General Section 965 Questions and Answers (Including Transfer and Consent Agreements)

This document provides answers to questions arising under section 965 not specifically related to the filing of a tax year 2017 or 2018 return.  It includes general information about payment obligations arising under section 965.  It also includes answers to questions related to filing Transfer and Consent Agreements arising under section 965(h) and (i).  Additional questions and answers may be added in the future as necessary.

The document entitled Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns provides answers to questions regarding tax year 2017 return filing and payment obligations arising under section 965 of the Internal Revenue Code (the "Code").  See Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns.  The document entitled Questions and Answers about Tax Year 2018 Reporting and Payments Arising under Section 965 provides answers to questions related to tax year 2018 return filing and payment obligations arising under section 965, including reporting and payment obligations resulting from amounts included in income for both the 2017 and 2018 tax years. See Questions and Answers about Tax Year 2018 Reporting and Payments Arising under Section 965.

Payment Obligations

Q1: I made a section 965(h) election on a prior tax return, electing to pay the section 965(h) net tax liability portion of a prior income tax liability in eight annual installments.  How do I make the subsequent installment payment(s)?

A1:  Section 965(h) allows taxpayers to pay the section 965(h) net tax liability portion of their overall income tax liability over eight annual installments.  A schedule of the required installments is below.
 

Required Installment Percent Due
Installment One 8%
Installment Two 8%
Installment Three 8%
Installment Four 8%
Installment Five 8%
Installment Six 15%
Installment Seven 20%
Installment Eight 25%

The first installment is 8% of the assessed section 965(h) net tax liability and was generally due on the due date (determined without regard to any extension of time for filing) of the income tax return where you originally reported amounts in income under section 965 that led to the section 965(h) net tax liability. Successive installments are due on the due date (determined without regard to any extension of time for filing) of the income tax return for the taxable year following the taxable year with respect to which the preceding installment was made.

The IRS will make every effort to issue an installment notice and payment voucher for each successive installment approximately six to eight weeks before their respective due dates.  The installment notice will provide the total amount of your unpaid section 965(h) net tax liability and the amount of your section 965(h) net tax liability to be paid by the due date. If you do not receive a notice and do not know the amount to be paid for an installment, contact the IRS.  Individual taxpayers may contact the IRS at 855-223-4017, Ext. 729 and business taxpayers may contact the IRS at 800-830-5215, Ext. 708.

Your successive section 965(h) net tax liability installment payments should be made separately from your income tax payments for successive tax years.  The successive installment(s) relate to an income tax liability assessed in a prior year and need to be credited to that prior year.  Therefore, the successive installment(s) should not be combined with payments for a current year income tax liability.  Taxpayers that reported a section 965(h) net tax liability in more than one tax year (i.e., because they had sufficient interests in specified foreign corporations with different tax years) should make separate installment payments for each tax year.

You may submit your section 965(h) net tax liability installment payment using any of the following payment options:

  • EFTPS.gov (Web, IVR and Agent), credit cards, Direct Pay, bulk providers and batch providers. Select the tax year that corresponds to the year the section 965 inclusion was reported and assessed, the form number on which the section 965 liability was reported, and then IRC 965 from the dropdown options.
  • Fed Wire. Wire transfer your 965 Payment using the 5-digit payment type code 09650 and your inclusion year tax return information.
  • Mail. Submit a separate check or money order for your section 965(h) net tax liability installment payment. Write on the front of your check or money order “965 Tax” and note the tax year corresponding with the original section 965 inclusion and mail with your installment payment voucher. If you do not receive an installment notice and payment voucher, submit your check or money order with a written statement identifying the payment as a section 965(h) installment payment (and which of the eight installments it is) and identifying the relevant tax year corresponding with the original section 965 inclusion.

The IRS cannot make a refund of or apply as a credit to another year any portion of a properly applied section 965 installment payment until the entire income tax liability, including the full section 965(h) net tax liability, is satisfied.  Instead, the IRS will apply any amount designated as a section 965 installment payment with respect to the tax year in excess of the annual installment currently due to the next annual installment and, to the extent such excess exceeds the amount of that installment, to the next successive installment, and so on.  For tax years after the year of the section 965 inclusion, a taxpayer may receive a refund or credit of payments not designated as section 965 installment payments (e.g., estimated tax payments) to the extent that there is an overpayment of income tax for that year and the taxpayer’s current section 965 installment payment is fully paid, except as otherwise required by law, including section 6402 of the Code and the regulations under that section.  See Questions and Answers about Tax Year 2018 Reporting and Payments Arising under Section 965, Q&As 3, 4. (6/27/2019)

Transfer Agreements

Eligible section 965(h) transferors and transferees may enter into Transfer Agreements (see Q2) with the IRS to defer payment of the remaining amount of the section 965(h) net tax liability or section 965(i) net tax liability that would otherwise become due as a result of certain acceleration or triggering events.  See §§1.965-7(b)(3)(iii) and 1.965-7(c)(3)(iv). 

Q2: When and where can I file a “Transfer Agreement Under Section 965(h)(3)”and “Transfer Agreement Under Section 965(i)(2)” (hereafter, “Transfer Agreement”)?

A2: You may file a Transfer Agreement with the IRS’ Memphis Compliance Service Collection Operations at the following address:   

Memphis CSCO
5333 Getwell Road MS 81
Memphis, TN 38118

Transfer Agreements Under Section 965(h)(3) will be considered timely filed only if filed within 30 days of the date that the acceleration event occurs.

Transfer Agreements Under Section 965(i)(2) will be considered timely filed only if filed within 30 days of the date that the triggering event occurs. However, if the triggering event is the death of the eligible section 965(i) transferor, the transfer agreement must be filed by the unextended due date for the eligible section 965(i) transferor’s final income tax return. (6/27/2019)

Consent Agreements – S Corporation Shareholders

Consent Agreements (see Q2) may be entered into and filed with the IRS after certain triggering events to receive the required consent to make a section 965(h) election to pay the unpaid portion of the section 965(i) net tax liability in eight installments.  See §1.965-7(c)(3)(v)(D). 

Q3: I am a shareholder of an S corporation.  I deferred payment of my section 965 net tax liability related to the S corporation (my “section 965(i) net tax liability”) pursuant to a section 965(i) election.  A triggering event under section 965(i)(2)(A)(ii) has occurred.  While the entire section 965(i) net tax liability will be assessed on my return as an addition to tax for the year of the triggering event, I would like to make an election under section 965(h) so that I will pay the liability in eight annual installments.  Section 965(i)(4)(D) provides that I must receive the consent of the Commissioner to pay my section 965(i) net tax liability in installments when a triggering event under section 965(i)(2)(A)(ii) has occurred.  How can I obtain the consent of the Commissioner?

A3: You must file a Consent Agreement Under Section 965(i)(4)(D) (hereinafter, “Consent Agreement”) within 30 days of the occurrence of the triggering event. The requirements for Consent Agreements are set forth in §1.965-7(c)(3)(v)(D)(4).  Under a transition rule set forth at §1.965-7(c)(3)(v)(D)(2)(ii), if the triggering event occurred on or before February 5, 2019, the Consent Agreement will be considered timely if it was filed by March 7, 2019.  (6/27/2019) 

Q4: Can the S corporation obtain the consent of the Commissioner as required by section 965(i)(4)(D) on behalf of the S corporation shareholders?

A4: No.  Each S corporation shareholder must file a Consent Agreement and obtain the consent of the Commissioner. (6/27/2019)

Q5: Where can I file a Consent Agreement?

A5: You may file a Consent Agreement with the IRS’ Memphis Compliance Service Collection Operations at the following address: 

Memphis CSCO
5333 Getwell Road MS 81
Memphis, TN 38118

(6/27/2019)

Q6:  If I have filed a Consent Agreement, do I still need to make a section 965(h) election on my tax return to pay my section 965(i) net tax liability in eight annual installments?

A6:  Yes.  You must attach to your tax return a statement signed under penalties of perjury electing section 965(h) to pay your section 965(i) net tax liability in eight annual installments.  In the case of an electronically filed return, the election statement should be attached in Portable Document Format (.pdf).  See §1.965-7(b)(2)(iii) for more information regarding the election statement.  Your Form 965-A or 965-B, as applicable, should also be updated to reflect the triggering event and section 965(h) election to pay the section 965(i) net tax liability in installments. (6/27/2019)

Excess Remittances in the Year of a Triggering Event

Q7: I previously made a section 965(i) election with respect to my section 965(i) net tax liability, and a triggering event described in section 965(i)(2)(A) occurred this year.  I made a section 965(h) election on my tax return for the year of the triggering event.  If my payments, including estimated tax payments, for the year of the triggering event exceed my net income tax liability described under section 965(h)(6)(A)(ii) and the regulations thereunder (my net income tax determined without regard to section 965) and my first annual installment pursuant to my election under section 965(h), may I receive a refund of such excess amounts or credit such excess amounts to my next year’s estimated income tax?

A7: No. You may not receive a refund or credit of any portion of properly applied tax payments unless and until the amount of your payments exceeds your entire unpaid income tax liability, including all amounts to be paid in installments under section 965(h) in subsequent years.  If your tax payments exceed the sum of your net tax liability determined without regard to section 965 and your first annual installment, the excess will be applied to your next annual installment and so on until the full amount of your section 965(i) net tax liability is satisfied or until the full amount of the tax payment is applied. 

See Questions and Answers about Tax Year 2018 Reporting and Payments Arising under Section 965, Q&As 3-5 and examples 1-3 for more information related to excess remittances and section 965(h) net tax liabilities. (6/27/2019)

Joint and Several Liability after Election to Pay Triggered Tax in Installments

Q8:  Do the S corporation and a transferor of the underlying S corporation shares (if any) remain jointly and severally liable for the payment of my section 965(i) net tax liability after I’ve made a section 965(h) election to pay such liability in eight annual installments?

A8: Yes.  If you or a transferor made a section 965(i) election with respect to the section 965 liability attributable to your ownership interest in an S corporation, the S corporation is jointly and severally liable for your payment of the section 965(i) net tax liability with respect to the S corporation, as well as any penalties, additions to tax, or other additional amounts attributable to such net tax liability.  If you received the S corporation shares pursuant to a Transfer Agreement Under Section 965(i)(2)(C), the transferor is also jointly and severally liable for your payment of the section 965(i) net tax liability associated with those shares, as well as any penalties, additions to tax, or other additional amounts attributable to such net tax liability.  An election under 965(h) to pay your net tax liability in eight annual installments does not alter the joint and several liability of the S corporation or the transferor (if any) with respect to the underlying S corporation shares. (6/27/2019)