PROPOSED REGULATIONS TO SECTION 965 -

On August 1, 2018, the Internal Revenue Service (IRS) took the first step in providing significant and detailed guidance on provisions of the Tax Cuts and Jobs Act (TCJA) with the issuance of proposed regulations (the Proposed Regulations) under Section 965 of the Internal Revenue Code of 1986, as amended, or the so-called “Repatriation Tax.”

In broad strokes, Section 965 levies a current tax on the previously untaxed post-1986 earnings and profits (E&P) (the greater of the amount calculated on November 2, 2017, or December 31, 2017) of a “specified foreign corporation” (SFC) to 10% US shareholders of the SFC by treating such amounts as additional subpart F income. An SFC is any foreign corporation (that is not a passive foreign investment company) with at least one US corporation that is a 10% US shareholder. In general, foreign earnings not in excess of the foreign cash and cash equivalents (the so-called “cash position”) are subject to a 15.5% tax rate and all other untaxed foreign earnings are subject to an 8% tax rate. Taxpayers may elect to pay the Repatriation Tax in eight annual installments on an interest-free basis.