X
X

Find Your Specialist

X

Contact Us

Go Back

Double Taxed on Repatriated Earnings? IRS Offers Relief

Corporations that have been paying the Sec. 965 repatriation tax may get further tax relief for those earnings. The IRS has determined that, in some circumstances, it may be appropriate to provide relief from double taxation when the same earnings and profits of foreign corporations are taxed both as dividends and as repatriated earnings. An example would be where a corporation paid an unusual dividend for business reasons and not because of the enactment of the Tax Cuts and Jobs Act (TCJA).

The problem arose with the original measurement of income to be repatriated. The TCJA measured income on two dates, November 2, 2017, when the legislation was first introduced in Congress, and then again after the bill became law on December 22, 2017. Companies are required to pay the repatriation tax on the higher of the two amounts. Some distributions made during this period could be double-taxed, and the regulations double-counting rules may not reach all situations.

The IRS will consider relief from double taxation “where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid.” What this means is that companies need to prove they were double taxed even after they used any available foreign tax credits. Companies also must show that they had business reasons for making distributions and paying dividends unrelated to obtaining tax benefits.

Taxpayers who have fact patterns that may fit these limited circumstances should consult their tax advisor to assess the situation. The Office of Associate Chief Counsel (International) will consider relief on a case-by-case basis and may issue a private letter ruling or enter into a closing agreement. Both of these procedures are complex and best handled by tax experts.

Deemed Repatriation of Offshore Profits under TCJA

As a transition to the lower 21% corporate tax rate and the territorial tax system enacted by the Tax Cuts and Jobs Act, untaxed profits previously held offshore are subject to a one-time tax of 15.5% for liquid assets and 8% for illiquid assets. The tax can be paid over an 8-year period, starting in 2018, with 8% paid in each of the first five years, 15% in the 6th year, 20% in the 7th year, and 25% in the 8th year.

Going forward, the United States exempts the earnings of U.S. firms from foreign subsidiaries, even if the earnings are repatriated, by allowing a 100% dividends-received deduction.

 

Related Articles

Privacy Overview

When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

You can enable or disable our use of cookies per category.

When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

You can enable or disable our use of cookies per category.

Necessary Always Enabled

Essential cookies enable you to navigate our Site and use certain features, such as accessing secure areas of our Site and using other features of our service that require us to keep track of certain information as you navigate from page to page. Although some of these cookies are “required” to enable certain functionality, you can disable them in the browser, but doing so will limit your ability to use the features supported by such cookies.

Functionality cookies are cookies that support features of the Site, such as remembering your preferences.

These cookies collect information about how you use our Site, including which pages you go to most often and if they receive error messages from certain pages. These cookies are only used to improve how our Site functions and performs.

From time-to-time, we may engage third parties that track individuals who visit our Site. These third parties may track your use of the Site for purposes of providing us with certain marketing automation features (to help us improve our outreach to current and prospective clients) and providing you with targeted advertisements.