IRS RELIEVES PENALTIES FOR INDIVIDUALS SUBJECT TO NEW TRANSITION TAX ON FOREIGN EARNINGS

The Internal Revenue Service recently announced that the agency will waive certain late payment penalties pertaining to Section 965 of the Internal Revenue Code.

Enacted in December 2017, Section 965 imposes a 15.5 percent tax on foreign earnings held overseas that are held as cash or cash equivalents. Earnings held overseas in other forms will be taxed at 8 percent. Section 965 deems these earnings to be repatriated and subject to taxation.

A subsection of Section 965 allows taxpayers impacted to pay the amount due in eight annual installments, providing that the taxpayer makes the appropriate election. Individuals that fail to make the appropriate election may still do so by filing form 1040X by Oct. 15, 2018.

For individuals that made the proper election but failed to make the first payment due on April 18, 2018, the IRS will waive the penalties if the amount is paid by April 15, 2019 for individuals residing in the US, provided that the individual's liability under Section 965 is below $1,000,000. Any interest accrued due to the late payment is not exempt.

Subject to IRS approval, taxpayers that improperly applied a 2017 overpayment to their Section 965 payment may have their penalty waived if the taxpayer makes all estimated tax payments by June 15, 2018. For more information contact us in one of our many locations.