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Congressional Budget Office
National Tax Association
112th Annual Conference on Taxation
November 21, 2019
Molly Saunders-Scott, Tax Analysis Division
Jennifer Shand, Tax Analysis Division
Reconciling Data on Transition Tax Payments:
An Examination of Tax, Economic, and
Financial Sources
1
CBO
The 2017 tax act (Public Law 115-97) changed the way that the foreign income of
U.S. corporations was taxed. Before those changes, many types of foreign
income were not taxed by the United States until the income was brought back,
or repatriated, to the United States.
As part of the transition to the new system, a onetime tax was imposed on the
existing unrepatriated foreign earnings of U.S. corporations. Corporations must
pay the tax regardless of whether they actually repatriate the earnings to the
United States.
The total liability is calculated based on two different applicable rates:
 Cashlike assets: 15.5 percent
 Noncash assets: 8 percent
What Is the Transition Tax?
2
CBO
Corporations may elect to pay the tax in installments over a period of eight years,
with 60 percent of the total paid in the last three years.
The payment schedule for the installment plan is:
Because different corporations have different fiscal years, only some companies
made their first payment in federal fiscal year 2018. Other companies made their
first payment in 2019.
How Do Corporations Pay the Transition Tax?
Payment Year Percentage of Total Liability
First through fifth 8 percent each year
Sixth 15 percent
Seventh 20 percent
Eighth 25 percent
3
CBO
What Were Some Early Estimates of the Transition Tax?
In December 2017, the Joint Committee on Taxation (JCT) estimated that the net
revenue effect of the transition tax would be $339 billion. That estimate includes
the direct onetime tax liability on corporations as well as other effects of
the provision.
www.jct.gov/publications.html?func=startdown&id=5053
In March 2018, the Bureau of Economic Analysis (BEA) estimated that the
onetime tax liability would be $250 billion. That total was booked on an accrual
basis to the fourth quarter of 2017 as a onetime capital transfer to the
federal government.
www.bea.gov/help/faq/1293
In July 2018, CBO reported that the direct onetime tax liability to be paid over
eight years by corporations would total $347 billion. That estimate is consistent
with JCT’s estimate from December 2017.
www.cbo.gov/publication/54194
4
CBO
CBO’s baseline projections of corporate income tax revenues reflect direct gross
payments ($347 billion) and a pattern of receipts through fiscal year 2027 that are
consistent with JCT’s estimates.
 The projections incorporate the expectation that each installment would be
divided 50/50 between federal fiscal years—that is, that companies that made
initial payments in federal fiscal year 2018 represent 50 percent of total liability.
 The $347 billion excludes other effects of the transition tax, such as dividends
and capital gains accruing to individual income tax revenues concentrated in
federal fiscal years 2018 and 2019.
How Does the Transition Tax Affect CBO’s Baseline Projections of
Corporate Income Tax Revenues?
5
CBO
 Updated information on total liability
 Information on how payments are divided among federal fiscal years
 Information on whether companies are using the installment plan
 Information on whether 2017 overpayments for regular income taxes
accelerated the payment of liability
What Might Prompt CBO to Update the Transition Tax Estimate in
Those Projections?
6
CBO
The Internal Revenue Service’s (IRS’s) Statistics of Income (SOI) corporate file for 2017
includes the transition tax liability for some corporations.
Corporations had to report accumulated foreign earnings on the tax return for the last
taxable year that began before January 1, 2018. A company’s taxable year is generally
determined by its fiscal year.
The 2017 SOI corporate file includes the liability for companies with fiscal years that end
between December 31 and June 30. Those companies should also have paid their first
installment (or total liability) with their 2017 return; those initial payments would have shown
up as federal revenues in federal fiscal year 2018.
The 2018 SOI corporate file will include the liability for companies with fiscal years that end
between July 1 and December 30 (and for some other filers whose foreign subsidiaries’
fiscal year started one month earlier than their own). For those companies, initial payments
occurred in federal fiscal year 2019.
Information on the Transition Tax: Tax Data
7
CBO
The IRS’s 2017 SOI file contains data about the transition tax liability for some
corporations but not all. Because some corporations do not yet appear in the SOI
data, additional sources of data must be used.
Annual financial reports (10-Ks) are currently available for a more comprehensive
set of corporations.
 Most publicly traded corporations reported their transition tax liability in their
2017 10-K, their 2018 10-K, or both.
 Some also provided information about whether they planned to pay the tax in
installments and gave information about the size of those installments.
Information on the Transition Tax: Financial Reports
8
CBO
CBO used the Institute on Taxation and Economic Policy’s (ITEP’s) March 2017
listing of permanently reinvested earnings (PRE) for Fortune 400 companies to
identify corporations that would be expected to have large transition tax liabilities.
High PRE are likely to be correlated with significant foreign earnings that are
subject to the transition tax, though they are not a perfect measure.
ITEP reported that Fortune 400 companies had a total of $2.6 trillion in PRE.
CBO narrowed the list to companies with PRE of more than $20 billion and
examined those companies’ 10-Ks.
Financial Reports: The Sample Analyzed
9
CBO
n.a. = not applicable.
Financial Reports for Companies in the Sample:
Total Liability
SOI Year
Number of
Companies
Permanently
Reinvested Earnings
(Billions of dollars)
Liability
(Billions of
dollars)
Share of Liability
(Percent)
2017 25 1,165 116.4 61
2018 7 634 74.8 39
Total for Sample 32 1,800 191.2 n.a.
The 32 companies sampled hold 69 percent of the PRE in the Fortune 400 list.
If they accounted for the same share of total transition tax liability, that total would be
$276 billion. (Results are similar when cutoffs other than $20 billion of PRE are used.)
10
CBO
Of the 32 companies, 21 include a statement in their 10-K that indicates that they
plan to pay the transition tax in installments.
 Many of the remaining 11 companies do not give any clear indication of the
timing of payments.
 A few companies (which report small liabilities) indicate that they had enough
credits or payments to offset the full transition tax liability in the first year.
Some companies list the installments of the transition tax as a contractual
obligation.
 For some companies, the annual installments listed for years between 2018
and 2020 are less than 8 percent of their total liability.
 That may suggest that overpayments in the year in which the liability was
reported have absorbed a portion of those later installments.
Financial Reports for Companies in the Sample:
Information on Timing of Payments
11
CBO
Overall, the evidence from financial reports suggests that the total transition tax
liability will be between $250 billion and $300 billion.
 Why might total liability be higher? Some foreign earnings are held by
companies outside the Fortune 400.
 Why might total liability be lower? There is some indication that the liability
in the 2017 SOI file is lower than 10-K values for 2017 filers would suggest.
What Tax Liability Is Suggested by the Evidence From
Financial Reports?
12
CBO
Company-level evidence on installments:
 There is evidence that some companies paid up front and that others had
overpayments for 2017 applied to early installments.
 That could indicate that there were some collections in federal fiscal year 2018
that CBO would have expected to occur in 2019 (or later).
Division of installments between federal fiscal years:
 Variation in companies’ fiscal years means that they pay installments at
different times.
 The financial reports suggest that, instead of each installment’s being divided
50/50 between federal fiscal years, the divide may be closer to 60/40—that is,
that companies that made initial payments in federal fiscal year 2018 may
represent closer to 60 percent of total liability.
What Timing of Payments Is Suggested by the Evidence From
Financial Reports?

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Reconciling Data on Transition Tax Payments An Examination of Tax, Economic, and Financial Sources

  • 1. Congressional Budget Office National Tax Association 112th Annual Conference on Taxation November 21, 2019 Molly Saunders-Scott, Tax Analysis Division Jennifer Shand, Tax Analysis Division Reconciling Data on Transition Tax Payments: An Examination of Tax, Economic, and Financial Sources
  • 2. 1 CBO The 2017 tax act (Public Law 115-97) changed the way that the foreign income of U.S. corporations was taxed. Before those changes, many types of foreign income were not taxed by the United States until the income was brought back, or repatriated, to the United States. As part of the transition to the new system, a onetime tax was imposed on the existing unrepatriated foreign earnings of U.S. corporations. Corporations must pay the tax regardless of whether they actually repatriate the earnings to the United States. The total liability is calculated based on two different applicable rates:  Cashlike assets: 15.5 percent  Noncash assets: 8 percent What Is the Transition Tax?
  • 3. 2 CBO Corporations may elect to pay the tax in installments over a period of eight years, with 60 percent of the total paid in the last three years. The payment schedule for the installment plan is: Because different corporations have different fiscal years, only some companies made their first payment in federal fiscal year 2018. Other companies made their first payment in 2019. How Do Corporations Pay the Transition Tax? Payment Year Percentage of Total Liability First through fifth 8 percent each year Sixth 15 percent Seventh 20 percent Eighth 25 percent
  • 4. 3 CBO What Were Some Early Estimates of the Transition Tax? In December 2017, the Joint Committee on Taxation (JCT) estimated that the net revenue effect of the transition tax would be $339 billion. That estimate includes the direct onetime tax liability on corporations as well as other effects of the provision. www.jct.gov/publications.html?func=startdown&id=5053 In March 2018, the Bureau of Economic Analysis (BEA) estimated that the onetime tax liability would be $250 billion. That total was booked on an accrual basis to the fourth quarter of 2017 as a onetime capital transfer to the federal government. www.bea.gov/help/faq/1293 In July 2018, CBO reported that the direct onetime tax liability to be paid over eight years by corporations would total $347 billion. That estimate is consistent with JCT’s estimate from December 2017. www.cbo.gov/publication/54194
  • 5. 4 CBO CBO’s baseline projections of corporate income tax revenues reflect direct gross payments ($347 billion) and a pattern of receipts through fiscal year 2027 that are consistent with JCT’s estimates.  The projections incorporate the expectation that each installment would be divided 50/50 between federal fiscal years—that is, that companies that made initial payments in federal fiscal year 2018 represent 50 percent of total liability.  The $347 billion excludes other effects of the transition tax, such as dividends and capital gains accruing to individual income tax revenues concentrated in federal fiscal years 2018 and 2019. How Does the Transition Tax Affect CBO’s Baseline Projections of Corporate Income Tax Revenues?
  • 6. 5 CBO  Updated information on total liability  Information on how payments are divided among federal fiscal years  Information on whether companies are using the installment plan  Information on whether 2017 overpayments for regular income taxes accelerated the payment of liability What Might Prompt CBO to Update the Transition Tax Estimate in Those Projections?
  • 7. 6 CBO The Internal Revenue Service’s (IRS’s) Statistics of Income (SOI) corporate file for 2017 includes the transition tax liability for some corporations. Corporations had to report accumulated foreign earnings on the tax return for the last taxable year that began before January 1, 2018. A company’s taxable year is generally determined by its fiscal year. The 2017 SOI corporate file includes the liability for companies with fiscal years that end between December 31 and June 30. Those companies should also have paid their first installment (or total liability) with their 2017 return; those initial payments would have shown up as federal revenues in federal fiscal year 2018. The 2018 SOI corporate file will include the liability for companies with fiscal years that end between July 1 and December 30 (and for some other filers whose foreign subsidiaries’ fiscal year started one month earlier than their own). For those companies, initial payments occurred in federal fiscal year 2019. Information on the Transition Tax: Tax Data
  • 8. 7 CBO The IRS’s 2017 SOI file contains data about the transition tax liability for some corporations but not all. Because some corporations do not yet appear in the SOI data, additional sources of data must be used. Annual financial reports (10-Ks) are currently available for a more comprehensive set of corporations.  Most publicly traded corporations reported their transition tax liability in their 2017 10-K, their 2018 10-K, or both.  Some also provided information about whether they planned to pay the tax in installments and gave information about the size of those installments. Information on the Transition Tax: Financial Reports
  • 9. 8 CBO CBO used the Institute on Taxation and Economic Policy’s (ITEP’s) March 2017 listing of permanently reinvested earnings (PRE) for Fortune 400 companies to identify corporations that would be expected to have large transition tax liabilities. High PRE are likely to be correlated with significant foreign earnings that are subject to the transition tax, though they are not a perfect measure. ITEP reported that Fortune 400 companies had a total of $2.6 trillion in PRE. CBO narrowed the list to companies with PRE of more than $20 billion and examined those companies’ 10-Ks. Financial Reports: The Sample Analyzed
  • 10. 9 CBO n.a. = not applicable. Financial Reports for Companies in the Sample: Total Liability SOI Year Number of Companies Permanently Reinvested Earnings (Billions of dollars) Liability (Billions of dollars) Share of Liability (Percent) 2017 25 1,165 116.4 61 2018 7 634 74.8 39 Total for Sample 32 1,800 191.2 n.a. The 32 companies sampled hold 69 percent of the PRE in the Fortune 400 list. If they accounted for the same share of total transition tax liability, that total would be $276 billion. (Results are similar when cutoffs other than $20 billion of PRE are used.)
  • 11. 10 CBO Of the 32 companies, 21 include a statement in their 10-K that indicates that they plan to pay the transition tax in installments.  Many of the remaining 11 companies do not give any clear indication of the timing of payments.  A few companies (which report small liabilities) indicate that they had enough credits or payments to offset the full transition tax liability in the first year. Some companies list the installments of the transition tax as a contractual obligation.  For some companies, the annual installments listed for years between 2018 and 2020 are less than 8 percent of their total liability.  That may suggest that overpayments in the year in which the liability was reported have absorbed a portion of those later installments. Financial Reports for Companies in the Sample: Information on Timing of Payments
  • 12. 11 CBO Overall, the evidence from financial reports suggests that the total transition tax liability will be between $250 billion and $300 billion.  Why might total liability be higher? Some foreign earnings are held by companies outside the Fortune 400.  Why might total liability be lower? There is some indication that the liability in the 2017 SOI file is lower than 10-K values for 2017 filers would suggest. What Tax Liability Is Suggested by the Evidence From Financial Reports?
  • 13. 12 CBO Company-level evidence on installments:  There is evidence that some companies paid up front and that others had overpayments for 2017 applied to early installments.  That could indicate that there were some collections in federal fiscal year 2018 that CBO would have expected to occur in 2019 (or later). Division of installments between federal fiscal years:  Variation in companies’ fiscal years means that they pay installments at different times.  The financial reports suggest that, instead of each installment’s being divided 50/50 between federal fiscal years, the divide may be closer to 60/40—that is, that companies that made initial payments in federal fiscal year 2018 may represent closer to 60 percent of total liability. What Timing of Payments Is Suggested by the Evidence From Financial Reports?