AICPA Comments on CARES Act Overpayments, Sec 965(h), NOL Carrybacks
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AICPA Comments on CARES Act Overpayments, Sec 965(h), NOL Carrybacks

1 year ago · 3 min read

Washington, D.C. (October 23, 2020) – This week, the American Institute of CPAs (AICPA) submitted a letter to Congressional leadership regarding overpayments of tax, Section 965(h) transition tax installments and net operating loss (NOL) carryback relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act. In the letter, AICPA requests Congress enact legislation to permit taxpayers with outstanding section 965(h) installments to obtain a refund for overpayments of tax, notwithstanding any future installment amounts of section 965 transition tax liability, highlighting this issue as “urgent” and “unresolved.”

To prevent earnings of foreign corporations from escaping U.S. taxation as the nation transitions from a worldwide system of taxation to a quasi-territorial system of international taxation*, the Tax Cuts and Jobs Act (TCJA) added section 965 to the Internal Revenue Code. Section 965 imposed a one-time transition tax on certain U.S. shareholders’ share of the untaxed earnings of certain foreign corporations.

“Allowing taxpayers to obtain a refund for losses incurred during this tumultuous economic period, regardless of whether they have outstanding section 965(h) installments, is necessary for fair and sound administration of the tax system,” the letter states.

In a September, 2019 letter, the AICPA expressed its concern regarding Department of the Treasury and Internal Revenue Service (IRS) positions on this matter.

AICPA urges Congress to enact legislation similar to that provided for in section 22208 of the original version of the CARES Act, which was introduced in the Senate in March of 2020, and provided the following:

(a) IN GENERAL.—Section 965(h) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(7) INSTALLMENTS NOT TO PREVENT CREDIT OR REFUND OF OVERPAYMENTS OR INCREASE ESTIMATED TAXES.—If an election is made under paragraph (1) to pay the net tax liability under this section in installments—

“(A) no installment of such net tax liability shall—

“(i) in the case of a request for credit or refund, be taken into account as a liability for purposes of determining whether an overpayment exists for purposes of section 6402 before the date on which such installment is due, or

“(ii) for purposes of sections 6425, 6654, and 6655, be treated as a tax imposed by section 1, section 11, or subchapter L of chapter 1, and

“(B) the first sentence of section 6403 shall not apply with respect to any such installment.”

(b) LIMITATION ON PAYMENT OF INTEREST.—In the case of the portion of any overpayment which exists by reason of the application of section 965(h)(7) of the Internal Revenue Code of 1986 (as added by this section)—

(1) if credit or refund of such portion is made on or before the date which is 45 days after the date of the enactment of this Act, no interest shall be allowed or paid under section 6611 of such Code with respect to such portion; and

(2) if credit or refund of such portion is made after the date which is 45 days after the date of the enactment of this Act, no interest shall be allowed or paid under section 6611 of such Code with respect to such portion for any period before the date of the enactment of this Act.

(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall take effect as if included in section 14103 of Public Law 115–97.

BACKGROUND:

*Prior to the enactment of the TCJA, the U.S. had a worldwide system of international taxation with a deferral component. Income earned directly by a U.S. taxpayer from a foreign business was taxed on a current basis while income earned indirectly through a foreign corporation was not generally taxed until distributed to the taxpayer. The TCJA transformed the U.S. international system of corporation taxation into a quasi-territorial one. Under new section 245A of the Internal Revenue Code, a 10 percent corporate shareholder of a foreign corporation is ordinarily entitled to a 100 percent deduction for the portion of foreign-source earnings distributed to the shareholder as a dividend.


Media Contact:

Veronica L. Vera
202-434-9215
Veronica.Vera@aicpa-cima.com

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