IRS offers more info on transition tax for multinationals

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The Internal Revenue Service provided additional information Tuesday to help corporate taxpayers deal with the new section 965 transition tax for repatriating foreign profits under the tax law that Congress passed in December.

The Tax Cuts and Jobs Act requires taxpayers that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits had been repatriated to the United States. The new law provides details on the tax rates, and some taxpayers may opt to pay the transition tax over eight years. Section 965 allows taxpayers to reduce the amount based on deficits in earnings and profits with respect to other specified foreign corporations.

With the March 15 and April 17 deadlines approaching for business tax filers, the IRS released information Tuesday in a question and answer format to help multinationals deal with the transition tax. The Frequently Asked Questions address basic information for taxpayers affected by section 965, includes how to report foreign income and pay the tax liability associated with it. The information on also details several of the elections under section 965 that taxpayers can opt to take.

The Treasury Department and the IRS have already released three separate pieces of guidance related to section 965 issues in Notices 2018-07 and 2018-13 and Revenue Procedure 2018-17. The IRS plans to supply additional guidance and other information on in the weeks ahead.

Ernst & Young recently surveyed 500 U.S. C-suite executives from companies with $500 million or more in revenue to find out how U.S. companies are planning to deploy capital in light of tax savings from the Tax Cuts and Jobs Act. It asked them how likely their company is to repatriate more overseas earnings in 2018 than it would have without tax reform, and found that 69 percent said they were likely, while 31 percent said they were not likely to do so.

When asked what percentage of overseas earnings companies plan to repatriate overall, 22 percent responded less than 22 percent, 44 percent answered between 5 and 9 percent, and 34 percent said 10 percent or more.

EY also asked them what percentage of their overseas earnings they expect to repatriate specifically due to the tax reform legislation. In response, 25 percent said less than 5 percent, 57 percent answered 5 to 9 percent, and 18 percent responded 10 percent or more.

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