) Increases for foreign income taxes associated with previously taxed earnings and profits received. For each addition pursuant to paragraph (c)(1)(iii) of this section of previously taxed earnings and profits relating to a single PTEP tax pool, add the foreign income taxes that are associated with such previously taxed earnings and profits (determined under § 1.959-4(g)) to the PTEP tax pool. Assign such associated foreign income taxes to the creditable PTEP tax group only to the extent the foreign corporation is deemed to pay the taxes under section 960(b)(2) and § 1.960-3(c). See paragraph (e)(1)(ii) of this section for increases to PTEP tax pools for current year taxes paid or accrued by the foreign corporation on the receipt of the previously taxed earnings and profits. (ii) Increases for current year taxes. For each reduction pursuant to paragraph (c)(1)(v) of this section to previously taxed earnings and profits relating to a single PTEP tax pool, add to the PTEP tax pool the current year taxes giving rise to the reduction. Assign such current year taxes to the creditable PTEP tax group only if the foreign corporation is a controlled foreign corporation when the taxes are paid or accrued and a credit for the taxes is not disallowed or suspended at the level of the controlled foreign corporation ( see, for example, section 245A(e)(3) and § 1.245A(d)-1(a)(2) and sections 901(k)(1), (l), and (m), 909, and 6038(c)(1)(B)). (iii) Decreases for foreign income taxes associated with distributed or transferred previously taxed earnings and profits. For each removal pursuant to paragraph (c)(1)(vi) or (viii) of this section of previously taxed earnings and profits relating to a single PTEP tax pool, remove the foreign income taxes that are associated with such previously taxed earnings and profits (determined under § 1.959-4 or 1.959-7, as applicable) from the PTEP tax pool. (iv) Increases for foreign income taxes associated with transferred previously taxed earnings and profits. For each addition pursuant to paragraph (c)(1)(ix) of this section of previously taxed earnings and profits relating to a single PTEP tax pool, add the foreign income taxes that are associated with such previously taxed earnings and profits (determined under § 1.959-7) to the PTEP tax pool. Assign such associated foreign income taxes to the creditable PTEP tax group only to the extent the taxes related to the creditable PTEP tax group immediately before the general successor transaction. (v) Adjustments for foreign income taxes associated with previously taxed earnings and profits to which a section 956 amount is allocated. For each reassignment pursuant to paragraph (c)(1)(x) of this section of previously taxed earnings and profits relating to a single PTEP tax pool, remove the foreign income taxes that are associated with such previously taxed earnings and profits (determined under § 1.959-5) from the PTEP tax pool relating to the section 959(c)(2) PTEP group from which the previously taxed earnings and profits are reassigned and add such foreign income taxes to the PTEP tax pool relating to the section 959(c)(1) PTEP group to which the previously taxed earnings and profits are reassigned. Assign such associated foreign income taxes to the creditable PTEP tax group only to the extent the taxes relate to the creditable PTEP tax group immediately before the reassignment. (2) Currency rule. All adjustments to PTEP tax pools are made in U.S. dollars, determined, as applicable, by translating current year taxes described in paragraph (e)(1)(ii) of this section into U.S. dollars in accordance with section 986(a) and § 1.986(a)-1. (f) Timing of adjustments —(1) Annual PTEP accounts. An adjustment to an annual PTEP account is treated as made in accordance with the timing rules in the following table. In the case of adjustments described in paragraphs (c)(1)(iii) through (xi) of this section that are treated as made at the same time, such adjustments are treated as made at that time in sequence (starting with the adjustment in the earliest paragraph). **Table 1 to Paragraph ( f )(1) of This Section—Timing of Annual PTEP Account Adjustments** | Adjustment described in this section | Description | When adjustment is treated as made | | --- | --- | --- | | Paragraph (c)(1)(i) | Increases for amounts included in gross income under section 951(a)(1)(A) | Beginning of the first day of the relevant taxable year. | | Paragraph (c)(1)(ii) | Increases for amounts included in gross income under section 951A(a) | | | Paragraph (c)(1)(iii) | Increases for receipt of distributed previously taxed earnings and profits | | | Paragraph (c)(1)(iv) | Increases for previously taxed earnings and profits resulting from section 961(c) basis | | | Paragraph (c)(1)(v) | Decreases for current year taxes | | | Paragraph (c)(1)(vi) | Decreases for distributed previously taxed earnings and profits | Concurrently with the covered distribution. | | Paragraph (c)(1)(vii) | Increases for amounts included in gross income as a dividend under section 1248 | Concurrently with the sale or exchange. | | Paragraph (c)(1)(viii) | Decreases for transferred previously taxed earnings and profits | Concurrently with the general successor transaction. | | Paragraph (c)(1)(ix) | Increases for transferred previously taxed earnings and profits | | | Paragraph (c)(1)(x) | Reassignments for previously taxed earnings and profits to which a section 956 amount is allocated | End of the last day of the relevant taxable year. | | Paragraph (c)(1)(xi) | Increases for amounts included in gross income under section 951(a)(1)(B) | | (2) Dollar basis pools. An adjustment to a dollar basis pool is treated as made concurrently with the related adjustment described in paragraph (c) of this section. (3) PTEP tax pools. An adjustment to a PTEP tax pool is treated as made concurrently with the related adjustment described in paragraph (c) of this section. (g) Bottom-up application to tiered foreign corporations. For purposes of applying this section to tiered foreign corporations, this section is applied first to the foreign corporation at the lowest tier, then to the foreign corporation at the next lowest tier, and so on.