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

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.

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 .

We care about the protection of your data.

Junglebooks Affiliate Program

Why Partner with Us?

With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Industry-Leading Expertise: Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.
Attractive Commissions: We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.
Comprehensive Support: We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.
Trusted Reputation: Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.

Frequently Asked Questions

: This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:

Individual Returns
Payroll Tax Issues
Business Returns
Sales Tax Returns
Rental Income Returns
Business Consultation
Expatriate Returns
Fiduciary & Estate Returns
Corporation Returns
Bookkeeping
Partnership Returns
LLC Returns
: Our firm offers a full range of planning services including, but not limited to:

Individual Tax Planning
Business Tax Planning
Business Organization
Rental Properties
Foreclosures and Repossessions
Retirement
Investments
Sales and Exchanges
Pension Plans
Education Planning
Finance & Refinance Planning
Home Purchase and Sale Planning
: We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
: We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.