AICPA Writes Treasury and IRS about TCJA Repatriation Tax on Foreign Earnings Issues

September 4, 2018

  • Urges automatic penalty relief for taxpayers who acted reasonably and made a good faith effort to report section 965 tax liability on 2017 returns
  • Recommends guidance about accounting method tax change so controlled foreign corporations do not lose audit protection as an unintended consequence of Tax Cuts and Jobs Act

Washington, D.C. (September 4, 2018) – The American Institute of CPAs (AICPA) has submitted two letters to government officials relating to the mandatory repatriation tax on foreign earnings generally effective for tax year 2017, as required by the Tax Cuts and Jobs Act’s (TCJA) amendment of Internal Revenue Code section 965.

In an August 28 letter to the Internal Revenue Service (IRS), the AICPA urged the IRS to provide automatic relief from penalties incurred by a taxpayer who has acted reasonably and made a good faith effort to properly report their section 965 tax liability on their 2017 tax returns.  The letter stated, “In the absence of updated forms or instructions for the 2017 tax year or binding guidance, taxpayers are unaware what information is required or how to properly report such information for Form 5471 to meet the ‘substantially complete’ definition and thus avoid penalties under sections 6038, 6038A and 6046.”

The AICPA’s August 30 letter to the U.S. Department of the Treasury and the IRS relates to audit protection for controlled foreign corporations under section 8.02(5) of Revenue Procedure (Rev. Proc.) 2015-13.  Rev. Proc. 2015-13 establishes the procedures for obtaining consent to change a method of accounting for federal income tax purposes.  The AICPA requested that Treasury and IRS issue immediate guidance providing that deemed foreign taxes paid solely as a result of a section 965 inclusion are excluded from the calculations under Rev. Proc. 2015-13’s 150 percent special rule for Controlled Foreign Corporations.  The AICPA wrote the guidance is necessary because of unintended consequences resulting from enactment of the TCJA.  Without the guidance, the AICPA stated, “taxpayers are denied the audit protection generally available under section 8.01 of Rev. Proc. 2015-13.”