Allocating PTEP in an I.R.C. Section 355 Transaction

Summary

This practice note provides a general overview of the relevant law and key considerations related to the allocation of previously taxed earnings and profits (PTEP), within the meaning of Internal Revenue Code (I.R.C. or the Code) § 959, in an internal spin-off of a foreign corporation under I.R.C. § 355. In particular, this practice note covers (1) the basics for understanding PTEP, (2) a high-level summary of certain requirements under I.R.C. § 355, (3) the rules for allocating earnings and profits (E&P) in a spin-off transaction, (4) three potential methods to consider when determining how to allocate PTEP in spin-off transactions, and (5) certain practical tax considerations to consider in selecting a method.