Repatriating Untaxed Foreign Earnings Using Section 311(b) Distributions or Section 964(e) Stock Sales
Introduction: Pairing Section 311(b) Distributions or Section 964(e) Stock Sales with the Section 245A DRD
U.S. multinational corporations may be able to use section 311(b) distributions or section 964(e) stock sales with the section 245A dividends received deduction (“Section 245A DRD”) to repatriate untaxed foreign earnings, tax-free. As explained in detail in our prior post, the Tax Cuts and Jobs Act, Pub. L. 115-97 (2017) (the “TCJA”) enacted section 245A which provides that the foreign-source portion of dividends received by certain domestic corporations are eligible for a dividends received deduction provided that certain requirements are met. The TCJA transitioned the United States from a worldwide tax system to a quasi-territorial tax system.
As part of that transition, the United States enacted the GILTI regime as a backstop to the subpart F anti-deferral regime. Generally, under GILTI, a U.S. shareholder of a controlled foreign corporation (“CFC”) must include in its gross income the U.S. shareholder’s GILTI for a taxable year (generally, income that is not otherwise subject to U.S. tax on a current basis). Despite the subpart F and GILTI regimes, certain foreign income is excluded from GILTI and may remain untaxed, on a current basis, in the United States. These untaxed earnings represent an opportunity for taxpayers as they may be able to execute a section 311(b) distribution or a section 964(e) stock sale that repatriates untaxed foreign earnings using the Section 245A DRD.
The Tax Cuts and Jobs Act (“TCJA”) changed deductions, depreciation, expensing, tax credits and other tax items that affect businesses. This side-by-side comparison can help businesses understand the changes and plan accordingly.
Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Businesses and self-employed individuals should review tax reform changes for individuals and determine how these provisions work with their business situation.
Visit IRS.gov/taxreform regularly for tax reform updates. Businesses can find details and the latest resources on the provisions below at Tax Reform Provisions that Affect Businesses.
Deductions, Depreciation And Expensing
The Tax Cuts and Jobs Act changed some laws on depreciation and expensing. These changes can affect a business’s tax situation. Here are the highlights:
- Businesses can immediately expense more under the new law.
- Temporary 100 percent expensing for certain business assets (first year bonus depreciation).
- Changes to depreciation limitations on luxury automobiles and personal use property.
- The treatment of certain farm property changed.
- Applicable recovery period for real property.
- Use of alternative depreciation system for farming businesses.
Taxpayers can use a safe harbor method to figure depreciation deductions for passenger automobiles qualifying for the 100-percent additional first year depreciation deduction and subject to depreciation limitations. The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to depreciation limitations applicable to passenger automobiles.
Even though Estate Tax Planning is currently utilized by only high net worth individuals, historic trends have shown that the risk of a person’s estate being subject to the estate tax may be applicable to also those individuals with more modest estates. If the federal estate taxes are owed at a person’s death, the then dead individual (“decedent”) has considerably less money to pass to his or her heirs, given that nearly half of the taxable amount may be taxed. There are available avenues that may lessen the value of a person’s estate by the time of death and potentially escape the estate taxes altogether.
Estate taxes are determined by the Basic Exclusion Amount (“BEA”) that is in effect at the time of the person’s death. The way the IRS calculates estate taxes is it tallies up the total value of the estate, then determines whether any gifts were made in any particular year that may have exceeded the Annual Exclusion Amount (“AEA”) and arrives at the final figure of the amount of tax owed. Both the BEA and AEA are indexed with inflation.
One of the biggest benefits of the Tax Cuts and Jobs Act is the savings to customers of utility companies. According to research conducted by Americans for Tax Reform these are the rate savings for utilities this year. This is a great reminder we have savings to be thankful for this year.
Arizona Public Service (Phoenix, Arizona)
The utility requested a $119 million bill reduction for customers due to tax reform. APS has requested the Arizona Corporation Commission approve a $119 million bill reduction for customers, based on federal corporate tax cuts, effective February 1, 2018.
If approved, the $119 million decrease will offset the $95 million revenue increase that resulted from APS’s last rate review. The savings of $0.004258/kWh will be passed directly to customers through the Tax Expense Adjuster Mechanism (TEAM), a new adjuster mechanism that was included in the company’s rate review, and customer savings will vary with actual energy usage. APS customers would receive the credit on their monthly bill. – Jan. 9, 2018 Arizona Public Service press release.
Mr.LARSON of Connecticut. Second, Mr. Speaker, I include in the Record a letter out of a cross section of constituents who are directly and adversely impacted by this tax increase.
MIDDLE CLASS CUTS
Ms. Diane Hebenstreit–West Hartford, CT 06107
I am a lifetime resident of Connecticut, and I ask that you do not vote for the proposed Federal Tax plan. From what I see, it’s providing large tax breaks that benefit the rich and the corporations. The estate tax benefit we have now is more than generous, only the very wealthy will benefit from repealing the estate tax. The proposed caps on state and property tax deductions combined with the increased standard deduction, will cause myself as well as others to use the standard deduction instead of itemizing. This will eliminate the financial benefit of owning my home, and I am concerned it will negatively affect its value.
(Continued From Part 1)
What did we discover in the aftermath of that?
Almost 20,000 layoffs in the weeks after it. The money was used for stock buybacks and dividends with no employment gains across the country.They keep telling us: Well, you are going to get 3 percent, 4 percent, 5 percent, and the President says 6 percent growth. I want to find that economist who says we are going to get 6 percent growth. Most projections are that we are being asked here today to participate in the following, because this is the context of the argument this morning: They are borrowing $2.3 trillion over 10 years for the purpose of giving a tax cut to people at the very top of our economic system.
We should be investing in human capital, community colleges, vocational education, internship programs, and aligning the American people with the skill sets that are necessary, as the Department of Labor reported this week, for the 6 million jobs that are available. That is the most gainful way to do long-term investment. Mr. Speaker, I reserve the balance of my time.
Mr. BRADY of Texas. Mr. Speaker, I would note that a family of four in Massachusetts’ First District will see a tax cut of nearly $2,000 under this bill.
Mr. Speaker, I yield 3 minutes to the gentlewoman from Kansas (Ms. Jenkins), one of our key leaders on the Ways and Means Committee who is really all in on growth and savings for America.
During this post, we discuss how the new changes in the tax laws may have an overall positive effect on individual rates and deductions. However, a crucial component of the Tax Cuts and Jobs Act is that the rates and other provisions of the new tax code have a sunset provision, which means that on December 31, 2025, all of the rates are likely to be reinstated unless some legislation is introduced that will retain these rates or lower them even further.
The Tax Cuts and Jobs Act of 2017, otherwise known as GOP tax reform bill, largely went into effect on January 1, 2018. A crucial component of TCJA is that the rates and other provisions of the new tax code have a sunset provision. This means that on December 31, 2025, all of the rates are likely to be reinstated unless some legislation is introduced that will retain these rates or lower them even further.
The following are the list of major changes under the new tax code:
- Brackets Lowered (rates sunset on December 31, 2025)
- Personal Exemptions Repealed
- Standard Deduction Nearly Doubled
- State and Local Tax Deduction limited to $10,000
- 21% flat rate for C-corporations
- Qualified Business Income Deduction for Pass-Through Businesses
- Estate Tax Exemption More Than Doubled
The Tax Cuts and Jobs Act of 2017, more commonly referred to as tax reform, substantially altered the itemized deduction for home mortgage interest and affects just about everyone who has been deducting their home mortgage interest as an itemized deduction on their tax returns.
Background: To fully understand the impact of the law changes, we need to compare the prior tax law to the new tax reform. Under prior law, a taxpayer could deduct the interest he or she paid on up to $1 million of acquisition debt and $100,000 of equity debt secured by the taxpayer’s primary home and/or designated second home.
Qualified home acquisition debt is debt incurred to purchase, construct, or substantially improve a taxpayer’s primary home or second home and is secured by the home. The interest paid on up to $1 million of acquisition debt has been deductible as part of itemized deductions on Schedule A.
In the past, the business use of a vehicle was determined either by using the standard mileage rate for business or using actual expenses plus vehicle depreciation limited by the luxury auto caps. That continues to be the case, except the luxury auto depreciation limit has been substantially increased. In addition, there are other changes as detailed below.
Standard Mileage Rates – The standard mileage rates for the business use of a car (or a van, pickup, or panel truck) are:
STANDARD MILEAGE RATES FOR BUSINESS
53.5 Cents Per Mile
54.5 Cents Per Mile
However, the standard mileage rates cannot be used if you have used the actual expense method (using Sec. 179, bonus depreciation and/or MACRS depreciation) in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles simultaneously.
The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but with some caveats).
The assessment by the National Law Reviewprovides details on these signficant developments in choice of entity. In general it makes a helpful point: the entity choice will continue to involve a number of considerations, such as the makeup of the investor base, capitalization structure, borrowing requirements, likelihood of distributing earnings, state tax environment, compensation and benefit considerations, participation of owners in the business, presence of foreign operations, and sale or exit strategies.
The list of miscellaneous itemized deductions is an odd mixture of various deductions that didn’t fit anywhere else in the tax code. It includes items such as losses from Ponzi-type investment schemes, tax preparation fees, and certain safety deposit box fees. There does not seem to be much rhyme or reason to why these deductions were all lumped together.
Perhaps because these deductions are so obscure, the new Tax Cuts and Jobs Act (TCJA) has suspended miscellaneous itemized deductions for all tax years beginning before January 1, 2026. Taxpayers who previously took advantage of these deductions will now be out of luck.