Three new FAQs covering the Code Sec. 965 transition tax provide welcome penalty and filing relief for taxpayers who make the election to pay the tax in eight annual installments. The transition tax on accumulated foreign earnings is a tax imposed on the untaxed foreign earnings of foreign corporations owned by U.S. shareholders.

Penalty and Filing Relief

The FAQs provide the following relief:

  • Taxpayers who credited an improperly calculated 2017 overpayment against estimated tax liability for 2018, will not be subject to estimated tax penalties if the taxpayer makes all required payments by the due date for the second installment, June 15, 2018.
  • An individual’s failure to timely pay the first annual installment of tax will not result in the acceleration of subsequent installment payments if certain requirements are met. The individual’s transition tax liability in the 2017 tax year must be less than $1 million and the required payment must be made by the due date of the second installment, generally April 15, 2019. Although additions to tax will not be assessed, interest must be paid.

An individual who has filed a 2017 return, without making the election, may do so on an amended return, Form 1040X, Amended U.S. Individual Income Tax Return. The return must be filed by the due date for the return, which will include any additional time that the IRS would have provided if an extension was granted.