IRS prohibits certain accounting period changes for foreign corporations

Tax Hot Topics newsletter On Feb. 13, the IRS issued Revenue Procedure 2018-17 to limit a specified foreign corporation’s (SFC) ability to change its year-end. Rev. Proc. 2018-17 modifies Rev. Proc. 2006-45 and Rev. Proc. 2002-39 to prevent an SFC with a taxable year beginning on Jan. 1, 2017, from changing to a taxable year ending before Dec. 31, 2017.

Rev. Proc. 2018-17 was issued to prevent changes in annual accounting periods by certain foreign corporations that may enable the avoidance, reduction, or delay of the one-time repatriation tax under Section 965. Section 965 was modified by the Tax Cuts and Jobs Act to impose a transition tax on certain deferred foreign income of specified foreign corporations. The tax is imposed in the last taxable year that begins before Jan. 1, 2018. As a result, calendar year taxpayers would be subject to the transition tax in the taxable year beginning Jan. 1, 2017, and ending Dec. 31, 2017.

The revenue procedure retroactively modifies the inapplicability provisions in the general and automatic procedures under Rev. Proc. 2002-39 and Rev. Proc. 2006-45 for foreign corporations requesting an annual accounting period change. For purposes of applying this revenue procedure, a 52-53-week year is deemed to begin on the first day of the calendar month nearest to the first day of the 52-53-week taxable year, and is deemed to end or close on the last day of the calendar month nearest to the last day of the 52-53-week taxable year. Taxpayers that are not on a calendar taxable year end are likely not affected by Rev. Proc. 2018-17.

Contact Sharon Kay
Partner, Washington National Tax Office
T +1 202 861 4140

David Auclair
National Managing Principal, Washington National Tax Office
T +1 202 521 1515

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

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