The first installment payment due date for the Transition Tax is fast approaching, due June 15, 2018 for US individual shareholders whose tax homes and abodes are outside of the United States and Puerto Rico.
On June 4, 2018, the IRS released additional guidance and relief in respect of the transition tax, which may be payable over the course of an eight-year period in installments provided certain conditions apply, including the timely filed election to pay in installments. If such election is filed, the first installment is payable on the due date of the filing of the return, determined without regard to any extension. If there is an addition to tax for failure to timely pay any installment, the entire transition tax liability may be accelerated. The additional guidance provided relief in respect of the first installment of the transition tax for US individual shareholders. If the individual’s transition tax for the 2017 taxation year is less than $1 million, the individual makes the timely election to pay in installments and the first and second installments are paid by the due date of the second installment, the transition tax will not be accelerated for the failure to pay the first installment by the due date. Therefore, US individual shareholders living outside of the US have until June 15, 2019 (April 15, 2019 for US individuals living in the US) to pay the first and second installments of the transition tax. However, interest will apply from the due date of the first installment.
In addition, the IRS also clarified that no addition to tax for an underpayment of estimated taxes for 2018 regular tax installments may apply in cases where the first required installment for 2018 was due on April 18, 2018, provided that the first and second installments are paid by the due date of the second installment (that is, June 15, 2018 for calendar year taxpayers).
It should also be noted that any over-payment of the transition tax will not be refundable or creditable against the regular tax owed unless all the transition tax installments have been fully paid. Such excess will be carried forward and applied to the subsequent transition tax installments required.
The payment for the transition tax should be made separately from the regular tax owed either by wire transfer or check or money order. For a wire payment, the taxpayer should use a 5-digit tax type code of 09650. For a check or money order payment, a completed payment voucher such as Form 1040-V should be submitted along with the payment, which should indicate “2017 965 Tax” on the front of the payment.
Please seek your Hanson Crossborder Tax Professional for assistance with the Transition Tax and any further inquiries.