A US government U-turn means a million expats will no longer have to pay the ‘deemed repatriation tax’ on profits of their businesses abroad.
The tax was an unforeseen consequence of an effort by the Internal Revenue Service to encourage multinational corporations such as Apple and Amazon to take profits earned overseas back to the States.
In return for landing the cash in America, the IRS was offering a one-off reduced tax rate of 15.5%.
But the proposed tax, part of President Donald Trump’s Tax Cuts & Jobs Act, netted an estimated million American expats owning 10% or more of foreign businesses.
The payment was due over eight years, but if expats missed the first deadline, all the money was expected at once.
IRS explains waiver
Now, the IRS has reversed the decision for American expats owing tax on business profits of less than $1 million.
The deadline for the first payment had been moved to June from March, but will now run to June 2019 with American expats hoping Congress will amend the law before then.
“For individual taxpayers who missed the April 18, 2018, deadline for making the first of the eight annual instalment payments, the IRS will waive the late-payment penalty if the instalment is paid in full by April 15, 2019,” said a spokesman.
“Absent this relief, a taxpayer’s remaining instalments over the eight-year period would have become due immediately.
“This relief is only available if the individual’s total transition tax liability is less than $1 million. Interest will still be due. Later deadlines apply to certain individuals who live and work outside the United States.”
The reprieve has won cross-party support from lobby groups Republicans Overseas and Democrats Abroad.
Carmelan Polce, chair of the Democrats Abroad taxation task force, said members had moved from anxiety to anger over the levy but hoped for a “legislative fix”.
“Now, we have a year to continue the fight, to make the point about how damaging this is and to make the broader point that this keeps happening to the Americans-abroad community, without a thought as to how it’s going to impact this cohort of citizens,” she said.