Earlier this week, the IRS confirmed that it will be foregoing late payment penalties as per section 965 of the new tax code. Section 965 was implemented as a part of the Tax Cuts and Jobs Act in December of 2017, calling for a transition tax on untaxed foreign income of offshore companies owned by US shareholders. The agency further explained the relief in an FAQ section placed on the tax reform section of its website.
With this new tax law in effect, foreign cash earnings and cash equivalents are to be taxed at a rate of 15.5%, with remaining earnings taxed at 8%. If a taxpayer chooses to file an election in good time under section 965 (h), the transition tax can then be paid in eight yearly installments.
By allowing US corporations to pay less taxes on profits, the Tax Cuts and Jobs act encourages the repatriation of trillions of dollars of deferred taxes that may have otherwise been held for several more years abroad. Mitch Elbarki, CEO of Sigma Tax Pro comments, “With the incentive to repatriate these dollars comes other complexities for taxpayers requiring extra guidance not just from the IRS, but from tax professionals as well…tax pros are more in tune with the overall financial picture of any given client, whereas the IRS can only provide general information.”
To gather more information, concerned taxpayers and tax professionals alike should visit the IRS website for continuously updated information.