{"id":4022,"date":"2021-08-31T22:16:56","date_gmt":"2021-08-31T22:16:56","guid":{"rendered":"https:\/\/patellawoffices.com\/blog\/?p=4022"},"modified":"2021-08-31T22:16:58","modified_gmt":"2021-08-31T22:16:58","slug":"new-irs-procedures-for-streamlined-filing-compliance-procedures-for-2017-transition-tax-filers","status":"publish","type":"post","link":"https:\/\/patellawoffices.com\/blog\/planning-for-tax-minimization\/new-irs-procedures-for-streamlined-filing-compliance-procedures-for-2017-transition-tax-filers\/","title":{"rendered":"New IRS procedures for Streamlined Filing Compliance Procedures for 2017 transition tax filers"},"content":{"rendered":"\n

The IRS quietly created new procedures<\/a> for Streamlined Filing Compliance Procedures earlier this month relating to filings with “transition tax” due under Internal Revenue Code Section 965. The new procedures apply to Streamlined Domestic Offshore submissions and Streamlined Foreign Offshore submissions.<\/p>\n\n\n\n

The\nnew procedures are pasted below with my comments added in italics. <\/p>\n\n\n\n

The “transition tax”\nper section 965 of the Internal Revenue Code generally treats the accumulated\npost-1986 deferred foreign income (DFI) of a Specified Foreign Corporation\n(SFC) as Subpart F income. Section 965(a) defines DFI as the greater of the DFI\nof such SFC determined as of November 2, 2017 or December 31, 2017. For general\ninformation on the transition tax, see Questions and Answers\nabout Reporting Related to Section 965 on 2017 Tax Returns<\/a>.<\/p>\n\n\n\n

A taxpayer who uses the Streamlined Filing\nCompliance Procedures<\/a> to come into compliance remedies a\nspecific number of tax years, generally the most recent 3 years for which the\nU.S. tax return due date (or properly applied for extended due date) has\npassed. Taxpayers that own SFCs and have a section 965(a) inclusion using the\nStreamlined Filing Compliance Procedures must come into compliance for the\nsection 965 transition tax in their submission and include the tax year in\nwhich the transition tax inclusion might occur (generally 2017 and\/or 2018)\neven if that tax year would not be within the standard three-year lookback\nperiod. In other words, the lookback period for any submission to the\nStreamlined Filing Compliance Procedures involving SFCs with a section 965(a)\ninclusion in 2017 must include tax year 2017 and include all subsequent tax\nyears.<\/p>\n\n\n\n

This is a new development\nsince the IRS has said that only 3 years are required to be filed.  As a result, 2017 tax return will always be an\nadditional year. For example, a submission may include 2019, 2020, 2021, and the\nadditional 2017 year. <\/em><\/p>\n\n\n\n

Note<\/strong>: The\nelection to pay net tax liability in installments under section 965(h)(1) is\nnot available for taxpayers submitting delinquent returns under the Streamlined\nFiling Compliance Procedures.<\/p>\n\n\n\n

Since the disclosure scope for a\nsubmission to the Streamlined Filing Compliance Procedures with a SFC will\ninclude tax years 2017 and\/or 2018 and forward, noncompliant years prior to the\nsubmission scope may have previously untaxed Subpart F income or section 956\namounts. Absent the Subpart F income or section 956 amounts being reported by\nthe taxpayer, making a submission to the Streamlined Filing Compliance\nProcedures does not constructively provide the taxpayer with Previously Taxed\nEarnings & Profits (PTEP) for pre-disclosure years. In other words, a\ntaxpayer using the Streamlined Filing Compliance Procedures must strictly\ncomply with the Internal Revenue Code for purposes of section 965 and computing\nPTEP. Taxpayers must properly account for and report Subpart F income and\nsection 956 amounts in their submission, and only amounts included in income by\nthe taxpayer prior to the submission period and amounts included as part of the\nsubmission will constitute PTEP.<\/p>\n\n\n\n

Please include “Section\n965” written in red at the top of the first page of each delinquent or\namended tax return and at the top of each information return. The addition of\n“Section 965” should be after the annotation of “Streamlined\nForeign Offshore” or “Streamlined Domestic Offshore” written in\nred.<\/p>\n\n\n\n

This is a new development.\nAnother thing to add in red. <\/em><\/p>\n\n\n\n

The following hypothetical for a\nStreamlined Foreign Offshore submission illustrates this requirement:<\/p>\n\n\n\n

Taxpayer A is a U.S. citizen who\nhas lived abroad for her entire adult life. On January 1, 2010, Taxpayer A\nformed a foreign entity classified as a corporation for U.S. income tax\npurposes, Foreign Co. B. Taxpayer A owns 51% of Foreign Co. B, which has a\ncalendar year end, and manages a successful and profitable business through\nForeign Co. B. Taxpayer A has not filed U.S. individual income tax returns for\nthe last ten years, and she has never filed an extension of time to file any of\nher income tax returns. Taxpayer A also has never reported her signature or\nother authority over various foreign bank accounts, including the bank accounts\nof Foreign Co. B, on FBARs. Her failure to file income tax returns and FBARs\nwas non-willful. On August 1, 2021, Taxpayer makes a submission to the\nStreamlined Foreign Offshore Procedures (SFO). Taxpayer A’s SFO submission\nincludes a Form 14653 and delinquent income tax returns for tax years, 2017,\n2018, 2019, and 2020. Taxpayer A separately electronically filed FBARs with\nFinCEN. Taxpayer A must file Forms 5471 reporting her ownership of Foreign\nCorp. B, and Taxpayer A must address the section 965 transition tax on her 2017\nincome tax return including completing a Form 965. Taxpayer A must write in red\nink on the top of the first page of each of her delinquent income tax returns\nand at the top of each information return “Streamlined Foreign Offshore\nSection 965.”<\/p>\n\n\n\n

These new procedures clarify that the 2017 tax return is a forever “legacy” year tax return that will always be required for all Streamlined Filing Compliance Procedures with transition tax. <\/em> In doing so, the IRS has made already complex Streamlined Filing Compliance Procedures even more complex.<\/em> <\/p>\n\n\n\n

Given the timing of this announcement, it is possible that the IRS realized that filers may have been excluding 2017 and the 2017 transition tax when filing 2018-20 Streamline returns. Regardless, the IRS has now made it abundantly clear that any applicable 2017 transition tax is forever due. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The IRS quietly created new procedures for Streamlined Filing Compliance Procedures earlier this month relating to filings with “transition tax” due under Internal Revenue Code Section 965. The new procedures apply to Streamlined Domestic Offshore submissions and Streamlined Foreign Offshore submissions. The new procedures are pasted below with my comments added in italics. The “transition […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"1","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4022","post","type-post","status-publish","format-standard","hentry","category-planning-for-tax-minimization"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4022","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=4022"}],"version-history":[{"count":1,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4022\/revisions"}],"predecessor-version":[{"id":4026,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/4022\/revisions\/4026"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=4022"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=4022"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=4022"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}