On December 12, 2018 the Internal Revenue Service (“IRS”) released a Q&A document that confirms the IRS’s earlier guidance on Internal Revenue Code (“IRC”) Section 965 payments and refunds and provides 2018 guidance on the same. The earlier guidance stated that taxpayers making a Section 965(h) deferral election on a 2017 income tax return could not use any overpayments of 2017 tax liabilities (from either a 965 or a non-965 excess estimated payment) as a credit against their 2018 estimated tax payments, nor could such amounts be refunded, unless and until the total overpayment amount exceeds the full eight years of obligation for the 2017 Section 965 installment payments.
The new guidance for 2018 tax returns provides the following:
At present, more than one “Tax Reform-Part 2” Bill (the “Bill”) has been introduced in Congress. The most recent version of the Bill includes legislation to improve IRS operations, as well as various technical corrections to the Tax Cuts and Jobs Act of 2017. Included in the Bill is a provision that would allow taxpayers to claim a credit or refund of any overpayment with respect to an installment payment of the taxpayer’s transition tax under Section 965, such that the overpayment shall not be credited against the remaining unpaid installments. This would be accomplished by introducing two new IRC Sections that would allow the IRS to credit or refund any “excess remittances” in the same manner as an overpayment of tax, but without interest. (An “excess remittance” generally means a payment (including estimated payments) that exceeds the sum of (1) a taxpayer’s US federal income tax liability without regard to Section 965 and without regard to any income or deduction attributable to any dividend received from a deferred foreign income corporation, plus (2) the sum of all installments for which the due date has passed).
These proposed amendments would be retroactive to the effective date of Section 965 (i.e., December 22, 2017), meaning that taxpayers that made an overpayment with respect to their first installment Section 965 payment may be able to claim a refund on such overpayment, or apply the overpayment to their 2018 estimated tax payments, if the legislation is enacted.
It appears unlikely that bipartisan agreement can be reached on the Bill. We will update you if that changes.
If you have any questions about Section 965 calculations, payments, or refunds thereof, please contact:
The summary information in this document is being provided for education purposes only. Recipients may not rely on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.
 See FGMK’s Tax Alert – Section 965 from August 2018 for additional information on Section 965 – the new transition tax on untaxed post-1986 earnings & profits of Controlled Foreign Corporations (“CFCs”).
 For taxpayers with at least one CFC with a fiscal year beginning in 2017 and ending in 2018.