In general, U.S. shareholders were required to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. This tax could apply to a U.S. citizen, resident or Green Card holders who own an interest in a private Canadian corporation. This tax applied with respect to the last taxable year of the relevant specified foreign corporation that began before January 1, 2018. The tax was includible in the U.S. shareholder’s year in which or with which such a specified foreign corporation’s year ended.

The IRS Commissioner of Large Business and International recently stated that the following two enforcement streams will commence in October 2020:

  • letters will be sent suggesting the filing of amendments to those (thousands) that the agency believes may need to more fully comply; and

  • audits will commence on those that the IRS believes failed to comply.

The audits may focus on a number of issues, including, for example, the calculation of historic earnings and profits, cash vs. non-cash assets, and foreign tax credits.

ACTION ITEM: If you are a U.S. person potentially subject to this tax, but have not filed as such, contact us to discuss your options.