Contributed by: Ronald A. Marini, Marini and Accociates, USA

According to Law360, although taxpayers have already calculated and reported their Section 965 deemed repatriation tax, Section 965 will have a continuing impact.

  1. Taxpayers are well advised to review their approach to estimated taxes. The IRS refuses to issue refunds of overpaid income taxes to taxpayers who elected to pay Section 965 taxes in annual installments, effectively penalizing taxpayers who conservatively overpay estimated taxes. and
  2. The IRS plans extensive enforcement efforts. A recent U.S. Treasury Inspector General for Tax Administration report highlights these issues, including recommendations for the IRS concerning the IRS enforcement plan.

By making the tax payable in installments, and providing that the installments increase over the eight year period, it is clear that Congress intended taxpayers to be able to plan for the potentially large Section 965 repatriation tax. Unfortunately, such cash flow planning may be frustrated by the IRS’ position that it cannot issue refunds to companies who have elected to pay the repatriation tax in installments.

The IRS Claims In Such Circumstances There Is No "Overpayment" Of Taxes Under Section 6402 Because, In The Case Of Taxes Payable In Installments, Section 6403 Requires The IRS To Apply An Overpayment Of An Installment
Against Future Unpaid Installments.
(IRS PMTA 2018-016, Overpayments and I.R.C. §965(h) (August 2, 2018)).

The deemed repatriation tax was intended to be one of the most significant revenue raisers of the Tax Cuts and Jobs Act. At the time of enactment, the Joint Committee of Taxation estimated that Section 965 would raise $338.8 billion of tax revenue during fiscal years 2018 through 2027. More than $78 billion was expected to be raised in 2018 alone. (Joint Comm. on Taxation, JCX-67-17, Estimated Budget Effects Of The Conference Agreement For H.R. 1, The “Tax Cuts And Jobs Act” at 6, available at https://www.jct.gov/publications.html?func=startdown&id=5053).
The Section 965 Revenue Actually Collected Is
Much Lower Than Expected.

TIGTA Reported That As Of Nov. 8, 2018, Taxpayers Reported Only $30.2 Billion (39%) In Section 965 Tax And Paid Only $11.2 Billion (Deferring $22.7 Billion).


Both TIGTA and the IRS believe these figures may be understated. The IRS said the numbers will likely change significantly because the IRS had not yet processed all the returns filed with extensions in October 2018. The lower than expected Section 965 revenue may trigger enhanced compliance efforts by the IRS.

TIGTA stated that “[i]t is essential that the IRS develop a service-wide compliance strategy to ensure compliance with Section 965 of the Act.” TIGTA recommended that the comprehensive plan include:

  • A strategy to identify taxpayers that did not properly comply with Section 965;
  • An assessment of the benefit of issuing notices to those taxpayers that may be subject to Section 965 filing requirements;
  • Procedures to monitor taxpayers that elected to defer the tax;
  • Validation of Section 965 data reported by the taxpayer; and
  • Steps to ensure that taxpayers did not violate anti-abuse rules.

TIGTA also suggested that the IRS use Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations, to identify taxpayers who should have reported the Section 965 tax but did not.

Based on the number of returns filed with Forms 5471, TIGTA estimates that more than 51,000 filers may be subject to the Section 965 tax, which is significantly more than the approximately 31,000 filers (61%) who reported the Section 965 tax.

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