Form 965-E: Consent Agreement Under Section 965(i)(4)(D)

Form 965-E: Consent Agreement Under Section 965(i)(4)(D)

Form 965-E is a key document for U.S. corporations involved in transferring their Transition Tax liabilities under Section 965(i)(4)(D) of the Internal Revenue Code (IRC). This form comes into play when corporations elect to transfer their Section 965 Transition Tax liability to another party and must formally document their consent to such a transfer.

This article will explain what Form 965-E is, who needs to use it, and provide a step-by-step guide for properly completing and filing the form. Understanding this form is important for businesses handling foreign earnings repatriation and Transition Tax payments under the Tax Cuts and Jobs Act (TCJA).

What is Form 965-E?

Form 965-E, titled “Consent Agreement Under Section 965(i)(4)(D)”, is used by U.S. corporations that need to transfer their tax liabilities under the Transition Tax provisions of the Tax Cuts and Jobs Act (TCJA). Specifically, this form is required under Section 965(i)(4)(D) when the transfer of tax liabilities between corporations or entities requires formal consent between the parties involved.

The Section 965 Transition Tax was enacted to tax deferred foreign income held by foreign subsidiaries of U.S. corporations. Under certain conditions, companies can elect to transfer their Transition Tax liabilities to another entity, such as in the case of mergers, acquisitions, or corporate restructurings.

Form 965-E formalizes the agreement and consent between the transferor (the entity originally liable for the tax) and the transferee (the entity assuming the tax liability). By filing Form 965-E, both parties acknowledge and agree to the terms of the tax liability transfer.

When is Form 965-E Needed?

Form 965-E is required in situations where:

1. Transfer of Transition Tax Liabilities: A U.S. corporation seeks to transfer its Section 965 Transition Tax liabilities to another entity under Section 965(i)(4)(D). This typically occurs when businesses undergo corporate restructurings like mergers, acquisitions, or other significant changes in ownership.

2. Consent Agreement: The form is specifically used when both parties, the transferor (original liability holder) and the transferee (new liability holder), must formally consent to the liability transfer. The IRS requires this documentation to ensure compliance and prevent misunderstandings regarding who is responsible for the tax liability.

3. Section 965(i)(4)(D) Election: This form is filed when an entity elects to transfer its tax obligations under the rules set forth in Section 965(i)(4)(D), which governs the transfer of Transition Tax liabilities.

What Does Form 965-E Do?

Form 965-E serves as a formal consent agreement between the transferor and the transferee regarding the transfer of the Section 965 Transition Tax liability. Specifically, this form:

• Documents the consent of both parties (the transferor and the transferee) to the transfer of tax liabilities.
• Notifies the IRS that a transfer of tax liability has occurred under the provisions of Section 965(i)(4)(D).
• Ensures proper IRS tracking of the Transition Tax liability transfer, maintaining compliance with the IRC and TCJA requirements.
• Clarifies the responsibilities of each party in regard to the repatriation tax liability, ensuring the transferee assumes responsibility for future payments.

Without Form 965-E, there may be confusion over which entity is liable for the Transition Tax, and the IRS could impose penalties or fail to properly assign the liability, leading to potential tax compliance issues.

How to Complete Form 965-E

Completing Form 965-E is a straightforward process, but accuracy is key. Here’s a step-by-step breakdown of how to fill out the form:

Step 1: Provide Entity Information

• Transferor Information: Enter the name, Employer Identification Number (EIN), and address of the entity transferring the tax liability.
• Transferee Information: Enter the same details for the entity assuming the tax liability.

Step 2: Describe the Liability Transfer

• In this section, you’ll need to describe the Section 965 tax liability being transferred, including:
  • The amount of tax that is being transferred.
  • Details of any foreign income being repatriated, subject to the Transition Tax.
  • The specific terms of the transfer, such as the corporate event (e.g., merger, acquisition) prompting the transfer.

Step 3: Acknowledgments of Consent

• Both the transferor and transferee must sign the form, acknowledging that they have agreed to the terms of the tax liability transfer. Both parties confirm they are in compliance with Section 965(i)(4)(D) of the IRC.

Step 4: Additional Information

• Provide any additional relevant information required by the IRS for processing, such as the tax return filing dates or details about the transaction that prompted the transfer.

Step 5: Submit the Form

• Submit Form 965-E along with the corporate tax return. Keep records of the filed form and consent agreement for future reference.

Key Deadlines for Filing Form 965-E

Form 965-E must be filed in alignment with the tax return deadlines of the entities involved in the Transition Tax liability transfer. These deadlines are generally as follows:

• For many companies operating on a calendar year basis, the deadline is typically April 15, the 15th day of the 4th month following the end of the tax year.
• If the business receives an extension to file its tax return, the deadline for submitting Form 965-E will be extended accordingly.

It is important to ensure that Form 965-E is submitted on time to avoid penalties or delays.

Key Considerations and Common Mistakes

When filing Form 965-E, keep the following tips in mind:

1. Ensure Accurate Transfer Details: It’s essential that the tax liability transfer is documented correctly. Double-check the amount of the liability being transferred and the terms of the transaction to avoid any issues.

2. Ensure Valid Consent: Both the transferor and transferee must acknowledge and agree to the terms of the transfer. Both signatures are crucial for the form’s validity.

3. Timely Filing: As with all IRS forms, ensure Form 965-E is filed by the appropriate deadline to avoid penalties. Filing late can create compliance issues.

4. Consult a Tax Professional: Due to the complexity of Section 965 and Transition Tax rules, it is advisable to consult a tax professional or corporate tax attorney when completing this form, especially if the transfer involves multiple parties or a complex corporate restructuring.

Conclusion

Form 965-E is a critical document for U.S. corporations looking to transfer their Section 965 tax liabilities under Section 965(i)(4)(D) of the IRC. By ensuring both parties (the transferor and transferee) formally consent to the transfer and filing the form with the IRS, businesses can ensure they remain compliant with IRS regulations and avoid complications related to the Transition Tax.