Share with your friends

Text of regulations, section 965 “transition tax”

Text of regulations, section 965 “transition tax”

The U.S. Treasury Department and IRS today released proposed regulations (REG-104226-18) relating to the “transition tax” under section 965—as added to the Code by the new tax law (Pub. L. No. 115-97) enacted in December 2017.


Related content

Section 965 imposes a transition tax—one that requires a mandatory deemed repatriation of previously untaxed earnings. Under this provision, a 15.5% rate applies to earnings attributable to liquid assets, and an 8% rate applies to earnings attributable to illiquid assets.

According to a related IRS release (IR-2018-158), taxpayers may generally elect to pay the transition tax in installments over an eight-year period under section 965(h). The proposed regulations contain detailed information on the calculation and reporting of a United States shareholder’s section 965(a) inclusion amount, as well as information for making the elections available to taxpayers under section 965.

Read text of the proposed regulations [PDF 770 KB] (249 pages)

In general, the regulations address the taxation of previously untaxed foreign subsidiary earnings and reflect the U.S. international tax system’s move away from a deferral-based approach. 

  • The regulations are in a proposed form. This means that there will be at least one more round of public comments. 
  • The proposed regulations generally appear to be consistent with prior IRS guidance (IRS notices), but provide more detail. 
  • The proposed regulations are a large package—to be expected given the complexity of section 965 and the fact that this measure was one of the largest revenue raisers in the new tax law enacted in December 2017.

The purpose of this report is to provide text of today’s regulations. Initial impressions of these regulations will be provided in a follow-up edition of TaxNewsFlash.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal