Expertise Beyond the Numbers

IRS Allows Retroactive Relief for the Tax on Foreign Earnings

When Congress passed the Tax Cuts and Jobs Act in December 2017, the law contained a new complicated transition tax which made foreign earnings subject to U.S. tax. Code Section 965 is effective for the 2017 tax year when the tax returns are due in April 2018. This didn’t give taxpayers much time to gather facts, compute the tax, or to make important decisions on elections that are allowed by this Code Section.

One of the elections related to when this tax is paid –  Section 965(h) allows taxpayers to elect to pay the transition tax in installments over an eight-year period beginning with the 2017 tax year. For those taxpayers that have filed 2017 returns and failed to make the election to take this installment payment method, the IRS has issued guidance to allow for retrospective relief. In a publication of Questions and Answers, the IRS shared they will allow taxpayers to file an amended return before October 15, 2018 to retrospectively elect to pay the tax over the eight-year period.

The published guidance provides relief to individuals who elected to pay the tax in eight annual installments but failed to make the payment by the April 18, 2018 due date. The IRS is granting this relief to only individuals whose total tax transition tax liability is less than $1 million. Interest will still be due up to the time the payments are made, but the penalty will be abated.

In addition, the Questions and Answers publication provides details on how to respond to IRS notices if the new tax creates a penalty for the underpayment of estimated taxes.  For more information please visit the IRS website.

If you have any questions, please reach out to our SC&H Group tax professionals.