Learning Center

February 19, 2018

Do You Have Accumulated Deferred Foreign Income? Time to Pay Up!

Article Highlights:

Foreign Corporations
Deferred Dividends
Previous Law
Deferred Income Now Taxable
Reduced Tax Rates
Payment Plan Election

Note: This is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

With the passage of the Act, taxpayers who are shareholders in a controlled foreign corporation (CFC) with deferred income are required to pay U.S. taxes on that income.

Previously, U.S. shareholders of foreign corporations were only subject to taxes on income from those corporations if the dividends were distributed to the shareholders. Thus, if dividends were not distributed, the shareholder received no taxable income from the corporation. One exception to that rule applied to U.S. persons who owned 10% or more of a CFC. They were required to include their share of the CFC’s investment, insurance and services income in their income subject to U.S. tax.

The Act has shot that tax shelter down. It requires that, for the last taxable year of a foreign corporation (beginning before January 1, 2018), all U.S. taxpayers who own at least 10% of a CFC or other foreign corporation must include in their income pro rata shares of all accumulated post-1986 deferred foreign income that has not previously been taxed. The Act does provide a tax break; after all adjustments, this deferred foreign income is taxed at an effective rate of 15.5% for income held in liquid form and 8% otherwise. However, the foreign tax credit cannot be used to reduce the tax.

Another break allows a taxpayer, if he or she elects this option, to have the tax on this accumulated post-1986 deferred income spread over a period of 8 years:

8% in each of the first five installments,
15% in the sixth installment,
20% in the seventh installment, and
25% in the eighth installment.

Mandatory inclusion applies in the last taxable year that began before January 1, 2018. Thus, a U.S. taxpayer who owns an interest in a CFC may have an increased tax bill for 2017.

Please call this office for further details or if you have questions on how this new tax provision might apply to you.

Share this article...

Facebook

Twitter WhatsApp LinkedIn Pinterest Pocket Reddit Email

NEVER MISS A STORY.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Social Media

Rose Tax & Financial

8 Pinon Ave
Cedar Crest, New Mexico 87008

(888) 305-5301

staff@rosetaxandfinancial.com

Mon - Fri: 10:00am to 6:00pm
Sat: 10:00am to 2:00pm

Check the background of your financial professional on FINRA's BrokerCheck
Avantax affiliated Financial Professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000.
The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences.
For Important Information and Form CRS please visit https://www.avantax.com/disclosures.

FAQs Frequently Asked Questions

Type your message here.

Please fill out the form and our team will get back to you shortly The form was sent successfully

First Name *

Last Name *

Email *

Mobile Number

Message *