VIEWpoints-Issue 1-2025 | Page 8

Key features of the Section 965 priority rules include:

01

SIMPLIFICATION OF PTEP TRACKING
It simplifies the tracking and administration of PTEP by prioritizing the distribution of earnings subject to the transition tax under Section 965. This helps in reducing the complexity associated with maintaining multiple PTEP accounts( unless, of course, an individual made an election under Section 962 at any point previously).

03

ADMINISTRATIVE EFFICIENCY
By prioritizing Section 965, the rule aims to eventually eliminate these specific PTEP groups, thereby reducing the overall number of PTEP groups required to be tracked. This is intended to ease the administrative burden on taxpayers and the IRS.

02
ORDER OF DISTRIBUTION
Under this rule, PTEP resulting from Section 965( a) inclusions is prioritized for distribution before other types of PTEP. This means when a distribution is made:
• It is first sourced from the Section 965( a)

04
IMPACT ON FOREIGN TAX CREDITS
The rule also affects the availability of foreign tax credits, as distributions from Section 965 PTEP may reduce the amount of foreign taxes that can be credited against the U. S. tax liability of a U. S. corporate taxpayer.
PTEP group( which is excluded from income),
• Followed by the Section 965( b) PTEP group
( which is also excluded from income),
• And then finally from other PTEP groups.
06 | VIEWPOINTS: ISSUE 1 2025