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Guidance on Transition Tax - 2018


To all who work on Foreign Corporation, Form 5471:

Regarding the transition tax on foreign corporations with untaxed accumulated E&P… The IRS is on top of it. According to this recently released IRS guidance, taxpayers cannot change their year-end in order to defer the transition tax. They have to get the IRS Commissioner’s permission to change year-end and to do so, must prove they are not doing it to defer the tax. Therefore, basically, you cannot change the year end on Form 5471.

IRS Issues Guidance on Changes in Accounting Periods Related to the Transition Tax

WASHINGTON - The Treasury Department and the Internal Revenue Service (IRS) today announced modifications to the procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the transition tax under the Tax Cuts and Jobs Act.

On Dec. 29, 2017, the Treasury Department and the IRS provided initial guidance on computing the transition tax in Notice 2018-07. On Jan. 19, 2018, the Treasury Department and the IRS provided additional guidance in Notice 2018-13.

Today’s revenue procedure (Rev. Proc. 2018-17) prevents changes to the annual accounting periods of certain foreign corporations in 2017 under either the existing automatic or general procedures if such change could result in the avoidance, reduction, or delay of the transition tax.

Rev. Proc 2018-17 will be published in IRB 2018-09 on Feb. 26, 2018. The Treasury media contact for this matter is Marisol Garibay, Deputy Assistant Secretary for Public Affairs, 202-622-6490.

***Because of the complexity of the new tax law, further review and a more detailed analysis will be necessary before we have a complete understanding of the new laws. We plan to have this completed no later than June 30th. In the meantime, if you have any questions regarding this or if you have any other tax concerns, please contact Morey Glazer at 972-385-0007 or by email at***

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