IRS updates FAQs on transition tax, easing certain penalties

Tax Hot Topics newsletterThe IRS issued updated its frequently asked questions (FAQs) page on the Section 965 transition tax on June 4 to state that it would not impose certain penalties related to estimates of installments of the tax. Notably, the updated FAQs do not provide for a refund mechanism for taxpayers that overpaid the tax through an additional tax payment or a credit-elect. For more information on the Section 965 transition tax, click here.

The Question 15 section on the IRS document states the IRS will not assess a penalty for an underpayment of estimated tax for taxpayers that made the election under Section 965(h) to pay the transition tax in installments, but applied their 2017 overpayment to their 2018 estimated tax liability, without calculating the net Section 965 liability, if the taxpayers’ estimated tax payment is sufficient to satisfy the first and second required installments for 2018 estimated tax.

Taxpayers who receive a notice from the IRS proposing or assessing penalties under Sections 6654 or 6655 who follow the fact pattern in the FAQs should respond to the notice accordingly and request an abatement of the penalties.

The Question 16 section states that the IRS will not assess any additions to tax or penalties against an individual taxpayer who makes an election under Section 965(h), but fails to timely pay the first installment of tax due, so long as the individual pays the total amount of the first installment on or before the due date for the second installment. In addition, the IRS will not require the subsequent installments to be accelerated under Section 965(h)(3).

Finally, the Question 17 section clarifies that an individual taxpayer who did not make a timely election under Section 965(h) can yet to do so on an amended return filed on or before the individual’s extended due date, which is Oct. 15, 2018. This relief is similar to the type of late-election relief provided under Treas. Reg. Sec. 301.9100-2.

Contacts David Sites
Partner, Washington National Tax Office
T +1 202 861 4104

Liz Askey
Managing Director, Tax Practice Policy & Quality
T +1 202 521 1513

Shamik Trivedi
Senior Manager, Washington National Tax Office
T +1 202 521 1511

Cory Perry
Senior Manager, Washington National Tax Office
T +1 202 521 1509

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.