The Treasury Inspector General for Tax Administration (TIGTA) has reported that the amount of revenue generated pursuant to Code Sec. 965 repatriation tax provision "has lagged behind initial estimates" by some $88 billion.
This audit was initiated to evaluate the IRS’s efforts to ensure compliance of those taxpayers subject to the Internal Revenue Code Section 965 because it was expected to be a main revenue generating provision of the Tax Cuts and Jobs Act.
According to the IRS, multiple issues, including complex payment deferral procedures, have limited the agency’s ability to compile accurate Section 965 data. Those limitations aside, the following figure shows that the amount of Section 965 tax reported has lagged behind initial estimates.
Projected Revenue From Section 965 $338.8 billion
Amount of Section 965 Liability Reported $251 billion
Amount of Section 965 Tax Paid $ 94 billion
Amount of Section 965 Tax Currently Deferred to
Be Paid in Installments $157 billion
The Large Business and International Division, which is responsible for ensuring that taxpayers comply with the Section 965 tax, initiated three compliance campaigns to address individual and business taxpayer compliance.
The Two Ongoing Campaigns Have Resulted In
Taxpayers Filing Amended Returns Reporting The Tax
And Significant Changes To The Section 965 Tax Calculation.
However, TIGTA is concerned that the campaign focused on the compliance of individuals does not plan any follow-up actions with the taxpayers who did not respond to the soft letters.
The Section 965 repatriation tax can be paid in eight installments. Some installment payments were applied to incorrect tax periods, which could result in the taxpayer being identified as not compliant. Numerous payments were miscoded as Section 965 payments,
impacting the IRS’s ability to determine Section 965 revenue. Also, the IRS does not have the ability to systemically identify taxpayers not compliant with the required installment payments or S Corporation shareholders who failed to annually report their deferred liability on the Form 965-A, Individual Report of Net 965 Tax Liability.
TIGTA recommended that the IRS:
- Prioritize and follow up with compliance actions on nonresponsive taxpayers issued soft letters;
- Revise notices to add more information on how the Section 965
installment payments should be made; - Ensure that system changes identify Section 965 payments that were potentially processed incorrectly;
- Develop procedures to systemically identify taxpayers that are not compliant with the Section 965(h) deferral requirements; and
- Develop procedures to identify S Corporation shareholders who made an election under Section 965(i) and who did not annually submit the Form 965-A or did not report the correct amount of the Section 965 deferral on the Form 965-A.
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