IRS offers penalty, filing relief to new transition tax on foreign earnings

Section 965 of the Internal Revenue Code, enacted in December 2017, imposes a transition tax on untaxed foreign earnings of foreign corporations owned by U.S. shareholders by deeming those earning to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and the remaining earnings are taxed at an 8 percent rate. The transition tax generally may be paid in installments over an eight-year period when a taxpayer files a timely election under section 965(h).