AICPA writes Treasury and IRS about TCJA repatriation tax on foreign earnings issues

The American Institute of CPAs (AICPA) has submitted four letters to government officials relating to the mandatory repatriation tax on foreign earnings generally effective for tax year 2017, as required by the Tax Cuts and Jobs Act’s (TCJA) amendment of Internal Revenue Code section 965.

The AICPA wrote a September 17 letter to the U.S. Department of the Treasury and the Internal Revenue Service (IRS) urging them to modify two posted FAQs and an IRS Chief Counsel Memorandum regarding the application of 2017 tax overpayments to a taxpayer’s Internal Revenue Code section 965 installment payments, which apply to certain specified foreign corporations.  The AICPA recommended that taxpayers should instead have the ability to direct the application of any overpayment resulting from their combined 2017 estimated taxes and 2017 extension payments in some combination of the following:

• Application to 2018 estimated tax liability (non-section 965 tax liability);
• Refund to the taxpayer in whole or partial amounts; or
• Application to one or more future section 965(h) installment payments.

Individuals, trusts and estates need clarity on section 965 reporting issues in order to comply with their 2017 tax obligations, the AICPA stated in its September 13 letter to the Treasury and IRS.  The AICPA requested immediate guidance and made four specific recommendations about areas it considers priorities.

In an August 28 letter to the IRS, the AICPA urged the IRS to provide 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.  The letter stated, “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.”

The AICPA’s August 30 letter to the Treasury Department and the IRS relates to audit protection for controlled foreign corporations under section 8.02(5) of Revenue Procedure (Rev. Proc.) 2015-13.  Rev. Proc. 2015-13 establishes the procedures for obtaining consent to change a method of accounting for federal income tax purposes.  The AICPA requested that Treasury and IRS issue immediate guidance providing that deemed foreign taxes paid solely as a result of a section 965 inclusion are excluded from the calculations under Rev. Proc. 2015-13’s 150 percent special rule for Controlled Foreign Corporations.  The AICPA wrote the guidance is necessary because of unintended consequences resulting from enactment of the TCJA.  Without the guidance, the AICPA stated, “taxpayers are denied the audit protection generally available under section 8.01 of Rev. Proc. 2015-13.”