On 1 October 2018, the US Treasury Department and the US Internal Revenue Service (IRS) issued IRS Notice 2018-78 to provide guidance on the transition tax under section 965 of the US Internal Revenue Code (IRC).
The transition tax is imposed on untaxed foreign earnings of foreign subsidiaries of US companies under IRC section 965, which treats those earnings as if they had been repatriated to the United States.
Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate. The remaining earnings are taxed at an 8% rate.
Notice 2018-78 announces that the due date for the election to make certain basis adjustments with respect to each foreign subsidiary will be extended to 90 days after the publication of the final regulations. Further, elections made in the interim will be revocable.
Notice 2018-78 also announces that the rules concerning the determination of the aggregate foreign cash position of a US shareholder that is a member of a consolidated group will be revised to be consistent with Notice 2018-07.
Finally, Notice 2018-78 provides a postponement for taxpayers affected by Hurricane Florence to make elections and file transfer agreements related to IRC section 965, until 31 January 2019.
Notice 2018-78 will appear in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2018-42, dated 15 October 2018.