We now have the following material released by the IRS:
- Notice 2018-7, dated December 29, 2017
- Notice 2018-13, dated January 19, 2018
- Notice 2018-26, dated April 2, 2018
- Initial Q&A for Section 965, dated March 13, 2018
- New Q&A for Section 965, dated April 13, 2018
- Publication 5292, dated April 6, 2018
Section 965 was enacted by Section 14103 of the TCJA, signed on December 22, 2017. Section 965 requires U.S. shareholders, as defined in Section 951(b), to pay a repatriation tax on their pro rata share of the accumulated foreign earnings and profits. This is applicable to any controlled foreign corporation (CFC) or other foreign corporation, other than a passive foreign investment company (PFIC) that is not a CFC, that is owned at least owned 10% by a domestic C corporation.
Note that the repatriation dividend is applicable to the foreign corporation above whose tax year is the latest tax year beginning before January 1, 2018. Therefore, the foreign corporation above with a fiscal tax year ended July 31, 2017, will not be subject to the 2017 repatriation dividend until the fiscal year ending July 31, 2018.
Section 965 contains several elections that can be made by the U.S. C corporation, U.S. individual shareholder of a U.S. pass-through entity, or direct U.S. shareholder of a specified foreign corporation for payment of the repatriation tax. A few of the most common are:
- Section 965(h)(1) is an election to pay over eight years.
- Section 965(i)(1) is an election to defer payment until a triggering event.
- Section 965(n) is to not apply an NOL deduction to the repatriation dividend.
The elections above must be made by the due date of the tax return (including extensions) for filing the return for the relevant year. The election format is addressed in A7 of the Q&A.
What is not commonly understood is that the first installment of the repatriation tax must be paid by the due date (without extensions) for filing the return for the relevant year. The tax payment process for the repatriation tax is discussed in A10 of the Q&A.
The IRS has stated in A14 of the Q&A that expected refunds on tax returns will be adjusted because of the election above under Section 965(h). Thus, a taxpayer may not receive a refund or credit of any portion of 2017 tax payments unless and until the amount of payments exceeds the entire unpaid 2017 income tax liability, including all amounts to be paid in installments under Section 965(h) in subsequent years. The IRS will apply the excess 2017 tax payments to future tax installments to be paid pursuant to an election under Section 965(h).