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August 19, 2005
JS-2688
Treasury and IRS Announce Repatriation Guidance
Under Sec. 965
The Treasury Department and IRS announced today the third in a series of notices that provide detailed guidance for U.S. companies that elect to repatriate earnings from foreign subsidiaries subject to the temporary reduced tax rate available under the American Jobs Creation Act (AJCA). The notice released today provides guidance to companies on various issues arising under section 965, including issues relating to the identification of dividends, foreign tax credit and minimum tax credit, expense allocation and apportionment, and currency translation. Contemporaneous with the issuance of this notice, the IRS is releasing the final Form 8895 (One-Time Dividends Received Deduction for Certain Cash Dividends from Controlled Foreign Corporations) and its instructions.
Internal Revenue Code section 965, enacted as part of the AJCA in October of 2004, is a temporary provision that allows a U.S. company to repatriate earnings from its foreign subsidiaries at a reduced effective tax rate provided that specified conditions and restrictions are satisfied. Section 965 provides that a U.S. company may elect, for one taxable year, an 85 percent dividends received deduction for eligible dividends from its foreign subsidiaries, giving it an effective 5.25 percent tax rate on qualifying dividends.
In January of 2005, the Treasury Department and IRS issued a notice (Notice 2005-10) that provided guidance to companies on the domestic reinvestment plan requirement under the new provision. In May of 2005, the Treasury Department and IRS issued a notice (Notice 2005-38) that provided guidance on the amount of dividends that qualify for the dividends received deduction. This third notice provides detailed guidance on several additional aspects of section 965, including more detailed guidance on certain issues raised in the two prior notices.
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