Section 965 Transition Tax Basis Election Deadline Deferred

The IRS recently announced in Notice 2018-78 that the due date for the section 965 basis election will be extended to 90 days after publication of the final 965 regulations.

What Is The Basis Election?

The proposed section 965 regulations clarify that a U.S. shareholder generally may not adjust stock basis to take into account a reduction to a U.S. shareholder’s pro rata share of the section 965 earnings under the reduction rules. However, a U.S. shareholder may elect to make the relevant basis adjustments to account for a reduction.

Original 965 Basis Election Deadline.

According to the proposed section 965 regulations, the basis election had to be made not later than the U.S. shareholder’s tax return due date (taking into account extensions).

965 Basis Election Extended Due Date.

The IRS admitted that the deadline was “too onerous” in which to make a binding basis election before the section 965 regulations are finalized. Therefore, the IRS will provide a transition rule with respect to returns due (taking into account extensions) before the date that is 90 days after the date the final regulations are published. In such cases, the basis election must be made no later than 90 days after publication of the final regulations.

What If I Timely Filed a 965 Basis Election?

In Notice 2018-78 the IRS clarified that if a basis election was made on or before the date the final regulations are published, the basis election may be revoked no later than 90 days after publication. Relevant tax returns must be filed consistently with an election that has been made and not revoked.

Notice 2018-78 Limited in Scope

This IRS Notice extends only the basis election deadline. All other 965 election deadlines, such as the installment payment election of 965(h) and deferred payment election of 965(i), remain unchanged.