IRS Letter 6311
IRS Letter 6311: The Internal Revenue Service is moving full steam ahead with their recently announced IRC 965 compliance campaign for transition tax and reporting. When the U.S. government introduced the TCJA (Tax Cuts and Jobs Act), they included several new laws related to international tax and offshore compliance. While the government reduced the U.S. corporate tax rate, they also included a “one-time” repatriation tax under IRC 965 for previously earned foreign income which has been retained by the foreign entity, and not yet taxed in the U.S.
Most taxpayers were unaware this new law existed or that any additional tax was required, and for those who were aware of it — the calculation itself was very complicated.
While the government recently introduced regulations to support IRC 965 — those regulations are pretty complex as well.
As a result, many taxpayers are noncompliant with IRC 965.
IRS Letter 6311 is not an audit per se. It is a “soft letter” that reminds the Taxpayer that the IRS records reflect that they may have an IRC 965 tax reporting requirement.
*IRC 965 applies even if the income has not yet been repatriated.
What is IRC 965?
IRC 965 refers to the transition tax under the TCJA.
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.
IRC 965 Non-Compliance & IRS Letter 6311
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.
Please keep in mind that a soft letter is not an audit. It is a reminder from the Internal Revenue Service that they have not forgotten about the taxpayer, and that if the taxpayer has an IRC 965 compliance issues to deal with, they should resolve it sooner than later — before the IRS selects them for an examination.
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.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure, including IRS Letter 6311.
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