Repatriation Tax | Get the Help You Need
With the 2017 Tax Cuts and Jobs Act (TCJA), US owners of foreign businesses became subject to a one-time transition tax called the Transition Tax or the Repatriation Tax (IRC Section 965).
Unfortunately, the IRS guidance on the Repatriation Tax wasn’t ready until late in the 2017 tax filing season. Some businesses missed reporting the tax altogether. Other businesses filed before detailed guidance was available. As a business owner, you may find yourself needing to correct past tax returns. We can help.
We’ve monitored the Repatriation Tax legislation since it was introduced and have been thought leaders and presenters on this topic. During the 2017 tax preparation season, we prepared numerous Repatriation Tax calculations for clients with various scenarios. Since then, we have assisted clients with late filing of the Repatriation Tax, as well as amended calculations. We are well versed in this area and work with individuals, business owners, and other tax professionals on this matter.
If you believe your past Repatriation Tax filings need to be corrected, let’s talk.
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Frequently Asked Questions About the Repatriation Tax
The rules are complex. US individuals and businesses were subject to the tax if their ownership percentage in a foreign corporation exceeded certain thresholds in late 2017. For example, the tax often applied to:
- Individuals who, together with family members, owned or controlled a foreign corporation (generally, had more than 50% ownership)
- Individuals who had at least a 10% voting interest in a foreign corporation, if at least one of the other 10% shareholders was a US domestic corporation
- Businesses with certain levels of control or ownership in foreign corporations.
Learn more about the Repatriation Tax.
In some cases, amending can result in a sizable refund. If your Repatriation Tax was calculated conservatively (due to the absence of clear guidance at the time), then you may have overpaid the original tax. By amending your returns timely, you can recover the refund. In other cases, if you under-reported (or failed to report) the Repatriation Tax, you may be at high risk.
While it’s true that the Repatriation Tax guidance from the IRS has been confusing, the IRS is now pursuing taxpayers who did not properly calculate and pay the tax with their 2017 returns. The IRS originally expected to raise between $339 billion and $4 trillion from the Repatriation Tax. Instead, taxpayers only reported a very small fraction of that on their tax returns.
As a result, the IRS sees this as an area worth investigating. It held an amnesty program in 2018 to give taxpayers a chance to correct their Repatriation Tax filings. If you missed the amnesty program, other options are still available to correct your Repatriation Tax reporting. But, to correct your filings under favorable terms, you must fix them before the IRS audits your return for Repatriation Tax violations.
It’s not a good idea to ignore the tax. The IRS will be able to tell from your more recent tax returns whether you should have included the Repatriation Tax on your 2017 returns. And the IRS has already issued public warnings to say that it will pursue taxpayers who did not report and pay the Repatriation Tax in 2017. You can generally obtain a much better result if you fix the situation voluntarily before the IRS audits you.
When the 2017 Tax Cuts and Jobs Act (TCJA) became law, a new international corporate tax system went into effect, replacing a tax system that dated back to 1962. Under the old system, businesses could defer US tax on foreign earnings if they did not “repatriate” those earnings by bringing the money back to the US. Under the TCJA, this was no longer possible. Instead, businesses would be taxed on foreign earnings each year, even if they left the money offshore.
The purpose of the one-time Repatriation Tax was to “reset” from the old system to the new system. The Repatriation Tax would make sure companies paid US tax on all of the foreign earnings they had accumulated offshore over the years. Then, going forward, they would pay US tax each year on any new foreign earnings.
To ease the impact of companies having to pay tax on all prior-year offshore earnings at once, the Repatriation Tax offered a special low tax rate on these accumulated earnings.
Yes, the IRS requires that you file to show that no Repatriation Tax is due.
Yes. Since the Repatriation Tax is very complex, some tax professionals prefer to outsource it to a firm like ours that specializes in international tax. We have assisted wealth advisors, other US CPA firms, and overseas tax professionals with their Repatriation Tax needs.
In some cases, we have prepared the Section 965 calculations and related forms and schedules. In other cases, we have prepared the entire returns. We are able to set up tailored arrangements based on your needs.
Our process includes:
- Initial Assessment | We gather the relevant facts, provide feedback on your situation, and recommend next steps
- Repatriation Tax Calculation | Typically, we review your most recent several years’ worth of financial statements, prepare an Earnings and Profits (E&P) study, and then calculate the Repatriation Tax on these earnings
- Adjustments | We explore options to reduce the overall Repatriation Tax and make a final plan with you
- Discussion of Tax Payment Options | In 2018, taxpayers could pay the Repatriation Tax in full or in installments. Although most payments must now be made in full, we will review your options with you, and discuss the benefits and drawbacks of the options
- Filing | We prepare Form(s) 5471
- Planning Ahead | We assist you with planning in a number of areas, including GILTI planning, base erosion tax planning, future §962 elections, net investment income tax planning, and entity structuring.
Who We Serve
Our clients are both multinational businesses and their owners, including:
- US owners of foreign businesses
- Other US CPA firms and their clients
- Nexia partners and foreign tax firms who have US clients with direct or indirect ownership of non-US businesses.
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Beyond the Repatriation Tax
Together with the one-time Repatriation Tax, the TCJA introduced an annual Global Intangible Low-Taxed Income (GILTI) tax. This tax is assessed annually at a rate of up to 37% per year.
Whereas the Repatriation Tax made sure businesses were fully taxed on prior years’ earnings, the GILTI tax seeks to ensure that businesses pay sufficient tax on their foreign earnings each year going forward.
Once your Repatriation Tax has been correctly calculated, it’s important to consider how the GILTI tax will affect you. As a result of GILTI, business structures that were tax-efficient under the old laws are no longer tax-optimal under the new laws.
We help our clients who are now subject to GILTI understand how the tax law changes have affected their total tax. And then, we help them identify the one-time changes they can make to optimize their tax position under the new laws. Learn more about our GILTI tax planning.
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Refer With Confidence
Are you a CPA firm with a client who has international corporate tax issues? We routinely partner with other tax preparation professionals on the Repatriation Tax and the GILTI tax.
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
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We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.
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What our clients say
“The process has been simple and quick. When there was a question (mail review) of the IRS for a previous return, the staff was able to explain and help resolve the situation completely and without hassle. I have access to The Wolf Group staff for any questions and everyone was extremely professional, meticulous, and prompt.”
“As always, the staff of The Wolf Group with whom we were in contact was prompt, responsive and helpful. Their professionalism is impeccable. Tax filing time has always been an ordeal for me, relieved only by the knowledge that we can rely on the assistance and support of TWG.”
“My overall interaction with all personnel at The Wolf Group (having found The Wolf Group through a blind internet search) has been excellent. Everyone was very easy to talk to and very helpful at every point in explaining details and in resolving all the complexities. A really good experience.”