AICPA Urges IRS to Amend FAQs Related to Section 965 Tax Reporting and Application of 2017 Tax Overpayments

April 19, 2018

  • Treatment of overpayments described in two recently posted FAQs would have a “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations” 
  • Taxpayers should be able to elect the application of an overpayment of 2017 tax payments or receive a refund

Washington, D.C. (April 19, 2018) – The American Institute of CPAs (AICPA) today informed the Internal Revenue Service (IRS) that two Frequently Asked Questions (FAQs) posted to its website on April 13 related to the application of tax overpayments by taxpayers who are subject to Internal Revenue Code section 965 would have a “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations.”  The AICPA urged the IRS to amend the FAQs.  Section 965 was amended by the Tax Cuts and Jobs Act (Pub. L. No. 115-97) and relates to an income inclusion of deferred earnings and profits from certain specified foreign corporations.

Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, explained in her letter that the IRS had addressed the procedures for paying the section 965(h) liability and other amounts due on April 17, 2018 and in future years in two new FAQs, Q&A 13 and Q&A 14, which were posted to supplement the guidance originally posted on March 13, 2018.

“The AICPA urges the IRS to amend Q&A 13 and Q&A 14 to provide taxpayers the ability to direct the application of any overpayment resulting from their combined 2017 estimated taxes, 2017 extension payments and amounts paid specifically to satisfy the initial section 965(h) installment,” Nellen wrote.

“We believe that allowing taxpayers a choice in how their tax payments are applied is consistent with the 8-year installment payment period enacted as part of code section 965(h) and necessary for the fair and sound administration of the tax system,” Nellen stated.

In its April 4 letter to the IRS, the AICPA requested that the IRS clarify the treatment of certain overpayments and recommended allowing a taxpayer to receive a refund or to elect the application of an overpayment of their initial section 965(h) installment to one or more of the following:

  • second installment payment of the section 965 tax liability due in April 2019;
  • regular tax underpayment for 2017 reflected on their filed tax return; or
  • 2018 estimated tax payments.  

Nellen wrote that the AICPA’s April 4 request was “predicated on the IRS guidance requiring separate payments for a taxpayer’s regular tax liability and section 965(h) installment payment.”  Furthermore, Nellen stated in the April 19 letter that the AICPA also recommended allowing a taxpayer to apply any overpayment of regular tax liability, at their sole discretion, to any underpayment of the separate section 965(h) installment liability.  “It was fully expected,” she stated, “that absent such an election, taxpayers could request a refund of any overpayment, apply it to their subsequent year’s estimated taxes or some combination of the two.”