The IRS has withdrawn 2006 proposed regulations that provided guidance on the exclusion from gross income of previously taxed earnings and profits and related basis adjustments. (Preamble to Prop Reg REG-121509-00)
According to the IRS, the withdrawal of the proposed regs is to prevent taxpayers from misusing them, such as by making inappropriate basis adjustments in certain stock acquisitions. The 2006 proposals were never finalized, never went into effect, and were not reliance regs.
In addition, the IRS cautions that it may challenge taxpayer positions, whether or not based on the 2006 proposed regs, that “give rise to inappropriate results.”
The IRS previously announced its intention to withdraw the 2006 proposed regs in Notice 2019-1, 2019-2 IRB 275, due to changes made to the Code by the Tax Cuts and Jobs Act (PL 115-97). The proposed regulations will be withdrawn on October 21, 2022.
For more information about the exclusion of previously taxed earnings and profits from a U.S. person’s gross income, see Checkpoint’s Federal Tax Update ¶O-2436 et seq.
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