# Prop. Treas. Reg. § 1.959-6: Allocating and apportioning current year taxes to previously taxed earnings and profits of a foreign corporation.

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. 22. Sections 1.959-5 through 1.959-12 are added to read as follows:

(a) Scope. This section provides rules for allocating and apportioning current year taxes for purposes of sections 959 and 960(b). Paragraph (b) of this section provides the general rule for determining which foreign income taxes paid or accrued by a foreign corporation may be allocated and apportioned to previously taxed earnings and profits. Paragraph (c) of this section provides rules for the application of § 1.861-20 to allocate and apportion current year taxes among corporate PTEP accounts. Paragraph (d) of this section provides additional rules regarding the allocation and apportionment of deductions to previously taxed earnings and profits and a currency translation rule. See § 1.959-10(c)(3) ( Example 3 ) for an example illustrating the application of this section.

(b) In general. Current year taxes that a foreign corporation pays or accrues during its taxable year by reason of a PTEP realization event that occurs during the same taxable year are allocated and apportioned to the statutory groupings (as generally described in § 1.861-8(a)(4)) of previously taxed earnings and profits of the foreign corporation and to the residual grouping in accordance with the rules of paragraph (c) of this section. For purposes of this section, the statutory groupings are the corporate PTEP accounts of the foreign corporation described in § 1.959-2(d)(1). A PTEP realization event is an increase to the previously taxed earnings and profits of a foreign corporation by reason of its receipt of a covered distribution (as determined under § 1.959-4) or the application of section 961(c) basis of the foreign corporation to covered gain (as determined under § 1.961-9) during the taxable year, as determined under § 1.959-2(d)(1). Current year taxes that are paid or accrued with respect to a PTEP realization event that occurs in a different taxable year may not be allocated and apportioned to the corporate PTEP accounts of a foreign corporation. See § 1.960-1(d)(3)(ii)(B) for rules regarding the assignment of foreign gross income to the statutory and residual groupings of income of a controlled foreign corporation when the controlled foreign corporation pays or accrues current year taxes with respect to a PTEP realization event that occurs in a different taxable year.

(c) Rules for allocating and apportioning current year taxes to previously taxed earnings and profits. Allocate and apportion current year taxes that a foreign corporation pays or accrues during its taxable year by reason of a PTEP realization event that occurs during the same taxable year (translated, if applicable, into the foreign corporation's functional currency as described in paragraph (d)(3) of this section) to its statutory groupings of previously taxed earnings and profits and to the residual grouping in accordance with the rules of § 1.861-20. For this purpose, foreign gross income that a foreign corporation includes under foreign law by reason of a distribution that it receives, or by reason of its disposition of stock, is assigned to its statutory groupings of previously taxed earnings and profits by treating previously taxed earnings and profits arising from the distribution or disposition as included in the U.S. dividend amount or the U.S. capital gain amount, respectively, for purposes of applying § 1.861-20(d)(1). For the definitions of U.S. dividend amount and U.S. capital gain amount, see § 1.861-20(b).

(d) Additional rules —(1) No deductions other than deductions for current year taxes paid or accrued with respect to a PTEP realization event that occurs in the same taxable year are allocated or apportioned to the statutory groupings of previously taxed earnings and profits of a foreign corporation. No deductions of a foreign corporation, other than deductions for current year  taxes that the foreign corporation pays or accrues during its taxable year with respect to a PTEP realization event that occurs in the same taxable year, may be allocated or apportioned under section 861 to the statutory groupings of previously taxed earnings and profits of the foreign corporation.

(2) Currency rule. For purposes of this section, if current year taxes that a foreign corporation pays or accrues are denominated in a currency other than the foreign corporation's functional currency, then the current year taxes are translated into the foreign corporation's functional currency at the spot rate on the day on which the current year taxes are paid or accrued. See section 986(a) and § 1.986(a)-1 for rules translating current year taxes into U.S. dollars.