United States

IRS extends basis election due date under transition tax regulations

TAX ALERT  | 

In Notice 2018-78, the IRS and Treasury announced their intent to extend the due date for a special basis election provided by the proposed regulations issued under section 965 (the Proposed Regulations), that address the treatment of offshore income subject to the so-called “transition tax” enacted by the Tax Cuts and Jobs Act (TCJA). Under the Proposed Regulations, certain U.S. shareholders of a foreign corporation covered by the transition tax may elect to adjust their basis in the foreign corporation in order to avoid being double taxed in the future as a result of certain aspects of the transition tax calculation. However, for some U.S. shareholders the election would have been due as early as Oct. 9, 2018. The IRS and Treasury determined that requiring taxpayers to make a binding basis election prior to the finalization of the Proposed Regulations was too burdensome. Accordingly, Notice 2018-78 (the Notice) provides that the basis elections will not be due until 90 days after the regulations are finalized. Any U.S. shareholders who have already made such an election may revoke the election until the revised due date.

The Notice also revised the rules for determining the aggregate foreign cash position of a consolidated group and clarified that the tax return deadline extension provided for those affected by Hurricane Florence also applies to elections under the transition tax. Taxpayers with transition tax exposure should consult their tax advisors in order to determine how Notice 2018-78 may impact their tax reporting.  

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