Treasury And The IRS Withdraw Proposed 2006 Previously Taxed Earnings And Profits Regulations

Introduction: 2006 Previously Taxed Earnings and Profits Regulations Withdrawn

On October 20, 2022, the Treasury and IRS published in the Federal Register a “withdrawal of notice of proposed rulemaking” regarding the exclusion from gross income of previously taxed earnings and profits (“PTEP”) under section 959 and related basis adjustments under section 961 (the “Withdrawal Notice”).

On August 29, 2006, the Treasury Department and the IRS issued a notice of proposed rulemaking relating to the exclusion from gross income of PTEP under section 959 and related basis adjustments under section 961 (71 FR 51155), to which corrections were published in the Federal Register on December 8, 2006 (71 FR 71116 (together, the “2006 Proposed Regulations”)). On December 14, 2018, the Treasury and the IRS issued Notice 2019-001, which announced the intention to withdraw the 2006 Proposed Regulations and issue a new notice of proposed rulemaking under sections 959 and 961.

The Withdrawal Notice stated that the 2006 Proposed Regulations “were never finalized, never went into effect, and did not indicate that taxpayers could rely on them.” The Withdrawal Notice states that the government is withdrawing the 2006 Proposed Regulations to “help prevent possible abuse or misuse of them–such as inappropriate basis adjustments in certain stock acquisitions to which section 304(a)(1) applies–while the Treasury Department and the IRS continue to develop the new proposed regulations.” The Withdrawal Notice goes on to state that the IRS may, where appropriate, challenge taxpayer positions giving rise to “inappropriate results.”

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