Form 965 (2019 Tax Year) Checklist
Purpose
Form 965 computes mandatory inclusion of deferred foreign income under IRC section 965 upon transition to the participation exemption system. The form addresses the one-time transition tax on accumulated earnings of specified foreign corporations. U.S. shareholders must include these deferred amounts in income for the last tax year of the foreign corporation beginning before January 1, 2018. The inclusion is reduced by a participation deduction under section 965(c).
The 2019 form distinguishes calendar-year filers from fiscal-year filers, requiring separate rate equivalent percentage calculations. Calendar year filers use fixed percentages established in the instructions. Fiscal year filers calculate their own percentages using section 15 blended rate provisions to account for the corporate tax rate change from 35% to 21% effective January 1, 2018. Taxpayers may elect payment and deferral options under sections 965(h), (i), (m), and (n).
Completion Steps
Step 1: Determine Tax Year Type and Calculate Rate Equivalent Percentages
Identify your tax year type as either calendar year or fiscal year beginning in 2017 or 2018. Fiscal year filers complete Part II, Section 2, lines 2a–2e to compute section 15 blended rates, which produce rate equivalent percentages unique to each filer's blended corporate rate. Calendar year filers use fixed percentages in Section 2, lines 1a–1b.
Step 2: Calculate Section 965(a) Inclusion Amounts
Complete Schedule A to determine section 965(a) inclusion amounts. Schedule A column (k) reports 2018 tax year amounts, and column (j) reports 2017 tax year amounts. You aggregate these amounts on Part I, lines 1 and 4, respectively.
Step 3: Calculate Aggregate Foreign Cash Position
Prepare Schedule D to calculate the Aggregate Foreign Cash Position. Schedule D, line 20, reports the aggregate foreign cash position taken into account on the 2017 tax return. Schedule D, line 21, reports the aggregate foreign cash position taken into account on the 2018 tax return.
Step 4: Complete 2018 Tax Year Deduction Calculations
Enter the line 1 amount on line 7 for the 2018 tax year calculation. Enter the aggregate foreign cash position from Schedule D, line 21, on line 8. Compute the smaller amount on line 9. Apply the 2018 15.5% rate equivalent percentage from Section 2, line 1a, and the 8% rate equivalent percentage from Section 2, line 1b, to calculate deductions on lines 11 and 14.
Step 5: Complete 2017 Tax Year Deduction Calculations
Enter the line 4 amount on line 18 for the 2017 tax year calculation. Enter the aggregate foreign cash position from Schedule D, line 20, on line 19. Compute the smaller amount on line 20. Calendar year filers use Section 2, lines 1a–1b for rate equivalent percentages, while fiscal year filers use Section 2, lines 2c and 2e.
Step 6: Report Pass-Through Inclusions and Deductions
Attach separate schedules for the 2018 tax year, section 965(a) inclusions from pass-throughs on Part I, line 2. Attach schedules for the 2017 tax year inclusions on Part I, line 5. Similarly, attach schedules for the 2018 tax year section 965(c) deductions from pass-throughs on Part II, Section 1, line 16. Attach schedules for the 2017 tax year deductions on line 27.
Step 7: Transfer Totals to Underlying Tax Return
Corporations enter Part I, line 3 total on Form 1120, Schedule C, line 15, column (a). Corporations enter Part II, Section 1, line 17 total on Schedule C, line 15, column (c). Non-corporate filers consult instructions for placement on their specific return type.
Step 8: Complete Part III Elections
Complete Part III elections based on filer status and intent. Available elections include:
- Election to pay net tax liability over 8 years under section 965(h)
- Deferral election for S corporation shareholders under section 965(i)
- REIT 8-year inclusion election under section 965(m)
- NOL deduction waiver under section 965(n)
- Regulations section 1.965-2(f)(2) election
2019 Form 965-Specific Updates
Fiscal year filers calculate section 15 blended rates on Part II, Section 2, lines 2a–2e. This calculation was not required on prior-year versions and produces rate equivalent percentages unique to each filer's blended corporate rate. The calculation reflects the corporate rate change from 35% to 21% effective January 1, 2018.
Schedule A and Schedule D serve as mandatory attachments. The 2019 instructions explicitly cross-reference these schedules by line number for both the 2017 and 2018 tax year data. This creates a form-specific assembly requirement distinct from other years.
Part III election checkboxes include Regulations section 1.965-2(f)(2) election on line E. This election addresses specified foreign corporation status determinations. The election applies to the 2019 tax year reporting period.
Important Notes
The transition tax under Section 965 applies to the last taxable year of specified foreign corporations beginning before January 1, 2018. Taxpayers report section 965 amounts in the tax year that includes the last day of the relevant foreign corporation's last tax year beginning before January 1, 2018.
Form 965 may be required for tax years after 2018 when taxpayers receive section 965(a) inclusions through pass-through entities. For 2019 tax years, Form 965 reports section 965(a) inclusions derived solely through interests in pass-through entities that are U.S. shareholders of deferred foreign income corporations.
Need Help With Your Tax Filing?
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
We offer:
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Call now before filing: (888) 260-9441
Fast transcript pull available
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
