How to determine the Section 965(a) inclusion amount starting point for recently acquired SFCs?

Thanks for the info! Quick follow-up - if we can't get past records from the previous owner (which seems likely), is there any safe harbor or simplified method we can use to estimate the starting E&P? Or are we basically required to reconstruct it somehow?

There's no formal safe harbor for estimating starting E&P in this situation. You should make a reasonable effort to reconstruct the E&P based on available information. This might include analyzing balance sheets, retained earnings accounts, and any financial statements from around the acquisition date. If complete reconstruction is impossible despite reasonable efforts, document your methodology thoroughly and prepare to explain your approach if questioned. Consider disclosing the limitation in a statement attached to the return. The key is showing you made a good faith effort to comply using the best information available.

How exactly does taxr.ai help with Section 965 calculations? Does it just explain the rules or does it actually help with the calculations too? I'm dealing with a similar international tax mess and wondering if it's worth trying.

I'm skeptical about using AI for something as complicated as international tax. Can it really understand all the nuances of Section 965? What about the technical exceptions and special rules for different types of income?

It helps by analyzing technical tax documents and regulations to find the specific guidance that applies to your situation. I uploaded the acquisition details and past 5471s, and it identified the relevant portions of the Section 965 regulations that addressed my exact scenario about partial periods and previously untaxed E&P. For calculation assistance, it doesn't do the math for you, but it breaks down the formula components specific to your situation and explains which parts of Schedule J are relevant for your measurement dates. It's particularly good at identifying exceptions and special rules because it's trained on the entire tax code and regulations.

How does Claimyr actually work? Do they just call the IRS for you? I've been trying to get through on the international tax line for three weeks with no luck.

Sounds like a scam. The IRS phone system is deliberately designed to be impossible to navigate. No way some service can magically get you through when millions of people and tax professionals can't. And even if they did, what are the odds you'd get someone who knows anything about Section 965 calculations?

They don't call for you - they navigate the IRS phone system and hold in the queue for you, then call you when they reach a representative. You do the actual talking with the IRS agent. It's essentially a sophisticated call-back service for the IRS. They can't guarantee you'll get an expert on your specific issue, but in my experience, if you're calling the correct specialized line (like the international tax line), you're much more likely to get someone who can help or transfer you to someone who can. The hardest part is just getting through to anyone at all, which is what they solve.

Thanks for this! The corporation is definitely a DFIC in our case. The problem I'm having is that the client acquired the SFC in 2016, so we do have that year's info, but I wasn't sure if we needed to somehow account for pre-acquisition E&P for the Section 965 calculation or if we could just start with the E&P as of the acquisition date.

You should use the acquisition date as your starting point. The Section 965 inclusion applies to the shareholder's pro rata share of accumulated post-1986 E&P, but only for the period during which the foreign corporation was an SFC with respect to your specific U.S. shareholder. Pre-acquisition E&P wouldn't be included because your client didn't have a pro rata share of that E&P (they weren't a U.S. shareholder of the SFC during that time). Start with the E&P as of acquisition and then track forward to the measurement dates.

Generally, no. FTCs related to Section 965 inclusions should only be available for the taxes paid during the period your client was a US shareholder. The same principle applies - if they weren't a shareholder when the taxes were paid, they can't claim the credits associated with that pre-acquisition period.