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IRS has released Publication 5292 - How to Calculate Section 965 Amounts and Elections Available to Taxpayers. Code Sec. 965, which was amended by the Tax Cuts and Job Act, requires certain foreign corporations to increase their subpart F income for their last tax year that begins before Jan. 1, 2018, by the amount of their deferred foreign income.

The Publication provides a workbook and instructions to assist in calculating "section 965 amounts," and also includes worksheets for taxpayers who may be able to make certain elections with respect to Code Sec. 965.

Publication 5292 includes:

• Worksheet 1.1, the 965 Workbook (Worksheets to Calculate Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System),
• Worksheet A (U.S. Shareholder's Section 965(a) Inclusion Amount);
• Worksheet B (Deferred Foreign Income Corporation's Earnings & Profits);
• Worksheet C (U.S. Shareholder's Aggregate Foreign Earnings & Profits Deficit);
• Worksheet D (U.S. Shareholder's Aggregate Foreign Cash Position);
• Worksheet E (U.S. Shareholder's Aggregate Cash Position - Detail);
• Worksheet G (Foreign Taxes Deemed Paid by Domestic Corporation for 2017 Tax Year); and
• Worksheet H (Section 1 Disallowance of Foreign Tax Credit and Amounts Reported on Forms 1116 and 1118).

Elections. A U.S. shareholder of a DFIC may elect to pay the Code Sec. 965 net tax liability in eight installments. In addition, owners and beneficiaries of U.S. shareholder pass-through entities may also make elections. Publication 5292 also includes worksheet for taxpayers who may be able to make these elections with respect to Code Sec. 965:

1. an election to pay the Code Sec. 965 net tax liability over eight years;
2. (ii) an election by S corporation shareholders to defer payment of the Code Sec. 965 net tax liability with respect to such S corporation until a triggering event;
3. (iii) an election by real estate investments trusts to take both Code Sec. 965(a) inclusions and the corresponding Code Sec. 965(c) deductions into account over eight years;
4. (iv) an election not to apply a net operating loss; and
5. (v) an election to use an alternative method to calculate post-'86 earnings and profits (post-'86 E&P).

Publication 5292 provides:

• Worksheet 2.1 and 2.2,
• 965 Deferral Worksheet for Individuals (Calculation of Net 965 Tax Liability to be Paid in Installments); and
• Worksheet 3.1, 965 Deferral Worksheet for Corporations (Corporate Report of Net 965 Tax Liability, Election to Pay Net 965 Tax Liability in Installments Under Subsection 965(h) and Real Estate Investment Trust Deferral of Section 965(a) Inclusion Under Subsection 965(m)).



The Internal Revenue Service in IR-2018-87 reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and a filing requirement. At the same time, the agency advised anyone with a foreign bank or financial account to remember the upcoming deadline that applies to reports for these accounts, often referred to as FBARs.

1. Deadline for Reporting Foreign Accounts

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is the same as for a federal income tax return. This means that the 2017 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 17, 2018. FinCEN grants filers missing the April 17 deadline an automatic extension until Oct. 15, 2018, to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2017. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.

2. Reminder: IRS to End Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program will closeon Sept. 28, 2018. Taxpayers with undisclosed foreign financial assets still have time to use OVDP before the deadline.

The IRS noted it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution.

The IRS continues to use streamlined filing compliance procedures that will remain in place and be available to eligible taxpayers. But, as with OVDP, the IRS said it may end the streamlined filing compliance procedures at some point.

3. Most People Abroad Need to File

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A special extended filing and payment deadline applies to U.S. citizens and resident aliens who live and work abroad. For U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, the income tax filing and payment deadline is June 15, 2018. The same applies for those serving in the military outside the U.S. and Puerto Rico.

Interest, currently at the rate of five percent per year, compounded daily, will apply to any payment received after the regular April 17 deadline.

Nonresident aliens who received income from U.S. sources in 2017 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 17.

4. Special Income Tax Return Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

5. Specified Domestic Entity Reporting

For tax year 2017, certain domestic corporations, partnerships and trusts that are considered formed for the purpose of holding (directly or indirectly) specified foreign financial assets must file Form 8938 if the total value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

For more information on domestic corporations, partnerships and trusts that are specified domestic entities and must file Form 8938, as well as the types of specified foreign financial assets that must be reported, see Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”?and Form 8938 instructions.

6. Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both FinCen Form 114 and IRS Form 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

7. Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2017 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

 

 

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