Par. 26. Section 1.961-1 is revised to read as follows:
(a) Overview —(1) In general. The section 961 regulations provide rules for basis adjustments related to previously taxed earnings and profits. Section 1.961-1 sets forth definitions and rules of general applicability. Section 1.961-2 describes the types of property units and types of basis for purposes of applying section 961. Section 1.961-3 provides basis increases for income inclusions. Section 1.961-4 provides reductions to basis and gain recognition for distributions of previously taxed earnings and profits. Section 1.961-5 provides basis adjustments for foreign currency gain or loss and for general successor transactions. Sections 1.961-6 and 1.961-7 are reserved. Section 1.961-8 describes the consequences of positive derived basis. Section 1.961-9 describes the consequences of positive section 961(c) basis. Section 1.961-10 describes the consequences of negative derived basis and negative section 961(c) basis. Section 1.961-11 provides for the inclusion by United States shareholders in a controlled foreign corporation of the controlled foreign corporation's income arising under section 961(c). Section 1.961-12 provides examples illustrating the application of the section 961 regulations. Section 1.961-13 sets forth transition rules. Section 1.961-14 sets forth applicability dates. See § 1.1502-59 for additional rules for a consolidated group.
(2) Scope. This section sets forth definitions and rules of general applicability for purposes of the section 961 regulations. Paragraph (b) of this section provides definitions. Paragraph (c) of this section provides rules relating to S corporations. Paragraph (d) of this section provides an anti-avoidance rule.
(b) Definitions. The definitions in § 1.959-1(b) apply for purposes of the section 961 regulations, with the following additions.
Acquired partnership. The term acquired partnership has the meaning provided in § 1.961-5(c)(1).
Common basis. The term common basis means a partnership's adjusted basis of an item of property, excluding any basis that is solely with respect to a specific partner (for example, a section 743(b) basis adjustment or derived basis).
Covered gain. The term covered gain has the meaning provided in § 1.961-9(c)(1).
Derived basis. The term derived basis means basis described in § 1.961-2(d)(2).
Derivative ownership unit. The term derivative ownership unit has the meaning provided in § 1.961-2(d)(1).
Lookback PTEP. The term lookback PTEP has the meaning provided in § 1.961-9(f)(3)(ii).
Lower-tier partnership interest. The term lower-tier partnership interest has the meaning provided in § 1.961-8(d).
Midyear transaction. The term midyear transaction has the meaning provided in § 1.961-3(c)(2).
Mirrored PTEP. The term mirrored PTEP has the meaning provided in § 1.961-9(f)(2)(ii).
Negative derived basis. The term negative derived basis means the amount by which derived basis with respect to a covered shareholder of a derivative ownership unit is less than zero.
Negative section 961(c) basis. The term negative section 961(c) basis means the amount by which section 961(c) basis with respect to a covered shareholder of a section 961(c) ownership unit is less than zero.
Net foreign currency gain. The term net foreign currency gain has the meaning provided in § 1.961-5(b)(2).
Net foreign currency loss. The term net foreign currency loss has the meaning provided in § 1.961-5(b)(2).
Nonrecognition transaction. The term nonrecognition transaction has the meaning provided in section 7701(a)(45).
Positive derived basis. The term positive derived basis means the amount by which derived basis with respect to a covered shareholder of a derivative ownership unit is greater than zero.
Positive section 961(c) basis. The term positive section 961(c) basis means the amount by which section 961(c) basis with respect to a covered shareholder of a section 961(c) ownership unit is greater than zero.
Property unit. The term property unit has the meaning provided in § 1.961-2(b).
Relevant taxable year. The term relevant taxable year has the meaning provided in § 1.961-3(b).
Section 951(a)(1)(A) inclusion amount. The term section 951(a)(1)(A) inclusion amount has the meaning provided in § 1.961-3(c)(1)(ii).
Section 951(a)(1)(B) inclusion amount. The term section 951(a)(1)(B) inclusion amount has the meaning provided in § 1.961-3(c)(1)(iii).
Section 961 regulations. The term section 961 regulations means the regulations in this part issued under section 961.
Section 961(a) ownership unit. The term section 961(a) ownership unit has the meaning provided in § 1.961-2(c).
Section 961(c) basis. The term section 961(c) basis means basis described in § 1.961-2(e)(2).
Section 961(c) income. The term section 961(c) income has the meaning provided in § 1.961-11(b).
Section 961(c) ownership unit. The term section 961(c) ownership unit has the meaning provided in § 1.961-2(e)(1).
Section 961(c) PTEP. The term section 961(c) PTEP has the meaning provided in § 1.961-9(f)(1).
Transferred units. The term transferred units has the meaning provided in § 1.961-8(b)(1) or § 1.961-9(c)(1), as applicable.
Transferring partnership. The term transferring partnership has the meaning provided in § 1.961-8(b)(1).
Upper-tier partnership. The term upper-tier partnership has the meaning provided in § 1.961-8(d).
(c) Treatment of an S corporation —(1) In general. Except as provided in paragraph (c)(2) of this section, for purposes of the section 961 regulations, an S corporation is treated in the same manner as a domestic partnership, a reference to a domestic partnership includes an S corporation, and shareholders of an S corporation are treated as partners of such partnership. See section 1373(a). As applicable, the treatment of an S corporation and its shareholders under the preceding sentence is determined by replacing any partnership-specific provision with the equivalent provision for S corporations (for example, a reference to an adjustment under section 705 to a partner's basis in its partnership interest refers to the adjustment under section 1367 to a shareholder's basis in its stock of an S corporation).
(2) Treatment as a covered shareholder for taxable years for which elective entity treatment applies for § 1.958-1(d)(1) purposes. See § 1.961-13(c) for a rule treating an S corporation as a covered shareholder for any taxable year of the S corporation for which § 1.958-1(d)(1) does not apply and § 1.961-13(d) for a transition rule converting basis with respect to an S corporation to basis with respect to covered shareholders owning interests in the S corporation once the S corporation is no longer treated as a covered shareholder.
(d) Anti-avoidance rule. If a transaction, series of transactions, plan, or arrangement is engaged in with a principal purpose of avoiding the purposes of section 961 and the section 961 regulations, then appropriate adjustments are made, which may include adjustments to disregard the transaction, series of transactions, plan, or arrangement.