SECTION 2. BASIS ELECTION

UNDER PROPOSED § 1.965–2(f)(2)

Proposed § 1.965–2(f)(2) allows a section 958(a) U.S. shareholder (as defined in proposed § 1.965–1(f)(33)) to elect to make certain basis adjustments with respect to each deferred foreign income corporation (as defined in proposed § 1.965–1(f)(17)) and each E&P deficit foreign corporation (as defined in proposed § 1.965–1(f)(22)) (such election, the “basis election”). Proposed § 1.965–2(f)(2)(iii)(B)( 1 )( i ) provides the general rule that the basis election must be made no later than the due date (taking into account extensions, if any) for the section 958(a) U.S. shareholder’s return for the first taxable year that includes the last day of the last taxable year of a deferred foreign income corporation or E&P deficit foreign corporation of the section 958(a) U.S. shareholder that begins before January 1, 2018. If the due date referred to in proposed § 1.965–2(f)(2)(iii)(B)( 1 )( i ) occurred before September 10, 2018, proposed § 1.965– 2(f)(2)(iii)(B)( 1 )( ii ) (the “transition rule”) provides that the basis election must be made by October 9, 2018.

The Treasury Department and the IRS have determined that requiring taxpayers to make a binding basis election before the proposed regulations are finalized would be too onerous for taxpayers. Accordingly, the Treasury Department and the IRS intend that when final regulations under section 965 are published in the Federal Register (the “final regulations”), the final regulations will provide that the transition rule will apply with respect to returns due (determined with regard to any extension) before the date that is 90 days after the date that the final regulations are published and that in such cases the basis election must be made no later than 90 days after the publication of the final regulations in the Federal Register. In addition, the final regulations will provide that if a basis election was made on or before the date the final regulations are published, the basis election may be revoked no later than 90 days after the publication of the final regulations in the Federal Register. Relevant tax returns must be filed consistently with an election that has been made and not revoked.