Blog

We keep you up to date on the latest tax changes and news in the industry.

Do You Have Accumulated Deferred Foreign Income? Time to Pay Up!

Article Highlights:

  • Foreign Corporations 
  • Deferred Dividends 
  • Previous Law 
  • Deferred Income Now Taxable 
  • Reduced Tax Rates 
  • Payment Plan Election 
Note: This is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

With the passage of the Act, taxpayers who are shareholders in a controlled foreign corporation (CFC) with deferred income are required to pay U.S. taxes on that income.

Previously, U.S. shareholders of foreign corporations were only subject to taxes on income from those corporations if the dividends were distributed to the shareholders. Thus, if dividends were not distributed, the shareholder received no taxable income from the corporation. One exception to that rule applied to U.S. persons who owned 10% or more of a CFC. They were required to include their share of the CFC’s investment, insurance and services income in their income subject to U.S. tax.

The Act has shot that tax shelter down. It requires that, for the last taxable year of a foreign corporation (beginning before January 1, 2018), all U.S. taxpayers who own at least 10% of a CFC or other foreign corporation must include in their income pro rata shares of all accumulated post-1986 deferred foreign income that has not previously been taxed. The Act does provide a tax break; after all adjustments, this deferred foreign income is taxed at an effective rate of 15.5% for income held in liquid form and 8% otherwise. However, the foreign tax credit cannot be used to reduce the tax.

Another break allows a taxpayer, if he or she elects this option, to have the tax on this accumulated post-1986 deferred income spread over a period of 8 years:
  • 8% in each of the first five installments, 
  • 15% in the sixth installment, 
  • 20% in the seventh installment, and 
  • 25% in the eighth installment. 
Mandatory inclusion applies in the last taxable year that began before January 1, 2018. Thus, a U.S. taxpayer who owns an interest in a CFC may have an increased tax bill for 2017.

Please call this office for further details or if you have questions on how this new tax provision might apply to you.

Share this article...

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and accounting tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

We care about the protection of your data.


TAX ASSURANCE PRICING

Personal Income Tax Services

In addition to our normal tax preparation service, we also offer the Tax Assurance Packages for those clients who want more than just a tax preparation. These packages are annual packages which provide superior tax preparation, tax planning and access to a tax expert via e-mail. All of these additional services are free of charge to those clients who select on of our Tax Assurance Packages.

Bronze Assurance Package

$59 /mo
  • Annual Tax Preparation

  • Audit Assistance - We respond to audit inquiries

  • E-Mail Access for questions (72 Hour Response)

Gold Assurance Package

$79 /mo
  • Annual Tax Preparation

  • 2 Tax Planning Meetings per year

  • Audit Assistance - We respond to audit inquiries

  • E-Mail Access for questions (24 Hour Response)

Silver Assurance Package

$69 /mo
  • Annual Tax Preparation

  • Annual Tax Planning Meeting

  • Audit Assistance - We respond to audit inquiries and E-Mail Access for questions (36 Hour Response)

TAX ASSURANCE PRICING

Business Income Tax Services

In addition to our normal tax preparation service, we also offer the Tax Assurance Packages for those clients who want more than just a tax preparation. These packages are annual packages which provide superior tax preparation, tax planning and access to a tax expert via e-mail. All of these additional services are free of charge to those clients who select on of our Tax Assurance Packages. These packages include both the business and personal tax related preparation services.

Bronze Assurance Package

$199 /mo
  • Annual Tax Preparation (Business and Personal)

  • Audit Assistance - We respond to audit inquiries

  • E-Mail Access for questions (72 Hour Response)

Gold Assurance Package

$219 /mo
  • Annual Tax Preparation (Business and Personal)

  • 2 Tax Planning Meetings per year

  • Audit Assistance - We respond to audit inquiries

  • E-Mail Access for questions (24 Hour Response)

Silver Assurance Package

$209 /mo
  • Annual Tax Preparation (Business and Personal)

  • Annual Tax Planning Meeting

  • Audit Assistance - We respond to audit inquiries and E-Mail access for questions (48 Hour Response)