Form 965-B: Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts

Form 965-B: Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts

For businesses, particularly corporations and Real Estate Investment Trusts (REITs), tax compliance can be complicated, especially when it comes to handling international income and repatriation. One important form for these entities is Form 965-B, which helps them report their net 965 tax liability and, in the case of REITs, electing REIT reporting of 965 amounts.

This form is specifically designed to ensure that corporations and REITs comply with the tax provisions of the Tax Cuts and Jobs Act (TCJA), which includes the Transition Tax under Section 965. This guide explains who needs to file Form 965-B, how to complete it, and what steps to follow to stay in compliance with IRS regulations.

What is Form 965-B?

Form 965-B is titled “Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts”. This form is used by corporations (including REITs) that are subject to the Transition Tax under Section 965 of the Internal Revenue Code. The Transition Tax was introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 to repatriate deferred foreign income that U.S. corporations or shareholders held in foreign subsidiaries and certain other foreign corporations.

Form 965-B allows these entities to:

• Report their net 965 tax liability—i.e., the tax due on the deferred foreign income that needs to be repatriated.
• Elect for REITs: If the filer is a Real Estate Investment Trust (REIT), the form provides a mechanism to elect how they will handle their 965 amounts, such as deferred foreign income, for reporting purposes.

Who Needs to File Form 965-B?

Form 965-B is required for:

1. Corporate Taxpayers: U.S. corporations with foreign subsidiaries that are required to repatriate deferred foreign income due to Section 965 of the TCJA. These corporations need to report the amount of foreign income they are bringing back to the U.S. and calculate their Transition Tax liability.

2. Real Estate Investment Trusts (REITs): REITs that meet certain criteria may need to elect for the reporting of 965 amounts under the Transition Tax provisions. REITs that own shares in foreign corporations must adhere to the guidelines for repatriating deferred foreign income and reporting it on Form 965-B.

3. Electing REITs: In addition to corporations, REITs that wish to elect to report 965 amounts must also use this form. REITs may have special rules under the Transition Tax, as they often have different reporting requirements compared to other types of corporations.

Key Information to Complete Form 965-B

To complete Form 965-B, corporations and REITs must have the following information:

• Taxpayer Identification Number (TIN): This will generally be the Employer Identification Number (EIN) of the corporation or REIT.
• Details of Foreign Income: Information on the amount of deferred foreign income being repatriated. This could include income from foreign subsidiaries, foreign corporations, or other relevant entities.
• Tax Rate and Calculation of Liability: The Transition Tax applies a tax rate on the repatriated income. The form requires calculation of the net 965 tax liability and must account for any credits or deductions related to foreign income.
• REIT Election Information: If you are filing as a REIT, you will need to provide details about how you wish to handle your 965 amounts. This includes making elective choices about the amount of foreign income you bring back into the U.S.

Step-by-Step Instructions for Completing Form 965-B

Here’s a breakdown of how to complete Form 965-B:

Step 1: Provide Entity Information

• At the top of the form, enter the name and Employer Identification Number (EIN) of the corporation or REIT. Ensure all identifying information is accurate.

Step 2: Report Deferred Foreign Income

• Line 1: Report the amount of deferred foreign income subject to repatriation. This includes income from foreign subsidiaries or foreign corporations that are subject to Section 965.

Step 3: Calculate Transition Tax

• Line 2: Calculate the taxable income that is repatriated and subject to Transition Tax.
• Line 3: Apply the Transition Tax rates, which are typically 15.5% on cash holdings and 8% on non-cash assets. The exact amount of tax due will be calculated based on the income brought back into the U.S. under Section 965.

Step 4: REIT Election (if applicable)

• Line 4: If you are filing as a REIT, provide details about your election to report 965 amounts. This may involve making special elective choices regarding your foreign income.

Step 5: Calculate Payments and Balance Due

• Line 5: Report any payments you have already made towards the Transition Tax, such as estimated payments or amounts paid with other forms.
• Line 6: Subtract any payments made from the total Transition Tax liability to determine if additional tax is owed or if a refund is due.

Step 6: Final Certification

• As with all IRS forms, make sure to sign and date the form at the bottom, certifying that all the information provided is true and complete.

Filing Deadline for Form 965-B

The filing deadline for Form 965-B is the same as the tax return filing deadline for the corporate entity or REIT, which is generally the 15th day of the 4th month following the close of the tax year. For most corporations, this would mean April 15 for calendar year filers.

If a corporation or REIT requires more time to file, they may request an extension, but the Transition Tax payment is still due by the original filing deadline. An extension only allows more time to submit the form, not to make tax payments.

Common Mistakes to Avoid

1. Incorrect Taxable Income Reporting
   Corporations and REITs should carefully report all deferred foreign income subject to the Transition Tax. Incorrectly calculating or omitting any foreign income could lead to inaccurate tax calculations.

2. Improper Use of Tax Rates
   The Transition Tax applies different rates depending on the type of foreign income being repatriated (cash vs. non-cash assets). Failing to apply the correct tax rates can result in underpayment or overpayment of taxes.

3. Missing REIT Election
   If the entity is a REIT, missing the proper election regarding how to handle 965 amounts can lead to incorrect tax reporting. Ensure that the appropriate REIT election is made and documented.

4. Failure to Report Payments
   Ensure that any prior payments, such as estimated payments, are correctly reported to avoid discrepancies in the final balance due.

Conclusion

Form 965-B plays an essential role in helping corporations and Real Estate Investment Trusts (REITs) comply with the Transition Tax requirements under Section 965 of the Internal Revenue Code. It allows entities to report deferred foreign income, calculate their Transition Tax liability, and, for REITs, make an election for how to report 965 amounts.