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Common questions about the US Section 965 Transition Tax Statement

by Intuit• Updated 5 months ago

Below are solutions to frequently asked questions about the US Section 965 Transition Tax Statement, along with explanations of input fields in ProConnect Tax.

Where do I find input fields for section 965 in ProConnect Tax?

Select the applicable tax type below for explanations of input fields for the section 965 transition tax.

Individual

You can find the following input fields by going to the Input Return tab, selecting Taxes from the left of the screen, and choosing Section 965 Tax:

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(a) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Taxpayer's net tax liability for the taxable year with all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year with section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Taxpayer's net tax liability for the taxable year without 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year without section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Elect to pay net tax liability under section 965 in installments under section 965(h)(i) - Select the box to elect to pay net tax liability under section 965 in installments under section 965(h)(1). This entry checks the appropriate box on the IRC 965 Transition Tax Statement.
S corporation shareholder election to defer payment of net tax liability under section 965(i)(1) - Select the box to make the S corporation shareholder election to defer payment of net tax liability under section 965(i)(1).
Section 965(n) Election - Elect not to apply net operating loss deduction under section 965(n) - Select the box to produce the election not to apply net operating loss deduction under section 965(n).
Section 965(n) Election - Amount required to be taken into account under section 951(a)(1) by reason of section 965 - Enter the amount required to be taken into account under section 951(a)(1) by reason of section 965 for the section 965(n) election statement.
Section 965(n) Election - Taxes deemed to be paid by domestic corporation under section 960(a) and (b) for the taxable year with respect to the amount described above which are treated as dividends under section 78 - Enter the taxes deemed to be paid by domestic corporation under section 960(a) and (b) which are treated as dividends under section 78 to be included on the section 965(n) election statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Check this box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

S-Corporate

For tax year 2021 see Generating the Schedules K-2 and K-3 in ProConnect

For tax year 2020 and prior: You can find the following input fields by going to the Input Return tab, selecting Other Forms from the left of the screen, and choosing Inclusion of Deferred Foreign Income (965):

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 10 and is allocated to each shareholder on Schedule K-1, line 10.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(c) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 12d and is allocated to each shareholder on Schedule K-1, line 12.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 17d and is allocated to each shareholder on Schedule K-1, line 17.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Check this box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

Partnership

For tax year 2021 see Generating the Schedules K-2 and K-3 in ProConnect

For tax year 2020 and prior: You can find the following input fields by going to the Input Return tab, selecting Other Forms from the left of the screen, and choosing Section 965 Tax:

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 13d and is allocated to each partner on Schedule K-1, line 13.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(c) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 13d and is allocated to each partner on Schedule K-1, line 13.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement. The entry in this field also prints on Schedule K, line 20c and is allocated to each partner on Schedule K-1, line 20.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Check the box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

Fiduciary

You can find the following input fields by going to the Input Return tab, selecting Taxes from the left of the screen, and choosing Section 965 Tax:

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(c) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Taxpayer's net tax liability for the taxable year with all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year with section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Taxpayer's net tax liability for the taxable year without 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year without section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Elect to pay net tax liability under section 965 in installments under section 965(h)(i) - Select the box to elect to pay net tax liability under section 965 in installments under section 965(h)(1). This entry checks the appropriate box on the IRC 965 Transition Tax Statement.
S corporation shareholder election to defer payment of net tax liability under section 965(i)(1) - Select the box to make the S corporation shareholder election to defer payment of net tax liability under section 965(i)(1).
Section 965(n) Election - Elect not to apply net operating loss deduction under section 965(n) - Select the box to produce the election not to apply net operating loss deduction under section 965(n).
Section 965(n) Election - Amount required to be taken into account under section 951(a)(1) by reason of section 965 - Enter the amount required to be taken into account under section 951(a)(1) by reason of section 965 for the section 965(n) election statement.
Section 965(n) Election - Taxes deemed to be paid by domestic corporation under section 960(a) and (b) for the taxable year with respect to the amount described above which are treated as dividends under section 78 - Enter the taxes deemed to be paid by domestic corporation under section 960(a) and (b) which are treated as dividends under section 78 to be included on the section 965(n) election statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Select the box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

Corporate

You can find the following input fields by going to the Input Return tab, selecting Taxes from the left of the screen, and choosing Section 965 Tax:

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(c) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Taxpayer's net tax liability for the taxable year with all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year with section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Taxpayer's net tax liability for the taxable year without all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year without section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Elect to pay net tax liability under section 965 in installments under section 965(h)(i) - Select the box to elect to pay net tax liability under section 965 in installments under section 965(h)(1). This entry checks the appropriate box on the IRC 965 Transition Tax Statement.
Payment to be Made with Return (Exclude 965 payment) - Payment of non-section 965 tax to be made with tax return (-1 if none) -When section 965 tax is included in the return, enter the amount of the payment being made with the return. Although this amount won't be reflected anywhere on the return itself, it's necessary to ensure that the amount paid with the return doesn't include section 965 tax. If this return is being electronically filed and direct debit is being used to pay the amount due, this is the amount that will be included in the e-file as the payment.
IMPORTANT: This amount should exclude the section 965 tax because it is required to be paid separately.
Section 965(n) Election - Elect not to apply net operating loss deduction under section 965(n) - Select the box to produce the election not to apply net operating loss deduction under section 965(n).
Section 965(n) Election - Amount required to be taken into account under section 951(a)(1) by reason of section 965 - Enter the amount required to be taken into account under section 951(a)(1) by reason of section 965 for the section 965(n) election statement.
Section 965(n) Election - Taxes deemed to be paid by domestic corporation under section 960(a) and (b) for the taxable year with respect to the amount described above which are treated as dividends under section 78 - Enter the taxes deemed to be paid by domestic corporation under section 960(a) and (b) which are treated as dividends under section 78 to be included on the section 965(n) election statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Select the box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

Exempt organization

You can find the following input fields by going to the Input Return tab, selecting Credits & Taxes from the left of the screen, and choosing Section 965 Tax:

Total amount required to be included in income by reason of section 965(a) - Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 1 of the IRC 965 Transition Tax Statement.
Aggregate foreign cash position, if applicable - Enter the aggregate foreign cash position, if applicable. Enter the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 2 of the IRC 965 Transition Tax Statement.
Total deduction under section 965(c) - Enter the total deduction under section 965(c). The amount entered in this field prints on line 3 of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a) - Enter the total deemed paid foreign taxes associated with the total amount required to be included in income by reason of section 965(a). The amount entered in this field prints on line 4a of the IRC 965 Transition Tax Statement.
Total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1) - Enter the total deemed paid foreign taxes disallowed pursuant to IRC 965(g)(1). The amount entered in this field prints on line 4b of the IRC 965 Transition Tax Statement.
Taxpayer's net tax liability for the taxable year with all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year with section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Taxpayer's net tax liability for the taxable year without all 965 related amounts - Enter the taxpayer’s net tax liability for the taxable year without section 965-related amounts. This entry is used in calculating the total net tax liability under section 965 (line 5 of the IRC Transition Tax Statement).
Elect to pay net tax liability under section 965 in installments under section 965(h)(i) - Select the box to elect to pay net tax liability under section 965 in installments under section 965(h)(1). This entry checks the appropriate box on the IRC 965 Transition Tax Statement.
Payment to be Made with Return (Exclude 965 payment) - Payment of non-section 965 tax to be made with taxreturn (-1 if none) - When section 965 tax is included in the return, enter the amount of the payment being made with the return. Although this amount won't be reflected anywhere on the return itself, it's necessary to ensure that the amount paid with the return doesn't include section 965 tax. If this return is being electronically filed and direct debit is being used to pay the amount due, this is the amount that will be included in the e-file as the payment.
- This amount should exclude the section 965 tax because it's required to be paid separately.
Section 965(n) Election - Elect not to apply net operating loss deduction under section 965(n) - Select the box to produce the election not to apply net operating loss deduction under section 965(n).
Section 965(n) Election - Amount required to be taken into account under section 951(a)(1) by reason of section 965 - Enter the amount required to be taken into account under section 951(a)(1) by reason of section 965 for the section 965(n) election statement.
Section 965(n) Election - Taxes deemed to be paid by domestic corporation under section 960(a) and (b) for the taxable year with respect to the amount described above which are treated as dividends under section 78 - Enter the taxes deemed to be paid by domestic corporation under section 960(a) and (b) which are treated as dividends under section 78 to be included on the section 965(n) election statement.
Notice 2018-13, Section 3.02 - Elect under section 3.02 of Notice 2018-13 to use alternative method to compute post-1986 earnings and profits - Select the box to elect under section 3.02 of Notice 2018-13 to use an alternative method to compute post-1986 earnings and profits of one or more foreign corporations.
Notice 2018-13, Section 3.02 - Foreign Corporation Name and ID Number - If making the election under section 3.02 of Notice 2018-13, for each applicable foreign corporation enter its name and ID number. This information is included in the Notice 2018-13 election statement.

Frequently asked questions

Where is the section 965 tax amount reported?

The section 965 tax amount is included on the total tax line of the main form.

Will the total tax, including 965 tax amount be transmitted with the filing of the main form?

No. Only the total tax calculated for the main form will be transmitted when e-filing the main form. The section 965 tax must be paid separately.

Why is my refund being reduced?

Any refund amount will be reduced by the amount of Section 965 tax calculated, including the portion of the tax that has been deferred to future years under Section 965(h)(1).

When must an election with respect to section 965 of the Code be made?

An election with respect to section 965 of the Code must be made by the due date (including extensions) for filing the return for the relevant year. However, even if an election is made under section 965(h) of the Code to pay a net tax liability under section 965 of the Code in installments, the first installment must be paid by the due date (without extensions) for filing the return for the relevant year.

How to make the Section 965 election?

To report the tax and generate the statement in ProConnect

Go to Input Return ⮕ Taxes ⮕ Other Taxes ⮕ Schedule J, Recapture, Other Taxes
Scroll down to Other Taxes
Enter any applicable information in Section 962 Tax, and Section 962 tax reduction from Form 1118 foreign tax credit
Fill out Section 962 election attachment (MANDATORY for E-file) to generate the statement.

Are domestic partnerships, S corporations, or other passthrough entities required to report any additional information to their partners, shareholders, or beneficiaries in connection with section 965 of the Code?

Yes. A domestic partnership, S corporation, or other passthrough entity should attach a statement to its Schedule K-1s, if applicable, that includes the following information for each deferred foreign income corporation for which such passthrough entity has a section 965(a) inclusion amount:

The partner’s, shareholder’s, or beneficiary’s share of the partnership’s, S corporation’s, or other passthrough entity’s section 965(a) inclusion amount, if applicable.
The partner’s, shareholder’s, or beneficiary’s share of the partnership’s, S corporation’s, or other passthrough entity’s deduction under section 965(c), if applicable.
Information necessary for a domestic corporate partner, or an individual making an election under section 962, to compute its deemed paid foreign tax credits with respect to its share of the partnership’s, S corporation’s, or passthrough entity’s section 965(a) inclusion amount, if applicable.

For more information concerning the application of section 965 to domestic partnerships, S corporations, or other domestic passthrough entities, see Section 3.05(b) of Notice 2018-26.

Prior year information

Who can make an election with respect to section 965 of the Code on a 2017 tax return?

The elections under section 965 of the Code are limited to taxpayers with a net tax liability under section 965 (in the case of section 965(h) of the Code), taxpayers that are shareholders of S corporations and that have a net tax liability under section 965 (in the case of section 965(i) of the Code), taxpayers that are REITs (in the case of section 965(m) of the Code), or taxpayers with an NOL (in the case of section 965(n) of the Code). Thus, a domestic partnership or an S corporation that is a United States shareholder of a deferred foreign income corporation may not make any of the elections under section 965 of the Code.

The Treasury Department and the IRS provided further guidance concerning the availability of the elections under section 965 of the Code to direct and indirect partners in domestic partnerships, shareholders in S corporations, and beneficiaries in other passthrough entities that are United States shareholders of deferred foreign income corporations. See Section 3.05(b) of Notice 2018-26.

The election under Notice 2018-13, Section 3.02 may be made on behalf of a specified foreign corporation pursuant to the rules of §1.964-1(c)(3).

In the case of a consolidated group (as defined in §1.1502-1(h)), in which one or more members are United States shareholders of a specified foreign corporation, the agent for the group (as defined in§1.1502-77) must make the elections on behalf of its members.

What elections are available with respect to section 965 of the Code on a 2017 tax return?

Section 965 of the Code permits multiple elections related to amounts included in income by reason of section 965 of the Code or the payment of a taxpayer’s net tax liability under section 965 (as determined under section 965(h)(6)). Statutory elections can be found in section 965(h), (i), (m), and (n).Furthermore, the Treasury Department and the IRS have announced another election that may be made with respect to the determination of the post-1986 earnings and profits of a specified foreign corporation. This election is described in Notice 2018-13, 2018-6 I.R.B. 341, Section 3.02.

Is there any other reporting in connection with section 965 of the Code required on a 2017 tax return?

Yes. A person that has income under section 965 of the Code for its 2017 taxable year is required to include with its return an IRC 965 Transition Tax Statement, signed under penalties of perjury
and, in the case of an electronically filed return, in Portable Document Format (.pdf) with a filename of “965 Tax”. Multiple IRC 965 Transition Tax Statements can be combined into a single .pdf file.

The IRC 965 Transition Tax Statement must include the following information:

The person’s total amount required to be included in income under section 965(a) of the Code.
The person’s aggregate foreign cash position, if applicable.
The person’s total deduction under section 965(c) of the Code.
The person’s deemed paid foreign taxes with respect to the total amount required to be included in income by reason of section 965(a).
The person’s disallowed deemed paid foreign taxes pursuant to section 965(g).
The total net tax liability under section 965 (as determined under section 965(h)(6)). [1]
The amount of the net tax liability under section 965 to be paid in installments (including the current year installment) under section 965(h) of the Code, if applicable, which will be assessed. [2]
The amount of the net tax liability under section 965, the payment of which has been deferred, under section 965(i) of the Code, if applicable. [3]
A listing of elections under section 965 of the Code or the election provided for in Notice 2018-13 that the taxpayer has made, if applicable.
A model statement is included in Appendix: Q&A3. Adequate records must be kept supporting the section 965(a) inclusion amount, deduction under section 965(c) of the Code, and net tax liability under section 965, as well as the underlying calculations of these amounts. Moreover, additional reporting may be required when filing returns for subsequent tax years, and the manner of reporting may be different.

How will the IRS apply 2017 estimated tax payments (including credit elects from 2016) to a taxpayer’s net tax liability under section 965?

The IRS will apply 2017 estimated tax payments first to a taxpayer’s 2017 net income tax liability described under section 965(h)(6)(A)(ii) (its net income tax determined without regard to section 965), and then to its tax liability under section 965, including those amounts that are subject to payment in installments pursuant to an election under section 965(h).

If a person has already filed a 2017 tax return, what should that person do?

The person should consider filing an amended return based on the information provided in these FAQs and Appendices. Failure to submit a return in this manner may result in processing difficulties and erroneous notices being issued. Failure to accurately reflect the net tax liability under section 965 of the Code in total tax could result in interest and penalties.

In order to amend a return, a person would file the applicable form for amending the return pursuant to regular instructions and would attach: amended versions of forms and schedules necessary to follow the instructions in these FAQs, any election statements, and the IRC 965 Transition Tax Statement included in Appendix: Q&A3.

If not already filed, when should an individual taxpayer electronically file a 2017 tax return?

Individual taxpayers who electronically file their Form 1040 should file on or after April 2, 2018. Individual taxpayers who file a paper Form 1040 can do so at any time.

How should a taxpayer pay the tax resulting from section 965 of the Code for a 2017 tax return?

A taxpayer should make two separate payments as follows: one payment reflecting tax owed without regard to section 965 of the Code, and a second, separate payment reflecting tax owed resulting from section 965 of the Code and not otherwise satisfied by another payment or credit as described in Q&A13 and Q&A14 (the 965 Payment). See Q&A13 for information regarding how the IRS will apply 2017 estimated tax payments.

Both payments must be paid by the due date of the applicable return (without extensions). See Notice 2018-26, section 3.05(e), providing that if an individual receives an extension of time to file and pay under §1.6081-5(a)(5) or (6), the individual’s due date for the 965 Payment is also extended.

The 965 Payment must be made either by wire transfer or by check or money order. This may be the first year’s installment of tax owed in connection with a 2017 tax return by a taxpayer making the election under section 965(h) of the Code, or the full net tax liability under section 965 of the Code for a taxpayer who doesn't make such election anddoesn'tt make an election under section 965(i) of the Code. For the 965 Payment,there's no penalty for taxpayers electing to use wire transfers as an alternative to otherwise mandated EFTPS payments.

Accordingly, taxpayers that would normally be required to pay through EFTPS should submit the 965 Payment via wire transfer or they may be subject to penalties. On a wire payment of tax owed under section 965 of the Code, the taxpayer would use a 5-digit tax type code of 09650 (for more information, see https://www.irs.gov/payments/same-day-wire-federal-tax-payments).

On a check or money order payment of tax owed resulting from section 965 of the Code, include an appropriate payment voucher (such as Form 1040-V or 1041-V) and along with all other required information write on the front of your payment “2017 965 Tax.”

For the payment owed without regard to section 965, normal payment procedures apply (for more information, see the IRS Paying Your Taxes webpage). This payment may be made at the same or different time from the 965 Payment, but must be made by the due date of the return or penalties and interest may apply.

Is a Form 5471 with respect to all specified foreign corporations with respect to which a person is a United States shareholder required to be filed with the person's 2017 tax return, regardless of whether the specified foreign corporations are CFCs?

Yes. To collect information relevant to calculating a United States shareholder’s section 965(a) inclusion amount, a person that was a United States Shareholder of a specified foreign corporation during its 2017 taxable year, including on the last day of such year, and owned stock of the specified foreign corporation on the last day of the specified foreign corporation’s year that ended during the person’s year must file a Form 5471 with respect to the specified foreign corporation completed with the identifying information on page 1 of Form 5471 above Schedule A, as well as Schedule J. The exceptions to filing in the instructions to Form 5471 otherwise will continue to apply. United States shareholders not otherwise required to file Form 5471 should consult the instructions to Form 5471 to determine the correct category of filer. Notice 2018-13, Section 5.02 also provides an exception to filing Form 5471 for certain United States shareholders considered to own stock by “downward attribution” from a foreign person. The IRS intends to modify the instructions to the Form 5471 as necessary.

How is an election with respect to section 965 of the Code made on a 2017 tax return?

A person makes an election under section 965 of the Code or the election provided for in Notice 2018-13, Section 3.02, by attaching to a 2017 tax return a statement signed under penalties of perjury and, in the case of an electronically filed return, in Portable Document Format (.pdf), for each such election. Each such statement must include the person’s name, taxpayer identification number and any other information relevant to the election, such as the net tax liability under section 965 with respect to which the installment election under section 965(h)(1) of the Code applies, the name and taxpayer identification number of the S corporation with respect to which the deferral election under section 965(i)(1) of the Code is made, the section 965(a) inclusion amount with respect to which the election under section 965(m)(1)(B) of the Code applies, the amount described in section 965(n)(2) of the Code to which the election under section 965(n)(1) of the Code applies, and the name and taxpayer identification number, if any, of the specified foreign corporation with respect to which the election under Notice 2018-13, Section 3.02, is made. Model statements are included in Appendix: Q&A7.

Each election statement must have the applicable title and, in the case of an attachment in Portable Document Format (.pdf) included with an electronically filed return, the file name reflected in the following table:

Provision under which election is made	Title	File name
Section 965(h)(1)	Election to Pay Net Tax Liability Under Section 965 in Installments under Section 965(h)(1)	965(h)
Section 965(i)(1)	S Corporation Shareholder Election to Defer Payment of Net Tax Liability Under Section 965 Under Section 965(i)(1)	965(l)
Section 965 (m)(1)(B)	Statement for Real Estate Investment Trusts Electing Deferred Inclusions Under Section 951(a)(1) By Reason of Section 965 Under Section 965(m)(1)(B)	965(m)
Section 965 (n)	Election Not to Apply Net Operating Loss Deduction under section 965(n)	965(n)
Notice 2018-13, Section 3.02	Election Under Section 3.02 of Notice 2018-13 to Use Alternative Method to Compute Post-1986 Earnings and Profits	2018-13

If a taxpayer's 2017 payments, including estimated tax payments, exceed its 2017 net income tax liability described under section 965(h)(6)(A)(ii) (its net income tax determined without regard to section 965) and the first annual installment (due in 2018) pursuant to an election under section 965(h), may the taxpayer receive a refund of such excess amounts or credit such excess amounts to its 2018 estimated income tax?

No. A 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 section 965(h) in subsequent years. If a taxpayer's 2017 tax payments exceed the 2017 net income tax liability described under section 965(h)(6) (A)(ii) (net income tax determined without regard to section 965) and the first annual installment (due in 2018) pursuant to an election under section 965(h), the excess will be applied to the next successive annual installment (due in 2019) (and to the extent such excess exceeds the amount of such next successive annual installment due, then to the next such successive annual installment (due in 2020), etc.) pursuant to an election under section 965(h).

Application in the program

The IRS will automatically apply any overpayment of tax to Section 965 tax. There is not a line on form 1040 to show this, but ProConnect Tax Online will produce a diagnostic to advise of the application:

"This return has an overpayment and has elected to pay the net tax liability under staction 965 in installments under section 965(h)(1). Any overpayment will first be applied to future installments before being refunded to the taxpayer or applied to next year's estimates." (ref #50602)

How are amounts under Section 965 reported on a 2017 tax return?

Amounts required to be reported on a 2017 tax return should be reported on the return, as reflected in the table included in Appendix: Q&A2. The table reflects only how items related to amounts included in income under section 965 of the Code should be reported on a 2017 tax return. It does not address the reporting in other scenarios, including distributions made in 2017, which should be reported consistent with the Code and the current forms and instructions. Refer to this IRS article for more information.

Who's required to report amounts under section 965 on a 2017 tax return?

A person that is required to include amounts in income under section 965 of the Code in its 2017 taxable year, whether because, the person is a United States shareholder of a deferred foreign income corporation (as defined under section 965(d) of the Code) or because it is a direct or indirect partner in a domestic partnership, a shareholder in an S corporation, or a beneficiary of another passthrough entity that is a United States shareholder of a deferred foreign income corporation, is required to report amounts under section 965 of the Code on its 2017 tax return.

Refer to the IRS Section 965 Transition Tax for more information.

Resources

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