The IRS today released an advance version of Notice 2018-26, addressing forthcoming guidance under the section 965 “transition tax” as enacted into the Code by the new tax law (Pub. L. No. 115-97, enacted December 22, 2017).
Notice 2018-26 [PDF 120 KB] describes a wide-ranging series of new rules and procedures relating to computations of certain items relevant to the transition tax, anti-abuse rules, certain special elections under or relevant to section 965, and the mechanics for how taxpayers 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 to provide initial impressions, a high-level review, of certain issues presented by the IRS notice. Additional reports from KPMG will focus on other issues.
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:
For an international perspective, the main portion (Section 3) of Notice 2018-26, announces that future regulations under section 965 will:
The following substantive sections (Sections 4-7) of Notice 2018-26 announce:
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.