IRS Announces Relief on Certain 965 Transition Tax Issues

The IRS continues to revise its guidance with regard to the Section 965 transition tax adopted as part of the Tax Cuts and Jobs Act.  In News Release IR-2018-131 the IRS announced waivers of certain penalties impacted by that tax and revisions to its frequently asked questions regarding the tax maintained on the IRS web site.

The IRS has added three new questions and answers to the 965 tax frequently asked questions (FAQs) page on its website (Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns).

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Set of Questions and Answers Released on Reporting and Paying Section 965 Transition Tax for 2017

The IRS announced the publication of a set of questions and answers related to the tax imposed under IRC §965 under changes made by the Tax Cuts and Jobs Act in News Release IR-2018-53.  The questions and answers are published in the form of a frequently asked question document (FAQ) on the IRS website at:

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Tax Court, Reversing Prior Position, Decides that Receivables Created as Part of Transfer Pricing Closing Agreement is Not Debt for §965 Purposes

A divided Tax Court has overruled its previous decision in the BMC Software, Inc. v. Commissioner, 141 TC No. 5, a case that was overturned on appeal by the Fifth Circuit, and found that accounts receivable established in a Revenue Procedure 99-32 closing agreement didn’t create related party indebtedness in the case of Analog Devices Inc., et al, v. Commissioner, 147 TC No. 15.  The Court therefore allowed the company’s entire dividends received deduction under IRC §965.

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Court of Appeals Reverses Tax Court on §965's Application to Receivables Created As Part of Transfer Pricing Closing Agreement

In the case of BMC Software Inc. v. Commissioner141 TC No. 5reversed CA5, Case No. 13-60684, 115 AFTR 2d ¶2015-528, the Fifth Circuit Court of Appeals and the U.S. Tax Court had to consider whether there was an intent requirement imposed by the language of what would reasonably be seen as an anti-abuse provision.  The Tax Court ruled that since no “bad intent” requirement was found in the statute, the statute had to be applied mechanically even if both the IRS and the taxpayer agreed that there was no “bad faith” on the part of the taxpayer.  The Fifth Circuit disagreed with that conclusion.

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