Transition Tax Reprieve (sort of)

For those who haven’t seen the news, the IRS has effectively delayed the deadline for paying the first installment of the Transition Tax.  For analysis and discussion, see yesterday’s posts on The Isaac Brock Society and Citizenship Solutions.

The short version is that, for individuals with Transition/Repatriation tax liabilities of less than US$1 million, underpayment of the first installment will not trigger acceleration of the entire liability provided that:

  • The §965 (transition tax) liability is reported on a timely filed return for the “inclusion year” (this would be 2017 for most individual US Shareholders);
  • The §965(h)(1) election to spread payments out over 8 years is included on that timely filed return; and
  • The entire first and second installments have been paid by April 15, 2019 (June 17, 2019 for taxpayers residing outside the US).

Note that there will be interest charged on the late portion of the first installment.

So, what does this mean?

First off, it’s a big win for those who were scrambling to compute and pay this tax by June 15. Small business owners will now have until October 15 (assuming they’ve applied for an extension) to compute and report their transition tax liability (and until  17 June 2019 to pay the first installment) and remain compliant with US tax law. On October 15, however, those who are sitting on the fence regarding compliance will have a difficult decision.

 

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