Expatriates with Local (Foreign) Business: Transition Tax Payment Postponed for One Year
The Internal Revenue Service issued three additional FAQs on June 4, 2018 related to the Transition Tax. The first installment payment has been postponed until June 15, 2019 for expatriates who own a business through a foreign corporate entity, provided the net tax liability for the Transition Tax is less than $1 million and a timely election to use the installment method is made. Apparently, some individual taxpayers are hoping this postponement will allow Congress time to grant permanent abatement of this provision for small businesses.
There will be no penalty for failure to pay the first installment timely (June 15, 2018) and this will not result in an acceleration of the remaining installments. There will, however, be an interest charge based upon the original June 15, 2018 due date for the payment.
The IRS admits that their system might issue a notice and assess a penalty in this situation, but instructs the individual to contact the IRS office that issued the notice and request abatement of the addition to tax.
Original Overpayment of 2017 Tax Meant to Cover 1st and 2nd Quarter 2018
If the taxpayer meant to cover the first two quarters for 2018 with payments made for 2017 to cover its regular tax liability (without consideration of the Transition Tax liability), then no underpayment of estimated tax under Sec.6654 or 6655 will be assessed as long as the payments are made by June 15, 2018.
There is Still Time to Make the Installment Election
If an individual taxpayer has already filed a tax return but failed to elect the installment payment method (over 8 years), then an amended return can be filed to make the election. This can be done even if the return is not on extension. This should also be considered if the individual did not include the Transition Tax Statement(s) in the originally-filed tax return.
There are procedural requirements that must be met to be eligible for all of these relief measures. We can help you wade through these provisions to determine if you can take advantage of the postponements.
James J. Miesowicz, CPA
Jim Miesowicz has significant experience in helping foreign-owned U.S. entities with a variety of inbound international issues and working with foreign nationals. He offers assistance with structuring international business operations and investments. Jim provides guidance with international inbound and outbound transactions, as well as assisting U.S. companies with establishing operations outside the U.S. Contact Jim at firstname.lastname@example.org or 248.244.3115.