§ 959 Exclusion from gross income of previously taxed earnings and profits
(a) Exclusion from gross income of United States persons
For purposes of this chapter, the earnings and profits of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section shall not, when—
(1) such amounts are distributed to, or
(2) such amounts would, but for this subsection, be included under section in the gross income of,
such shareholder (or any other United States person who acquires from any person any portion of the interest of such United States shareholder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Secretary may by regulations prescribe) directly or indirectly through a chain of ownership described under section , be again included in the gross income of such United States shareholder (or of such other United States person). The rules of subsection (c) shall apply for purposes of paragraph (1) of this subsection and the rules of subsection (f) shall apply for purposes of paragraph (2) of this subsection.
(b) Exclusion from gross income of certain foreign subsidiaries
For purposes of section , the earnings and profits of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section , shall not, when distributed through a chain of ownership described under section , be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder in the controlled foreign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).
(c) Allocation of distributions
For purposes of subsections (a) and (b), section shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof—
(1) first to the aggregate of—
(A) earnings and profits attributable to amounts included in gross income under section (or which would have been included except for subsection (a)(2) of this section), and
(B) earnings and profits attributable to amounts included in gross income under section (or which would have been included except for subsection (a)(3) of this section),
with any distribution being allocated between earnings and profits described in subparagraph (A) and earnings and profits described in subparagraph (B) proportionately on the basis of the respective amounts of such earnings and profits,
(2) then to earnings and profits attributable to amounts included in gross income under section (but reduced by amounts not included under subparagraph (B) or (C) of section because of the exclusions in paragraphs (2) and (3) of subsection (a) of this section), and
(3) then to other earnings and profits.
References in this subsection to section and subsection (a)(3) shall be treated as references to such provisions as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.
(d) Distributions excluded from gross income not to be treated as dividends
Any distribution excluded from gross income under subsection (a) shall be treated, for purposes of this chapter, as a distribution which is not a dividend; except that such distributions shall immediately reduce earnings and profits.
(e) Coordination with amounts previously taxed under section 1248
For purposes of this section and section , any amount included in the gross income of any person as a dividend by reason of subsection (a) or (f) of section shall be treated as an amount included in the gross income of such person (or, in any case to which section applies, of the domestic corporation referred to in section ) under section .
(f) Allocation rules for certain inclusions
(1) In general
For purposes of this section, amounts that would be included under subparagraph (B) of section (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3).
(2) Treatment of distributions
In applying this section, actual distributions shall be taken into account before amounts that would be included under section (determined without regard to this section).
(Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1019; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, § 133(b)(1), July 18, 1984, 98 Stat. 668; Pub. L. 99–514, title XII, § 1226(b), Oct. 22, 1986, 100 Stat. 2560; Pub. L. 100–647, title I, § 1012(bb)(7)(A), Nov. 10, 1988, 102 Stat. 3536; Pub. L. 103–66, title XIII, § 13231(c)(1), (2), (4)(A), (B), Aug. 10, 1993, 107 Stat. 497, 498; Pub. L. 104–188, title I, § 1501(b)(4)–(8), Aug. 20, 1996, 110 Stat. 1826; Pub. L. 115–97, title I, § 14301(c)(32), (33), Dec. 22, 2017, 131 Stat. 2224.)
Operative text only. Editorial notes, amendment history, and effective dates: official OLRC text of § 959