The American Institute of CPAs (AICPA) has submitted comments to the US Department of the Treasury and the Internal Revenue Service (IRS) on proposed regulations concerning Previously Taxed Earnings and Profits (PTEP) and related basis adjustments.

The regulations under Sections 959 and 961 of the Internal Revenue Code are designed to prevent double taxation of US shareholders with income from controlled foreign corporations (CFCs).

The proposed regulations aim to clarify the rules governing the PTEP regime, including stock basis adjustments, foreign currency gains or losses, and the allocation of foreign tax credits.

The AICPA's recommendations seek to improve these regulations for taxpayers.

One key suggestion from the AICPA is to explicitly allow taxpayers to rely on the proposed regulations until they are finalised.

Additionally, the AICPA recommends extending the model for PTEP distributed through partnerships to foreign nongrantor trusts under Section 959.

The AICPA also proposes to coordinate the rules of subchapter J with subpart F by treating PTEP as distributed from the CFC to the foreign nongrantor trust.

Subsequent distributions to beneficiaries should be considered recoveries of that PTEP.

If the above recommendation is not adopted, the AICPA suggests that distributions of excludable PTEP to beneficiaries be treated similarly to tax-exempt income or trust principal, which would not trigger current taxation under the distributable net income model or the throwback anti-deferral regime.

Furthermore, under Section 961, the AICPA advises extending the concept of derived basis to foreign nongrantor trusts, allowing these entities to have a derived basis in CFC shares.

AICPA Tax Policy & Advocacy senior manager Reema Patel said: “There is some uncertainty regarding taxpayer’s continued reliance on Notice 2019-01 and the portions of the proposed regulations that apply the 2019 Notice provisions.”

“The lack of an express statement in the proposed regulations creates uncertainty among taxpayers about which aspects of the proposed regulations may be viewed as a reasonable interpretation of the statute and existing final regulations. Therefore, we recommend that Treasury and the IRS expressly allow taxpayers to rely on the proposed regulations in their entirety until they are finalised.”

Meanwhile, in a recent move, AICPA named Rahul Gupta as the chairman of its Financial Reporting Executive Committee.

"AICPA submits comments on PTEP basis adjustments regulations" was originally created and published by The Accountant, a GlobalData owned brand.