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.
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 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.
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