New IRS Guidance for Foreign Deemed Repatriation Transition Tax Relief Under Section 965

Avoiding Late Payment Penalties and Transition Tax Acceleration, Correcting Underpayments, and Making Late Elections

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, September 25, 2018

Recorded event now available

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Program Materials

This webinar will provide tax advisers with an updated, practical guide to correcting errors and underpayments on the deemed repatriation provisions of Section 965. The panel will focus on recent IRS guidance offering relief from estimated tax penalties for failure to accurately calculate tax on deemed repatriation after making a Section 965(h) election, discussing how to adjust for incorrect carry-forwards of 2017 overpayments, and offering specifics on how to respond to notices assessing additions to tax for an underpayment under Sections 6654 or 6655.

Description

The “deemed repatriation” provisions of the TCJA, requiring U.S. shareholders of “specified foreign corporations” to report and pay a one-time “transition tax” on previously untaxed foreign income, caused confusion among taxpayers engaged in foreign activities. The provisions required taxpayers to calculate and report the tax on their 2017 filings, which created an immediate compliance challenge for advisers serving clients with offshore holdings. The statute allowed taxpayers to elect under Section 965(h) to pay the transition tax interest-free over an eight-year period, with estimated payments to begin in 2018.

In June 2018 the IRS issued guidance offering impacted taxpayers temporary relief from late payment penalties arising from Section 965 transition tax failures. The guidance provides relief from three specific areas of noncompliance: where a taxpayer incorrectly applies carryforward of overpayment credits under Sections 6654 and 6655; where a taxpayer fails to make a correct first installment payment under a 965(h) election; or where a taxpayer fails to timely make the 965(h) election.

Consequences of failure to correct transition tax errors are steep. In addition to late payment penalties, taxpayers who fail to remedy any initial installment underpayment would be required to pay the entire foreign transition on an accelerated basis. Tax advisers must review impacted taxpayers’ filings to ensure the transition tax calculations, payment and election reporting were done correctly to avoid costly tax consequences.

Listen as our experienced panel provides a practical and timely guide to correcting Section 965 transition tax penalties.

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Outline

  1. Shareholders subject to new foreign provisions
    1. Definition of “specified foreign corporations”
    2. Identifying and calculating accumulated E&P subject to deemed repatriation transition tax
    3. Netting provisions
  2. Common errors
    1. Calculating tax
    2. Misapplication of overpayments carried forward
    3. Late or incorrect election under Section 965(h)
  3. IRS guidance issued in June 2018 FAQ additions and which taxpayers are eligible for relief
  4. Treatment of incorrectly applied overpayments
    1. Correcting underpaid installments before receiving notice from IRS
    2. Responding to notice of underpayment under Sections 6654 or 6655
    3. Requesting abatement
  5. Correcting 965(h) installment underpayments
  6. Making late 965(h) elections
  7. Fiscal year taxpayers with initial payments due in 2019

Benefits

The panel will discuss these and other essential topics from IRS guidance:

  • How will overpayments on transition tax installments be treated?
  • When are taxpayers eligible for temporary relief from underpayment penalties?
  • Correcting transition tax underpayments
  • Filing Amended Tax Return Form 1040-X to make 965(h) installment election correctly
  • How fiscal year taxpayers must handle initial deemed repatriation payments

Faculty

Phelan, Kimberlee
Kimberlee S. Phelan, CPA, MBA

Tax Partner
WithumSmith+Brown

Ms. Phelan has more than 15 years of tax and accounting experience at national and regional accounting firms. Her...  |  Read More

Santa, Mishkin
Mishkin Santa, JD LLM

International Tax Director
The Wolf Group

Mr. Santa focuses his practice on repatriation tax, as well as individual income tax compliance, estate, gift &...  |  Read More

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