In early June, the Internal Revenue Service (IRS) took a step toward helping those with late payments associated with the new section 965 transition tax.
Language in the Tax Cuts and Job Acts enacted in December, 2017, established the requirement for shareholders to pay a “transition” tax on the repatriated, previously untaxed, earnings of identified foreign corporations. Now known as the “section 965 transition tax,” the IRS is offering some relief for those with certain circumstances who missed the April 18, 2018 payment deadline.
Understanding section 965 transition taxes
Section 965 transition taxes are a responsibility of a “US shareholder of a deferred foreign income corporation” and those who are a “direct or indirect partner in a domestic partnership, shareholder in an S corporation, or beneficiary of another passthrough entity that is a US shareholder of a deferred foreign income corporation.”
In accordance with the new tax, filers must submit a completed IRC 965 Transition Tax Statement, which collects information that includes:
- Taxpayer name and identifying information
- Foreign cash position
- Total applicable deduction
- Total paid foreign taxes related to the amount to be paid under section 965
- Total net liability under the section
- Total net liability under the section that is being deferred for payment in installments
- Provide a list of elections under the section that the filer has made
The elections available and payments required under section 965 are aligned with the usual April tax date. In its new guidance, the IRS is making some exceptions for those who have filed late or improperly this year. Exceptions include:
- Depending on the circumstance, the IRS may waive the estimated tax penalty for filers who tried to apply an overpayment for 2018 based on 2017 calculations. In these cases, the IRS pushed back the deadline to June 15, 2018.
- Payment of the section 965 transition tax can be deferred into eight annual installment payments. For those who missed the April, 2018 filing date with a total transition liability less than $1 million, the IRS is waiving the late-payment penalty as long as the amount owing is paid in full by April 15, 2019. Without waiver of the initial deadline, anyone owing the section 965 transition tax would have been required to immediately pay the sum in full if the initial filing date was missed. If you live or work outside of the US, check with the IRS for later deadlines that may apply to you.
- For those who have already filed their return and payment, you can amend your tax return to pay in eight annual installments if your amended Form 1040 is filed by October 15, 2018.
Offshore tax issues and payments can be complicated—and expensive if you become the target of an IRS audit. If you have questions about section 965 transition tax payments, FBAR, or FATCA reporting, speak with a knowledgeable tax lawyer.
Skilled tax defense if you face an IRS criminal tax investigation or civil tax audit
The tax attorneys at Robert J. Fedor, Esq., LLC deliver experienced legal representation if you are involved in a tax controversy or questioned about your foreign holdings. With offices in Chicago and Cleveland, we serve local and international clients. Call 800-579-0997 or contact us today.