IRS AM: Timing of Basis Increases in Determining Whether Gain Must Be Recognized on Midyear Distribution (IRC §961)

Where, in a certain year, a domestic corporation (“USP”) has increased its previously taxed earnings and profits (“PTEP”) accounts with respect to a controlled foreign corporation (“FS”) by the amount of FS’s subpart F income plus USP’s GILTI inclusion, and FS made a midyear distribution to USP in that total amount (e.g., $100x), prompting USP to decrease its FS PTEP account by the same amount, USP’s adjusted basis is $0 and it does not recognize gain as a result of the distribution, the Chief Counsel’s Office advised. I.R.C. §961(b)(2) and Treas. Reg. §1.961-2(c) do not specifically address such ...