Publish Date

Mar 19, 2018

IRS Releases New FAQs Detailing Reporting Requirements for Transition Tax

A&M Tax Minute

Just a few days in the wake of the March 15 “pass-through” deadline and less than a month out from the April 17 corporate and individual deadline, we’ve found ourselves with a brief moment to come up for air and digest the most recent guidance provided by the IRS on certain mechanics related to the new Section 965 “transition tax.” The IRS has attempted to clear up the procedures for reporting and paying the tax for the 2017 tax year. As many of our clients in the tech industry have spent countless resources on computing the liability, the IRS has now provided reasonable direction on how to go about actually reporting and paying the amount due in a manner that will allow the IRS to associate the payment with the transition tax.

As a quick refresher, every U.S. shareholder of a “specified foreign corporation” (SFC) is required to compute and pay a “transition tax” or “toll charge” on the unrepatriated earnings of the SFC as of the close of the SFC’s last tax year beginning before January 1, 2018 (regardless of whether the earnings are repatriated back to the U.S.). The term SFC includes controlled foreign corporations (CFCs) as well as non-CFCs that have at least one shareholder that is a domestic corporation owning 10 percent or more of the foreign corporation. The tax is due with the tax return of the U.S. shareholder for its tax year within which the SFC’s tax year ends. However, an election may be made to pay the tax over an 8-year period under a prescribed installment schedule. Notwithstanding, at least some of the tax (8 percent under the installment plan) will be due by April 17 for calendar year taxpayers that own calendar year SFCs.

This most recent IRS guidance came in the form of Frequently Asked Questions (FAQs) and provides these key takeaways: