How to Fill Out Form 965-B: Installments, Payments, and REIT Elections

To fill out Form 965-B, complete Part I with the original net 965 tax liability and the eight-year installment schedule, Part II with the cumulative record of payments through the current year, and Part III if you are a REIT that elected under Section 965(m). Attach the form to your annual income tax return by its due date, including extensions, and make installment payments through EFTPS designated to IRC 965. The form must be filed every year you still owe or are accounting for Section 965 amounts, including the year you make the final payment.¹

Who Files the Form

Two categories of taxpayer file Form 965-B: domestic C corporations and Real Estate Investment Trusts that had a Section 965 inclusion based on accumulated post-1986 deferred foreign income of specified foreign corporations they owned directly or indirectly.² A corporation that paid the full transition tax in the first year without electing installments still had to file the form for that year to record the payment.³

For a consolidated group, the common parent files a single Form 965-B and reports the net 965 tax liability for the whole group. Each member’s portion is tracked separately inside the form, because acquisitions, departures, or transfers can shift who owes the remaining balance.

Part I: Net 965 Tax Liability and Installment Schedule

Part I sets the baseline. For each year a Section 965 inclusion occurred, enter the total net 965 tax liability, the amount eligible for installment treatment, and the installment amount scheduled for the current year. Each line corresponds to the reporting year the transition tax was first calculated, which for most filers was 2017 or 2018.

If you elected to pay under Section 965(h), the liability is spread across eight annual installments at these percentages:⁴

Years 1 through 5: 8 percent each year
Year 6: 15 percent
Year 7: 20 percent
Year 8: 25 percent

The schedule is back-loaded, with 60 percent of the total falling in the final three years. Enter each year’s scheduled installment in the appropriate column.

If an amended return or audit adjustment changed the original liability, prorate the adjustment across all installment years. For installments whose due dates have passed, adjust the payment figure in the current reporting year; for future installments, revise the scheduled amounts going forward.⁵

Part II: Record of Payments

Part II is a cumulative payment ledger. Each line matches a reporting year from Part I, and columns track payments made in each successive year of the installment period.⁵

If no installment election was made, show the entire net 965 tax liability as paid in the first-year column and leave later columns blank. If an installment election was made and nothing has accelerated the balance, each year’s column reflects that year’s scheduled percentage. Pull the prior year’s Form 965-B, copy the payment history forward exactly, then add the current year’s payment in the next open column.

The final column reports the unpaid balance after the current year’s payment. That figure has to reconcile to the installment schedule in Part I and to your internal accounting. Mismatches generate automated IRS notices, so reconcile EFTPS confirmations and prior-year Forms 965-B before filing. If an acceleration event occurred during the year, report the entire remaining balance as paid in the column for that year.

Part III: Electing REITs

REITs that elected under Section 965(m) use Part III to track deferred inclusion amounts separately from the payment schedule in Parts I and II. The election spreads the Section 965(a) inclusion and the corresponding Section 965(c) deduction over the same eight-year schedule used for installment payments, rather than recognizing everything in the inclusion year.⁵ The election is irrevocable.

Part III reports the total Section 965 amounts subject to the election, the portion recognized in the current year based on the mandated schedule (8 percent in each of the first five years, then 15, 20, and 25 percent), and the balance remaining to be recognized in future years.

An acceleration event for an electing REIT occurs when it liquidates, sells substantially all its assets (including in a bankruptcy proceeding), or ceases business operations. When any of those happens, the REIT must recognize all remaining deferred Section 965 amounts on the day before the event and report them for the year the event occurs.⁵

How to File and Pay

Attach the completed Form 965-B to the entity’s annual income tax return: Form 1120 for most C corporations, Form 1120-REIT for REITs. The filing deadline matches the return’s due date, including any extensions.¹ For calendar-year corporations, the unextended deadline is April 15.

Make installment payments through EFTPS. When you enter the payment, select the tax year in which the Section 965 inclusion was originally reported, the form number on which that liability appeared, then choose “IRC 965” from the dropdown.⁴ If the payment is applied to the corporation’s general income tax account instead of the Section 965 liability, it may not reduce the installment balance, and the IRS can treat the installment as unpaid. Keep EFTPS confirmation numbers for every payment. If you pay by mail, use the designated payment voucher and send it certified with a return receipt.

Events That Accelerate the Balance

Some events pull the entire remaining installment balance immediately due. Under Section 965(h)(3), acceleration is triggered by:⁶

Failure to pay an installment on time. An addition to tax for late payment accelerates the entire unpaid balance.
Liquidation or sale of substantially all assets, including dispositions in bankruptcy or similar proceedings.
Cessation of business.

The statute provides one escape for asset sales: if the buyer signs an agreement with the IRS to assume the remaining installments, acceleration does not occur. That agreement is filed on Form 965-C.⁷ Without a valid transfer agreement in place before the sale closes, the full remaining balance becomes due on the date of the transaction. Similar rules apply when a corporation joins or leaves a consolidated group, or when a consolidated group ceases to exist; the remaining installments can accelerate unless the parties execute the appropriate transfer and consent agreements. Retroactive agreements are not available, so any planning has to happen before the transaction closes.

Errors That Trigger IRS Notices

The most common mistake is failing to carry the cumulative payment history forward from the prior year’s Part II. That creates mismatches with what the IRS has on file and generates automated notices. Pull the prior year’s form and transcribe the payment columns exactly before adding the current year’s amount.

The second common error is misallocating adjustments from amended returns or audits. Spread the adjustment proportionally across all installment years rather than loading it into the current year.⁵

Before filing, confirm that the unpaid balance in the final column of Part II reconciles to the installment schedule in Part I. If the two do not match, something has been entered incorrectly. Keeping the original Section 965 calculations, EFTPS confirmations, and copies of each year’s Form 965-B together in one file makes the annual reconciliation straightforward and gives you an audit trail if the IRS ever questions a payment.

1
Internal Revenue Service. Instructions for Form 965-B Corporate and REIT Report of Net 965 Tax Liability
2
Internal Revenue Service. About Form 965-B, Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts
3
Internal Revenue Service. Instructions for Form 965-B Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability
4
Internal Revenue Service. General Section 965 Questions and Answers (Including Transfer and Consent Agreements)
5
Internal Revenue Service. Instructions for Form 965-B (Rev. January 2021)
6
Office of the Law Revision Counsel. 26 USC 965 – Treatment of Deferred Foreign Income Upon Transition to Participation Exemption System of Taxation
7
Internal Revenue Service. About Form 965-C, Transfer Agreement Under Section 965(h)(3)