On August 1, 2018, the Internal Revenue Service (IRS) announced the proposed regulations[1] for Internal Revenue Code §965 (Transition or Repatriation Tax).  The proposed regulations are broken down into several sections.  The areas and issues that are affected the most by the proposed regulations are as follows:

  1. Calculation of Earnings & Profits (E&P)
  2. Calculation of the Cash and Non-Cash Positions
  3. Disregarded Transactions between Measurement Dates
  4. Foreign Tax Credit §962 Election for Individuals
  5. Foreign Withholding Taxes
  6. Calculation of Previously Taxed Income

The IRS is accepting commentary on the proposed regulations until October 9, 2018.  The final regulations will be published after that date but likely not before the individual filing deadline of October 15, 2018.

Several of the proposed regulations, especially with regard to the calculations of E&P, cash position, and previously taxed income, may result in a higher inclusion amount (and therefore a higher Transition Tax due) than originally considered under the notices previously issued.

Additionally, for those considering a §962 election,[2] the regulations are very helpful for determining how this election may affect taxpayers on a go-forward basis.

We strongly recommend that taxpayers who had the Transition Tax calculated earlier in the year (based off the notices[3] and/or FAQs[4]) obtain a “mirrored calculation” before filing their 2017 tax return.  This will help ensure adherence to the proposed regulations and also make sure that proper transitions are in place for the Global Intangible Low-Taxed Income (GILTI)[5] tax in 2018.


[1] https://www.irs.gov/pub/irs-drop/reg-104226-18.pdf

[2] https://www.law.cornell.edu/uscode/text/26/962

[3] https://www.irs.gov/newsroom/international-taxpayers-and-businesses

[4] https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

[5] https://www.law.cornell.edu/uscode/text/26/951A