The IRS on December 12, 2018 released a set of Questions and Answers (Q&As) that provide guidance on Section 965 reporting and payment requirements for 2018 tax returns, including obligations resulting from amounts included in income for the 2017 tax year.
The most recent Q&As provide updates and clarifications to the procedures both for making the second 2017 Section 965(h) installment payment due in 2019 and also for making toll charge payments for the tax year 2018 (either in eight installments or in a lump sum). Taxpayers should carefully review the Q&As when calculating their 2018 and 2019 estimated tax payments.
As noted above, the most significant guidance provided by the new set of Q&As is that the IRS will not offset a 2018 overpayment against any future installments of a 2017 toll charge whose payment is properly deferred and not yet due. The IRS instead will refund the taxpayer’s 2018 overpayment or, at the taxpayer’s election, apply it as a credit to 2019 estimated tax.
That taxpayer favorable guidance can be reconciled with the IRS’s position that it lacks authority to issue a refund or credit under Section 6402 for a tax year that includes a Section 965 liability until the entire toll charge has been satisfied. Although the authority to issue a refund or credit for a particular tax year is conditional on the existence of an overpayment for that year, the decision to offset an overpayment from one tax year against a balance due for a different year (or type of tax) is discretionary rather than mandatory (see Northern States Power Co. v. United States, 73 F.3d 764 (8th Cir. 1996)). Here, such an offset would be inconsistent with Congressional intent regarding a taxpayer’s ability to elect to pay its Section 965 liability over eight instalments.
Managing Director, Tax Controversy and Regulatory Services, PwC US