Do you own stock in foreign corps? There’s a new IRS revenue procedure you should know about. It’s called the IRS Revenue Procedure 2019-40. This procedure provides tax relief to certain US citizens who own stock in certain foreign corporations. In essence, IRS Revenue Procedure 2019-40 is designed to address issues created by the repeal of Section 958(b)(4), which was repealed by the Tax Cuts and Jobs Act.
Wondering if IRS Revenue Procedure 2019-40 can offer you tax relief? Read on to learn all the details about IRS Revenue Procedure 2019-40 and its corresponding proposed regulations.
IRS Revenue Procedure 2019-40 and the Repeal of Section 958(b)(4)
The IRS announced the new Revenue Procedure 2019-40 this October. This procedure is designed to address certain issues that resulted from the repeal of Code Section 958(b)(4). This was repealed as a part of the Tax Cuts and Jobs Act.
The repeal of Code Section 958(b)(4) led to certain US subsidiaries of non-US parent companies being classified as owning and controlling the foreign subsidiaries of the foreign parent company. In essence, this created new Controlled Foreign Corporations (CFCs) that did not exist prior to the repeal of Section 958(b)(4).
The repeal of Section 958(b)(4) came under fire by many, as it essentially removed all limitations on the downward attribution of stock ownership. Without the limitations of Section 958(b)(4), the stock of a foreign corporation that is owned by a foreign person could now be attributed to a US person. Then, that US person would be subject to all the numerous compliance and reporting laws associated with being a shareholder in a CFC.
A Closer Look at IRS Revenue Procedure 2019-40
So, how does IRS Revenue Procedure 2019-40 address the issues caused by the repeal of Section 958(b)(4)? According to the IRS announcement, “the Revenue Procedure limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations (“CFCs”).”
It also “allows certain unrelated minority U.S. shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available…” and “provides penalty relief to taxpayers in the specified circumstances.” Additionally, the Revenue Procedure, “limit(s) the filing requirements of U.S. shareholders who only constructively own stock of the CFC solely due to downward attribution from another person.”
View IRS Revenue Procedure 2019-40 in full here.
Alongside issuing Revenue Procedure 2019-40, the IRS released proposed regulations designed to provide additional relief to taxpayers who were affected by the repeal of section 958(b)(4). These proposed regulations are “intended to ensure, in certain appropriate circumstances, that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4).” The proposed regulations are currently available for public review and comment here.
Tax Relief for Certain Owners of Stock in Foreign Corps
To find out whether or not you’re eligible for tax relief due to IRS Revenue Procedure 2019-40, contact Tax Defense Partners today. We will review your financial information and assess whether or not you are eligible for foreign stock tax relief. If eligible, we’ll help you file the appropriate forms to receive relief.