PROPOSED REGULATIONS REDUCING THE AMOUNT DETERMINED UNDER SECTION 956 WITH RESPECT TO CERTAIN DOMESTIC CORPORATIONS ISSUED
On October 31, the Department of the Treasury and the Internal Revenue Service (collectively, Treasury) issued proposed regulations under Section 956, Investment of earnings in United States property, (the Proposed Regulations). The Proposed Regulations reduce the amount determined under Section 956 with respect to certain domestic corporations that own (or are treated as owning) stock in foreign corporations.
The Proposed Regulations exclude corporate U.S. shareholders from the application of Section 956 to the extent necessary to maintain symmetry between the taxation of actual repatriations and the taxation of effective repatriations under Section 956 . More specifically, the Proposed Regulations provide that the amount otherwise determined under Section 956 with respect to a U.S. shareholder for a taxable year of a controlled foreign corporation (CFC) is reduced to the extent that the U.S. shareholder would be allowed a deduction under Section 245A if the U.S. shareholder had received a distribution from the CFC in an amount equal to the amount otherwise determined under Section 956.
The Proposed Regulations provide special rules with respect to indirect ownership. Due to the broad applicability of Section 245A, in many cases a corporate U.S. shareholder will not have a Section 956 inclusion as a result of a CFC holding U.S. property under the Proposed Regulations.
Section 956 will continue to apply without modification to U.S. shareholders other than corporate U.S. shareholders, such as individuals. This treatment will apply to individuals regardless of whether they make an election under Section 962 . Similarly, Section 956 will continue to apply without reduction to regulated investment companies and real estate investment trusts because they are not allowed the dividends received deduction under Section 245A .
These changes are proposed to apply to taxable years of a CFC beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register (the finalization date), and to taxable years of a U.S. shareholder in which or with which such taxable years of the CFC end. With respect to taxable years of a CFC beginning before the finalization date, a taxpayer may rely on the Proposed Regulations for taxable years of a CFC beginning after December 31, 2017, and for taxable years of a U.S. shareholder in which or with which such taxable years of the CFC end, provided that the taxpayer and United States persons that are related (within the meaning of Section 267 or 707) to the taxpayer consistently apply the Proposed Regulations with respect to all CFCs in which they are U.S. shareholders.
The Proposed Regulations are designed to achieve somewhat similar results to certain proposals included in both the House Bill and the Senate Amendment to the 2017 tax reform bill, although those proposals ultimately were not included in the Conference Agreement.
 Even though a Section 956 inclusion is not a dividend, the Preamble to the Proposed Regulations cites the legislative history to Section 956 and states that the purpose of Section 956 is generally to create symmetry between the taxation of actual repatriations and the taxation of effective repatriations, by subjecting effective repatriations to tax in the same manner as actual repatriations.
 Section 962 permits a U.S. individual shareholder to elect to be taxed on income included under Section 951(a) as though he or she was a domestic corporation.
 See Sections 852(b)(2)(C) and 857(b)(2)(A).
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