IRS tweaks final transition tax regulations after government reopens

Tax Hot Topics newsletter The IRS recently modified the final Section 965 transition tax regulations posted to during the government shutdown, revising the transfer agreement due date.

Though the IRS was able to issue some guidance during the shutdown, it could not publish regulations to the Federal Register, complicating effective dates and other deadlines. With the government fully reopened, it updated the final transition tax regulations accordingly and formally published them.

Under Section 965, taxpayers may elect to pay the transition tax in eight installments, but those payments may be accelerated if certain events occur. This includes a liquidation, sale, exchange or other disposition of substantially all of the taxpayer’s assets. Taxpayers may avoid an acceleration or triggering event if the transferee enters into a transfer agreement assuming the liability for any unpaid amounts. Similar rules also apply to liabilities deferred under the Section 965(i) rules applicable to S corporations.

For triggering events that occurred on or before Dec. 31, 2018, the IRS changed the date for timely filing from Jan. 31, 2019, to 30 days from the date the regulations appear as final in the Federal Register. The regulations were published on Feb. 5, making the new due date March 7, 2019. Taxpayers with deferred Section 965 liabilities, or those paying the amounts in installments, should take note of these rules. Taxpayers that fail to timely comply (i.e., file a transfer agreement 30 days from the date of the event) may face significant tax consequences.


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

David Zaiken
Managing Director, Washington National Tax Office
T +1 202 521 1543

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

Mike Del Medico
Manager, Washington National Tax Office
T +1 202 521 1522

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