IRS to Focus on Companies That Owe Taxes on Offshore Profits

The Internal Revenue Service recently announced it would focus on companies that owe taxes on overseas profits (a Section 965 tax, or as some call it, toll charge or repatriation tax).

The toll charge ---- a one-time tax (payable over eight years) on the existing stock of offshore holdings regardless of whether the funds are repatriated ---- was introduced under the Tax Cuts and Jobs Act (TCJA), which was signed into law December 2017. It was part of the transition to the territorial tax system, which eliminated the tax incentive to keep cash abroad.

A one-time toll charge tax was imposed on non-previously taxed post-1986 foreign earnings and profits of certain U.S.-owned foreign corporations. The toll charge is reduced by a deduction computed in a manner that ensured a 15.5% effective tax rate on earnings represented by cash and an 8% effective tax rate to the extent the earnings exceed the cash position.

Congressional leaders and experts expect that the repatriation levy will generate significant tax revenue over 10 years. Interestingly, and in line with this expectation, the IRS recently included repatriation tax payments as an area of focus for the agency’s auditors, according to a list on the IRS website. Agency officials previously said the area is ripe for abuse because companies could try to minimize their foreign profits in an attempt to reduce their toll-charge-related tax bills.

The IRS also said the audit could expand beyond reviewing taxes paid on offshore profits — it could trigger an exam of other changes companies made to their tax strategies after the 2017 law, which cut the corporate rate to 21% and overhauled the international tax rules.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

What to Expect During a Sale Transaction
Coronavirus, Tax BY Jacob Clark
Ohio Unemployment Benefits for Self-Employed and 1099-Misc Filers
Individual Tax Planning Under COVID-19
IRS Announces 2019 Marginal Well Credit
Cash Flow and Liquidity Planning Opportunities
Are You Prepared for the Next Stage of Your Business?

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102