IRS posts Q&A on Section 965 transition tax

The Internal Revenue Service offered additional information in the form of questions and answers to help multinational companies meet their filing and payment requirements for the Section 965 transition tax on untaxed foreign earnings under the Tax Cuts and Jobs Act.

The TCJA requires companies that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits have been repatriated to the‎ U.S.. The new tax law details the income that must be recognized and provides a related deduction that generally lowers the effective tax rate to between 8 and 15.5 percent to encourage multinationals to repatriate the trillions of dollars held abroad. So far, the 2017 tax overhaul has had a limited impact on companies repatriating their foreign profits, however. Last year, companies repatriated $776.51 billion, according to revised estimates released last month by the Commerce Department, and in the first quarter of this year, they repatriated approximately $100.25 billion. Certain taxpayers can elect to pay the transition tax over eight years, the IRS noted.

The Q&As relate to Section 965 of the Tax Code and addresses general issues not specific to the filing of a 2017 or 2018 tax return. They include how to make subsequent installment payments when the transition tax is paid over eight years. The FAQs also deal with the filing of transfer agreements and consent agreements. More information about Section 965 can be found here on IRS.gov.

The Treasury Department and the IRS released final regulations on Section 965 in February and last month they released final regulations on the related GILTI (global intangible low-taxed income) provisions of the TCJA, which include revisions to the Section 965 final regulations.

Timothy Fadek/Bloomberg