Section 965 Tax Installment Payments Are Not Guaranteed

The Section 965 transition tax. Taxpayers with international earnings are still grappling with their reporting and payment obligations under the “deemed repatriation” tax after its enactment by the Tax Cuts and Jobs Act of 2017. For a general primer on the Section 965 transition tax, see Freeman Law’s previous articles: The Section 965 Transition Tax and The Section 965 Transition Tax And IRS Audits. Section 965 provides that a taxpayer may make an election to pay its tax liability in installment payments. However, as a recent Chief Counsel Advice noted, a domestic corporation that fails to report its Section 965 tax liability is not entitled to prorate its deficiency under Section 965(h)(4) of the Internal Revenue Code.

Section 965 Tax and Installment Payments, Generally

Generally, Section 965 requires that U.S. shareholders pay a tax on their pro rata share of the untaxed foreign earnings of certain “specified foreign corporations.”[1] That is, a specified foreign corporation’s subpart F income is increased for its last tax year beginning before January 1, 2018.[2] The income is subject to an effective tax rate of 15.5 percent or 8 percent.

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