Estate planning can entail special complexities and challenges in almost any given case. Some California residents know that to be especially true when a portion of family assets reside in one or more offshore accounts.
In such a case, a prominent third party takes special interest. Namely, that is the Internal Revenue Service. The agency focuses with heightened scrutiny on individuals and business entities having overseas earnings.
Especially earnings it believes are sitting in select foreign corporations, with account holders never complying with agency mandates regarding account disclosure and payment for taxes owed.
The IRS addresses that situation via requirements set forth in section 965 of the Internal Revenue Code.
Its bottom line: If you are a shareholder of a specified foreign entity (whether a partnership, individual or family, trust, estate or other widely defined party), you must pay a so-called “transitional tax” annually to the IRS on garnered earnings. One article discussing the agency dictate states that American tax officials consider those earnings “as if [they] had been repatriated to the United States.”
Section 965 spells out a relatively recent exaction, being added to American tax laws as part of a 2017 reform measure. Individuals and business entities were allowed to defer taxes prior to its enactment by investing in foreign companies, settling with the IRS when earnings income was eventually brought back to the U.S.
Affected shareholders must now heed and timely act upon the new requirements, which the IRS stresses it will prominently spotlight this autumn via a mass educational campaign. Affected taxpayers will have the option to pay taxes owed in one lump sum or proportionately over an 8-year period.
Questions or concerns regarding IRS measures that affect estate planning can be directed to a proven attorney with an integrated background in estate administration and tax matters.