The adage “the Devil is in the details” holds true when it comes to filing taxes. This was particularly true when it came to filing taxes in 2018 because this was the first year the Tax Cuts and Jobs Act (TCJA) went into effect.
What did tax professionals and taxpayers discover? The list is long and would take more than a single blog post to discuss. However, one specific area that surprised tax professionals and taxpayers alike involved the impact of the TCJA on those who have stock in foreign corporations.
Surprise #1: Ownership in CFC expands
Not surprisingly, the Internal Revenue Service (IRS) treats stocks held in foreign corporations differently from interests held in domestic corporations. What did surprise tax professionals and taxpayers was the fact that the TCJA changed the tax code to the extent it expanded the definition of an owner of a controlled foreign corporation (CFCs) for tax purposes.
Under the new tax law it appeared that those who, under past tax law, were considered indirect owners not subject to tax obligations were now expected to report and pay up.
Surprise #2: Definition of CFC expands
Another surprise: the TCJA also mudded the waters when it came to the determination of which corporation qualified as CFCs for tax purposes.
What does this mean for taxpayers?
The IRS is still ironing out the kinks. In a recent news release, the agency stated it had issued procedures and proposed regulations to provide relief to U.S. taxpayers that find themselves facing one of the two surprises noted above. Taxpayers in this situation are wise to protect their interest by finding legal counsel experienced in this niche area of tax law.