All you need to know about the new U.S. Repatriation Tax

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The IRS recently published a news release in Q&A format on the Section 965 Repatriation Tax which was introduced as part of the new federal tax reform.

In short, this is a tax on shareholders of specified foreign corporations on their share of non-previously taxed post-1986 accumulated earnings and profits. This applies to the 2017 tax return for shareholders of calendar year foreign corporations. This news release clarifies exactly how to present this income on the 2017 tax return.

The IRS has also provided sample election statements and an IRC 965 Transition Tax Statement which need to be submitted along with the tax return. Please see our previous blog post for more information and to determine if this may apply to you.

We want to highlight a few important clarifications:

  • Taxpayers who owe repatriation tax cannot electronically file their tax return before April 2, 2018. If you have already filed your 2017 return, you must amend your tax return to correctly report the income by filing Form 1040X and reporting the income in accordance with the IRS’s instructions.
  • Payments of this tax must be made separately from regular tax due, and can only be made by wire transfer, check or money order.
    • Payment by check/money order: must be submitted with a 1040-V with memo “2017 965 Tax” written on the check in addition to your name and SSN.
    • Payment by wire transfer: See here. Use tax type code 09650.
  • The repatriation income and other items relevant to the calculation must be presented on the IRC 965 Transition Tax Statement, which needs to be submitted with the tax return. This statement does not show how to calculate the income, deduction or the allowable foreign tax credit, therefore tax preparers are responsible for keeping adequate records of their calculations
  • The IRS has provided guidance on what information needs to be presented on an election statement. They have also included sample statements which can be modified and submitted with the tax return.
    • The election most relevant to us is the election to pay the tax due over eight yearly installments. Please note that if you make this election but your corporation closes before the eight years are up, the remaining balance is due immediately upon the closing of your company.
  • Elections can be made until due date of return, including extensions (which can be as late as December 17, 2018 for taxpayers overseas). However, if you are electing to pay in eight installments, the payment of first installment is due on April 17, 2018. For U.S. citizens outside the United States, the deadline has been extended to June 15th, 2018.

Bottom line: The reporting and calculations for this new tax are complex. If this may apply to you, we advise speaking to one of our associates to determine your potential exposure.

This post was written together with Melanie Chesir, CPA and team leader of the Individual Department at Philip Stein & Associates.

https://www.pstein.com/

About the Author
Philip is president and founder of Philip Stein & Associates, the largest US accounting firm in Israel, specializing in US taxation of US tax residents living in Israel, and of Israeli individuals and companies doing business in the United States. Offices are in Jerusalem, Ramat Gan and Beit Shemesh. Philip grew up on the South Side of Chicago, and graduated from the University of Illinois, followed by an MBA from the University of Michigan. Philip started his career in the tax department of what today is Ernst & Young. He has lectured at Roosevelt University, Loyal University and Northeastern University, and continued to lecture on international tax issues in Asia, Africa, Europe and North American. He is also a frequent speaker for Nefesh B’Nefesh and has advised the Israeli Treasury, Bituach Leumi and the Knesset on various tax issues affecting US citizens living in Israel. Philip’s love of radio led him to start his podcasts which have attracted tens of thousands of listeners. He continues to be an avid Chicago sports fan as well as a lover of mountain hiking, TRX, and snowshoeing (he likes to keep his feet on the ground!).
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