The IRS today released an advance version of Notice 2018-26 as guidance under section 965 concerning the “transition tax” as added to the Code by the new tax law (Pub. L. No. 115-97, enacted December 22, 2017).
Notice 2018-26 [PDF 120 KB] describes rules and procedures relating to certain special elections under section 965, and provides guidance on how to report and pay the transition tax.
Notice 2018-26 also provides relief to taxpayers from certain estimated tax requirements and penalties arising from the enactment of the transition tax under section 965 and the change to existing stock attribution rules in the new tax law.
With today’s notice, comments are requested about these rules and about what additional guidance would assist taxpayers in computing the transition tax. The IRS and Treasury stated additional future guidance will be issued.
The purpose of this report is simply to provide text of the IRS notice. Initial impressions will be provided in future reports from KPMG LLP.
Newly enacted Code section 965 imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at a rate of 8%. The transition tax generally may be paid in installments over an eight-year period.
Guidance previously issued by the IRS concerning section 965 includes:
Notice 2018-26 describes:
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