SECTION 6. EXAMPLES

It is anticipated that the forthcoming regulations described in this notice will provide rules consistent with the following examples. Comments are requested as to the results described in these examples and what general standards or principles should be applied with respect to the application of the Proposed Regulations.

Example 1 – Filing Form 1065 applying pro- posed §1.951A-5 - (i) Facts . USP, a domestic corporation, and Individual A, a United States citizen unrelated to USP, own 95% and 5%, respectively, of the interests in PRS, a domestic partnership. PRS owns 100% of the single class of stock of FC1, a controlled foreign corporation with no earnings and profits prior to 2018. USP also owns 100% of the

single class of stock of FC2, a controlled foreign corporation. USP, Individual A, PRS, FC1, and FC2 use the calendar year as their taxable year. For the 2018 taxable year, FC1 had $100x of tested income and no other items. For the 2018 taxable year, FC2 had a tested loss of $45x. Based on proposed §1.951A-5, PRS provided Schedules K-1 for the 2018 taxable year to USP and Individual A on March 15, 2019, that indicated a pro rata share of tested income of $95x to USP and a distributive share of a GILTI inclusion amount of $5x to Individual A. These Schedules K-1 were based on a determination of tested income of FC1 and a GILTI inclusion amount of $100x to PRS under proposed §1.951A-5. Under either proposed §1.951A-5 or the Final Regulations, USP’s GILTI inclusion amount for the 2018 taxable year was $50x ($95x, USP’s pro rata share of FC1’s tested income, less $45x, USP’s pro rata share of FC2’s tested loss), all of which is with respect to FC1 under section 951A(f)(1) and §1.951A-5(b). Based on the Schedule K-1 that Individual A received from PRS, Individual A included its distributive share of PRS’s GILTI inclusion amount, or $5x, in income for the 2018 taxable year. PRS intends to file Form 1065 for the 2018 taxable year on September 16, 2019, and would like to apply the rules in proposed §1.951A-5 under this notice. In 2019, FC1 earns no income and distributes $100x out of earnings and profits to PRS.

(ii) Analysis - (A) Notification . In order to rely on proposed §1.951A-5 to file Form 1065 for the 2018 taxable year, as described in Section 5.01 of this notice, PRS must provide notification to USP and Individual A that (1) the Schedules K-1 they received for the 2018 taxable year were consistent with proposed §1.951A-5; (2) PRS is filing its Form 1065 for the 2018 taxable year under proposed §1.951A-5; and (3) the notification is being provided as required under this notice. Additionally, because PRS is filing after the issuance of this notice, PRS must attach a similar notification statement to its Form 1065 for the 2018 taxable year as described in Section 5.01 of this notice.

(B) Schedule K-1 distribution reporting . For the 2019 taxable year, the year of the distribution of earnings and profits of FC1 that relate to PRS’s GILTI inclusion amount, under section 5.02 of this notice, PRS must separately state on the Schedules K-1 furnished to USP and Individual A their distributive shares of such distribution from FC1. Thus, with respect to USP’s Schedule K-1, $95x of the $100x distribution from FC1 is a separately stated item, and with respect to Individual A’s Schedule K-1, $5x of the $100x distribution from FC1 is a separately stated item. USP included $50x in income under section 951A for the 2018 taxable year with respect to FC1; thus, only $45x ($95x - $50x) of the $95x of separately stated income is included in USP’s income (before the application of section 245A) for the 2019 taxable year. Individual A included $5x in income as a distributive share of PRS’s GILTI inclusion amount with respect to FC1; thus, none of the $5x of separately stated income is included in Individual A’s income for the 2019 taxable year.

Example 2 – Filing Form 1065 under Final Reg- ulations with Schedule K-1s issued under proposed §1.951A-5 - (i) Facts . The facts in this Example 2

are the same as in Example 1, except that PRS files Form 1065 on September 16, 2019, under the Final Regulations.

(ii) Analysis - (A) Notification . In order to file Form 1065 for the 2018 taxable year under the Final Regulations but not be subject to potential penalties with respect to the Schedules K-1 for the 2018 taxable year, PRS must provide notification to USP and Individual A as described in section 5.01 of this notice that (1) the Schedules K-1 they received for the 2018 taxable year were consistent with proposed §1.951A-5; (2) PRS is filing its Form 1065 for the 2018 taxable year under the Final Regulations; and (3) the notification is being provided as required under this notice. Additionally, because PRS is filing after the issuance of this notice, PRS must attach a similar notification statement to its Form 1065 for the 2018 taxable year as described in section 5.01 of this notice.

(B) Schedule K-1 distribution reporting . For the 2019 taxable year, the year of the distribution of earnings and profits of FC1 that relate to the 2018 taxable year Schedules K-1 issued by PRS that reflected a GILTI inclusion amount of PRS, PRS must separately state on the Schedules K-1 furnished to USP and Individual A their distributive shares of such distribution from FC1 under section 5.02 of this notice. Thus, with respect to USP’s Schedule K-1, $95x of the $100x distribution from FC1 is a separately stated item, and with respect to Individual A’s Schedule K-1, $5x of the $100x distribution from FC1 is a separately stated item. USP included $50x in income under section 951A for the 2018 taxable year with respect to FC1; thus, only $45x ($95x - $50x) of the $95x of separately stated income is included in USP’s income (before the application of section 245A) for the 2019 taxable year. Individual A included $5x in income based on the Schedule K-1 for the 2018 taxable year as a distributive share of PRS’s GILTI inclusion amount with respect to FC1; thus, none of the $5x of separately stated income is included in Individual A’s income for the 2019 taxable year.