Printable Form 2026

IRS Instruction 965-D – Instructions for Form 965-D, Transfer Agreement Under Section 965(i)(2)

IRS Instruction 965-D – In the complex world of U.S. tax regulations, particularly those stemming from the Tax Cuts and Jobs Act (TCJA) of 2017, Form 965-D plays a crucial role for certain S corporation shareholders dealing with deferred foreign income. This form, officially titled “Transfer Agreement Under Section 965(i)(2),” allows eligible parties to enter into agreements that facilitate the transfer of tax liabilities related to the one-time transition tax on foreign earnings. If you’re an S corporation shareholder navigating a triggering event like a stock transfer, understanding IRS Instruction 965-D is essential for compliance and avoiding penalties.

This comprehensive guide breaks down the purpose, filing requirements, and step-by-step instructions for Form 965-D based on the latest available IRS resources. Whether you’re a transferor or transferee, we’ll cover everything you need to know to file accurately.

What Is Form 965-D and Its Purpose?

Form 965-D is designed specifically for eligible section 965(i) transferors and transferees to formalize a transfer agreement under Internal Revenue Code (IRC) Section 965(i)(2). This section relates to the deferral of the net tax liability from the transition tax imposed on accumulated foreign earnings of specified foreign corporations (SFCs). The transition tax, often referred to as the “repatriation tax,” requires U.S. shareholders to include certain untaxed foreign earnings in their income.

The primary purpose of Form 965-D is to document the transfer of a section 965(i) net tax liability from one party to another during a covered triggering event, such as the sale or gift of S corporation stock. By filing this form, the parties satisfy the requirements under Treasury Regulations section 1.965-7(c)(3)(iv)(B)(4), which allows the transferee to assume the liability and potentially defer payment. This ensures continuity in tax obligations without immediate acceleration of the deferred tax.

Key benefits include:

  • Enabling deferral of the transition tax for the new shareholder.
  • Providing a structured way to handle ownership changes in S corporations with foreign investments.
  • Protecting against automatic tax acceleration upon stock transfers.

The form’s instructions, revised in December 2019, emphasize that the IRS Commissioner may review the agreement for accuracy and request additional information on the transferee’s ability to pay. Material misrepresentations can lead to rejection, treating the event as if no agreement was filed.

Who Must File Form 965-D?

Not every taxpayer needs to file Form 965-D. It’s required only for specific parties involved in a covered triggering event related to an S corporation’s section 965(i) election.

  • Eligible Section 965(i) Transferor: This is typically an S corporation shareholder who has an existing section 965(i) net tax liability and is transferring stock in a triggering event.
  • Eligible Section 965(i) Transferee: A single U.S. person (such as an individual, trust, or estate beneficiary, but not a domestic pass-through entity) who becomes a shareholder through the transfer.

S corporations themselves cannot file this form on behalf of shareholders. For partial transfers of stock, separate forms must be filed for each portion treated as a covered triggering event.

Important definitions to note:

  • Section 965(i) Net Tax Liability: The excess tax due to the inclusion of deferred foreign income under Section 965(a).
  • Covered Triggering Event: Includes transfers of S corporation stock by sale, gift, death, or other dispositions that change ownership for tax purposes.

If you’re unsure about eligibility, consult the IRS instructions or a tax advisor, as ineligible transferees (e.g., foreign entities) disqualify the agreement.

When and Where to File Form 965-D?

Timely filing is critical to avoid penalties and ensure the deferral exception applies.

  • Deadline: Generally, file the original Form 965-D within 30 days of the covered triggering event. In cases of the transferor’s death, file by the unextended due date of the transferor’s final income tax return.
  • Special Rules for Death: If beneficiaries are identified by the final return’s due date, treat it as a direct transfer. Otherwise, handle as two separate transfers (to the estate, then to beneficiaries), each requiring its own form.
  • Where to File: Mail the original to the IRS Memphis Compliance Service Collection Operations at 5333 Getwell Road, MS 81, Memphis, TN 38118. This address was updated in October 2021.
  • Attachments: Include a duplicate copy with both the transferor’s and transferee’s tax returns for the year of the event (by the return due date, including extensions). Also attach the transferor’s most recent Form 965-A.

No extensions are available for late filings under standard relief provisions. Always file in duplicate as specified.

Step-by-Step Instructions for Completing Form 965-D

The form is divided into several parts, each requiring specific information. Follow these line-by-line guidelines from IRS Instruction 965-D (December 2019 revision).

Part I: Transferor Information

  • Provide the transferor’s full legal name, taxpayer identification number (TIN), and address.

Part II: Transferee Information

  • Enter the transferee’s name, TIN, and address. Ensure the transferee is eligible (e.g., a U.S. person).

Part III: Identifying Information of the S Corporation

  • List the S corporation’s name and TIN where the section 965(i) election applies.

Part IV: Triggering Event Leading to Transfer Agreement

  • Line 1: Date of the triggering event.
  • Line 2: Check “Yes” if due to death; otherwise, “No.”
  • Line 3: For partial transfers, enter the percentage of liability transferred (e.g., 100% for full transfers).
  • Line 4: Describe the event in detail (e.g., “Sale of 50% stock interest”).

Part V: Report of Unpaid Section 965(i) Net Tax Liability

  • Line 5: Dollar amount of the liability assumed by the transferee (subject to IRS adjustment).

Part VI: Transferee’s Ability To Pay Remaining Liability

  • Line 6: Check “Yes” if the transferee can pay; “No” may invalidate the form.
  • Line 7: Indicate if the leverage ratio (total indebtedness to assets) exceeds 3:1.
  • Line 8: Provide supporting details on financial capability (e.g., income sources, assets).

Part VII: Terms of Agreement

  • Both parties must sign under penalties of perjury, certifying accuracy and authority.

Penalties and Common Mistakes to Avoid

Signing Form 965-D certifies the information under penalties of perjury. Errors like material omissions or failure to respond to IRS requests can result in rejection, accelerating the tax liability. Common pitfalls include:

  • Missing the 30-day filing window.
  • Ineligible transferees.
  • Incomplete descriptions of the triggering event.

The IRS may request additional proof of the transferee’s payment ability, so maintain thorough records.

Form 965-D often interacts with other Section 965-related documents:

  • Form 965-A: Individual report of net 965 tax liability.
  • Form 965-B: Corporate/REIT report.
  • Form 965-C: Transfer agreement under Section 965(h)(3).
  • Form 965-E: Consent agreement under Section 965(i)(4)(D).

For the latest updates, visit the IRS website or download the instructions PDF directly from irs.gov. As of the last review in August 2025, no major revisions have been issued since December 2019.

Final Thoughts on Section 965(i)(2) Transfer Agreements

Navigating IRS Form 965-D and its instructions ensures smooth handling of transition tax deferrals during S corporation ownership changes. While this guide provides a detailed overview, tax situations are unique—always consult a qualified tax professional for personalized advice. Staying compliant not only avoids penalties but also optimizes your tax strategy under the TCJA.

For more on IRS forms and international tax rules, explore official IRS publications or seek expert guidance.