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U.S. Supreme Court Hears Transition Tax Challenge—Should You File Protective Claims?

Tax Development Sep 19, 2023

U.S. Supreme Court Hears Transition Tax Challenge—Should You File Protective Claims?

The United States Supreme Court has agreed to review the challenge1 of the constitutionality of the transition tax established by the creation of Internal Revenue Code Section 965 in 2017. The Tax Cuts and Jobs Act required that shareholders in controlled foreign corporations pay a one-time transition tax on the deferred foreign income, as if the income had been distributed to them currently. Taxpayers were also allowed to elect to pay the tax liability on this deferred income over an eight-year period. 

As the current Moore decision will generally impact the validity of this tax, filing protective claims for the years this tax has been paid could protect a potential refund claim should the tax be invalidated. The Internal Revenue Service has a process for taxpayers to file a protective refund claim to preserve a right to refund that is contingent upon pending litigation that may not settle until after the statute of limitations expires on the tax year involved.  

If the entire tax liability was paid on the first tax return requiring the tax—2018—the statute of limitations has expired on any potential refund claims. If you elected to pay the tax over eight years, however, and made payments within the last two years, the statute of limitations may still be open for several installment payments made.

As many states also imposed this transition tax, depending on the payment dates and applicable statute of limitations, refund claims may also be available, depending on the outcome of this case, which should be settled by June 2024.

Reach out to one of the Ryan tax professionals listed below for assistance with potential refund claims.

1 Moore v. United States, No. 22-800.


Greg Rottjakob

Violet Goodheart

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