In its third action this year, the IRS announced that it will waive additional late payment penalties for the repatriation transition tax on offshore profits. More guidance is also provided on how individuals subject to the tax make elections (see FD Insights for April 24 and March 23 for previous coverage).
As a transition to the lower 21% corporate tax rate in the Tax Cuts and Jobs Act, profits now held offshore will face a one-time tax of 15.5% for liquid assets and 8% for illiquid assets. The tax may be paid over an 8-year period if a taxpayer elects to pay in installments.
Specifically, the IRS has instructed taxpayers as follows:
- Estimated Tax Penalties. The IRS will waive the estimated tax penalty for taxpayers subject to the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, if they make all required estimated tax payments by June 15, 2018.
- Installment Payments. For individual taxpayers who missed the April 18, 2018 deadline for making the first of the eight annual installment payments, the IRS will waive the late payment penalty if the installment is paid in full by April 15, 2019. Without this relief, a taxpayer’s remaining installments over the eight-year period would have become due immediately. This relief is only available if the individual’s total transition tax liability is less than $1 million; interest will still be due. Note that later deadlines apply to individuals who live and work outside the United States.
- Late Elections. Individuals who have already filed a 2017 return without electing to pay the transition tax in installments can still make the election by filing a 2017 Form 1040X with the IRS. The amended Form 1040 must be filed by October 15, 2018.
The IRS is obviously working with taxpayers to help them navigate the complex procedural rules for paying the repatriation transition tax. Since this is an 8-year process, it is important to get it right. The tax advisers at Frazier & Deeter can help position your company to comply, avoid penalties and satisfy this tax liability in the most advantageous way possible.