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New LB&I Campaign on Deferred Foreign Income

July 13, 2020 Priya Comments Off

The IRS Large Business and International (LB&I) has added a new active campaign to the IRS website called “IRC 965.” The campaign’s goal is to promote compliance with Code Sec. 965, Treatment of Deferred Foreign Income Upon Transition to Participation Exemption System of Taxation, which was part of the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).

Code Sec. 965 requires U.S. shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. It applies with respect to the relevant specified foreign corporation’s last tax year that begins before January 1, 2018, and the amount included in income under Code Sec. 965 is includible in the U.S. shareholder’s year in which or with which such a specified foreign corporation’s year ends. The vast majority of liability will arise on taxpayer returns for the 2017 and 2018 tax years.

The campaign’s treatment stream will include conducting examinations and providing technical assistance to teams, with a focus on identifying and addressing taxpayer populations with potential material compliance risk. The campaign will start with 2017 returns and generally require looking at both the 2017 and 2018 tax returns. It is anticipated that returns selected as part of the campaign would also be risked and, if appropriate, examined for other material issues, especially issues related to TCJA planning.