Reduction in basis
(a) Reduction in basis(1) In general. Except as provided in subparagraph (2) of this paragraph, the adjusted basis of a United States person's (i) Stock in a foreign corporation; (ii) Interest in a foreign partnership; or (iii) Beneficial interest in a foreign estate or trust (as defined in section 7701(a)(31)), (2) Limitation on amount of reduction in case of election under section 962. In the case of a distribution of earnings and profits attributable to amounts with respect to which an election under section 962 has been made, the amount of the reduction in basis provided by subparagraph (1) of this paragraph shall not exceed the sum of (i) The amount of such distribution which is excluded from gross income under section 959(a) after the application of section 962(d) and 1.962-3; and (ii) Any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).