IRS Offers Relief Penalties For Deferred Offshore Company Income Late Tax Payment
Sec. 965 required some taxpayers to pay a transition tax on their 2017 tax returns on untaxed foreign earnings of specified corporations as though those earnings had occurred within the United States. Sec. 965 affects U.S. shareholders and applies to the last tax year of specified foreign companies beginning before January 1, 2018. The amount that U.S. shareholders must include in income is related to the foreign company’s fiscal year ends.
ESTIMATED TAX PENALTY
The first form of relief the IRS offers from estimated tax penalties is for taxpayers that made a Sec. 965(h) election for 2017, had 2017 income tax returns that showed overpayment but did not include the taxpayer’s total net tax liability under Sec. 965. In addition, the taxpayer improperly tried to apply calculated overpayments from 2017 returns to their 2018 estimated tax. This relief only applies if the taxpayer made all required estimated tax returns before the due date for the second estimated tax installment. This second installment was June 15, 2018 for calendar-year taxpayers and the taxpayer must have satisfied the underpayment of the first required tax installment for 2018 and the full amount of the second tax installment. This relief only applies to taxpayers whose first installment for 2018 was due on or before April 18, 2018.
If a taxpayer qualified for the relief described above and has received an addition to tax for a Sec. 6654 or 6655 estimated tax underpayment from the IRS, they should request an abatement of the addition to tax through contacting the IRS office that sent the notice.
FAILURE TO MAKE INSTALLMENT PAYMENT
There are two other forms of relief that are offered to individual taxpayers. The first form of relief applies to individual taxpayers who elected to pay Sec. 965 net tax liabilities in eight installment payments but were unable to make the first of the eight payments by April 18, 2018. The IRS will waive the late-payment penalty for these taxpayers if the installment is paid in full by April 15, 2019.This relief applies strictly to individual taxpayers with a tax liability under $1 million. Taxpayers will still pay interest on late payments, but for certain individuals who live and work outside of the U.S., a later payment of June 17, 2019 is applicable. Without this relief, the remaining eight installment payments become due immediately for taxpayers who failed to make the first year’s payment.
Individual taxpayers who did not elect to pay the transition tax in eight installments under Sec. 965 (h) when filing in 2017 can receive relief. By filing a Form 1040-X (Amended U.S. Individual Income Tax Return), on or before the due date of the individual’s 2017 return, those taxpayers can still make an election. This filing will also take into account additional time granted through any extension requests made by the individual taxpayer.
On April 4, 2018 and April 19, 2018, the AICPA submitted comment letters to the IRS seeking clarity regarding previous FAQs related to the above issues. These letters also sought more information on relief for some taxpayers subject to this transition tax. Although the newly released penalty and other relief answers many questions brought to the surface by the AICPA in the April 4 letter, Jonathan Horn, Senior Manager for AICPA Tax Policy and Advocacy, stated, “the IRS actions to date fail to mitigate the detrimental impact on taxpayers raised in the AICPA’s letter of April 19.”
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