The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) regarding administrative relief for Section 965 Elections and Transfer Agreements of the Tax Cuts and Jobs Act (TCJA).
Internal Revenue Code Section 965 requires U.S. shareholders (as defined under section 951(b)) to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Section 965 allows U.S. shareholders to reduce the amount of the income inclusion based on deficits in earnings and profits with respect to other specified foreign corporations.
The AICPA has submitted comments requesting relief with respect to late or incomplete elections under section 965(i) and late or incomplete transfer agreements under section 965(i)(2). The AICPA recommends that Treasury and the IRS:
- Provide a process to obtain relief for late filed or incomplete elections under sections 965(i) and 965(h) upon the triggering event of a section 965(i) election;
- Allow reasonable cause or section 9100 relief for late filed or incomplete transfer agreements under section 965(i)(2); and
- Provide a process to obtain relief for late or incomplete elections under section 965(h).
The regulations under section 965 state that relief is not available under Treas. Reg. § 301.9100-2 or § 301.9100-3 with respect to an election under section 965(i) and a section 965(h) election upon the termination of a section 965(i) election. This inability to obtain relief is an unduly harsh result given the broad reach of section 965 to S corporation shareholders with different levels of sophistication. Due to the significant changes stemming from tax reform, it is likely that many taxpayers and their advisors, through reasonable cause, failed to properly file an election under section 965(i). Treasury and the IRS take the position that section 9100 relief is disallowed, and taxpayers do not have alternative means for obtaining relief for a late or incomplete election under section 965(i). Therefore, inequitable consequences could result that were not intended by Congress.