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Dianne Mehany Quoted on Application of Offshore Earnings Transition Tax

February 12, 2018, Tax Notes

The applicability of the one-time transition tax on offshore earnings to individuals and hidden high rates are catching some taxpayers off guard.

Unlike many provisions of the Tax Cuts and Jobs Act (P.L. 115-97), the transition tax requiring some U.S. shareholders of foreign corporations to be taxed on their share of accumulated foreign earnings is imposed on both entities and individuals, Dianne Mehany of Caplin & Drysdale pointed out at a session on international tax reform at the American Bar Association Section of Taxation meeting February 8 in San Diego. Not only are individuals subject to this one-time inclusion, they’re subject at a higher rate, she added.

. . .

For individuals whose income level subjects them to the highest individual tax rate and whose inclusion year is calendar year 2017, the distortion results in approximately 17.5 percent and 9 percent rates for cash and noncash, respectively, Mehany said. For those with a 2018 inclusion year, the rates are even higher: approximately 27.3 percent and 14.1 percent, she said.

“This has come as quite a shock to some of our clients that are high-net-worth individuals” who are living and operating abroad, Mehany said. Because the rules apply to 2017 or years beginning before January 1 2018, “there’s really no planning that can be done to avoid this,” she said.

For the full article, please visit Tax Notes’ website (subscription required).

Excerpt taken from the article “Toll Charge Is Taking Individuals by Surprise” by Amanda Athanasiou for Tax Notes.

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