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IRS offers filing and penalty relief to individuals subject to the new ‘transition tax’

Business Tax - 12 Jun 2018

Individual US shareholders owning 10% or more of a controlled foreign corporation are subject to a special tax charged on undistributed accumulated earnings and profits of the corporation – this is commonly referred to as either the ‘transition tax’ or ‘repatriation tax’. This tax can be paid in eight instalments provided the first instalment is timely paid. For most US taxpayer the first instalment was due 15 April 2018 and for taxpayers residing outside the US it would otherwise be due on 15 June 2018.

The IRS announced last week a special relief for individuals who will owe less than $1m under the ‘transition tax’ rules. Under this relief individuals who pay the first instalment of the transition tax by 15 April 2019 (and timely pay their second instalment) will not incur a late payment penalty and further more will still be able to qualify for the instalment payment option. Interest will, however run, from the original due date. The $1m threshold will cover the vast majority of impacted taxpayers and is a much welcomed relief for taxpayers struggling to navigate the complex new tax rules and who may not even yet have detailed final accounts available to them!

The full text of the IRS announcement can be read here


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Michael Lewis

Michael Lewis


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