The AICPA offered comments to the U.S. Treasury Department and IRS in a letter dated May 14 regarding REG-105479-18. The agencies released these proposed regulations on Nov. 29, 2024.

The proposed regulations contain rules that address the treatment of previously taxed earnings and profits or PTEP under section 959 and basis adjustments under section 961. They also offer new guidance for amendments in the Tax Cuts and Jobs Act. The proposed regulations generally apply to taxable years of foreign corporations starting on or after the date the proposed regulations are finalized. However, the proposed regulations permit an “early application” option letting taxpayers apply the regulations in full to pre-effective tax years of foreign corporations, provided those years (and all subsequent ones) remain open and all covered shareholders consistently elect and consent.

Although the proposed regulations generally apply to taxable years beginning on or after the regulations are finalized, certain provisions that reflect guidance originally described in Notice 2019-01 (2019 Notice) would apply retroactively to tax years of U.S. shareholders ending after Dec. 14, 2018, and to tax years of foreign corporations ending with or within those years. These retroactive provisions include Proposed Reg. §§ 1.959-1 through 1.959-7 and 1.959-10 and 1.959-11.

The problem is Proposed Reg. § 1.961-14 does not include a similar statement  that would allow early application of the proposed section 961 regulations, nor does it address reliance on portions of those regulations that incorporate rules from the 2019 Notice.

In the letter, the AICPA said that the interpretation and application of certain provisions that were addressed in the proposed regulations, including the rules implementing section 961(c), have been the subject of ongoing debate.

"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," the AICPA said. Because of this, similarly situated taxpayers might take contrary views with regards to the proposed regulations or misinterpret the statute.

Additionally, the proposed regulations also include certain aspects that arguably are not available to taxpayers without express reliance on the proposed regulations. This is why, AICPA said, without express reliance language, taxpayers might not be able to access certain portions of the proposed regulations. The lack of of an express statement permitting taxpayers to early adopt the proposed regulations might also result in increased administrative burdens and costs resulting from retroactive application of the proposed regulations on amended returns after they are finalized.

In its letter, the AICPA suggested that the Treasury and the IRS expressly allow taxpayers to rely on the proposed regulations in their entirety until they are finalized. Alternatively, they also recommend that the agencies make more clear their intent that taxpayers could rely on parts of the proposed regulations regarding the 2019 Notice or continue to rely of the 2019 Notice itself by releasing either a Notice or a technical correction to the Notice of Proposed Rulemaking preamble language.