Frequently Asked Questions
Who is eligible for the Exclusion of Previously Taxed Earnings and Profits (PTEP)?
Applies to U.S. shareholders who have had income inclusions under section 951(a) or 951A and subsequently receive distributions from that CFC.
How does the Exclusion of Previously Taxed Earnings and Profits (PTEP) work?
Allows U.S. shareholders to exclude from gross income actual distributions of a foreign corporation's earnings and profits that were already taxed under Subpart F or GILTI rules.
What law authorizes the Exclusion of Previously Taxed Earnings and Profits (PTEP)?
The Exclusion of Previously Taxed Earnings and Profits (PTEP) is authorized under IRC §959 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §959
Source: Internal Revenue Code, Title 26, United States Code
§ 959. Exclusion from gross income of previously taxed earnings and profits(a) Exclusion from gross income of United States personsFor purposes of this chapter, the earnings and profits of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a) shall not, when—(1) such amounts are distributed to, or
(2) such amounts would, but for this subsection, be included under section 951(a)(1)(B) in the gross income of,
such shareholder (or any other United States person who acquires from any person any portion of the interest of such United States shareholder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Secretary may by regulations prescribe) directly or indirectly through a chain of ownership described under section 958(a), be again included in the gross income of such United States shareholder (or of such other United States person). The rules of subsection (c) shall apply for purposes of paragraph (1) of this subsection and the rules of subsection (f) shall apply for purposes of paragraph (2) of this subsection.
(b) Exclusion from gross income of certain foreign subsidiariesFor purposes of section 951(a), the earnings and profits of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a), shall not, when distributed through a chain of ownership described under section 958(a), be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 951(a) to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder in the controlled foreign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).
(c) Allocation of distributionsFor purposes of subsections (a) and (b), section 316(a) shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof—(1) first to the aggregate of—(A) earnings and profits attributable to amounts included in gross income under section 951(a)(1)(B) (or which would have been included except for subsection (a)(2) of this section), and
(B) earnings and profits attributable to amounts included in gross income under section 951(a)(1)(C) (or which would have been included except for subsection (a)(3) of this section),
with any distribution being allocated between earnings and profits described in subparagraph (A) and earnings and profits described in subparagraph (B) proportionately on the basis of the respective amounts of such earnings and profits,
Showing first 3,000 characters of full section text.