Posts Tagged ‘Section.965’

The Supreme Court Takes Up a Wealth Tax; You May Need to File a Protective Claim for Refund

Monday, June 26th, 2023

At the end of 2017, Congress passed the Tax Cuts and Jobs Act (TCJA).  This complex measure added some deductions (such as the Deduction for Qualified Business Income), added restrictions on other deductions (such as the $10,000 limit on taxes as an itemized deduction), and added a few taxes.  One of the taxes added was the Section 965 Repatriation Tax.

Charles & Kathleen Moore invested in 2006 in an Indian company that was profitable. Under this tax, they had to pay (in 2017) tax on all the accumulated income even though they had never received any of the income.  They owed about $14,729 in tax.  They paid the tax, but then filed a Claim for refund (which was denied).  They then filed a lawsuit in federal district court in Washington to recover the tax.  The district court dismissed the case; the 9th Circuit Court of Appeals affirmed the dismissal on appeal.  You can read the Moore’s petition here; you can read the United States’s brief in opposition here; and you can read the Moore’s reply here.

If you were impacted by the Section 965 tax, you may have only until July 15, 2023 to file a “Protective Claim for Refund” for the 2019 tax year.  Two of our clients are impacted by this, and we notified both of them today.  (An option available with the tax was to pay this over an eight-year period; both of our impacted clients chose this option so they can still file a protective claim for 2019.)

I’ll have more on this case in the next few weeks, as it impacts the idea of wealth taxes (something that Senator Sanders, among others, likes the idea of).

IRS Offers Penalty and Filing Relief on New Transaction Tax on Foreign Earnings

Monday, June 4th, 2018

Individuals who own foreign entities typically have complex returns. I prepare returns for three such individuals; they’re all on extension. Yet one item needed to be prepared for these individuals by April 18th: the new Section 965 transition tax.

One of the key issues with the §965 tax is that you needed to make an election by April 18th to elect to make your payment in eight equal installments. If you didn’t make the election, you owed all the tax with your 2017 tax filing–ouch! This was a difficult deadline for many individuals due to the complexity of their returns.

Luckily, the IRS today announced penalty and filing relief on the §965 tax. As the IRS noted,

• In some instances, the IRS will waive the estimated tax penalty for taxpayers subject to the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, as long as they make all required estimated tax payments by June 15, 2018.

• For individual taxpayers who missed the April 18, 2018, deadline for making the first of the eight annual installment payments, the IRS will waive the late-payment penalty if the installment is paid in full by April 15, 2019. Absent this relief, a taxpayer’s remaining installments over the eight-year period would have become due immediately. This relief is only available if the individual’s total transition tax liability is less than $1 million. Interest will still be due. Later deadlines apply to certain individuals who live and work outside the U.S.

• Individuals who have already filed a 2017 return without electing to pay the transition tax in eight annual installments can still make the election by filing a 2017 Form 1040X with the IRS. The amended Form 1040 generally must be filed by Oct. 15, 2018. See the FAQs for details. For more information about the transition tax and other tax reform provisions, visit

The FAQs noting this are available on the IRS website.

Do note this is not complete relief. Many taxpayers impacted by this will owe interest from April 15th; you also have to owe less than $1 million in transition tax. But it does allow many taxpayers to proceed in an orderly manner in determining what tax they will owe on Section 965 rather than rushing to meet a deadline. (Individuals outside of the US have until next Friday to timely file their returns. They can now file extensions and still, in many cases, elect the installment treatment for this tax.)