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IRS Gives Taxpayers Subject to Transition Tax on Foreign Earnings Penalty and Filing Relief

By MarksNelson on June 21, 2018 in Articles, International Tax
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In conjunction with the Tax Cuts and Jobs Act enacted in 2017, the IRS announced it will waive certain late-payment penalties that relate to tax on foreign earnings. Additionally, the IRS provided important clarifications regarding filing due dates.

Background

Enacted as part of last year’s tax overhaul, Section 965 of the tax code imposes a transition tax on the untaxed foreign earnings of foreign corporations owned by U.S. shareholders by deeming these earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at 15.5 percent; remaining earnings are taxed at an 8 percent rate. The tax is to be made in installments over an eight-year period when the taxpayer files a timely election under section 965.

Changes

In its June 4, 2018, announcement, the IRS announced the following changes:

  • For individual taxpayers who missed the April 18, 2018 deadline for their first installment payment and have a transition tax liability under $1 million, the IRS will waive the late-payment penalty as long as the installment is paid in full by April 15, 2019. Without this relief the taxpayer’s remaining installments would have become due immediately.

 

  • In certain instances, the IRS will waive the estimated tax penalty for taxpayers who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, as long as they make all required estimated tax payments by June 15, 2018.

 

  • Individuals who filed a 2017 return without electing to pay the transition tax in eight annual installments can still make the election by filing a 2017 Form 1040X with the IRS. The amended Form 1040 must be filed by Oct. 15, 2018.

 

Questions about the deemed repatriation of foreign earnings and profits, or other international tax issues? Contact your MarksNelson professional at 816-743-7700.

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MarksNelson LLC works with clients to help safeguard and grow their businesses. Our ultimate goal is to help our clients to Move Forward. The firm provides Assurance, Accounting Services and Business Advisory, Business Valuation, Consulting, Cost Segregation, Employee Benefit Plan Audits, Litigation Support, Forensic Accounting, International Tax, State and Local Tax and Tax planning, advisory and compliance services. MarksNelson is a member of The Leading Edge Alliance, the second-largest international professional association of independently owned accounting and consulting firms, serving clients who need additional resources on a national or international level. MarksNelson has significant accounting and business advisory experience in the auto dealership, construction, insurance, manufacturing, distribution and real estate sectors. The firm was named among the 2014 Best Accounting Firms for Leadership Equity by the 2014 Accounting MOVE Project for its dedication to gender equity.