The IRS announced on Jan. 17, 2020 that the agency is aware of limited circumstances in which it may make sense to provide relief to certain taxpayers that are being double taxed as a result of the section 965 transition tax. Section 965, enacted as part of the Tax Cuts and Jobs Act (TCJA), requires US shareholders to pay a transition tax on the untaxed foreign earnings of certain “specified foreign corporations” by deeming those earnings to be repatriated to the United States.
The agency indicated that in certain situations, such as when a corporation paid an unusual dividend for business reasons (and unrelated to the TCJA), it may be appropriate to provide relief from double tax as the same earnings and profits would have been taxable as both dividends and under section 965. In such situations, the application of the foreign tax credit would not result in a significant reduction in the resulting tax.
Taxpayers who believe they may be eligible for this new relief should consult with their tax advisors to review their positions and determine their eligibility. As per the IRS announcement, taxpayers with fact patterns that may fit these limited circumstances should contact the IRS Office of Associate Chief Counsel (International)
