Will Moore Mean More Refunds for Some Taxpayers?
Published on by Michael O'Hara in International Business, Tax Services
Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, income from foreign jurisdictions to U.S. shareholders was not taxed until distributions were brought back into the U.S. The TCJA imposed a deemed repatriation, which was a one-time inclusion of accumulated foreign earnings, otherwise known as IRC Section 965 transition tax, where the following rates were applied:
- 15.5% applied to foreign earnings held in cash, and;
- 8% to other earnings held in illiquid assets.
Certain taxpayers could elect to defer this tax due over eight years with the IRC Section 965(h) election.
The Moore case
Moore v. United States (referred to as Moore) is a legal case that challenges the constitutionality of the “transition tax” imposed with the change in the international tax system that was included in the TCJA. This case is currently before the U.S. Supreme Court.
If IRC Section 965 is struck down as unconstitutional, taxpayers may be entitled to file a claim for a refund if their statute of limitations is open. Taxpayers that elected the deferral under IRC Section 965(h) election, should consider filing a protective claim for a refund.
Protective claim
A protective claim is a written claim for a refund of taxes and is contingent upon an expected future event. They are filed to protect a taxpayer’s rights, should the statute of limitations for claims expire prior to the resolution of the contingency.
The statute of limitations is either:
- Three years from when the original return was filed, or;
- Two years from the time of payment.
If the transition tax was reported on a taxpayer’s 2017 return with an installment election, the tax payments should have been paid by April 15th of the years below at the following percentages:
- 2018 – 8% (Statue of Limitations Expired)
- 2019 – 8% (Statue of Limitations Expired)
- 2020 – 8% (Statue of Limitations Expired)
- 2021 – 8% (Statue of Limitations Expired)
- 2022 – 8% (Open)
- 2023 – 15% (Open)
- 2024 – 20% (Open)
- 2025 – 25% (Open)
As you can see, the payment percentages are larger in the later years so a protective refund claim may still be beneficial even though all years are not open.
Without the protective claim, if the Supreme Court case doesn’t decide until May 2027 or later, none of these payments would be eligible for refunds. For 2022 to be eligible, this protective claim needs to be filed by April 15th, 2024.
Talk to us
If you have any questions on the impact of the pending case, or questions about international tax and how to optimize your tax position, the Barnes Dennig team of top international tax pros is here to help. Contact us today.
Related content
You may also be interested in welcome relief for taxpayers on foreign tax credit regulations, upcoming regulations in controlled foreign corporations, the Foreign Bank Account Report and filing requirements, or an update on the global minimum tax.
