Apr 19, 2021
As you may know, we have supported a request to the CRA to extend the April 30 deadline to June 15. But if the deadline is NOT extended, here are some practical tips to reduce the burden of a COVID tax season.
On June 4, 2018 the IRS issued News Release IR-2018-131. In this release the IRS address some concerns in regards to penalties associated with the late payment of the first instalment of the transition tax.
New IRC §965, enacted on December 22, 2017 as part of the Tax Cuts and Jobs Act (P.L. 115-97), imposes a one-time tax on untaxed foreign earnings and profits (E&P) of foreign corporations owned by “United States shareholders”, as defined under the Internal Revenue Code, by deeming those earnings to be repatriated as a subpart F income.
Earnings and profits held in the form of cash and cash equivalents are taxed at an effective rate of 15.5 percent, for corporations, and up to 17.5 percent for individuals. The remaining earnings and profits are taxed at an effective 8 percent rate, for corporations, and up to 9 percent for individuals.
The transition tax generally may be paid in installments over an eight-year period when a taxpayer files a timely election under section 965(h).
Many taxpayers have struggled with understanding these new rules especially given the fact that the IRS continues to issue guidance. Much of this guidance has been issued AFTER the filer’s original due date. Though extensions can be filed, the first instalment payments were due by the original due date.
The Release states:
“In some instances, the IRS will waive the estimated tax penalty for taxpayers subject to the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, as long as they make all required estimated tax payments by June 15, 2018.
For individual taxpayers who reside outside the United States, the IRS has previously announced that they would allow the first instalment payment to be made by June 15th, 2018, the “normal” due date for these taxpayers. This is evident in the last sentence of the first bullet point. It is not clear, however, if the IRS would also allow nonresident taxpayers to defer their first instalment payment to April 15, 2019.
While providing penalty relief is a step in the right direction, we would hope that the IRS and/or Congress would see fit to exclude United States expatriates from the provisions altogether. It is clear that the intent of this legislation was to encourage (force?) large U.S. based multi-national enterprises to bring the offshore money back “home” and re-invest in the U.S. to create U.S. jobs. For individual United States shareholders abroad, it is doubtful that any of these “repatriated” funds would actually be re-invested in the U.S. In many cases the foreign countries would be the beneficiaries as planning is being undertaken to accelerate foreign tax to eliminate any potential double taxation. We are hopeful that further IRS guidance will be forth coming.
U.S. TAX TIP is provided as a free service to clients and friends of Cadesky U.S. Tax.
The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.