The Internal Revenue Service (IRS) this week released Notice 2018-78, announcing certain welcome amendments to the rules included in the Internal Revenue Code¹ Section 965 proposed regulations (REG-104226-18) that were issued on 1 August 2018. The Notice addresses tax rules affecting the basis election deadline, aggregate foreign cash position and relief related to recent Hurricane Florence.

The Notice states that a transition rule will extend the due date and provide limited revocability for the basis election under Prop. Reg. Section 1.965-2(f)(2) until 90 days after the Section 965 proposed regulations are finalized. With a more reasonable due date and limited revocability for the basis election, taxpayers that previously decided not to make the election based on the impracticality of performing the requisite due diligence may want to reconsider that decision.

The final regulations will also include a rule treating a consolidated group as a single United States (US) shareholder for purposes of disregarding certain assets in calculating the aggregate foreign cash position of the US shareholder, to prevent the overstatement of the aggregate foreign cash position. This aligns the aggregate foreign cash position calculation more closely with the anticipated result of the rules as originally described in Section 3.01(b) and (c) of IRS Notice 2018-07.

Finally, Notice 2018-78 provides relief on the deadline to file an election under the Section 965 proposed regulations for taxpayers eligible for the extended due date of their income tax return in response to Hurricane Florence.

The updates in the Notice are very timely given that the extended due date of the 2017 corporate income tax return is fast approaching.²

The recently released Global Intangible Low-Taxed Income (GILTI) proposed regulations under Section 951A are scheduled to be published in the Federal Register on 10 October 2018. The regulations (REG-104390-18) were released on 13 September, but have not been published in the Federal Register. Publication in the Federal Register starts the 60-day comment period, meaning that comments must be received by 60 days after 10 October.

Endnotes

¹ All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.

² See EY Global Tax Alert, US IRS announces changes to Section 965 transition tax rules affecting basis election deadline, aggregate foreign cash position, and relief in connection with Hurricane Florence, dated 3 October 2018.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, International Tax Services, Washington, DC

• Arlene Fitzpatrick
  arlene.fitzpatrick@ey.com
• Joshua Ruland
  joshua.ruland@ey.com

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ATTACHMENT

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