This IRM 5.19.26, Campus Procedures for IRC 965 - Transition Tax on Untaxed Foreign Earnings, provides guidelines for working the Section 965 program.

Section 14103 of the Tax Cuts and Jobs Act, Public Law 115-97.

Director, Collection Policy, is responsible for overseeing program coordination for Collection IRC 965, Transfer and Consent agreements, as well as acceleration of delinquent IRC 965(h) policies, strategies, objectives, and procedures. Directs evolving program issues and collaborates with stakeholders to ensure IRC 965(h) financial reporting requirements meet GAO & CFO standards. Clarifies tax code issues within this IRM.

Director, Campus Collection, has administrative responsibility for all Campus managerial and Collection IRC 965 program responsibilities. Provides adequate funding and staffing of Campus personnel to ensure IRC 965(h) financial reporting requirements meet GAO & CFO standards. Promotes adherence to IRC 965 IRM program processes and procedures to ensure IRS meets the needs of the customers and the Internal Revenue Service.

Director, Campus Operations, has administrative responsibility for Campus management and Collection 965 employees. Maintains adequate 965 staffing and ensures full and efficient utilization of IRC 965 funding allocations. Promotes adherence to IRC 965 IRM program processes and procedures. Certifies the accuracy and timeliness of IRC 965 casework on a quarterly basis.

Campus Operations Manager oversees Collection IRC 965 department, team, and employee actions. Ensures Collection 965 employees are provided with appropriate tools and training to perform their jobs and casework meets IRC 965 IRM accuracy and timeliness requirements. Facilitates efficient usage of IRC 965 funding allocations and performs all necessary actions to maintain proper staffing levels.

Campus Department Manager oversees Collection IRC 965 team and employees actions. Ensures Collection IRC 965 employees are provided with appropriate tools and training to perform their jobs and casework meets IRC 965 IRM accuracy and timeliness requirements. Reviews all local IRC 965 program inventory and quality review reports to confirm accuracy. Initiates and monitors actions to identify and resolve case errors and error trends. Resolves internal campus IRC 965 processing issues. Elevates complex IRC 965 program questions to Collection Policy Headquarter (HQ) Analysts.

Campus Team Manager is responsible to manage employees and programs in their team. Oversees employee actions and assigns inventory. Ensures employees are provided with appropriate tools and training to perform their jobs and casework meets IRC 965 IRM accuracy and timeliness requirements. Oversees the preparation of IRC 965 team quality review and inventory reports and checks them for accuracy. Suggests actionable items to identify and resolve errors and error trends. Resolves routine internal campus IRC 965 processing issues. Elevates complex IRC 965 program issues to Department Manager.

Campus Tax Examiners work their assigned cases in accordance with IRC 965 IRM accuracy and timeliness requirements. Their responsibilities include, but are not limited to, the cross-referencing of all payments and credits to related duplicate assessments, establishing account linkages on IDRS, adjusting existing IRC 965 accounts, responding directly to taxpayers and/or their representatives on inquiries regarding these accounts, performing quality reviews, preparing inventory and quality review reports, and varied interactions with other IRC 965 program functions within the organization.

Campus Clerks batch incoming 965 casework on AMS, scan cases and route to Campus Tax Examiners for necessary action.

Program Reports: Local campus reports are submitted via the BBTS (Batch/Block Tracking System) to the WP&C (Work Planning & Control) reports. The WP&C is used to monitor rates, receipts, and closures to determine if cases are being received and subsequently closed. WP&C reports are located on the Business Objects platform. AMS (Accounts Management Services) reports provide information on inventory and inventory age. IDRS (Integrated Data Retrieval System) CCA (Case Control Activity) System reports detail the cases assigned to an operation, department, team or employee; they are located on Control D.

Program Effectiveness: Effectiveness of this program is monitored and tracked on the 965 inventory report. The report captures the data weekly and roles up in monthly and yearly cumulative totals. The program goals and results are housed on the Collection Program and Campus Reports SharePoint site in the MMR (Monthly Monitoring Report).The MMR captures monthly and cumulative data on inventory and rates, as well as periodic snapshots of aged case percentages. Operational and program reviews are conducted to ensure case actions are timely and in accordance with the procedures in this IRM.

These inventory mechanisms and employee actions are monitored by the Campus Operation, Department, and Team managers, along with Employment Tax Policy HQ Analysts.

For a list of commonly used IRC 965(h) terminology see Exhibit 5.19.26-1, IRC 965(h) Terms.

For a list of commonly used IRC 965(i) terminology see Exhibit 5.19.26-2, IRC 965(i) Terms.

For a list of commonly used acronyms in this IRM see Exhibit 5.19.26-3, Acronyms.

For a list of OFP Program and Function Codes see Exhibit 5.19.26-4, OFP Program and Function Codes.

This program may require research specific to the program including access and input to the IDRS (Integrated Data Retrieval System) with and without IAT (Integrated Automation Tools), the AMS (Accounts Management System), the EUP (Employee User Portal), the RTR (Remittance Transaction Research System).

The IRC 965 program involves both paper and telephone contact with internal and external customers, and follows additional guidelines set forth in relevant IRMs referenced in this document.

US shareholders who are liable for the IRC 965 transition tax can pay the tax with the following options.

Taxpayers must make the Section 965(h) election by the due date of their income tax return, including extensions, regardless of whether an extension was requested. Annual installments are due on the due date of the return (not the extended due date). Failure to timely pay a required installment could result in the assessment of an addition to tax, which could accelerate the entire remaining IRC 965(h) net tax liability balance and cause it to become immediately due.

Taxpayers made the 2017 Section 965(h) election to pay the transition tax in 8 installments by following the rules in the Frequently Asked Questions (FAQ) and Appendices in the Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns at irs.gov. https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns Specifically, taxpayers had to attach the election statement described in FAQ 7 and the IRC Transition Tax Statement described in FAQ 3.

Taxpayers must report 100 percent of the IRC 965(h) transition tax, which is included in the Transaction Code (TC) 150, but if the taxpayer elects to pay in 8 installments, a TC 766 with Credit Reference Number (CRN) 263 is posted for the amount of installments two through eight (deferred amount).

Taxpayers with an IRC 965(i) net tax liability who made a section 965(i) election will have a TC 971 AC 114 posted on the module for the year of inclusion. The Miscellaneous Field will reflect 0 since no IRC 965(i) transition tax is being assessed. The IRC 965(i) election deferral will remain intact until a triggering event occurs at which time the tax is assessed and deemed payable, unless a valid transfer agreement is entered into. A TC 971 AC 165 with Miscellaneous Field showing the total amount of the IRC 965(i) net tax liability will be input on the IRC 965(i) inclusion year tax module and on every tax year module thereafter until the year of the triggering event when the IRC 965(i) liability is assessed and deemed payable.

Annual installments for a IRC 965(h) election are due on the due date of the return (not the extended due date). Failure to timely pay a required installment could result in the assessment of an addition to tax, which could accelerate the entire IRC 965(h) net tax liability remaining balance and cause it to become immediately due.

Taxpayers are instructed to make two separate payments: one for the IRC 965(h) transition tax, which can be identified as a TC 670 with a Designated Payment Code (DPC) 64, and one for the remaining regular tax due.

Form 965-C, Transfer Agreement Under Section 965(h)(3), signed by both transferor and transferee, Form 965-D, Transfer Agreement Under Section 965(i)(2), signed by both transferor and transferee, and Form 965-E, Consent Agreement Under Section 965(i)(4)(D) are received and stamped with the date of receipt, by team clerk.

Team clerk batches IRC 965(h) transfer agreements, IRC 965(i) transfer agreements, and Consent agreement(s) into AMS, within 5 working days of receipt, establishing an open control. Team clerk scans and e-mail’s agreements to organization shared e-mail box (*SBSE Brookhaven 965). Paper agreements are placed in a dated envelope and routed to Lead/Manager of 965(h) team.

Agreements are assigned to TE, and TE loads case information and scanned agreement into SharePoint trackers.

IRC 965(h) transfer agreement Inventory tracker is located in the Tax Reform Initiative_965(h) SharePoint site. (Only campus compliance employees assigned to the 965 team have access)

Create and send Letter 6153, Acknowledgement of Receipt of IRC Section 965 Transfer Agreement to both transferor and transferee of IRC 965(h) transfer agreements, to acknowledge receipt of transfer agreement. Attach copy of Letter 6153 to SharePoint case file.

In addition to the transferor and transferee, send Letter 6153 to any valid POA on file. POA (Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization) must be on file for the year of assessment (inclusion year), generally 2017, or 2018, and not for the year that the installment payment is being made/due. See IRM 21.1.3.3, Third-Party (POA/TIA/F706) Authentication.

This section addresses procedures relating to creating joint and several liabilities between transferor and transferee of IRC 965(h) net tax liability.

IRC 965(h) election accounts may contain the following transaction codes:

The following RPC (Return Processing Code) and CCC (Computer Condition Code) are used to identify IRC 965 tax returns and initiate specific processing:

Determine the transferee’s IRC 965(h) assessment amount using, transfer agreement, IDRS data and IRC 965 Tool. Transferee assessment amount will be equal to the current transferor deferral balance. Typically, this amount is equal to, or less than the amount indicated on the transfer agreement.

Establish links between the transferor and the transferee by inputting a TC 971 AC 507 on both modules.

On the transferor inclusion year module using CC REQ77/FRM77 input TC 971 AC 507 as in below table.

Establish transferee module by using CC REQ77/FRM77 to input TC 971 AC 507 as in the below table:

On the module established for the transferee (MFT 82 IMF, MFT 83 BMF) input assessment of transferred IRC 965(h) net tax liability using CC REQ54/ADJ54, with a TC 298 using interest computation date. Along with CRN 263 to defer the liability (TC 766 CRN 263).

Upon completion of transferee assessment, send Letter 6155, Transferee Notice and Demand under Section 965, attach a copy of Letter 6155 to SharePoint case file.

Leave history on IDRS, AMS, update SharePoint case status to “Transferee Assessed” close case on AMS.

965(i) transfer agreement Inventory tracker is located in the Tax Reform Initiative_965(h) SharePoint site. (Only campus compliance employees assigned to the 965 team have access).

Create and send Letter 6153, Acknowledgement of Receipt of IRC Section 965 Transfer Agreement to both transferor and transferee of IRC 965(i) transfer agreements, to acknowledge receipt of transfer agreement. Attach copy of Letter 6153 to SharePoint case file.

In addition to the transferor and transferee, send Letter 6153 to any valid POA on file. The POA (Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization) must be on file for the year of IRC 965(i) election (inclusion year), generally 2017, or 2018, and not for the year that the transfer is being made/due. See IRM 21.1.3.3, Third-Party (POA/TIA/F706) Authentication.

Ensure IRC 965(i) identifying transactions are on the appropriate modules. IRC 965(i) identifying transactions include:

A IRC 965(i) inclusion year (typically 2017 or 2018) must have a TC 971 AC 114 with a MISC field amount of 0, unless the taxpayer also has a IRC 965(h) liability, in which case the MISC field amount of the TC 971 AC 114 will be greater than 0. The inclusion year module will also have a TC 971 AC 165 with the IRC 965(i) total amount in the MISC field. Validate this amount by reviewing an electronically filed return on EUP (Employee User Portal). If return was not filed electronically request a copy of return via Form 2275, Records Request. Leave a history item on TXMOD "(i) TA-BSC" to indicate that a transfer agreement has been filed.

Taxpayers that made an IRC 965(i) election to defer the assessment and payment of tax until a triggering event occurs during the inclusion period (201712-201911), did so as follows:

IRC 965(i) subsequent years will have only a TC 971 AC 165 with the IRC 965(i) amount in the MISC field. Validate this amount by reviewing the return on EUP or if paper filed requesting a copy of return as described above. Ensure the taxpayer has filed the required Form 965-A, Individual Report of Net 965 Tax Liability to report the liability. If the taxpayer does not report their IRC 965(i) liability on subsequent years they may be assessed a 5% penalty for failure to report.

See IRM 5.19.26.6.2, 965(i) Five Percent Penalty for Failure to Report for instructions on assessing 5% penalty for failure to report.

Ensure 965(i) identifying transactions are on the appropriate modules. 965(i) identifying transactions include:

Leave a history item on TXMOD "(i) TA-BSC" to indicate that a transfer agreement has been filed.

965(i) subsequent years will have only a TC 971 AC 165 with the 965(i) amount in the MISC field, validate this amount by reviewing the return on EUP or if paper filed requesting a copy of return as described above. Ensure the taxpayer has filed the required Form 965-A, Individual Report of Net 965 Tax Liability to report the liability. If the taxpayer does not report their 965(i) liability on subsequent years they may be assessed a 5% penalty for failure to report.

See IRM 5.19.26.6.2, IRC 965(i) Five Percent Penalty for Failure to Report for instructions on assessing 5% penalty for failure to report.

When a possible failure to report case is referred or identified, validate that the liability was required to be reported and that the liability was not reported. Research could include viewing the tax returns on EUP MeF if e-filed. If paper return was filed, the return may need to be ordered from files for accurate verification.

2017 Inclusion year returns will typically have an IRC 965 Transition Tax Statement attached to the return; Line 7 of the transition tax statement includes the amount of IRC 965 liability being deferred under IRC 965(i).

Form 965-A, Individual Report of Net 965 Tax Liability replaced the transition tax statement beginning with the 2018 filing period.

Form 965-A Part IV provides for the required annual reporting of deferred S corporation-related net IRC 965 tax liabilities and any adjustments related to such deferred liabilities during the reporting year.

Check for possible IRC 965(i) transfer agreements to potentially explain any unreported or underreported amounts.

The table below shows where IRC 965(i) amounts are reported on Form 965-A:

Written managerial approval is required for each failure to report penalty assessment. Complete Form 3870, Request for Adjustment for managers signature, attach signed Form 3870 to case in SharePoint, and leave a history on AMS indicating managerial approval was requested, received, and 5% Failure to Report IRC 965(i) liability was assessed, with PRC 707.

If a taxpayer failed to report their IRC 965 (i) liability, assess a five percent failure to report penalty for the filing year in which the liability was not reported. Penalty will be equal to five percent of the amount that should have been reported. Use PRC 707.

5% failure to report penalty is assessed as below, using CC REQ54/ADJ54:

Leave a history on AMS, indicating a five percent failure to report IRC 965(i) liability was assessed with PRC 707.

Consent agreement Inventory tracker is located in the Tax Reform Initiative_965(h) SharePoint site. (Only campus compliance employees assigned to the 965 team have access).

A TC 767 CRN 263 is required on an account where a IRC 965 liability payment posts, to reduce the amount of the TC 766 CRN 263 (deferral).

Payments that post as a TC 670 DPC 64 will systemically generate a TC 767 CRN 263 to reduce the TC 766 CRN 263 deferral amount.

If the TC 767 CRN 263 fails to post systemically, or if the payment does not post as a TC 670 DPC 64, manual input of TC 767 CRN 263 to reduce the TC 766 CRN 263 deferral amount is required.

Use CC REQ54/ADJ54 to complete an IRC 965 transition adjustment (TC 76X CRN 263) as follows:

When payments or credits post to an account with transfer agreement (TC 971 AC 507), cross-reference the available amount to the applicable joint and severally liability account. Payments and credits are cross-referenced using TC 290 $.00 and CRN 337 with AMT> of credit being cross referenced.

TC 766 CRN 337 is input on IMF module as follows, using CC REQ54/ADJ54:

TC 766 CRN 337 is input on BMF module as follows, using CC REQ54/ADJ54:

Update database (965(h) SharePoint) with next installment due date.

When a transferee with multiple assessments makes a "lump sum" payment, the payment must be split between the transferors for cross-reference.

When the lump sum payment amount is in excess of the amount due, and is not designated as to which liability it is to be applied to, determine the split of the excess amount by dividing the amount by the number of transferors.

When the lump sum payment amount is less than the amount needed to full pay all installments, pay the installment with the earliest due date first. If there are multiple installments with the same due date, divide the payment amount by the number of transferor installments to be paid. If the division of the payment split equally between transferors is in excess of any one installment amount, apply the excess of that split to the remaining transferors.

Update database (965(h) SharePoint) with next installment due date, and close case on AMS.

HQ will filter CDDB (Custodial Detail Database) extract provided by CFO of potential acceleration accounts. Cases are loaded into AMS for distribution to TEs for review. Work includes:

Research includes EUP (Employee User Portal) to review accuracy of IRC 965 transactions. Ensure there is a posted TC 971 AC 114 and the appropriate TC 766 CRN 263 amounts posted.

IMF Account with an IRC 965(h) ElectionIRM 3.12.37.29, Section 965 Processing. IRC 965 inclusions and elections could be identified on 2017-2019 returns as follows:

BMF Account with an IRC 965(h) ElectionIRM 3.14.2.7.5(9, 10, 11),Notice Review, IRC 965 Transition Tax Overview provides BMF reporting instructions for each tax type (Form 1120S, Form 1065, Form 1041, Form 1120, Form 1120PC, Form 1120L, Form 1120 REIT, Form 1120 RIC, and Form 990 T). Form 1120 is the most common BMF IRC 965(h) election tax return.

Check for freeze codes.

If during review of possible acceleration cases it is determined that acceleration is not necessary, due to errors on the account, account must be corrected. Corrections to accounts are typically necessary because of incorrect TC 971 AC 114 amounts, or incorrect TC 766, TC 767, CRN 263 amounts, or misapplied payments.

No Payment / Insufficient Payment

Installment Full Paid, Late

Payment posted on incorrect tax period

Credit transfer of misapplied payments can be transferred by overlaying TXMODA with ADD24 then DRT24 will display. Input Debit side as below:

Input credit side as below:

Requirements established and included in DRT24, Transactions allowed on MFT 82 and MFT 83, TC 670, 680, 690, 700 and 822 on the Credit side. Secondary TC 360 will also be allowed. TCs 671, 672, 681, 682, 691, 692, 702 and 820 on the Debit side. Secondary TC 280 will also be allowed.

Current IDRS programming systemically posts a TC 767 CRN 263 when a TC 670 DPC 64 payment posts on an IRC 965 inclusion module, using payment date as the date of the TC 767 CRN 263.

Create and send pdf version of Letter 6154 as the first notice for missing or late installment payments. In addition to normal header information the Letter 6154 must include:

If Letter 6154 is returned as undeliverable, research IDRS to locate a different address, if no other address is found, proceed with acceleration.

Letter 6154 allows the taxpayer 30 days to respond with their installment payment plus interest and show reasonable cause for failure to timely pay the required installment.

Attach a copy of Letter 6154 to the case file in SharePoint and establish an open control on module for monitoring case 45 days after the issuance of the letter.

Leave history item on IDRS - L6154 and history on AMS. Monitor weekly age listing and incoming correspondence for responses to outgoing letters. Review correspondence to determine if reasonable cause exists.

Information provided here does not supplant the guidance provided in the IRM. All employees need to be familiar with Reasonable Cause criteria provided in IRM 20.1.1.3, Criteria for Relief from Penalties.

Per Policy Statement 3-2, any reason for delinquency in making deposits or payments which established that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time will be accepted as reasonable cause.

Policy Statement 3-2 provides that the following examples of sound causes will be accepted as reasonable cause for failure to comply with a payment requirement:

While this general guideline applies to a period of time prior to and including the payment due date, keep in mind that in IRM 20.1.1.3.2, Reasonable Cause, it states “Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time.”

Whenever possible, you are encouraged to use the RCA (Reasonable Cause Assistant) program when determining if a penalty can be removed. Additional information on RCA can be found in IRM 20.1.1.3.6, Reasonable Cause Assistant (RCA).

Due to late enactment of the law pertaining to these installments and other common circumstances, when a taxpayer requests abatement of the FTP penalty, employees working in the Section 965 program may use the following If/Then chart below. If the penalty abatement request was received prior to assertion, follow IRM 20.1.1.3.5.2, Taxpayer Entitled to Relief. Reasonable cause for failure to pay the section 965(h) installment may exist at the same time where there is no reasonable cause for failure to pay the tax not related to section 965(h). Reasonable cause must be considered separately with respect to each portion of the total tax liability. Acceleration of payments under section 965(h) election occurs in the case of a failure to timely pay a section 965(h) installment without reasonable cause.

After monitoring for 45 days (LTR 6154 accounts), if correspondence has not been received, research all accounts again for a potential payment that may have been recently sent to the IRS.

To accelerate a module, input a TC 298 .00, CRN 263 reversing entire remaining deferral amount (this transaction will post on IDRS as a TC 767 CRN 263). Remaining deferral amount will be equal to the maximum deferral amount for the last installment due, or less if overpaid, (see note) interest computation date will be projected 23C date for posting transaction (see Document 6209, Section 16 - Julian Date, Cycle and Notice Calendars.) Use hold code 0 with this transaction so that FTP penalty and interest will be included in the notice for the late installment amounts, along with the full remainder of the deferred IRC 965(h) tax.

TC 767 CRN 263 adjustments will unpost if:

Leave history item on IDRS "965 Accel" and history on AMS. Update SharePoint case status to "Acceleration Pending" , monitor module for the deferral adjustments to post leaving the deferral amount at $0.00, at which time the SharePoint case status will be updated to "Deferral Reversed" . Also ensure the "Unpaid 965" amount is updated on SharePoint.

The Document Upload Tool (DUT) is an application on IRS.GOV that will allow taxpayers to upload documentation that is requested or required of them to provide and transmit to the IRS during or shortly after their interaction (phone conversation or correspondence ) Provide taxpayers or their representatives with a unique, one-time use access code along with a corresponding link to www.irs.gov/sendmyreply Documentation Upload Tool | Internal Revenue Service | TPFE (irs.gov), to upload the required documents. Tax examiners must complete a BEARS request prior to gaining access to DUT. To generate the unique access code, the tax examiners must sign in to DUT using the following link: Documentation Upload Tool | Internal Revenue Service | TPFE (irs.gov). Use of the DUT by Bargaining Unit employees is voluntary, but highly recommended.