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IRS Launches Campaign Targeting Section 965 Mandatory Repatriation Compliance

The IRS recently announced a campaign to target mandatory repatriation compliance, focusing on individual taxpayers’ 2017 and 2018 tax year filings. The IRS expressed that they believe there is a high likelihood of noncompliance among individual taxpayers regarding Section 965 due to the complexity of the new law.

Section 965, enacted under the Tax Cuts and Jobs Act in 2017, generally required United States shareholders of certain foreign corporations to pay a transition tax on the untaxed earnings as though those earnings were repatriated to the United States in last tax year of the foreign corporation that began before January 1, 2018.  Foreign earnings held in cash and cash equivalents were subject to current tax at a 15.5% rate, and the remaining non-cash amounts were taxed at an 8% rate.

As a part of this campaign, the IRS will be selecting returns to audit and will also send letters to taxpayers to suggest reviewing their Section 965 computations on their previously filed returns and to consider amending their returns. It is likely that the IRS will examine taxpayer’s E&P computations, the cash vs. non-cash amounts, as well as other elements of the Section 965 computation.

For more information or questions, please contact a member of the International Tax Team.

Individuals who are shareholders of foreign corporations who have previously considered Section 965 implications on their returns and may not have documentation and support for their Section 965 computations or think there may be issues with their computations should revisit these items and amend their returns, if necessary. In addition, individual taxpayers who may have inadvertently missed Section 965 reporting requirements should examine their holdings in foreign corporations to determine if an amended return should be filed.

Please reference this piece for more information on your repatriation.

Author: Calvin Yung, JD, LLM  |  cyung@withum.com

International Services Tax

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