Publish Date

Mar 29, 2018

Toll Charge Pitfall: Why Your Calculation and Compliance May Need a Second Set of Eyes

A&M Tax Advisor Weekly

As April 17 quickly approaches, the stakes are higher than ever as many companies face head-on the new transition tax on unrepatriated foreign earnings, or, as we have affectionately come to know it as, the toll charge. The IRS recently affirmed in IR-2018-53 issued on March 13, 2018, that companies electing to pay the toll charge in installments must pay the first installment, equal to 8 percent of the total toll charge liability, by their federal return due date without extensions. For calendar year companies, this means that a payment must be made by April 17.

Many companies and individuals have likely already calculated their toll charge liability. However, given the scale of the liability coupled with the significant risk if there are any errors, it can’t hurt to have a second set of eyes on the calculation and compliance.

Recent IRS Guidance Provides New Mandatory Compliance

In its recent Q&A guidance, the IRS has provided both a new statement, IRC 965 Transition Tax Statement, which must be attached to the return of taxpayers subject to the toll charge, and new instructions on how to report the toll charge based on the taxpayer’s classification (i.e., domestic corporation, partnership, individual, etc.). For example, domestic corporations will exclude the full toll charge inclusion and applicable deduction from Form 1120, and instead, report such income and deduction on lines 1 and 3 of the new statement. The net inclusion amount, however, is to be reported on Schedule J of Form 1120. Taxpayers may find these new reporting protocols under Appendix Q&A2 of the guidance. Taxpayers should take notice of the Q&A’s key points and report in conformity with this guidance.

Incorrect Calculations or Late Payments Could Result in Forfeiture of Installment Right

For entities and persons expecting a toll charge, the election to pay the charge over an eight-year period makes the current year cash outlay less burdensome up front. However, making such an election puts even more pressure on the accuracy of the calculations. If a taxpayer’s calculations are understated or if a taxpayer is late in paying an installment of the toll charge, the ability to continue paying in installments may be voided, and all remaining liability may be due immediately. As the calculations are not straightforward and the stakes are so high, most companies will find that a toll charge review is in order.

Many U.S. Shareholders Will Be Surprised to Learn They Could be Subject to the Toll Charge

The new rules include a broader group of taxpayers subject to the toll charge…