IRS TENDERS LIMITED RELIEF WITH REFORMS IN TRANSITION TAX

Jacob Scott, CPA     Jul 03, 2018     1287
IRS TENDERS LIMITED RELIEF WITH REFORMS IN TRANSITION TAX

In a fresh update as IR-2018-131 Transition Tax, I.R.S. has announced that it will waive certain late-payment penalties relating to the Code 965 that imposes a tax on previously non-taxed earnings of foreign corporations owned by Shareholders from the U.S.

In a fresh update as IR-2018-131 Transition Tax, I.R.S. has announced that it will waive certain late-payment penalties relating to the Code 965 that imposes a tax on previously non-taxed earnings of foreign corporations owned by Shareholders from the U.S. into that of controlled foreign corporations and U.S. domestic corporations. They were entitled to claim indirect foreign tax credits for foreign taxes paid by foreign corporations at the time dividends were received.

On the agency's TAX reform page, an update was posted in the FAQ section that provides detailed guidance to taxpayers on reporting and paying the tax. Under the transition tax, foreign earnings held in the form of cash and cash equivalents by those foreign corporations are included in income by their U.S. Shareholders or domestic corporations and are taxed at a 15.5% rate. Any earnings in excess of such cash and cash equivalents are taxed at an 8% rate.

The reforms can be understood as follows:

  1. The I.R.S. will waive the estimated tax penalty for taxpayers in some instances provided the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, however, the taxpayer will have to make all required estimated tax payments by June 15, 2018.
  2. For individual taxpayers who missed the April 18 deadline of this year the I.R.S. may waive the late-payment penalty provided the installment is paid in full by April 15, 2019. But this is only for individuals whose total transition tax liability is less than $1 million.
  3. Those who have already filed a 2017 return without electing to pay the transition tax in eight annual installments can still make the election by filing a 2017 Form 1040X with the I.R.S by October 15, 2018. It is also noteworthy that a taxpayer's remaining installments over the eight-year period would become due immediately if they fail to settle all the installments by April 15, 2019 deadline.

For individuals staying and working outside of the USA, there may be a provision for later deadlines. However, their interests will be still due. The concerned taxpayers can take a note of it and can make the most out of the information.


About The Author

Jacob Scott, CPA

Member, Advisory Board

Jacob Scott is a CPA with over 20 years of experience in the area of accounting & finance and has worked as a Senior Audit Associate at EY. Jacob drives the financial planning of the company by analyzing its performance and risks. He retains constant awareness of the company’s financial position and acts to prevent problems. He also sets up and oversees the company’s finance IT system as well as sets targets for and supervise all accounting and finance personnel (management accountants, internal auditors, etc.) Besides overseeing all audit and internal control operations, Jacob develops the corporate fundraising strategy and manage relationships with partners and investors. His roles also include preparing timely and detailed reports on financial performance on a quarterly and annual basis and conducting analysis to make forecasts and report to upper executives. He ensures adherence to financial laws and guidelines.  He has a keen interest in activities and societies, industry tours, educational seminars, cultural activities, sports, and most importantly attending conferences.

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