IRS Form 965-E – In the complex world of U.S. tax law, particularly for shareholders of S corporations with foreign investments, IRS Form 965-E plays a crucial role. This form, officially titled “Consent Agreement Under Section 965(i)(4)(D),” allows eligible shareholders to seek approval for paying certain tax liabilities in installments following specific triggering events. Introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017, it addresses the one-time transition tax on deferred foreign income under Section 965 of the Internal Revenue Code. If you’re an S corporation shareholder dealing with outstanding tax liabilities from foreign earnings, understanding Form 965-E is essential for compliance and managing your tax obligations effectively.
This article breaks down everything you need to know about IRS Form 965-E, including its purpose, who should file it, filing requirements, and step-by-step guidance on completion. We’ll draw from official IRS resources to ensure accuracy and provide practical insights for tax professionals and taxpayers alike. For the official form, you can download the PDF directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f965e.pdf.
What Is Section 965 and Why Does It Matter?
Section 965 of the Internal Revenue Code imposes a transition tax on U.S. shareholders of certain foreign corporations for untaxed foreign earnings accumulated post-1986. This was a key provision of the TCJA, aimed at encouraging the repatriation of offshore profits by taxing them at reduced rates—15.5% for cash equivalents and 8% for non-cash assets. For S corporation shareholders, Section 965(i) allows an election to defer payment of this net tax liability until a triggering event occurs, such as the sale of assets or cessation of business.
The net tax liability under Section 965(i) is calculated as the excess of the shareholder’s net income tax considering Section 965(a) inclusions over what it would be without them. This deferral provides flexibility, but when a triggering event happens, the deferred amount becomes due—unless consent is obtained via Form 965-E to pay in installments under Section 965(h).
Purpose of IRS Form 965-E
Form 965-E serves as a formal consent agreement for S corporation shareholders with an outstanding Section 965(i) net tax liability to request the IRS Commissioner’s approval to make a Section 965(h) election. This election permits the payment of the liability in eight annual installments, rather than in a lump sum upon the triggering event. The form documents the shareholder’s agreement to comply with all relevant conditions under Section 965(h) and Treasury Regulations Section 1.965-7(b), including providing additional information if requested by the IRS.
Key elements of the consent agreement include:
- Acknowledgment of the triggering event.
- Details on the unpaid tax liability.
- Affirmation of the shareholder’s ability to make installment payments.
- A penalties-of-perjury declaration.
Importantly, Form 965-E is not the Section 965(h) election itself; that must be made separately on the shareholder’s tax return. The IRS may reject the agreement if it contains material misrepresentations or omissions, making the full liability due immediately.
Who Needs to File Form 965-E?
This form is specifically for shareholders of S corporations who:
- Have an outstanding Section 965(i) net tax liability.
- Experience a triggering event under Section 965(i)(2)(A)(ii), such as liquidation, sale, exchange, or disposition of substantially all S corporation assets, cessation of business, or the S corporation ceasing to exist.
Each affected shareholder must file their own Form 965-E; the S corporation cannot file on their behalf. If you’re a U.S. person or entity with deferred foreign income from specified foreign corporations (SFCs), and you’ve previously made a Section 965(i) election, this form becomes relevant upon a qualifying event.
Note that Form 965-E is distinct from related forms like Form 965 (Inclusion of Deferred Foreign Income), Form 965-A (Individual Report of Net 965 Tax Liability), or Form 965-D (Transfer Agreement Under Section 965(i)(2)(C)).
Triggering Events Requiring Form 965-E
A triggering event under Section 965(i)(2)(A)(ii) typically involves significant changes to the S corporation’s structure or operations. Common examples include:
- Liquidation or dissolution of the S corporation.
- Sale or exchange of substantially all assets (e.g., in a bankruptcy proceeding).
- Cessation of business activities.
Upon such an event, the deferred tax liability accelerates unless consent for installment payments is obtained. The form requires a detailed description of the event, including the date and specifics, to help the IRS assess the request.
How to Complete IRS Form 965-E: Step-by-Step Guide?
Filling out Form 965-E involves several parts. Here’s a breakdown based on the official instructions:
Part I: Shareholder Information
Enter your name, taxpayer identification number (TIN), and full address.
Part II: Identifying Information of the S Corporation
Provide the S corporation’s name and TIN.
Part III: Triggering Event
- Line 1: Enter the date of the event.
- Line 2: Describe the event in detail (e.g., “Sale of all assets to XYZ Corp. on [date], leading to cessation of business”).
Part IV: Report of Unpaid Section 965(i) Net Tax Liability
- Line 3: Amount of unpaid liability for which the Section 965(h) election is sought.
- Line 4: Due date of the next installment payment.
Part V: Shareholder’s Ability to Make Payments
- Line 5: Check “Yes” if you can make payments under Section 965(h); “No” will disqualify the agreement.
- Line 6: Indicate if your leverage ratio exceeds 3:1 post-event (calculated as total indebtedness divided by assets minus indebtedness).
- Line 7: Provide additional details on your financial ability (e.g., income sources, assets).
Part VI: Terms of Agreement
Sign under penalties of perjury, agreeing to all terms.
Use the latest version (December 2019, as of the last update) and consult the instructions for any calculations.
Filing Requirements and Deadlines for Form 965-E
File Form 965-E in duplicate within 30 days of the triggering event. Mail the original to: Memphis CSCO, 5333 Getwell Road MS 81, Memphis, TN 38118. Attach a copy to your tax return for the year of the event, due by the return’s filing deadline (including extensions).
There are no automatic extensions for late filing, and failure to file timely may result in the full liability becoming due immediately. As of 2026, no major changes have been noted, but always check the IRS website for updates.
Potential Consequences of Non-Compliance
If the IRS rejects your Form 965-E due to inaccuracies or inability to pay, the entire deferred liability must be paid in the year of the triggering event. Penalties and interest may apply for underpayments. Consulting a tax advisor is recommended to avoid pitfalls.
Related Forms and Resources
- Form 965: Reports deferred foreign income.
- Form 965-A: Tracks individual net 965 tax liability.
- IRS Q&As on Section 965 for additional guidance.
For more details, visit the IRS page on About Form 965-E or download the instructions at https://www.irs.gov/pub/irs-pdf/i965e.pdf.
Conclusion
IRS Form 965-E provides a vital pathway for S corporation shareholders to manage transition tax liabilities through installment payments after a triggering event. By filing promptly and accurately, you can ensure compliance with Section 965(i)(4)(D) and avoid unexpected tax burdens. Always rely on official IRS sources and consider professional advice for your specific situation. Stay updated with IRS announcements, as tax laws can evolve.