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Highlights of the final ‘toll tax’ regulations under Section 965

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January 2019


Treasury and the IRS on January 15 released 305-page final regulations (the Final Regulations) under Section 965 as amended by the 2017 tax reform legislation (the Act). The Final Regulations provide guidance relating to the ‘toll tax’ due upon the mandatory deemed repatriation of certain deferred foreign earnings.

The Final Regulations incorporate with modifications the rules described in the proposed regulations under Section 965 and set forth additional guidance on a range of issues relating to the implementation of that provision.  Significant divergences from the rules in the Proposed Regulations include provisions for the basis adjustment elections, modifications to cash position determinations, and revisions to the five-step ordering rule for E&P adjustments (including the interaction of the ordering rule with foreign tax credits and disregarded payment rules).  The Final Regulations also clarify the timing and manners of certain Section 965 elections and payments.

Taxpayers subject to Section 965 should immediately review the Final Regulations and determine the impact, if any, on their toll tax liability. Note that the Final Regulations update the transition rules relating to transfer agreements to provide that for acceleration events that occur on or before December 31, 2018, a transfer agreement must be filed by January 31, 2019.

Some of the key highlights we have identified thus far are set forth below. In addition, we will discuss the Final Regulations on a January 23 webcast, ‘Tax reform readiness: Finally final. The section 965 regulations.’

The takeaway

Although the Final Regulations generally follow the structure and approach set forth in the Proposed Regulations, there are significant modifications that are likely to impact a taxpayer’s ‘toll tax’ calculation.

Taxpayers should immediately review the Final Regulations to determine whether their ‘toll tax’ liability may be affected.

The above-mentioned highlights are not an exhaustive list of the provisions in the Final Regulations.

Contact us

Michael DiFronzo

Washington National Tax Services International Tax Leader, PwC US

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