# Prop. Treas. Reg. § 1.959-7: General successor transactions. Proposed regulation, not in force. REG-105479-18, 89 FR 95362, published 2024-12-02 . 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 identifies certain transactions in which a foreign corporation's previously taxed earnings and profits with respect to a covered shareholder transfer to (and thus become previously taxed earnings and profits with respect to) another covered shareholder under section 959 (defined as general successor transactions) and provides rules for determining the previously taxed earnings and profits that transfer. Paragraph (b) of this section provides definitions. Paragraph (c) of this section describes rules for analyzing a general successor transaction, including rules for determining previously taxed earnings and profits that transfer in the general successor transaction. Paragraph (d) of this section describes a fraction determining the pro rata portion of certain previously taxed earnings and profits that transfer. Paragraph (e) of this section provides a dollar basis rule. Paragraph (f) of this section provides an associated foreign income taxes rule. Paragraph (g) of this section provides rules regarding the deemed covered shareholder. See § 1.959-10(c)(5) ( Example 5 ) for an example illustrating the application of this section. See also §§ 1.959-8 and 1.959-9, regarding the extent to which previously taxed earnings and profits transfer under section 959 in a transaction other than a general successor transaction. (b) General successor transaction— (1) In general. A general successor transaction is any transaction in which a covered shareholder (the successor covered shareholder ) acquires ownership of stock of one or more foreign corporations (each, an acquired foreign corporation ) that, immediately before the transaction, is owned by another covered shareholder (the transferor covered shareholder ), determined without regard to any portion of an acquisition of ownership of stock that results from a transaction described in paragraph (b)(2) of this section. In a general successor transaction, previously taxed earnings and profits of each acquired foreign corporation transfer from the transferor covered shareholder to the successor covered shareholder (and thus become with respect to the successor covered shareholder) in accordance with the rules described in paragraph (c) of this section. (2) Certain transactions. A transaction is described in this paragraph (b)(2) if the transaction is— (i) An issuance of stock or a partnership interest, (ii) A redemption of stock (within the meaning of section 317(b)) or a liquidating distribution in redemption of a partnership interest, or (iii) A transfer of stock of a foreign corporation, or any property through which stock of a foreign corporation is owned, if such stock or property is substituted basis property. (3) Additional consequences. Upon a general successor transaction, see § 1.961-5 for basis adjustments and § 1.986(c)-1 for recognition of foreign currency gain or loss by the transferor covered shareholder. (c) Rules for analyzing a general successor transaction —(1) Determine general successor PTEP —(i) In general. First, determine general successor PTEP, which for each acquired foreign corporation is computed by multiplying all previously taxed earnings and profits of the acquired foreign corporation that are with respect to the transferor covered shareholder immediately before the general successor transaction by the fraction computed in accordance with paragraph (d) of this section. (ii) Previously taxed earnings and profits not eligible to transfer if the general successor transaction is before the last relevant day. In applying paragraph (c)(1)(i) of this section, if the general successor transaction is before the last relevant day of the acquired foreign corporation's taxable year that includes the general successor transaction, then do not take into account (and thus do not transfer to the successor covered shareholder) any previously taxed earnings and profits that result from an income inclusion of the transferor covered shareholder under section 951(a)(1)(A) or 951A(a) for such taxable year (as accounted for in adjusting annual PTEP accounts pursuant to § 1.959-3(c)(1)(i) and (ii)). For example, if the successor covered shareholder acquires less than all of the transferor covered shareholder's stock of the acquired foreign corporation, and the transferor covered shareholder continues to own the retained stock on the last relevant day, then any previously taxed earnings and profits resulting from the transferor covered shareholder's income inclusions under section 951(a)(1)(A) and 951A for the acquired foreign corporation's taxable year do not transfer in the general successor transaction. (2) Determine section 959(e) successor PTEP. Second, determine section 959(e) successor PTEP, which for each acquired foreign corporation is all the previously taxed earnings and profits of the acquired foreign corporation that, under section 959(e), result from the application of section 1248 to gain recognized by the transferor covered shareholder in the general successor transaction (as accounted for in adjusting annual PTEP accounts pursuant to § 1.959-3(c)(1)(vii)). (3) Determine dollar basis and associated foreign income taxes. Third, determine the dollar basis of, and foreign income taxes associated with, general successor PTEP and section 959(e) successor PTEP in accordance with paragraph (e) of this section. (4) Transfer previously taxed earnings and profits and make related account adjustments. Fourth, transfer general successor PTEP and section 959(e) successor PTEP from the transferor covered shareholder to the successor covered shareholder and make the related adjustments described in § 1.959-3. (d) Fraction in determining general successor PTEP —(1) In general. In determining general successor PTEP of an acquired foreign corporation, the fraction described in paragraph (c)(1)(i) of this section is computed as follows. The numerator of the fraction is the portion of the acquired foreign corporation's hypothetical distribution described in paragraph (d)(2) of this section that, under the principles of § 1.951-1(e)(2) through (6), would be distributed with respect to the stock of the acquired foreign corporation the ownership of which is acquired by the successor covered shareholder in the general successor transaction. The denominator of the fraction is the amount of such hypothetical distribution. However, if the denominator of the fraction would be zero, then the fraction is considered to be zero. (2) Hypothetical distribution. The hypothetical distribution described in this paragraph (d)(2) is a hypothetical distribution treated as made by the acquired foreign corporation with respect to stock of the acquired foreign corporation, immediately before the general successor transaction and in an amount equal to the acquired foreign corporation's previously taxed earnings and profits with respect to the transferor covered shareholder (determined as described in paragraph (c)(1) of this section). In the hypothetical distribution, stock of the acquired foreign corporation is taken into account only to the extent owned by the transferor covered shareholder immediately before the general successor transaction, and the earnings and profits of the acquired foreign corporation are treated as equal to the amount of the hypothetical distribution. (e) Dollar basis rule —(1) General successor PTEP. The dollar basis of previously taxed earnings and profits composing general successor PTEP (determined under paragraph (c)(1) of this section) is computed separately with respect to previously taxed earnings and profits relating to a single dollar basis pool, and in each case is equal to a pro rata portion of the dollar basis pool immediately before the general successor transaction. The pro rata portion is determined by multiplying all basis in the dollar basis pool by a fraction, the numerator of which is previously taxed earnings and profits composing general successor PTEP and relating to the dollar basis pool, and the denominator of which is all previously taxed earnings and profits relating to the dollar basis pool. (2) Section 959(e) successor PTEP. The dollar basis of previously taxed earnings and profits composing section 959(e) successor PTEP (determined under paragraph (c)(2) of this section) is equal to the U.S. dollar amount of the income inclusion giving rise to the previously taxed earnings and profits (as accounted for in increasing dollar basis pools pursuant to § 1.959-3(d)(1)(i)). (f) Associated foreign income taxes rule —(1) General successor PTEP. The foreign income taxes that are associated with previously taxed earnings and profits composing general successor PTEP (determined under paragraph (c)(1) of this section) are computed separately with respect to previously taxed earnings and profits relating to a single PTEP tax pool, and in each case are equal to a pro rata portion of the PTEP tax pool immediately before the general successor transaction. The pro rata portion is determined by multiplying all foreign income taxes in the PTEP tax pool by a fraction, the numerator of which is previously taxed earnings and profits composing general successor PTEP and relating to the PTEP tax pool, and the denominator of which is all previously taxed earnings and profits relating to the PTEP tax pool. Thus, associated foreign income taxes are sourced pro rata from foreign income taxes assigned to the creditable PTEP tax group in the PTEP tax pool and other foreign income taxes in the PTEP tax pool. (2) Section 959(e) successor PTEP. The foreign income taxes associated with previously taxed earnings and profits composing section 959(e) successor PTEP (determined under paragraph (c)(2) of this section) are zero. (g) Deemed covered shareholder —(1) In general. The deemed covered shareholder is a hypothetical person that is treated as owning all the stock of any foreign corporation that is not owned by a covered shareholder. For purposes of transferring previously taxed earnings and profits under section 959, the deemed covered shareholder is treated in the same manner as a covered shareholder and a reference to a covered shareholder includes the deemed covered shareholder. Thus, for example, if a covered shareholder sells stock of a foreign corporation to a nonresident alien individual, then the sale is a general successor transaction and previously taxed earnings and profits of the foreign corporation transfer from the seller covered shareholder to the deemed covered shareholder under this section. Moreover, if the individual subsequently sells stock of the foreign corporation to a covered shareholder, then previously taxed earnings and profits of the foreign corporation (adjusted consistent with § 1.959-3, including to reflect distributions from the foreign corporation to the individual) transfer from the deemed covered shareholder to the buyer covered shareholder under this section. (2) Determining previously taxed earnings and profits that transfer from the deemed covered shareholder. In a transaction in which previously taxed earnings and profits of a foreign corporation transfer from the deemed covered shareholder to a covered shareholder, the covered shareholder must use a reasonable method in determining the amount and character of the transferred previously taxed earnings and profits and in determining the foreign income taxes associated with the transferred previously taxed earnings and profits. Such method must take into account adjustments to previously taxed earnings and profits with respect to the deemed covered shareholder that would have been made under § 1.959-3 if the previously taxed earnings and profits were respect to a covered shareholder.