Form 965 Checklist: 2020 Tax Year
Purpose
Form 965 reports Section 965(a) inclusions and Section 965(c) deductions arising from the Tax Cuts and Jobs Act transition to the participation exemption system. For 2020 tax year filers, only pass-through entity allocations apply because the one-time mandatory inclusion periods closed in 2017 and 2018.
This makes 2020 filings primarily administrative reconciliations of pass-through allocations and prior-year elections under IRC Section 965(h), Section 965(i), Section 965(m), and Section 965(n). The form continues to track installment payments and deferred amounts from earlier tax years.
Filing Steps for 2020 Tax Year
Verify Pass-Through Entity Allocations from 2020 Tax Year
Obtain Schedule K-1 or equivalent documentation from each controlled foreign corporation, foreign partnership, or S corporation. These documents must identify only the 2020 tax year Section 965(a) inclusion and Section 965(c) deduction amounts. You should not include carryforwards from prior years on this line.
Enter 2020 Section 965(a) Pass-Through Inclusions on Line 3
Sum all Section 965(a) inclusions received from pass-throughs for the 2020 tax year. Report the total on Form 965, Part I, line 3. Transfer this amount to the appropriate line on Form 1120 for corporations or to the line specified in the 2020 Form 965 instructions for non-corporate filers.
Determine Applicable Election Status
Review whether you made any of the four elections listed in Part III during prior years. These elections include the 8-year net tax liability payment under Section 965(h), the S corporation deferral under Section 965(i), the REIT 8-year income inclusion under Section 965(m), and the NOL non-application under Section 965(n).
Confirm the election remains binding for the 2020 tax year and determine whether any installment or deferred payment is due in 2020. Each election has specific continuation requirements that must be satisfied.
Calculate Any Remaining Section 965(h) Installment Obligation for 2020
Determine whether an installment is due in the 2020 tax year if you made an 8-year net tax liability payment election under Section 965(h) in 2017 or 2018. For taxpayers who made the election in 2017, the third installment of eight becomes due in 2020.
The installment payment schedule requires 8 percent of the net tax liability for each of the first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight. You should include this payment with the 2020 return if applicable.
Answer Part III Election Questions Accurately
Mark "Yes" or "No" for each of the four elections and the Regulations Section 1.965-2(f)(2) election based on whether that election was affirmatively made and remains in effect for 2020.
You should leave blank any election not applicable to your entity type, such as the S corporation deferral for non-S shareholders or REIT election for non-REIT entities.
Enter 2020 Section 965(c) Pass-Through Deductions on Line 17
Sum all Section 965(c) deductions allocated from pass-throughs for the 2020 tax year. Report the total on Form 965, Part I, line 17. Transfer this amount to the corresponding line on Form 1120 or the line specified in the 2020 instructions for non-corporate filers.
Attach Supporting Documentation for All Pass-Through Allocations
Obtain and retain copies of all Schedule K-1 forms, foreign entity financial statements, controlled foreign corporation tax returns, or partnership allocations that detail the Section 965(a) and Section 965(c) amounts reported on lines 3 and 17. You do not necessarily need to attach these documents to the return, but you must have them available for substantiation.
Verify Filer Identification and Tax Year Alignment
Confirm that your name and identifying number match the name and number on the underlying tax return. Your identifying number may be an SSN, EIN, or ITIN. You must ensure the 2020 tax year designation on Form 965 matches the tax year designation on your primary return, whether that return is Form 1120, Form 1040, or another applicable form.
Key Requirements and Deadlines
Installment Payment Due Dates
The installment payment under Section 965(h) is due by the unextended due date of the tax return for the year. Extensions of time for filing do not extend the installment payment deadline.
Calendar year filers must make the 2020 installment payment by the unextended due date, and fiscal year filers must follow their specific unextended due dates.
Acceleration Events
Certain transactions or events can cause all remaining installment payments to become immediately due. These acceleration events include liquidation or sale of substantially all assets, complete cessation of business, or ceasing to be a United States person. Your failure to timely remit an installment payment also constitutes an acceleration event.
S Corporation Shareholder Triggering Events
When a triggering event happens, shareholders of S corporations who chose Section 965(i) must pay the full amount of the deferred transition tax. Triggering events include the corporation ceasing to be an S corporation, liquidation or sale of substantially all assets, cessation of business, or transfer of any share of stock by the shareholder.
The shareholder may elect the installment method under Section 965(h) when a triggering event occurs. This election is subject to IRS consent requirements under certain circumstances. The election must be made on the tax return for the year in which the triggering event occurs.
Required Forms
Primary Forms
● Form 965 (January 2021 revision for 2020 tax year)
● Form 965-A (for individuals and entities taxed as individuals)
● Form 965-B (for corporations and REITs)
Additional Forms When Applicable
● Form 965-C (for acceleration events with transferee assumption of installment payments)
● Form 965-D (for Section 965(i) triggering events with transferee assumption of liability)
● Form 965-E (for Section 965(i) triggering events requiring IRS consent to elect the installment method)
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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.
