The IRS will provide relief in the form of a private letter ruling or closing agreement to taxpayers with repatriated earnings that are taxed twice under certain circumstances.
An agency notice inviting taxpayers to come forward with double-taxation issues was meant to begin the process of providing administrative relief in a fair and transparent way, the Internal Revenue Service told Bloomberg Tax on Tuesday.
The IRS isn’t issuing new guidance, the agency said.
The IRS on Jan. 17 told taxpayers who fit a certain fact pattern to call the Office of Associate Chief Counsel (International) to ask for relief from a double tax on income repatriated under tax code Section 965.
The issue addressed in that announcement came to the agency’s attention through an inquiry from a taxpayer who explained in detail why its situation fell outside the purview of final regulations on Section 965. The IRS said Tuesday that it extended the same relief to other taxpayers In the interest of transparency and fairness.
The 2017 tax law’s repatriation tax, or transition tax—15.5% on cash and 8% on illiquid assets—applies to earnings accumulated offshore since 1986, which are treated as repatriated.
Final Section 965 rules were released in January 2019, but other regulations related to the Jan. 17 announcement, like foreign tax credits rules, came out as recently as December. The IRS said it became aware of limited circumstances where companies that paid dividends for ordinary business reasons unrelated to the 2017 tax law may have been taxed on those dividends twice as a result of the repatriation tax.
The IRS said Tuesday that it is thinking about distributions as well as foreign tax credit consequences, and wants taxpayers to know a double-tax result isn’t desirable from any standpoint.
“The IRS is open to considering relief from such double taxation where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid,” the Jan. 17 news release said.
Taxpayers who contact the agency seeking relief will likely get a call back from the the Office of Associate Chief Counsel (International) asking for a more detailed, but brief, explanation of the double tax circumstances, the IRS said.