On the Horizon: One-time transition tax on unremitted foreign earnings

Contents Current reporting issue       Impact of tax reform: one-time transition tax on unremitted foreign earnings

FASB publishes second-quarter 2018 e-newsletter SEC staff updates IFRS Taxonomy FAQs IASB releases supporting materials targeting SME users International Federation of Accountants       IPSASB issues proposed improvements to IPSAS

Current reporting issue Impact of tax reform: one-time transition tax on unremitted foreign earnings Section 965 of the Internal Revenue Code imposes a one-time transition tax on previously untaxed foreign earnings through a mandatory inclusion of income, but any net tax liability (NTL), as defined in Section 965(h), may be paid in eight installments. The first installment of 8% of the NTL was due on April 17, 2018, for calendar-year taxpayers (payment is due for fiscal-year taxpayers on the due date of the return with the Section 965 inclusion).

However, it’s important to note that a taxpayer who underpays the first installment or who does not follow the required procedures could trigger an acceleration of the remaining installments of tax on the date of the underpayment, along with penalties and interest in the first year.

The IRS recently released additional guidance on the payment of the one-time transition tax on unremitted foreign earnings under Section 965 for the April 17 deadline. The guidance came in the form of an updated Q&A on the IRS website that was released late on April 13. The updated guidance imposes specific requirements on the timing and form of payment and may impact entities that elect to pay the tax in installments over an eight-year period.

Based on the guidance, it appears that overpayments of the taxpayer’s “regular” tax amounts will automatically be applied to the one-time transition tax due. Specifically, these overpayments would be applied first against the initial Section 965 installment and then against future Section 965 installments until the total Section 965 liability is satisfied, rather than being allocated first to the entity’s regular income tax liability, regardless of the entity’s election to spread payment over the eight-year period. It is important to understand that the Q&A suggests that taxpayers may not be able to obtain a refund for overpayments of “regular” tax amounts to the extent that they have future amounts payable under a Section 965 installment payment election, despite the statutory provision allowing entities to elect the eight-year installment payment treatment of the Section 965 liability.

The initial installment of the one-time transition tax was due on the timely filed due date of April 17, 2018. Taxpayers initiating electronic funds transfers on April 17, 2018, may have received notification that the payment would not be posted on the same date. For those taxpayers, payment of the initial installment may be considered not paid on time, resulting in acceleration of the entire amount due in 2018. Grant Thornton’s National Tax Office is currently seeking further guidance on the matter, but, in the meantime, entities may need to review the form and timing of payment of the first installment and document their position regarding whether paying the tax over the elective eight-year period remains an option. Entities should direct questions and concerns on Section 965 matters to their tax advisers.

FASB publishes second-quarter 2018 e-newsletter The FASB issued the Q2 2018 edition of the FASB Outlook e-newsletter, which includes articles that discuss

  • Academic input throughout the standard-setting process
  • Forthcoming standards on leasing practical expedients, disclosures, and non-employee stock compensation
  • A summary of upcoming meetings

The newsletter also includes a link to a video that discusses how the Board is focusing on accounting and implementation issues related to the effects of the Tax Cuts and Jobs Act of 2017.

SEC staff updates IFRS Taxonomy FAQs On April 19, the staff of the SEC’s Office of Structured Disclosure updated its FAQs on the IFRS Taxonomy to provide clarifying contact information for questions on structuring disclosures using the IFRS Taxonomy.

IASB releases supporting materials targeting SME users The IFRS Foundation has released the first three of 35 stand-alone modules designed to provide support to stakeholders learning about, applying, or reading financial statements prepared under the IFRS for SMEs Standard. The three modules released are:

  • Small and medium-sized entities
  • Financial Statement Presentation
  • Property, Plant and Equipment

Each module addresses one of the 35 sections in the Standard and includes

  • The full text of the applicable section of the Standard, with notes and examples that are designed to explain and illustrate the requirements
  • A discussion of the significant estimates and other judgments made in the accounting for transactions and events under the Standard
  • A summary of the main differences between the sections of the Standard and the corresponding full IFRS Standard
  • Multiple-choice questions and answers, and case studies with solutions

The IFRS Foundation intends to publish the remaining modules over the coming months.

International Federation of Accountants IPSASB issues proposed improvements to IPSAS The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) released for comment Exposure Draft 65, Improvements to IPSAS, 2018, which proposes improvements to International Public Sector Accounting Standards (IPSAS). These improvements are designed to

  • Address comments received from stakeholders
  • Converge with amendments to IFRS Standards, based on the IASB’s improvements and narrow-scope amendments, and with the interpretations of the IFRS Interpretations Committee (IFRIC)

Comments on the proposal are due by July 15.

© 2018 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.