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Revenue Code now requires some taxpayers to pay tax on the untaxed foreign earnings of certain foreign corporations as if the earnings had been repatriated to the United States. This will take effect for the 2017 tax year for a majority of taxpayers. 

As with any change in tax law, the new provisions left more questions than answers. Thankfully, the IRS recently issued guidance in the form of a Q&A to help shed light on how to report under Section 965. 

Below are a few highlights:

1. Paying the tax - 

  • Two separate payments are required. One payment calculates tax due without regard to Section 965. This would be similar to tax owed prior to the enactment of the Act. The second payment reflects the amount due under Section 965. Both of these payments are due on the due date of the tax return, without extensions.

2. Reporting - 

  • Depending on whether the taxpayer is an individual, flow-through entity, trust or corporation, the new guidance gives instructions on where to report the tax and which additional forms (if any) are required. 
  • Certain statements are also required. The Q&A lists the essential information included in the statement and provides a model statement. Be sure to attach this to both paper and electronically filed returns.

3. Elections - 

  • Section 965 contains many elections. To make an election, they must be made by the due date of the tax return, including extensions. These elections take the form of a statement attached to the tax return. 

4. Foreign reporting - 

  • Form 5471 is still required even if the foreign entity falls under Section 965.

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