Transfer Agreement Section 965: What You Need to Know
Section 965 of the Internal Revenue Code (IRC) was added by the Tax Cuts and Jobs Act (TCJA) in 2017. It imposes a one-time transition tax on the untaxed foreign earnings of certain specified foreign corporations (SFCs) as if those earnings had been repatriated to the US.
This tax is known as the repatriation tax or transition tax. But what about the transfer agreement section 965? In this article, we’ll discuss what it is and what you need to know.
What is Transfer Agreement Section 965?
Transfer agreement section 965 is a provision that allows taxpayers to make certain transfer agreements to defer the payment of the section 965 transition tax liability. This provision was added by the IRS in response to concerns raised by taxpayers regarding the payment of the transition tax.
The transfer agreement section 965 allows taxpayers to make an election to defer the payment of the transition tax liability in eight annual installments. This means that taxpayers can defer up to 87.5% of their transition tax liability until 2026.
Who is Eligible for Transfer Agreement Section 965?
Not all taxpayers are eligible for the transfer agreement section 965. To be eligible, the taxpayer must have a section 965(a) inclusion amount. This means that the taxpayer must have a deferred foreign income corporation (DFIC) in which they own at least 10% of the voting power.
Additionally, the transfer agreement section 965 is only available to taxpayers who elect to defer the payment of their section 965 transition tax liability. Taxpayers who choose to pay their transition tax liability in a lump sum are not eligible for the transfer agreement.
What are the Benefits of Transfer Agreement Section 965?
The transfer agreement section 965 provides several benefits to eligible taxpayers. Firstly, it allows taxpayers to defer the payment of their transition tax liability, which can provide financial relief to taxpayers who may not have sufficient cash on hand to pay the tax in a lump sum.
Secondly, the transfer agreement section 965 also allows taxpayers to spread their payment over eight years, which can help taxpayers manage their cash flow and reduce their overall tax liability.
Lastly, the transfer agreement section 965 can help taxpayers avoid penalties and interest that may be imposed if they cannot pay their transition tax liability in a timely manner.
In Conclusion
The transfer agreement section 965 is a provision that allows eligible taxpayers to defer the payment of their section 965 transition tax liability over eight years. This provision can provide financial relief to taxpayers who may not have sufficient cash on hand to pay the tax in a lump sum, while also helping taxpayers manage their tax liability and avoid penalties and interest.
If you believe you may be eligible for the transfer agreement section 965, it’s important to speak with a tax professional who can help you determine your eligibility and provide guidance on the best course of action for your specific situation.