IRC 965(i) Elections

An election made under Section 965(i) allows a shareholder of an S corporation that is an IRC 958(a) US shareholder to defer the assessment and payment of the Section 965 liability.

An IRC 965(i) deferral is indefinite and will remain intact until a triggering event occurs, at which time the IRC 965(i) deferred liability is assessed. Triggering events include:

The corporation ceases to be an S corporation (i.e., the S Corporation changes its status),

A liquidation or sale of substantially all the assets of the S corporation, a cessation of business by the S corporation, the S corporation ceases to exist, or any similar circumstance, and

The electing shareholder transfers any share of stock in the S corporation,

A material misrepresentation or omission on a transfer agreement.

IRC 965(i) elections could only be made on BMF Form 1041, U.S. Income Tax Return for Estates and Trusts, (MFT 05).

A 965(i) election was made in the inclusion year (201712-201911), by including the 965 income and reducing the total income tax by the amount of the 965(i) deferral on the inclusion year return.

Taxpayers that made an IRC 965(i) election are required to file Form 965-A, Individual Report of Net 965 Tax Liability, with their return each year until the IRC 965 liability is assessed and paid in full. When reviewing a notice on an account where an IRC 965(i) election was made, review the return and all attachments.

For BMF returns with an IRC 965 inclusion, there will be a CCC J present on IDRS, BRTVU Response Screen R1 and/or TRBDV Codes Response Screen on the inclusion year module. Computer Condition Codes may also be viewed on the TXMODA response screen in the Posted Return Information section.