Click the Section 965.pdf attachment on the right to read about Section 965.

This information applies to CCH Axcess™ Tax 2017-3.5 or later and CCH® ProSystem fx® Tax 2017.03050 or later.

Summary

• Section 965 was added by the Tax Cuts and Jobs Act of 2017 (TCJA)
• It will affect 1120 and 1120S returns for only two years, 2017 and 2018
• It is temporary transition tax to the new participation exemption regime created by  code section 245A which allows a domestic corporation, that is a U.S. shareholder of a specified 10% foreign corporation (SFC), a 100% dividends received deduction (“DRD”) for the foreign-source dividends received from the foreign corporation
• Section 965 imposes a mandatory transition tax to this new participation exemption system under section 245A by requiring a mandatory inclusion in income of the accumulated foreign earnings of a “specified foreign corporations” (SFCs)
• It applies to any U.S. shareholders in a “specified foreign corporation” (SFC) which is a controlled foreign corporations or U.S. shareholders of a foreign corporation that has at least one 10% domestic corporation as a shareholder or shareholders
• It affects 1120, 1120-PC, 1120L, 1120S, 1120-RIC, 1120-REIT, 1065, 990, 1040 and 1041 returns
  • There is no mention of it applying to 1120-F or 1120-C returns in any guidance so far received from the IRS
• In simplified terms, the mandatory inclusion amount the taxpayer includes in their taxable income consists of the difference between section 965(a) income and the 965(c) deduction
• 965(a) income is the greater of the accumulated post-1986 deferred foreign income determined as of November 2, 2017, or December 31, 2017 from the SFC
• The 965(a) income must be determined by the preparer.