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December 29, 2017
2017-2232

IRS issues guidance on transition tax on foreign earnings

The Treasury Department and Internal Revenue Service released Notice 2018-07 (December 29, 2017), providing guidance for computing the "transition tax" under the tax legislation enacted on December 22 (P.L. 115-97).

As an IRS news release (IR-2017-212) stated, newly enacted Section 965 of the Internal Revenue Code imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of US 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 an 8% rate.

The Notice said the regulations that Treasury and the IRS intend to issue include rules for determining the amount of cash and cash equivalents for purposes of applying the 15.5% rate and rules for determining the amount of foreign earnings subject to the transition tax. "These rules will assist taxpayers by providing certain additional information needed for computing their transition tax," the news release stated.

Treasury and the IRS requested comments on the rules described in the Notice, said they expect to issue additional guidance under Section 965, and also requested comments on what additional guidance should be issued to assist taxpayers in applying Section 965.

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