IRS releases general questions and answers under Section 965

Tax Hot Topics newsletter The IRS published questions and answers on June 27 that addresses issues related to payment obligations arising under Section 965 and filing Transfer Agreements and Consent Agreements under Sections 965(h) and (i). Unlike past Q&As on Section 965, this release does not specifically relate to the filing of 2017 or 2018 tax returns.

Under Section 965(h), a taxpayer is permitted to make an election to pay their Section 965 liability in eight installment payments. The Q&A describes how the first installment payment was to be made, and provides instruction with respect to subsequent installment payments. Subsequent payments are required to be paid by the due date of the income tax return (without regard to extensions). Such payments are to be made separately from income tax payments and can be submitted using EFTPS, wire transfer or by mail. The IRS will make every effort to issue an installment notice and payment voucher for each installment approximately six to eight weeks before their respective due dates. The Q&A also emphasizes that the IRS will not refund any portion of a properly applied installment payment until the full balance of the Section 965(h) liability has been paid.

Taxpayers who have made the election to pay their Section 965(h) liability in installments may cause the entire amount to become due and payable if certain “triggering events” occur. Similarly, S corporation shareholders who have made the election under Section 965(i) to defer the Section 965 tax liability may cause the entire amount to become due and payable if certain triggering events occurs. Eligible transferors and transferees may enter into Transfer Agreements with the IRS to defer payment of the remaining amount of the Section 965(h) net tax liability or Section 965(i) net tax liability that would otherwise become due as a result of such a triggering events. The Q&A provides guidance on filing such transfer agreements.

A Consent Agreement may also be entered into and filed with the IRS to receive the consent necessary to make a Section 965(h) election to pay the unpaid portion of the Section 965 liability that was deferred under Section 965(i) following a triggering event. The Q&A describes how to obtain consent for this purpose, confirms that a Section 965(h) election must be filed following the receipt of consent, and clarifies that a taxpayer may not receive a refund or credit for excess remittances in the year of a triggering event until the entire income tax liability (including the Section 965(h) liability) has been satisfied. The Q&A also provides that an S corporation remains jointly and severally liable for a Section 965 liability of it shareholder that makes a Section 965(h) election after obtaining consent.

Taxpayers who have made elections under Section 965(h) or Section 965(i) should familiarize themselves with the Q&A. Additionally, the Q&A should be monitored as the IRS may continue to add additional questions and answers to the document in the future as necessary.

David Sites
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
Washington National Tax Office 
T +1 202 521 1522

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