IRS Offers Filing, Penalty Relief to Multinational Businesses Subject to New Repatriation Tax by Andre Benayoun, JD
Posted on July 05, 2018 by Andrè Benayoun, JD
The Tax Cuts and Jobs Act introduces a one-time “deemed repatriation tax” on the previously untaxed profits that U.S. individuals, businesses and foreign corporations owned by U.. shareholders earned and left overseas. Under the law, foreign earnings held overseas in the form of cash and cash equivalents are taxed at a rate of 15.5 percent rate, whereas foreign earnings invested in illiquid, fixed assets, such as plants and equipment, are subject to an 8 percent tax rate.
While the law allows taxpayers to make a timely election to pay the transition tax over an eight-year period, the IRS has clarified some of the initial questions that arose following the enactment of the hastily drafted new law. Following are three key points that taxpayers should plan for under the guidance of experienced tax advisors and accountants:
- Individuals who already filed a 2017 return without electing to pay the transition tax in eight annual installments can still make the election by filing an amended tax return by the extended filing deadline of Oct. 15, 2018.
- In some instances, the IRS will waive an estimated tax penalty for taxpayers subject to the transition tax 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 with a transition tax liability of less than $1 million who missed the April 18, 2018, deadline for making the first of the eight annual installment payments may receive a waiver of the late-payment penalty if they pay the installment in full by April 15, 2019. A later deadlines applies to certain individuals who live and work outside the U.S. The language of the law previously led taxpayers to believe that if they missed the April 18, 2018, initial installment payment deadline, they would be required to pay the entire transition tax liability immediately, rather than over an eight-year period.
About the Author: Andre Benayoun, JD, is an associate director of International Tax Services with Berkowitz Pollack Brant, where he works with inbound and outbound multinational businesses and nonresident aliens on a variety of matters, including structuring for mergers, acquisitions and liquidations; planning for profit repatriation; treaty analysis; tax-efficient debt financing; and pre-immigration tax planning. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.