IRS Publishes Guidance on Application of Section 965
On March 14, 2018, the IRS published guidance on the application and reporting of Section 965 as it relates to the 2017 tax year. For clients with international accounts, and international tax attorneys and practitioners, the guidance has been much anticipated.
While the guidance is wide, the fact that all international tax practitioners will need to be aware of is the payment of the Section 965 tax. The guidance provided by the IRS requires that the Section 965 tax payment be broken out into a separate payment. In other words, it is not added to the regular tax liability of the taxpayer. The specific FAQ is found below:
Q10. How should a taxpayer pay the tax resulting from section 965 of the Code for a 2017 tax return?
A10. A taxpayer should make two separate payments as follows: one payment reflecting tax owed without regard to section 965 of the Code, and a second, separate payment reflecting tax owed resulting from section 965 of the Code (the 965 Payment). Both payments must be paid by the due date of the applicable return (without extensions).
The 965 Payment must be made either by wire transfer or by check or money order. This may be the first year’s installment of tax owed in connection with a 2017 tax return by a taxpayer making the election under section 965(h) of the Code, or the full net tax liability under section 965 of the Code for a taxpayer who does not make such election and does not make an election under section 965(i) of the Code. For the 965 Payment, there is no penalty for taxpayers electing to use wire transfers as an alternative to otherwise mandated EFTPS payments. Accordingly, taxpayers that would normally be required to pay through EFTPS should submit the 965 Payment via wire transfer or they may be subject to penalties. On a wire payment of tax owed under section 965 of the Code, the taxpayer would use a 5-digit tax type code of 09650 (for more information, see https://www.irs.gov/payments/same-day-wire-federal-tax-payments). On a check or money order payment of tax owed resulting from section 965 of the Code, include an appropriate payment voucher (such as Form 1040-V or 1041-V) and along with all other required information write on the front of your payment “2017 965 Tax.”
For the payment owed without regard to section 965, normal payment procedures apply (for more information, see https://www.irs.gov/payments). This payment may be made at the same or different time from the 965 Payment, but must be made by the due date of the return or penalties and interest may apply.
Further information on the IRS guidance can be found at: https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns
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Mehrdad is a partner at the law firm of Harlowe & Falk LLP. Based in the greater Seattle area, but with clients internationally, Mehrdad's practice includes international tax consulting. This includes consulting with clients on inbound transactions, outbound transactions, mergers & acquisitions, and IC-DISC....