IRS Letter 6311 & IRC 965
Contents
IRS Letter 6311
IRS Letter 6311: IRS letter 6311 involves the Internal Revenue Code section 965 transition tax and the reporting of previously retained but untaxed foreign income for certain foreign corporations — but let’s take a step back and see how we got here. With the introduction of the TCJA (Tax Cuts and Jobs Act) came with it the introduction of several new international tax and offshore reporting related rules laws and regulations — including increased enforcement of Form 5471, which is used to report foreign corporations.
Internal Revenue Code section 965 involves the treatment of certain deferred foreign income. Namely, for certain foreign companies that have accumulated income that has not previously been taxed, and that has been retained by the company — they have to pay a transition tax.
Let’s review the IRS 6311 Letter is
What is IRC 965?
IRC 965 refers to the transition tax.
As provided by the IRS:
“Section 965 requires United States shareholders (as defined under section 951(b)) to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States.
Very generally, a specified foreign corporation means either a controlled foreign corporation, as defined under section 957 (“CFC”), or a foreign corporation (other than a passive foreign investment company, as defined under section 1297, that is not also a CFC) that has a United States shareholder that is a domestic corporation.
Section 965 allows U.S. shareholders to reduce the amount of the income inclusion based on deficits in earnings and profits with respect to other specified foreign corporations.
The effective tax rates applicable to income inclusions are adjusted by way of a participation deduction set out in section 965(c).
A reduced foreign tax credit applies to the inclusion under section 965(g). Taxpayers may elect to pay the transition tax in installments over an eight-year period.
Taxpayers may have to pay a section 965 transition tax when filing their 2017 tax returns. The tax is payable as of the due date of the return (without extensions).
The IRS recently issued guidance on the calculation of the tax and filing for 2017 in the form of answers to frequently asked questions (FAQs) which can be found, along with additional IRS news releases on section 965, and other topics relating to tax reform and the Tax Cuts and Jobs Act.
Non-Compliance with IRC 965
A few months back the Internal Revenue Service launched an international tax enforcement group involving Internal Revenue Code section 965 compliance.
We previously discussed the 965 compliance group issue in a prior article, and how it may lead to “soft letters” and notifications from the IRS.
A soft letter is a reminder type of letter from the Internal Revenue Service that has not forgotten about you.
In the realm of IRC 965, it is a reminder that the IRS is aware but the recipient of the letter as previously filed a form 5471 or possibly other form that may lead to the requirement to comply with section 965 and transition tax reporting.
For some taxpayers, they have no knowledge that they were required to submit to the transition tax.
For other taxpayers, their 965 calculation was just too complicated and slash or the thought of paying a transition tax our non tax income is just too much — and they were hoping they could escape by without submitting the calculation to the IRS.
Did You Receive an IRS Letter 6311?
If you received an IRS letter 6311, or are otherwise concerned that you may receive one in the future, you will want to consider getting into offshore compliance before the IRS finds you and you lose the opportunity to submit to offshore voluntary disclosure.
Voluntary disclosure is a catchall phrase that includes the streamlined procedures, delinquency procedures, and reasonable cause.
Golding & Golding: About Our International Tax Law Firm
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