Tax Reform Series 40 – Deemed Repatriation at Two-Tier Rate


Plain Language of Change:

  • Corporations will be required to pay a repatriation tax on offshore earnings. Specifically, the last taxable year beginning before January 1, 2018, any U.S. shareholder of a specified foreign corporation must include in its income, the pro rata share of the accumulated post-1986 deferred foreign income of the corporation

  • The two-tier rate is 15.5 percent for the included deferred foreign income held in liquid form (i.e., cash or cash equivalent assets) and 8 percent for the remaining deferred foreign income (i.e., illiquid assets), determined as of November 2, 2017, or as of December 31, 2017 (“measurement dates”)

  • The credit for foreign taxes would also be disallowed, thus limiting a foreign tax credit to the taxable portion of the included income.

  • The increased tax liability generally may be paid over an eight-year period

  • The mechanism for the mandatory inclusion of accumulated foreign earnings is subpart F

  • Special rule permits any shareholder of the S corporation to elect to defer their portion of the net tax liability at transition to the participation exemption system until the shareholder’s taxable year in which a triggering event occurs

  • Recapture from expatriated entities

  • Shareholders of surrogate foreign corporations not eligible for reduced rate on dividends

Detailed Analysis of Deemed Repatriation at Two-Tier Rate

Cordasco & Company PC is a boutique CPA firm specializing in federal and state tax issues. We provide customized tax and accounting services specifically designed to help our clients capitalize on the rapidly changing tax and accounting environments.

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