The notice of proposed rulemaking providing rules under section 965 published in the Federal Register on August 9, 2018, provided, among other things, for a basis election to be made by United States shareholders in certain circumstances. The guidance impacts proposed regulations issued in August 2018.
 Under the guidance:

1. U.S. shareholders are allowed an extended time to make the basis adjustment election under the reduction rules of Code Sec. 965(b). This Notice 2018-78 announces that the due date for the basis election that would otherwise be required to be made before the final regulations are published will be extended to 90 days after the publication of the final regulations. Further, elections made in the interim will be revocable.
2. A more taxpayer favorable rule will be included in the final regulations for determining the aggregate foreign cash position of a U.S. shareholder that is a member of a consolidated group. The determination of the aggregate foreign cash position of a United States shareholder that is a member of a consolidated group, which were inconsistent with the more taxpayer-favorable rule announced in Notice 2018-07. and
3. U.S. shareholders affected by Hurricane Florence are provided an extended period to file election statements and transfer agreements. This Notice 2018-78 provides a postponement for taxpayers affected by Hurricane Florence to make elections, and file transfer agreements, related to section 965. 

The proposed regulations generally provide that a U.S. shareholder’s basis in its stock or property of the deferred foreign corporation (DFIC) is increased by the amount of the U.S. shareholder’s Code Sec. 965(a) inclusion amount with respect to the DFIC. The amount that would otherwise be included under subpart F may be reduced under Code Sec. 965(b) if the taxpayer is a U.S. shareholder with respect to at least one DFIC and one E&P deficit foreign corporation. In general, no adjustments to the basis of stock or property are made to take into account the reduction of the Code Sec. 965(a) earnings amount under the reduction rules. A taxpayer may, however, elect to make relevant basis adjustments as a result of the reduction rules in certain circumstances.

 

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Sources:

 

Notice 2018-78 

 

CCH