Specifically, the regulations announced in the Notice will provide that, in determining the aggregate foreign cash position for the first US shareholder inclusion year, the amount taken into account is the lesser of the US shareholder’s aggregate foreign cash position or the aggregate of the § 965(a) inclusions taken into account by the US shareholder for that year. The Notice acknowledges that, in the case of a US shareholder with more than one US shareholder inclusion year, the statutory definition of the aggregate foreign cash position (which determines the amount of the § 965 inclusion that is taxed at the 15.5 percent rate rather than at the eight percent rate) could result in inappropriately counting the same foreign cash for each US shareholder inclusion year.Īs a relief measure, the Notice announces the intention to issue regulations to avoid such double counting of cash. The result under § 951(a)(2)(1)(A) would be that the US shareholder would have gross income inclusions arising from § 965 both in 2017 and in 2018 (the US shareholder inclusion years). For example, for a calendar-year US shareholder in multiple DFICs, some (but not all) of which have elected under § 898(c)(2) to have a taxable year ending on November 30, the inclusion year with respect to the calendar year DFICs would be the calendar year 2017, while the inclusion year with respect to the November 30 DFICs would be the fiscal year ending November 30, 2018. In cases where a taxpayer is a US shareholder in multiple DFICs that have differing taxable years, there may be more than one year of the US shareholder in which gross income inclusions under § 951(a)(1)(A) must be taken into account as a result of § 965. Section 3.01-Determining the Aggregate Foreign Cash Position It has five subsections, described below. Section 3 of the Notice describes regulations to be issued under § 965. Second, it allows a US shareholder with a § 965(a) inclusion a deduction based on two measurements: the US shareholder’s “aggregate foreign cash position amount” (resulting in the inclusion being taxed at a 15.5 percent rate) and the aggregate E&P held in forms other than cash or equivalents, as defined (resulting in the inclusion being taxed at an eight percent rate). This amount is reduced by any aggregate E&P deficits allocated to the DFIC. This inclusion is structured as an increase in the subpart F income of a DFIC, for its last taxable year beginning before Janu(the inclusion year), equal to the greater of the DFIC’s “accumulated post-1986 deferred foreign income” determined on Novemand Decem(the measurement dates). First, it piggybacks on subpart F to deem a gross income inclusion under § 951(a)(1)(A) for US shareholders of “deferred foreign income corporations” (DFICs). On December 29, the US Internal Revenue Service (IRS) issued Notice 2018-07- Guidance under Section 965 (the Notice)-indicating its intent to issue regulations for determining amounts included in gross income by a US shareholder under § 951(a)(1) by reason of the tax reform’s new § 965 deemed repatriation provision, enacted December 22. It answers some questions but leaves many issues unresolved.
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