Recently proposed legislation would provide taxpayers who made an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight years through installment payments the ability to claim a refund or credit of any overpayment with respect to such amounts.

If enacted, taxpayers would be able to claim a refund or credit on an overpayment with respect to their first installment payment under Code Section 965(h).

On November 26, 2018, House Ways and Means Committee Chair Kevin Brady, R-Texas, introduced the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018 (H.R. 88), which was subsequently revised on December 17, 2018 (the Bill). The Bill is a broad tax package that includes certain tax extenders, retirement savings proposals, Internal Revenue Service (IRS) improvement legislation and several technical corrections to the Tax Cuts and Jobs Act (P.L. 115-97).

Continue Reading Tax Reform Insight: Congress Offers a Glimmer of Hope for Taxpayers with Section 965 Transition Tax Overpayment

The Internal Revenue Service (IRS) has issued PMTA 2018-016, reaffirming its position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full eight years of installment payments.

The IRS’s position has affected many taxpayers, and practitioners expressed their concerns to the IRS to no avail.

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We previously discussed the Internal Revenue Service’s (IRS) surprising position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments. The IRS’s position has affected many taxpayers, and practitioners have expressed their concerns to the IRS.

On June 4, 2018, the IRS responded to these concerns. Rather than changing its position, the IRS has doubled down; however, the IRS has taken the small but welcome step of allowing some penalty relief for taxpayers affected by the earlier guidance as set forth in new Questions and Answers 15, 16 and 17.

Based on discussions with the IRS, it appears that the IRS’s position is based on the view that it has broad authority under Code Section 6402 to apply overpayments against other taxes owed, and that Code Section 6403 requires an overpayment of an installment payment to be applied against unpaid installments. Thus, the IRS maintains that the Code Section 965 tax liability is simply a part of the tax year 2017 liability, and it is, except for Code Section 965(h) and a timely election thereunder, payable and due by the due date of the 2017 tax return. Any future installments for the Code Section 965 liability are, in the IRS’s view, not part of a tax for a future tax year that has yet to have been determined, as the tax has already been self-assessed by the taxpayer for 2017. Accordingly, the IRS views any overpayments as being applied within the same tax period to the outstanding Code Section 965 tax owed by the taxpayer even though taxpayers making a timely Code Section 965(h) election are not legally required to make additional payments until subsequent years. Continue Reading Tax Reform Insight: IRS Doubles Down on Retention of 2017 Overpayments to Satisfy Future Section 965 Installment Payments