Alex Manasuev featured in Advo​cateDai​ly​.com — Be aware of continued impact of U.S. tax reform on 2018 returns

Author(s): Advo​cateDai​ly​.com staff
The fol­low­ing arti­cle first appeared in Advo​cateDai​ly​.com,  Jan­u­ary 4, 2019.While U.S. tax reform had a sig­nif­i­cant impact on expats and share­hold­ers of for­eign cor­po­ra­tions last year, it is crit­i­cal for tax­pay­ers to be aware of the ongo­ing rel­e­vance of these new pro­vi­sions as they look ahead to their fil­ing for 2018, Oakville-based U.S. tax attor­ney (NY, DC) Alex­ey Man­a­suev tells Advo​cateDai​ly​.com.

As Man­a­suev, prin­ci­pal of U.S. Tax IQ explains, the Tax Cuts and Jobs Act, enact­ed in Decem­ber 2017, made a num­ber of crit­i­cal changes aimed at U.S. cit­i­zens and Green card hold­ers resid­ing in Cana­da and out­side the Unit­ed States.

One of the most impor­tant devel­op­ments for the 2017 tax fil­ing year for cer­tain U.S. share­hold­ers was the one-time tran­si­tion tax — also referred to as manda­to­ry repa­tri­a­tion — imposed by Inter­nal Rev­enue Code (IRC) Sec­tion 965, he says.

IRC Sec­tion 965 requires U.S. share­hold­ers to pay a tran­si­tion tax on the accu­mu­lat­ed post-1986 deferred earn­ings of Spec­i­fied For­eign Cor­po­ra­tions.

Also, those who have been hard­est hit are U.S. cit­i­zens and Green card hold­ers who do not live in the Unit­ed States, and own shares in non‑U.S. cor­po­ra­tions — called Spec­i­fied For­eign Cor­po­ra­tions (SFCs) that include Con­trolled For­eign Cor­po­ra­tions (CFCs) or oth­er for­eign cor­po­ra­tions with a 10 per cent U.S. cor­po­rate share­hold­er, Man­a­suev says.

The tran­si­tion tax was rel­e­vant for 2017 tax year fil­ing for U.S. share­hold­ers of cal­en­dar year-end CFCs. The tax due date for fil­ing 2017 returns has gen­er­al­ly been April 17, 2018, for U.S. res­i­dent tax­pay­ers or June 15, 2018, for U.S. per­sons resid­ing in Cana­da or else­where.

How­ev­er, he says, tran­si­tion tax needs to be top of mind for a num­ber of tax­pay­ers this year when it comes to 2018 tax com­pli­ance.

Specif­i­cal­ly, U.S share­hold­ers whose for­eign cor­po­ra­tions have a fis­cal year end (oth­er than Dec. 31) must remit tran­si­tion tax, if applic­a­ble, with their 2018 tax return, Man­a­suev says.

These tax­pay­ers, he says, may have to go as far back as 2015 to deter­mine the tran­si­tion tax to be report­ed on 2018 tax return. They will also have to con­sid­er the blend­ed rates as dif­fer­ent tax rates applied for 2017 and 2018.

“For many of those tax­pay­ers, the tran­si­tion tax will become real­i­ty now.”To request full arti­cle please con­tact us Con­tact Us