Sometimes you need to confirm situation normal. This is one of those times. Thanks to correspondent BZ for triggering the discussion of this topic.
Here is the conclusion up front, in case you want to go outside and have fun:
Americans abroad with tax caused by Section 965 (you know who you are) can pay that tax over eight years. The first installment is due June 15 — the regular tax payment due date.
That seems unremarkable.
Americans abroad have a June 15 filing deadline for their income tax returns, and can pay their tax due by that date without incurring late payment penalties.
Why are we even talking about this? Because of sloppy government prose, that’s why.
Section 965 is a new tax law. It applies to U.S. shareholders of certain foreign corporations. These people have extra income included on their 20171 income tax return.
How much extra income? Why is this happening? That’s not what I’m looking at right now.
All I care about is that extra income is added to that American abroad’s income, and that creates an extra income tax liability on the 2017 income tax return.
When is that extra income tax payable? Two choices (it’s up to the taxpayer) are available:
Let’s look at the installment plan scenario.
For taxpayers who want to make an election to pay the Section 965-induced tax over eight years (rather than all at once), Congress gave an explicit deadline:
the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year.2
The filing deadline for 2017 income tax returns is April 17, 2018.3 That’s when Congress requires you to make the first installment payment if you want to pay your Section 965-caused tax over eight years rather than all at once when you file your 2017 income tax return.
For Americans abroad, the default April 15 deadline (April 17, 2018 for 2017 income tax returns) is automatically extended to June 15 for them.4
This extension applies to both the filing deadline for the tax return and the payment deadline for tax due.5
Here is the conundrum:
The IRS has solved the problem by announcing that June 15, 2018 is the correct answer:
The Treasury Department and the IRS intend to issue regulations providing that, if a specified individual receives an extension of time to file and pay under §1.6081-5(a)(5) or (6), then the individual’s due date for an installment payment under section 965(h) is also the fifteenth day of the sixth month following the close of a taxable year.6
Long ago, the IRS used that authority from Congress to extend the general filing and payment deadline to June 15 for Americans abroad.
And just this year, the IRS also used that authority to confirm the same principle applies to the installment plan payments under Section 965.
Note that the IRS originally extended the tax payment deadline for Americans abroad from April 15 to June 15, even though the tax payment deadline is “determined without regard to any extension of time for filing the return”.9
So it makes sense that the IRS can extend the due date for the Section 965(h)(2) installment payment for Americans abroad, even though Section 965(h)(2) contains the same pesky “determined without regard to any extension of time for filing the return” language.
It would indeed be strange for the 2017 tax bill to be due partly on April 17 and partly on June 15.
The IRS has restored symmetry and balance to the universe. All tax payments due for 2017 — including an installment payment made because of an election under Section 965(h)(2) — will be due on June 15.
Thanks to Haoshen Zhong digesting this topic and pulling together the research.
Don’t take this too seriously, and do your own research. Please don’t rely on what I write as being the Gospel.