§1.965-1   Overview, general rules, and definitions.

(a) Overview.

(1) In general.

(2) Scope.

(b) Section 965(a) inclusion amounts.

(1) Inclusion of the pro rata share of the section 965(a) earnings amount.

(2) Reduction by the allocable share of the aggregate foreign E&P deficit.

(c) Section 965(c) deduction amounts.

(d) Treatment of specified foreign corporation as a controlled foreign corporation.

(e) Special rule for certain controlled domestic partnerships.

(1) In general.

(2) Definition of a controlled domestic partnership.

(f) Definitions.

(1) 8 percent rate amount.

(2) 8 percent rate equivalent percentage.

(3) 15.5 percent rate amount.

(4) 15.5 percent rate equivalent percentage.

(5) Accounts payable.

(6) Accounts receivable.

(7) Accumulated post-1986 deferred foreign income.

(8) Aggregate foreign cash position.

(9) Aggregate foreign E&P deficit.

(10) Aggregate section 965(a) inclusion amount.

(11) Allocable share.

(12) Bona fide hedging transaction.

(13) Cash-equivalent asset.

(i) In general.

(ii) Specified commodity.

(14) Cash-equivalent asset hedging transaction.

(i) In general.

(ii) Aggregate hedging transactions.

(15) Cash measurement dates.

(16) Cash position.

(i) General rule.

(ii) Fair market value of cash-equivalent assets.

(iii) Measurement of derivative financial instruments.

(iv) Translation of cash position amounts.

(17) Deferred foreign income corporation.

(i) In general.

(ii) Priority rule.

(18) Derivative financial instrument.

(19) Domestic pass-through entity.

(20) Domestic pass-through owner.

(21) Domestic pass-through owner share.

(22) E&P deficit foreign corporation.

(i) In general.

(ii) Determination of deficit in post-1986 earnings and profits.

(23) E&P measurement dates.

(24) Final cash measurement date.

(25) First cash measurement date.

(26) Inclusion year.

(27) Net accounts receivable.

(28) Pass-through entity.

(29) Post-1986 earnings and profits.

(i) General rule.

(ii) Foreign income taxes.

(iii) Deficits in earnings and profits.

(30) Pro rata share.

(31) Second cash measurement date.

(32) Section 958(a) stock.

(33) Section 958(a) U.S. shareholder.

(34) Section 958(a) U.S. shareholder inclusion year.

(35) Section 965 regulations.

(36) Section 965(a) earnings amount.

(37) Section 965(a) inclusion.

(38) Section 965(a) inclusion amount.

(39) Section 965(a) previously taxed earnings and profits.

(40) Section 965(b) previously taxed earnings and profits.

(41) Section 965(c) deduction.

(42) Section 965(c) deduction amount.

(43) Short-term obligation.

(44) Specified E&P deficit.

(45) Specified foreign corporation.

(i) General rule.

(ii) Special attribution rule.

(A) In general.

(B) Attribution for purposes of the ten percent standard.

(iii) Passive foreign investment companies.

(46) Spot rate.

(47) United States shareholder.

(g) Examples.

(1) Example 1.

(i) Facts.

(ii) Analysis.

(2) Example 2.

(i) Facts.

(ii) Analysis.

(3) Example 3.

(i) Facts.

(ii) Analysis.

(4) Example 4.

(i) Facts.

(ii) Analysis.

(5) Example 5.

(i) Facts.

(ii) Analysis.

(A) Determination of status as a deferred foreign income corporation.

(B) Determination of status as an E&P deficit foreign corporation.

(6) Example 6.

(i) Facts.

(ii) Analysis.

(7) Example 7.

(i) Facts.

(ii) Analysis.

(8) Example 8.

(i) Facts.

(ii) Analysis.

§1.965-2   Adjustments to earnings and profits and basis.

(a) Scope.

(b) Determination of and adjustments to earnings and profits of a specified foreign corporation for purposes of applying sections 902, 959, 960, and 965.

(c) Adjustments to earnings and profits by reason of section 965(a).

(d) Adjustments to earnings and profits by reason of section 965(b).

(1) Adjustments to earnings and profits described in section 959(c)(2) and (c)(3) of deferred foreign income corporations.

(2) Adjustments to earnings and profits described in section 959(c)(3) of E&P deficit foreign corporations.

(i) Increase in earnings and profits by an amount equal to the portion of the section 958(a) U.S. shareholder's pro rata share of the specified E&P deficit.

(A) In general.

(B) Reduction of a qualified deficit.

(ii) Determination of portion of a section 958(a) U.S. shareholder's pro rata share of a specified E&P deficit taken into account.

(A) In general.

(B) Designation of portion of a section 958(a) U.S. shareholder's pro rata share of a specified E&P deficit taken into account.

(e) Adjustments to basis by reason of section 965(a).

(1) General rule.

(2) Section 962 election.

(f) Adjustments to basis by reason of section 965(b).

(1) In general.

(2) Election to make adjustments to basis to account for the application of section 965(b).

(i) In general.

(ii) Basis adjustments.

(A) Increase in basis with respect to a deferred foreign income corporation.

(1) In general.

(2) Limited basis adjustment.

(B) Reduction in basis with respect to an E&P deficit foreign corporation.

(1) In general.

(2) Limited basis adjustment.

(C) Section 962 election.

(iii) Rules regarding the election.

(A) Consistency requirement.

(B) Manner of making election.

(1) Timing.

(i) In general.

(ii) Transition rule.

(2) Election statement.

(g) Gain reduction rule.

(1) Reduction in gain recognized under section 961(b)(2) by reason of distributions attributable to section 965 previously taxed earnings and profits in the inclusion year.

(i) In general.

(ii) Definition of section 965 previously taxed earnings and profits.

(2) Reduction in basis by an amount equal to the gain reduction amount.

(h) Rules of application for specified basis adjustments.

(1) Timing of basis adjustments.

(2) Netting of basis adjustments.

(3) Gain recognition for reduction in excess of basis.

(4) Adjustments with respect to each share.

(i) Section 958(a) stock.

(ii) Applicable property.

(5) Stock or property for which adjustments are made.

(i) In general.

(ii) Special rule for an interest in a foreign pass-through entity.

(i) Definitions.

(1) Applicable property.

(2) Foreign pass-through entity.

(3) Property.

(j) Examples.

(1) Example 1.

(i) Facts.

(ii) Analysis.

(A) Adjustments to section 959(c) classification of earnings and profits for inclusion under section 951(a)(1)(A) without regard to section 965.

(B) Distributions between specified foreign corporations before January 1, 2018.

(C) Section 965(a) inclusion amount.

(1) CFC1 section 965(a) earnings amount.

(2) CFC2 section 965(a) earnings amount.

(3) Effect on earnings and profits described in section 959(c)(2) and (3).

(D) Distribution to United States shareholder.

(E) Section 902 and section 960 consequences.

(1) Distribution by and inclusions with respect to CFC2.

(2) Inclusions with respect to CFC1.

(2) Example 2.

(i) Facts.

(ii) Analysis.

(A) Adjustments to section 959(c) classification of earnings and profits for inclusion under section 951(a)(1)(A) without regard to section 965.

(B) Distributions between specified foreign corporations before January 1, 2018.

(C) Section 965(a) inclusion amount.

(1) CFC1 section 965(a) earnings amount.

(2) CFC2 section 965(a) earnings amount.

(3) Effect on earnings and profits described in section 959(c)(2) and (3).

(D) Distribution to United States shareholder.

(3) Example 3.

(i) Facts.

(ii) Analysis.

(A) Adjustments to section 959(c) classification of earnings and profits for inclusion under section 951(a)(1)(A) without regard to section 965.

(B) Distributions between specified foreign corporations before January 1, 2018.

(C) Section 965(a) inclusion amount.

(1) CFC1 section 965(a) earnings amount.

(2) CFC2 section 965(a) earnings amount.

(3) Effect on earnings and profits described in section 959(c)(2) and (3).

(D) Distribution to United States shareholder.

(4) Example 4.

(i) Facts.

(ii) Analysis.

(A) Adjustments to section 959(c) classification of earnings and profits for inclusion under section 951(a)(1)(A) without regard to section 965.

(B) Distributions between specified foreign corporations before January 1, 2018.

(C) Section 965(a) inclusion amount.

(1) CFC1 section 965(a) earnings amount.

(2) CFC2 section 965(a) earnings amount.

(3) Effect on earnings and profits described in section 959(c)(2) and (3).

(D) Distribution to United States shareholder.

(1) Distribution that is a specified payment.

(2) Distribution to United States shareholder.

(E) Section 902 and section 960 consequences.

(5) Example 5.

(i) Facts.

(ii) Analysis.

(A) Section 965(a) inclusion amount.

(1) CFC section 965(a) earnings amount.

(2) Effect on earnings and profits described in section 959(c)(2) and (3).

(6) Example 6.

(i) Facts.

(ii) Analysis.

(A) Adjustments to section 959(c) classification of earnings and profits for section 1248 inclusion.

(B) Section 965(a) inclusion amount.

(C) Distributions to United States shareholders.

(7) Example 7.

(i) Facts.

(ii) Analysis.

(8) Example 8.

(i) Facts.

(ii) Analysis.

(A) Application of the gain reduction rule.

(B) Adjustments to the basis of CFC1.

(9) Example 9.

(i) Facts.

(ii) Analysis.

(A) Application of the gain reduction rule.

(B) Adjustments to the basis of CFC1 and CFC2.

§1.965-3   Section 965(c) deductions.

(a) Scope.

(b) Rules for disregarding certain assets for determining aggregate foreign cash position.

(1) Disregard of certain obligations between related specified foreign corporations.

(2) Disregard of other assets upon demonstration of double-counting.

(3) Disregard of portion of cash position of noncorporate entities treated as specified foreign corporations.

(4) Examples.

(i) Example 1.

(A) Facts.

(B) Analysis.

(1) Loan from CFC1 to CFC2.

(2) Account receivable of CFC1 held by CFC2.

(3) Loan from CFC1 to CFC3.

(ii) Example 2.

(A) Facts.

(B) Analysis.

(iii) Example 3.

(A) Facts.

(B) Analysis.

(iv) Example 4.

(A) Facts.

(B) Analysis.

(v) Example 5.

(A) Facts.

(B) Analysis.

(1) Treatment of PS1.

(2) Treatment of PS2.

(c) Determination of aggregate foreign cash position for a section 958(a) U.S. shareholder inclusion year.

(1) Single section 958(a) U.S. shareholder inclusion year.

(2) Multiple section 958(a) U.S. shareholder inclusion years.

(i) Allocation to first section 958(a) U.S. shareholder inclusion year.

(ii) Allocation to succeeding section 958(a) U.S. shareholder inclusion years.

(3) Estimation of aggregate foreign cash position.

(4) Examples.

(i) Example 1.

(A) Facts.

(B) Analysis.

(ii) Example 2.

(A) Facts.

(B) Analysis.

(d) Increase of income by section 965(c) deduction of an expatriated entity.

(1) In general.

(2) Definition of expatriated entity.

(3) Definition of surrogate foreign corporation.

(e) Section 962 election.

(1) In general.

(2) Example.

(i) Facts.

(ii) Analysis.

(f) Treatment of section 965(c) deduction under certain provisions of the Internal Revenue Code.

(1) Section 63(d).

(2) Sections 705, 1367, and 1368.

(i) Adjustments to basis.

(ii) S corporation accumulated adjustments account.

(iii) Example.

(A) Facts.

(B) Analysis.

(3) Section 1411.

(4) Section 4940.

(g) Domestic pass-through entities.

§1.965-4   Disregard of certain transactions.

(a) Scope.

(b) Transactions undertaken with a principal purpose of changing the amount of a section 965 element.

(1) General rule.

(2) Presumptions and exceptions for the application of the general rule.

(i) Overview.

(ii) Definitions.

(A) Relatedness.

(B) Transfer.

(1) In general.

(2) Indirect transfer.

(iii) Cash reduction transactions.

(A) General rule.

(B) Per se rules for certain distributions.

(iv) E&P reduction transactions.

(A) General rule.

(1) Definition of pro rata share reduction transaction.

(2) Definition of E&P deficit transaction.

(B) Per se rule for internal group transactions.

(C) Example.

(1) Facts.

(2) Analysis.

(c) Disregard of certain changes in method of accounting and entity classification elections.

(1) Changes in method of accounting.

(2) Entity classification elections.

(d) Definition of a section 965 element.

(e) Rules for applying paragraphs (b) and (c) of this section.

(1) Determination of whether there is a change in the amount of a section 965 element.

(2) Treatment of domestic pass-through owners as United States shareholders.

(3) Exception for certain incorporation transactions.

(i) In general.

(ii) Aggregate foreign cash position.

(4) Consequences of liquidation.

(i) In general.

(ii) Specified liquidation date.

(f) Disregard of certain transactions occurring between E&P measurement dates.

(1) Disregard of specified payments.

(2) Definition of specified payment.

(3) Non-application of disregard rule.

(4) Examples.

(i) Example 1.

(A) Facts.

(B) Analysis.

(ii) Example 2.

(A) Facts.

(B) Analysis.

(iii) Example 3.

(A) Facts.

(B) Analysis.

(iv) Example 4.

(A) Facts.

(B) Analysis.

(v) Example 5.

(A) Facts.

(B) Analysis.

(vi) Example 6.

(A) Facts.

(B) Analysis.

§1.965-5   Allowance of credit or deduction for foreign income taxes.

(a) Scope.

(b) Rules for foreign income taxes paid or accrued.

(c) Rules for foreign income taxes treated as paid or accrued.

(1) Disallowed credit.

(i) In general.

(ii) Foreign income taxes deemed paid under section 960(a)(3) (as in effect on December 21, 2017).

(iii) [Reserved]

(2) Disallowed deduction.

(3) Coordination with section 78.

(i) In general.

(ii) Domestic corporation that is a domestic pass-through owner.

(d) Applicable percentage.

(1) In general.

(2) No section 965(a) inclusion amount.

(3) Applicable percentage for domestic pass-through owners.

(4) Applicable percentage with respect to certain distributions of previously taxed earnings and profits.

§1.965-6   Computation of foreign income taxes deemed paid and allocation and apportionment of deductions.

(a) Scope.

(b) Computation of foreign income taxes deemed paid.

(1) In general.

(2) Dividend or inclusion in excess of post-1986 undistributed earnings.

(3) Treatment of adjustment under section 965(b)(4)(B).

(4) Section 902 fraction.

(c) Allocation and apportionment of deductions.

(d) Hovering deficits.

§1.965-7   Elections, payment, and other special rules.

(a) Scope.

(b) Section 965(h) election.

(1) In general.

(i) Amount of installments.

(ii) Increased installments due to a deficiency or a timely filed or amended return.

(A) In general.

(B) Timing.

(C) Exception for negligence, intentional disregard, or fraud.

(iii) Due date of installments.

(A) In general.

(B) Extension for specified individuals.

(2) Manner of making election.

(i) Eligibility.

(ii) Timing.

(iii) Election statement.

(3) Acceleration of payment.

(i) Acceleration.

(ii) Acceleration events.

(iii) Eligible section 965(h) transferee exception.

(A) In general.

(1) Requirement to have a covered acceleration event.

(2) Requirement to enter into a transfer agreement.

(B) Transfer agreement.

(1) Eligibility.

(2) Filing requirements.

(i) In general.

(ii) Transition rule.

(3) Signature requirement.

(4) Terms of agreement.

(5) Consolidated groups.

(6) Leverage ratio.

(C) Consent of Commissioner.

(1) In general.

(2) Material misrepresentations and omissions.

(D) Effect of assumption.

(1) In general.

(2) Eligible section 965(h) transferor liability.

(E) Qualifying consolidated group member transaction.

(1) Definition of qualifying consolidated group member transaction.

(2) Definition of qualified successor.

(3) Departure of multiple members of a consolidated group.

(c) Section 965(i) election.

(1) In general.

(2) Manner of making election.

(i) Eligibility.

(ii) Timing.

(iii) Election statement.

(3) Triggering events.

(i) In general.

(ii) Triggering events.

(iii) Partial transfers.

(iv) Eligible section 965(i) transferee exception.

(A) In general.

(1) Requirement to have a covered triggering event.

(2) Requirement to enter into a transfer agreement.

(B) Transfer agreement.

(1) Eligibility.

(2) Filing requirements.

(i) In general.

(ii) Transition rule.

(iii) Death of eligible section 965(i) transferor.

(3) Signature requirement.

(4) Terms of agreement.

(5) Special rule in the case of death of eligible section 965(i) transferor.

(6) Leverage ratio.

(C) Consent of Commissioner.

(1) In general.

(2) Material misrepresentations and omissions.

(D) Effect of assumption.

(1) In general.

(2) Eligible section 965(i) transferor liability.

(v) Coordination with section 965(h) election.

(A) In general.

(B) Timing for election.

(C) Due date for installment.

(D) Limitation.

(1) In general.

(2) Manner of obtaining consent.

(i) In general.

(ii) Transition rule.

(3) Signature requirement.

(4) Terms of agreement.

(5) Consent of Commissioner.

(i) In general.

(ii) Material misrepresentations and omissions.

(6) Leverage ratio.

(4) Joint and several liability.

(5) Extension of limitation on collection.

(6) Annual reporting requirement.

(i) In general.

(ii) Failure to report.

(d) Section 965(m) election and special rule for real estate investment trusts.

(1) In general.

(2) Inclusion schedule for section 965(m) election.

(3) Manner of making election.

(i) Eligibility.

(ii) Timing.

(iii) Election statement.

(4) Coordination with section 965(h).

(5) Acceleration of inclusion.

(6) Treatment of section 965(a) inclusions of a real estate investment trust.

(e) Section 965(n) election.

(1) In general.

(i) General rule.

(ii) Applicable amount for section 965(n) election.

(iii) Scope of section 965(n) election.

(iv) [Reserved]

(2) Manner of making election.

(i) Eligibility.

(ii) Timing.

(iii) Election statement.

(f) Election to use alternative method for calculating post-1986 earnings and profits.

(1) Effect of election for specified foreign corporations that do not have a 52-53-week taxable year.

(2) Effect of election for specified foreign corporations that have a 52-53-week taxable year.

(3) Computation of post-1986 earnings and profits using alternative method.

(4) Definitions.

(i) 52-53-week taxable year.

(ii) Annualized earnings and profits amount.

(iii) Daily earnings amount.

(iv) Notional measurement date.

(5) Manner of making election.

(i) Eligibility.

(ii) Timing.

(iii) Election statement.

(6) Examples.

(i) Example 1.

(A) Facts.

(B) Analysis.

(ii) Example 2.

(A) Facts.

(B) Analysis.

(g) Definitions.

(1) Deferred net tax liability.

(2) REIT section 965 amounts.

(3) Section 965(h) election.

(4) Section 965(h) net tax liability.

(5) Section 965(i) election.

(6) Section 965(i) net tax liability.

(7) Section 965(m) election.

(8) Section 965(n) election.

(9) Specified individual.

(10) Total net tax liability under section 965.

(i) General rule.

(ii) Net income tax.

(iii) Foreign tax credits.

§1.965-8   Affiliated groups (including consolidated groups).

(a) Scope.

(b) Reduction of E&P net surplus shareholder's pro rata share of the section 965(a) earnings amount of a deferred foreign income corporation by the allocable share of the applicable share of the aggregate unused E&P deficit.

(1) In general.

(2) Consolidated group as part of an affiliated group.

(c) Designation of portion of excess aggregate foreign E&P deficit taken into account.

(1) In general.

(2) Consolidated group as part of an affiliated group.

(d) [Reserved]

(1) [Reserved]

(2) Consolidated groups.

(e) Treatment of a consolidated group as a single section 958(a) U.S. shareholder or a single person.

(1) In general.

(2) Limitation.

(3) Determination of section 965(c) deduction amount.

(f) Definitions.

(1) Aggregate unused E&P deficit.

(i) In general.

(ii) Reduction with respect to E&P net deficit shareholders that are not wholly owned by the affiliated group.

(2) Allocable share.

(3) Applicable share.

(4) Consolidated group aggregate foreign cash position.

(5) E&P net deficit shareholder.

(6) E&P net surplus shareholder.

(7) Excess aggregate foreign E&P deficit.

(8) Group cash ratio.

(9) Group ownership percentage.

(g) Examples.

(1) Example 1.

(i) Facts.

(A) In general.

(B) Facts relating to section 965.

(ii) Analysis.

(A) Section 965(a) inclusion amounts before application of section 965(b)(5).

(B) Application of section 965(b)(5).

(1) Determination of E&P net surplus shareholders and E&P net deficit shareholders.

(2) Determining section 965(a) inclusion amounts under section 965(b)(5).

(C) Aggregate foreign cash position.

(D) Section 965(c) deduction amount.

(2) Example 2.

(i) Facts.

(ii) Analysis.

(A) Section 965(a) inclusion amount.

(1) Single section 958(a) U.S. shareholder treatment.

(2) Determination of inclusion amount.

(B) Consolidated group aggregate foreign cash position.

(C) Section 965(a) deduction amount.

§1.965-9   Applicability dates.

(a) In general.

(b) Applicability dates for rules disregarding certain transactions.