IRS releases draft instructions for Form 965 series

The IRS has posted “early draft releases” of instructions for reporting information with respect to Form 965-A and Form 965-B concerning the “transition tax” imposed under section 965.

The draft instructions have been posted with a “watermark” date of December 17, 2018, and include cautionary language that they are not to be used for filing purposes and are subject to change and to OMB approval before being officially released.

• Read the draft instructions [PDF 192 KB] for Form 965-A, Individual Report of Net 965 Tax Liability
• Read the draft instructions [PDF 180 KB] for Form 965-B, Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts

Section 965 was added to the Code by the new U.S. tax law (Pub. L. No. 115-97, enacted December 22, 2017) as a transition rule to effect the participation exemption regime. The transition rule includes a participation exemption, the net effect of which is to tax a U.S. shareholder’s “mandatory inclusion” amount at a rate of 15.5% to the extent it is attributable to the shareholder’s aggregate foreign cash position or otherwise at a rate of 8%. 

A draft version of the instructions for Form 965, Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System, was released by the IRS earlier this month.

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