The implications of the Tax Cuts and Jobs Act continue to be addressed by the IRS. Yesterday the IRS announced that they will waive specific late-payment penalties relating to the Repatriation Tax, an update to the guidance they had recently issued about how the Repatriation Tax would be calculated.
What Is the Repatriation Tax?
Section 965 of the tax reform requires that some business owners will face a one-time repatriation tax, as previously untaxed earnings will be included when calculating their American taxes. Before the tax reform was enacted, US owners of foreign businesses did not pay taxes on the organization’s earnings until they were distributed to the individual.
Who Is Affected by the Repatriation Tax?
This tax affects US shareholders with ownership in a specified foreign corporation with positive post-1986 earnings and profits. Wondering if you are a shareholder? You’re a shareholder if you are a US person with 10% ownership in a company by shares or by voting power. Constructive ownership is also a factor, meaning that certain relatives with interest in the company will contribute to your effective ownership level.
What Does the New Guidance on the Tax Reform Mean?
The IRS has offered to waive the penalty for missing the estimated tax deadline if the taxpayer incorrectly tried to apply a 2017 overpayment to their 2018 estimated taxes, as long as they catch up by June 15, 2018, which is just ten days away!
Further, for individuals who missed the April deadline, which was the deadline for the first installment of payment for this tax, the IRS will waive the penalty as long as the taxpayer is compliant by April 15, 2019. However, this only applies to taxpayers whose tax liability is less than $1 million, and interest will still accrue on the outstanding balance. The IRS noted that Americans living and working abroad have later deadlines since they receive the automatic extension until June 15th.
Lastly, those who already filed their 2017 taxes without paying the first installment can file an amended return by October 15, 2018.
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