November 17, 2018

November 16, 2018

Subscribe to Latest Legal News and Analysis

November 15, 2018

Subscribe to Latest Legal News and Analysis

IRS Holding 2017 Overpayments to Satisfy Future Section 965 Liabilities

In a surprising development, the Internal Revenue Service (IRS) has announced that if a taxpayer’s 2017 payments, including estimated tax payments, exceed its 2017 net income tax liability described under Internal Revenue Code (Code) Section 965(h)(6)(A)(ii) (its net income tax determined without regard to Code Section 965) and the first annual installment (due in 2018) pursuant to an election under Code Section 965(h), the taxpayer may not receive a refund or credit of any portion of properly applied 2017 tax payments unless—and until—the amount of payments exceeds the entire unpaid 2017 income tax liability, including all amounts to be paid in installments under Code Section 965(h) in subsequent years. Thus, for taxpayers making an election under Code Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments.

The IRS’s position, announced on April 13, 2018 (the last business day before the normal due date for the filing of 2018 individual income tax returns), effectively allows the IRS to deprive taxpayers of the use of funds and credits for overpayments for a potentially multi-year period. This position is at odds with the normal practice of allowing refunds or credits of overpayments and arguably violates Code Section 7803(a), which provides for certain taxpayer rights. This position also would seem to be in conflict with Code Section 965(h) itself, allowing the Code Section 965 transition tax liability to be paid in eight backloaded installments rather than immediately. The AICPA sent a letter to the IRS on April 19, 2018, urging the IRS to change its position to avoid the “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations.” We are hopeful that the IRS will reconsider this misguided policy, but in the meantime taxpayers need to be aware of it.

© 2018 McDermott Will & Emery

TRENDING LEGAL ANALYSIS


About this Author

Lowell D. Yoder, International Tax Planning, Attorney, McDermott Will, Law Firm
Partner

Lowell D. Yoder is a partner in the law firm of McDermott Will & Emery LLP and is based in the Chicago office.  He is head of the U.S. & International Tax Practice Group. Lowell’s practice focuses on international tax planning for multinational companies.   He handles cross-border acquisitions, dispositions, mergers, reorganizations, joint ventures and financings.  He advises concerning multi-jurisdictional business structures and the use of special purpose foreign entities.  He also works with an extensive network of foreign lawyers on developing structures that minimize...

31-984-7523
Sandra P. McGill, McDermott Will Emery, Chicago, International Tax Planning Lawyer, multi-jurisdictional business structure Attorney
Partner

Sandra P. McGill is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. 

Sandra focuses her practice on international tax planning for U.S. and foreign-based multinational companies, both public and private.  She advises regarding multi-jurisdictional business structures, such as centralized holding company and finance company structures.  Sandra works with an extensive network of foreign lawyers on developing structures that minimize foreign taxes of U.S. multinationals without adversely affecting their U.S. tax position. 

Sandra also advises clients on a broad range of cross-border tax issues, including foreign tax credit planning; subpart F and other anti-deferral rules; sourcing issues; foreign currency issues; U.S. trade, business or permanent establishment issues; and Section 367 and other Subchapter C issues related to cross-border restructurings, acquisitions and financings. 

312 984 6903
David G. Noren, International Tax Planning Attorney, McDermott Will Emery Law firm Washington DC
Partner

David G. Noren is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C. office.  He focuses his practice on international tax planning for multinational companies.  David’s work in this area covers a wide range of both “outbound” and “inbound” issues, with a particular focus on the “subpart F” anti-deferral rules, the application of bilateral income tax treaties, and the treatment of cross-border flows of services and intellectual property rights under transfer pricing and other rules.  He has been ranked as...

202-756-8256
Andrew R. Roberson tax attorney McDermott Will. Andy handles tax cases in Federal court, United States Tax Court
Partner

Andrew R. Roberson is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Andy specializes in tax controversy and litigation matters, and has been involved in over 30 matters at all levels of the Federal court system, including the United States Tax Court, several US Courts of Appeal and the Supreme Court. 

Andy also represents clients, including participants in the CAP program, before the Internal Revenue Service Examination Division and Appeals Office, and has been successful in settling...

312-984-2732