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Taxpayers with international operations should note increased compliance burden

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Tax Hot Topics newsletterThe IRS recently issued several new international tax forms with significant modifications in an effort to implement changes brought about by the Tax Cuts and Jobs Act (TCJA). Taxpayers with international operations should be aware of the increased complexity and compliance burden likely to result from the updated forms as well as the law changes enacted under TCJA. As taxpayers’ compliance burdens continue to rise there are likely to be a myriad of reporting issues to deal with.

For example, all taxpayers with a Section 965 inclusion in its 2017 or 2018 tax year will be required to file Form 965 and all required supporting schedules with their 2018 tax return. This form requires significant detail including schedules listing each deferred foreign income corporation (DFIC), the DFICs’ post-1986 accumulated deferred foreign income, cash positions by foreign entity and more.

These reporting requirements apply even if the entire Section 965 liability was in 2017 and the 2017 reporting requirements in the IRS 2017 FAQ were fully satisfied. See Q6 of the IRS 2018 Section 965 FAQs indicating that detailed reporting in 2018 is required irrespective of the year of the inclusion.  Additionally, if a taxpayer would be required to include amounts in income under Section 965 but for an overall aggregate foreign earnings and profits (E&P) deficit, they still must complete Form 965 and attach it to their 2018 income tax return.

Another requirement that may be overlooked by taxpayers is the expanded scope of Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). Under prior rules, a separate Form 8858 was filed for each foreign disregarded entity. Under the new rules, each foreign branch, both of the U.S. taxpayer and of certain controlled foreign corporations, must now also file a separate Form 8858 in addition to the forms filed for each foreign disregarded entity.

These are just a few notable examples in a long list of new responsibilities for the 2018 tax year that should be considered by taxpayers. Select new and modified forms and instructions released by the IRS are listed below, with links to their locations on the IRS website.

New forms and schedules Form 965, Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System: Form, Instructions
Form 965 also includes the following new schedules:

  • Schedule A, U.S. Shareholder’s Section 965(a) Inclusion Amount: Schedule
  • Schedule B, Deferred Foreign Income Corporation’s Earnings and Profits (E&P), Schedule
  • Schedule C, U.S. Shareholder’s Aggregate Foreign Earnings and Profits Deficit, Schedule
  • Schedule D, U.S. Shareholder’s Aggregate Foreign Cash Position, Schedule
  • Schedule E, U.S. Shareholder’s Aggregate Foreign Cash Position - Detail, Schedule
  • Schedule F, Foreign Taxes Deemed Paid by Domestic Corporation (2018 Tax Year), Schedule
  • Schedule G, Foreign Taxes Deemed Paid by Domestic Corporation (2017 Tax Year), Schedule
  • Schedule H, Amounts Reported on Forms 1116 and 1118 and Disallowed Foreign Taxes, Schedule

Form 965-A, Individual Report of Net 965 Tax Liability: Form, Instructions
Form 965-B, Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and (REIT) Report of Net 965 Inclusion: Form, Instructions
Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts: Form, (Instructions not yet available)
Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI): Form, Instructions
Form 8993, Section 250 Deduction for Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI): Form, Instructions

Modified forms and schedules Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations: Form, Instructions
Form 5471 also includes the following schedules:

  • Schedule E, Income, War Profits, and Excess Profits Taxes Paid or Accrued: Schedule
  • Schedule H, Current Earnings and Profits: Schedule
  • Schedule I-1, Information for Global Intangible Low-Taxed Income: Schedule
  • Schedule J, Accumulated Earnings & Profits (E&P) of Controlled Foreign Corporations: Schedule
  • Schedule M, Transactions Between Controlled Foreign Corporation and Shareholders or Other Related Persons: Schedule
  • Schedule O, Organization or Reorganization of Foreign Corporation, and Acquisitions and Dispositions of its Stock: Schedule
  • Schedule P, Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations: Schedule

Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs): Form, Instructions
Form 8858 also includes the following schedule:

  • Schedule M, Transactions Between Foreign Disregarded Entity (FDE) or Foreign Branch (FB) and the Filer or Other Related Entities: Schedule

Form 1118, Foreign Tax Credit – Corporations: Form, Instructions
Form 1118 also includes the following schedules:

  • Schedule I, Reduction of Foreign Oil and Gas Taxes Schedule
  • Schedule J, Adjustments to Separate Limitation Income (Loss) Categories for Determining Numerators of Limitation Fractions, Year-End Recharacterization Balances, and Overall Foreign and Domestic Loss Account Balances: Schedule, Instructions
  • Schedule K, Foreign Tax Carryover Reconciliation Schedule: Schedule, Instructions


Contact:

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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