The IRS today released an advance version of Notice 2018-07 as guidance for computing the “transition tax” under the recently enacted tax law.
As explained in a related IRS release (IR-2017-212), 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.
Notice 2018-07 [PDF 151 KB] describes regulations that the IRS and Treasury Department intend to issue, including rules for determining the amount of cash and cash equivalents for purposes of applying the 15.5% rate and rules for determining the impact of intercompany transactions (including distributions) on the amount of foreign earnings subject to the transition tax.
Notice 2018-07 provides background on section 965, describes regulations that the IRS and Treasury intend to issue, describes the effective dates of these future regulations, and requests comments and provides contact information.
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