The IRS has issued final regulations under IRC Section 965, the Transition Tax provision added by the TCJA.
Not rendering correctly? View this email as a web page here.

March 14, 2019 

Finalized Transition Tax Regulations: An Overview

Hi There!,

The IRS has issued highly anticipated final regulations under Internal Revenue Code Section 965, the Transition Tax (TT) provision added by the Tax Cuts and Jobs Act (TCJA). Sec. 965 generally requires U.S. shareholders to pay a “transition tax” on the untaxed foreign earnings of certain specified foreign corporations (SFC) as if those earnings had been repatriated to the United States.

Read the entire article on our blog.

The TCJA provides for a shift from the pre-2018 “worldwide” tax system to a “participation exemption system.” Under the old rules, U.S. taxpayers were generally taxed on all income whether earned in the U.S. or abroad, but foreign income earned by a foreign subsidiary of a U.S. corporation wouldn’t be subject to U.S. tax on that income until it was “repatriated” to the United States via dividend. The transition tax effectively bridges the old rules with the new by taxing certain previously untaxed foreign income.  Unfortunately for individual owners of SFC, there is no “transition”; only a deemed repatriation of old retained earnings and then the same tax on future dividends from future earnings!

Affected Income

In a SFC’s last tax year that began before January 1, 2018, the foreign corporation’s subpart F income is increased by any previously untaxed, post-1986 earnings and profits (E&P) of the corporation. This is measured as of one of two measuring dates. U.S. shareholders of one or more SFCs must include in income their pro rata share of the corporation’s pre-2018 accumulated deferred foreign income less their pro rata share of any other SFCs’ E&P deficits. A corporate U.S. shareholder is allowed a deduction from this amount that results in a 15.5% tax rate for earnings held in cash and liquid assets, and an 8% tax rate on other earnings.  The rate for an individual US Shareholder is higher:  17.5% and 9%, respectively.

Taxpayers may elect to pay the TT in installments over an eight-year period. Generally, an SFC means either a controlled foreign corporation (CFC) or a foreign corporation (other than a passive foreign investment company) with a U.S. shareholder that’s a US domestic corporation.

Taxpayers may have had to already pay tax resulting from Sec. 965 when filing their 2017 tax returns. For example, Sec. 965 may have given rise to a 2017 tax liability for a calendar-year U.S. shareholder holding an interest in a calendar-year SFC.

Read our entire article on our blog.







James J. Miesowicz. CPA
+1 248.244.3115

Grensy Quintero CPA



Grensey Quintero, CPA
+41 43 433 1040

There!, how do cashless transactions affect your audit?

Credit card

Like most businesses, you’ve probably experienced a significant increase in the number of customers who prefer to make cashless payments. And you may be wondering: How does the acceptance of these types of transactions affect the auditing of your financial statements?

Cashless transactions require the exchange of digital information to facilitate payments. Instead of focusing on the collection and recording of physical cash, your auditors will spend significant time analyzing your company’s electronic sales records. This requires four specific procedures.

  1. Identifying accepted payment methods

Auditors will ask for a list of the types of payments your company accepts and the process maps for each payment vehicle. Examples of cashless payment methods include:

  • Credit and debit cards,
  • Mobile wallets (such as Venmo),
  • Digital currencies (such as Bitcoin),
  • Automated Clearing House (ACH) payments,
  • Wire transfers, and
  • Payments via intermediaries (such as PayPal).

Be prepared to provide documents detailing how the receipt of cashless payments works and how the funds end up in your company’s bank account.

  1. Evaluating roles and responsibilities

Your auditors will request a list of employees involved in the receipt, recording, reporting and analysis of cashless transactions. They will also want to see how your company manages and monitors employee access to every technology platform connected to cashless payments.

Evaluating who handles each aspect of the cashless payment cycle helps auditors confirm whether you have the appropriate level of security and segregation of duties to prevent fraud and misstatement.

  1. Testing the reconciliation process

Auditors will review prior sales reconciliations to test their accuracy and ensure appropriate recognition of revenue. This may be especially challenging as companies implement the new accounting rules on revenue recognition for long-term contracts. Auditors also will test accounting entries related to such accounts as inventory, deferred revenue and accounts receivable.

  1. Analyzing trends

Cashless transactions create an electronic audit trail. So, there’s ample data for auditors to analyze. To uncover anomalies, auditors may, for example, analyze sales by payment vehicle, over different time periods and according to each employee’s sales activity.

If your company has experienced payment fraud, it’s important to share that information with your audit team. Also tell them about steps you took to remediate the problem and recover losses.

Preparing for a cashless future

Before we arrive to conduct fieldwork, let’s discuss the types of cashless payments you now accept — or plan to accept in the future. Depending on the number of cashless methods, we’ll amend our audit program to review them in detail.







James L. Noteman, CPA


 Unsubscribe from all future emails