AICPA asks IRS to provide penalty relief for repatriation of foreign earnings

The American Institute of CPAs has sent two letters to officials at the Internal Revenue Service and the Treasury Department about the repatriation tax on foreign earnings under the Tax Cuts and Jobs Act, asking them not to levy penalties on companies that didn’t pay it for tax year 2017.

AICPA building in Durham, N.C.

The TCJA amended section 965 of the tax code in an effort to encourage U.S.-based multinational corporations to bring trillions of dollars of foreign earnings back to the U.S. at low tax rates. Section 965 requires a series of calculations in order to properly calculate the transition tax and report on the related installment payment schedule, but the AICPA argues the IRS hasn't yet given them the information they need to comply before they get hit with penalties.

“The guidance released to date does not provide taxpayers with information on the reporting requirements related to the 2017 filing of Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations,” the AICPA pointed out. “However, section 6038 imposes a $10,000 penalty for failure to furnish the required information on a Form 5471 submitted with a timely filed tax return.”

In a letter last week to the IRS, the AICPA asked the agency to grant automatic relief from penalties incurred by a taxpayer who has acted reasonably and made a good faith effort to properly report their section 965 tax liability on their 2017 tax returns.

“In the absence of updated forms or instructions for the 2017 tax year or binding guidance, taxpayers are unaware what information is required or how to properly report such information for Form 5471 to meet the ‘substantially complete’ definition and thus avoid penalties under sections 6038, 6038A and 6046,” wrote AICPA Tax Executive Committee chair Annette Nellen.

A separate letter last week to officials at the Treasury Department and the IRS related to audit protection for controlled foreign corporations under section 8.02(5) of Revenue Procedure 2015-13. Rev. Proc. 2015-13 dictates the procedures for obtaining consent to change a method of accounting for federal income tax purposes. The AICPA asked for immediate guidance that would allow deemed foreign taxes that had been paid solely as a result of a section 965 inclusion to be excluded from the calculations under Rev. Proc. 2015-13’s 150 percent special rule for Controlled Foreign Corporations. The AICPA said the guidance is necessary because of unintended consequences from enactment of the TCJA. Without the guidance, the AICPA noted, “taxpayers are denied the audit protection generally available under section 8.01 of Rev. Proc. 2015-13.”

“The intent of section 8.02(5) of Rev. Proc. 2015-13 is to prevent taxpayers from utilizing accounting method changes in a manner that inappropriately increases the taxpayer’s foreign tax credits,” Nellen wrote. “However, applying section 8.02(5) of Rev. Proc. 2015-13 to method changes in the inclusion year under section 965 (generally 2017) may result in unintended consequences due to the enactment of the TCJA.”

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