December 18 2018

Guidance issued on previously taxed earnings and profits

Source: IBFD Tax Research Platform News

On 14 December 2018, the US Treasury Department and the US Internal Revenue Service (IRS) issued Notice 2019-01 to announce their intention to release regulations addressing certain issues arising from the enactment of the Tax Cuts and Jobs Act (TCJA) with respect to foreign corporations with previously taxed earnings and profits (PTEP).

Notice 2019-01 describes regulations that the Treasury Department and the IRS intend to issue, including:

  • rules relating to the maintenance of PTEP in annual accounts and within certain groups;
  • rules relating to the ordering of PTEP upon distribution and reclassification; and
  • rules relating to the adjustment required when an income inclusion exceeds the earnings and profits of a foreign corporation.

It is expected that the regulations will apply to taxable years of US shareholders ending after 14 December 2018 (i.e. the date of release of Notice 2019-01) and to taxable years of foreign corporations ending with or within such taxable years.

Notice 2019-01 will appear in the IRS Internal Revenue Bulletin (IRB) as part of 2019-03, dated 14 January 2019.