Repatriation Tax Guidance Led to Overpayments, Watchdog Says

Taxpayers made $2.8 billion in unintended payments toward the 2017 tax overhaul’s repatriation tax because the IRS hadn’t provided sufficient guidance, a government watchdog said.

• The IRS guidance on the provision didn’t address what happens when companies make excess payments for the tax code Section 965 tax on their tax year 2017 income. Companies can’t get a refund for their overpayments of the tax—also known as the transition tax—until their entire 965 liability is paid, the U.S. Treasury Inspector General for Tax Administration (TIGTA) report said.
• Some companies also saw delays in the processing of their returns because the Internal Revenue Service didn’t have much time to develop a way of identifying returns that reflected the repatriation tax, according to the May 22 TIGTA report, released May 28. The IRS also had problems tracking the Section 965 payments, the report said. As a result, the agency had tracked about $11.2 billion in repatriation taxes paid as of November 2018, “which is far below estimates of repatriation tax liability.”
• The transition tax imposes a one-time tax on assets U.S. corporations and individuals held overseas dating back to 1986. Companies can choose to pay in installments.
• Final Section 965 regulations for the tax were issued after companies filed their returns for 2017 using guidelines in proposed regulations.