If we thought that the Section 965 Transition Tax (aka deemed repatriation or mandatory repatriation) was a one-time event that we dealt with in 2017 and no longer have to think about, we were wrong. While the Transition Tax was indeed a one-time deemed repatriation of all previously untaxed earnings in deferred foreign corporations, the filing legacy that Section 965 left lives on.
There are new forms that must be completed and attached to a 2018 tax return for any taxpayer that was subject to Section 965 on their 2017 or 2018 tax return. The taxpayer must complete and attach Form 965, Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System even if the taxpayer did not have an actual income inclusion under Section 965 but was merely a shareholder in a foreign corporation that was subject to this provision.
In addition, taxpayers with outstanding tax liabilities related to Section 965, from an election to defer paying the tax or to pay the tax in annual installment payments, must file Form 965-A, Individual Report of Net 965 Tax Liability, or Form 965-B, Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts.
Let’s not forget the Installment Payments!
Where a Section 965(h) election was made on the taxpayer’s 2017 tax return to defer the payment of the Section 965 tax liability over eight years, the second installment is due on the original due date of the taxpayer’s 2018 tax return without regard to any extensions. The IRS has stated that the taxpayer will receive an installment notice and payment voucher for the installment payment due about six to eight weeks before the payment is due. Note, the second installment payment should be made separate from any income tax payments for 2018.
For questions on Section 965, please contact a member of Withum’s International Services Group by filling out the form below.
Author: Calvin Yung, JD, LLM | firstname.lastname@example.org