IRS Releases Proposed Rules on Previously Taxed Earnings and Profits (PTEP): What Businesses Need to Know

The IRS recently released proposed regulations under tax code Section 959, offering long-awaited guidance on previously taxed earnings and profits (PTEP). These proposed rules address core aspects of the PTEP framework, resolving longstanding questions and implementing changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA). 

What Is PTEP, and Why Does It Matter? 

PTEP refers to foreign income that has already been subject to U.S. taxation and is subsequently repatriated to the United States. Properly managing PTEP is essential to avoid double taxation and to ensure compliance with U.S. tax laws. 

The 2017 TCJA significantly increased the amount of PTEP through measures like the repatriation tax, which prompted companies to bring back billions of dollars in foreign earnings to the U.S. This surge in PTEP created a pressing need for updated rules, as the existing framework—originally developed in 1962—was not equipped to handle the complexities introduced by the TCJA. 

Key Highlights of the Proposed Regulations 

The new proposed rules, released on December 1, represent the first phase of what the IRS says will be a multi-part regulatory rollout for PTEP. They address: 

• Core PTEP Framework: The proposed regulations establish foundational rules under Sections 959 and 961 to guide taxpayers on the treatment of PTEP. 

• Resolution of Longstanding Issues: Practitioners have grappled with gaps in PTEP guidance for years. These rules aim to fill many (but not all) of those gaps. 

• TCJA Updates: The rules incorporate changes introduced by the TCJA, including provisions related to repatriated earnings and amendments to existing guidance. 

• Future Guidance: The IRS plans to release additional rules addressing issues such as nonrecognition transactions, redemptions, and scenarios where controlled foreign corporations are partners in a partnership. 

Implications for Taxpayers 

The release of these proposed regulations provides greater clarity but also underscores the complexity of the PTEP system. Taxpayers who have dealt with PTEP since the TCJA will need to assess how these rules impact their current and prior tax positions. 

For example, earlier guidance required tracking PTEP across multiple “buckets,” creating administrative challenges for businesses. While the number of required buckets has been reduced, companies will need to ensure their tracking and reporting systems align with the new framework. 

Additionally, businesses involved in partnerships, mergers, acquisitions, or cross-border transactions may face unique challenges as they navigate the interaction of these new rules with existing tax provisions. 

Next Steps 

The IRS has invited public comments on the proposed regulations, with a deadline of March 2, 2025. Businesses should consider submitting comments if they have concerns or recommendations about how the rules will impact their operations. 

In the meantime, companies should review their current tax strategies and consult with their advisors to identify any adjustments needed to comply with these proposed regulations. 

How Tonneson + Co Can Help 

Navigating the complexities of PTEP and the new proposed regulations can be challenging. At Tonneson + Co, our team of experienced tax advisors specializes in international tax planning and compliance. We can help you understand how these rules apply to your business, ensure compliance, and optimize your tax strategy. 

If you have questions about the proposed regulations or need guidance on your company’s international tax planning, reach out to us. Our advisors are here to help you confidently navigate these changes and stay ahead in an ever-evolving tax landscape. 

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