Congress has passed the Tax Cuts and Jobs Act (“TCJA”) and President Trump is expected to sign the bill in the near future. The TCJA is the most significant piece of tax legislation in the last 30 years, and it makes substantial changes to the taxation of international transactions.
One key component of the TCJA is a deemed repatriation of earnings held in certain foreign corporations. Code §965 will generally require “U.S. Shareholders” of “specified foreign corporations” to include in their income their share of the foreign corporation’s earnings that have not been subject to U.S. tax. Deferred earnings in the form of cash and other liquid assets will be generally be taxed at a 15.5% rate in the U.S. and other earnings will be taxed at an 8% rate. An election can be made to pay the U.S. tax over an 8 year period.
When the media discusses the deemed repatriation, it often does so in the context of large U.S. multinationals such as Apple and Google. Consequently, many tax professionals are unaware of the breadth of the deemed repatriation, which will be applicable to many more taxpayers including individuals. Individuals may need to address the deemed repatriation on their 2017 tax return.
Today we have published a video that discusses how the deemed repatriation will apply in the simple circumstance of a U.S. citizen that owns 100% of a foreign corporation. The video can be viewed at our Youtube channel.