Form 965-D: Transfer Agreement Under Section 965(i)(2)

Form 965-D: Transfer Agreement Under Section 965(i)(2)

Form 965-D is an important document for U.S. corporations that need to transfer their Section 965 tax liabilities under certain conditions outlined in Section 965(i)(2) of the Internal Revenue Code (IRC). This form specifically comes into play when a U.S. entity needs to transfer its Transition Tax liabilities related to deferred foreign income to another business or entity.

This article will walk you through Form 965-D, explaining its purpose, who needs it, how to complete it, and why it’s important for businesses with foreign subsidiaries that are subject to Transition Tax under the Tax Cuts and Jobs Act (TCJA).

What is Form 965-D?

Form 965-D, titled “Transfer Agreement Under Section 965(i)(2)”, is used when a corporation or entity transfers the tax liability associated with foreign earnings brought back under the Transition Tax rules of the Tax Cuts and Jobs Act (TCJA).

In the context of Section 965, U.S. corporations that have foreign subsidiaries are required to bring back previously deferred income subject to tax, referred to as the Transition Tax. However, this tax liability can be transferred to another entity if certain conditions are met, and that’s where Form 965-D comes into play.

This form allows for the formal transfer of tax liabilities between the transferor (the entity that initially incurs the tax liability) and the transferee (the entity that assumes responsibility for the tax obligation). The Section 965(i)(2) provision governs this transfer process, allowing corporations to facilitate changes in tax responsibility during certain business transactions like mergers, acquisitions, or other corporate reorganizations.

When is Form 965-D Needed?

Form 965-D is required when a U.S. corporation or entity needs to transfer its Transition Tax liabilities related to foreign income. This can happen in various circumstances, including:

1. Corporate Transactions and Mergers: If a company undergoes a merger or acquisition, it might need to transfer its 965 liabilities to the surviving entity or the new acquiring company.

2. Changes in Ownership: When a U.S. parent company transfers its foreign subsidiary or changes its ownership structure, it may trigger the need to transfer the associated tax liability, and Form 965-D is used for that transfer.

3. Section 965(i)(2) Election: Certain provisions under Section 965(i)(2) of the IRC allow corporations to elect to transfer the Transition Tax liability under specific conditions, which then requires filing Form 965-D to document the transfer.

What Does Form 965-D Do?

Form 965-D documents the transfer of tax liabilities associated with the Transition Tax under Section 965(i)(2). The form outlines the details of the transferor and transferee, and the tax liability being transferred. This ensures that the IRS is aware of the transfer and properly assigns the responsibility for repaying the Transition Tax to the appropriate party.

In particular, Form 965-D ensures that:

• The transferor (original taxpayer) properly transfers its liability for Section 965 tax to the transferee (the party assuming the responsibility).
• The transferee acknowledges and accepts the liability transfer, taking on the responsibility for paying the Transition Tax.
• The IRS is notified of the transfer, ensuring compliance and minimizing the risk of issues arising from the Transition Tax liability in future audits or assessments.

How to Complete Form 965-D

Completing Form 965-D involves several steps, and it is important to ensure that the information provided is accurate. Here’s a breakdown of the key sections:

Step 1: Basic Entity Information

• Transferor Information: Enter the details of the entity transferring the tax liability, including its name, Employer Identification Number (EIN), and address.

• Transferee Information: Provide the details of the entity assuming responsibility for the liability, including its name, EIN, and address.

Step 2: Tax Liability Transfer Details

• Describe the Section 965 tax liability being transferred, including the amount of the liability. This includes any deferred foreign income taxes that are subject to the Transition Tax and are now being transferred to the transferee.

Step 3: Transfer Agreement Terms

• Provide a brief explanation of the terms under which the liability is being transferred. This may include information about a merger, acquisition, or another type of corporate restructuring event that triggers the transfer.

Step 4: Acknowledgments

• Both the transferor and transferee must sign the form to confirm the accuracy of the information provided and acknowledge their respective responsibilities.

Step 5: Submit the Form

• File Form 965-D along with any other tax filings. Make sure to keep records of the filing for future reference.

Key Deadlines for Filing Form 965-D

The deadline for filing Form 965-D aligns with the tax filing deadlines for the business entities involved in the transfer. This typically means:

• The form should be filed by the 15th day of the 4th month after the end of the corporation’s tax year, which for many businesses will be April 15 if operating on a calendar year basis.
• If an extension is granted for the corporation’s tax return, it may also extend the deadline for filing Form 965-D.

Key Considerations and Common Mistakes

Here are some important factors to keep in mind when preparing and filing Form 965-D:

1. Accurate Transfer Documentation: Ensure that the transferor and transferee provide clear and accurate documentation for the tax liability transfer. Incorrect information can lead to penalties or complications in processing the transfer.

2. Clarify Terms and Agreements: Clearly outline the terms of the transfer and the reason for the liability shift. Whether it is a merger, acquisition, or another transaction, the IRS needs to understand the details of the transfer to process the form correctly.

3. Timely Filing: Ensure that Form 965-D is filed on time, along with any necessary supporting documents. Late filing could result in penalties or delays in processing.

4. Consult a Tax Professional: If you are dealing with a complex corporate transaction or have questions about how the tax liability transfer should be handled, consider consulting with a tax professional or corporate tax attorney. This can help avoid mistakes and ensure compliance.

Conclusion

Form 965-D is a critical document for U.S. corporations that need to transfer their Section 965 tax liabilities under Section 965(i)(2) of the IRC. This form facilitates the transfer of Transition Tax liabilities between corporations, ensuring that both the transferor and transferee are in compliance with IRS regulations.