The Tax Executives Institute (TEI) has provided numerous comments re: Sec 965 positions as written in the law, supplemented by additional guidance.
Summary of comments:
- Cash position definition
- Foreign Tax Credit, double-counting of Earnings & Profits
- Dividends paid from a CFC to another CFC or a third party
- Hovering deficit taxes
- Stock basis election should be extended to 180 days, vs. 90 days per IRS guidance
- Changes in methods of accounting
- Anti-abuse rules
- CFC attribute mismatches
- Foreign tax credit adjustment
- “Applicable percentage” guidance
- Average FX rate, vs. year-end spot rate, used for measurement
- 2017 overpayments applied automatically to transition tax (Still an issue!)
- Penalty protection
The letter provides background and examples related to the comment areas, and should be reviewed to gain a further understanding of the complex dynamics that will hopefully be mitigated via the suggestions.
Significant tax developments have recently transpired for US / international tax.
- Section 965 Proposed Regulations have been issued, including discussion of potential stock basis elections that are critical to review (reference link).
- Proposed Regulations issued for capital expensing provisions of US Tax Act (reference link)
- IRS has published its statutory interpretation of their previously issued FAQ Q&A that 2017 overpayments of federal income tax are allocated solely to transitional tax liability in its entirety prior to allocating such amount to its 2018 federal income tax liability without transition tax. In summary, the reasoning is that the transition tax is a 2017 liability, notwithstanding the ability to make an election to pay in installments. Considerable debate is currently ongoing re: this latest development, as it seemingly obviates the election methodology solely for one instance of overpayments, yet preserving the ability of deferred payments if a prior year overpayment is not present.
The Ninth Circuit Court of Appeals has reversed the Tax Court’s holding in Altera v. Commissioner, and upheld a 2003 regulation that requires participants in a cost sharing arrangement (CSA) to treat stock-based compensation costs (SBC costs) as compensable. The Appellate Court concluded that the regulations were valid under general administrative law principles and that under current law, SBC costs should be treated as shared by participants in a CSA. It is important to note that the Tax Court’s taxpayer-favorable opinion is still precedent and authority for taxpayers located in geographical areas outside of the Ninth Circuit’s jurisdiction.
The IRS Foreign Account Tax Compliance Act (FATCA) certification portal is now live. The FATCA Registration System has been updated to allow for the completion and submission of the certification of pre-existing accounts and periodic certifications. The IRS is recommending that all FATCA registered entities should monitor their message board for notifications. The registration system allows for the establishment of an online account for financial institutions to register with the IRS, renew their agreement, and complete and submit FATCA certifications.
EY’s Global Tax Alert discusses some of the latest developments.
Technical and lengthy documentation re: the above highlights will need critical reading and review in the very near future for US / international tax professionals.
IRS recently updated its previously published Q and A’s re: application of Sec. 965 deemed repatriation tax instructions re: estimated tax payments for 2018. The prior version still has a debatable Question 14 that applied a 2017 overpayment to the entire amount of deemed repatriation tax (not just the first installment) prior to application for the first estimated payment of federal income tax generally due April 15th.
As Question 14 was issued literally just prior to the first installment date, corporations may have missed this point and thereby would be subject to interest and penalty for late payment.
The latest update obviates such penalties if the second estimated payment is a cumulative catch-up amount for both the first and second estimates.
However, what was not fixed is the apparent ability by IRS to apply the overpayment solely to deemed repatriation tax in its entirety prior to applying it to estimated federal income tax liability due. This is still a question in the minds of many.
EY’s Global Tax Alert highlights this development.
The Tax Executives Institute, Inc. (TEI) previously issued excellent comments regarding divergent views of the Big 4 accounting firms for US GAAP tax accounting issues for the new US Tax Act aspects.
These views are still divergent today as we approach the end of March, and further issues continue to develop that impact the cash tax and tax reporting aspects for the US Tax Act. Accordingly, the same facts may provide a different repatriation tax liability and tax accounting for different multinational companies, certainly a difficult variable for comparison by tax experts and, most importantly, by investors.
As these positions may continue to diverge, position papers and discussions with the audit firm, Audit Committee of the Board of Directors and the company should be scheduled to ensure there are no surprises as earning release dates are emerging.