Understanding IRS Form 965-C: Transfer Agreement Under Section 965(h)(3)

1. Introduction – What is Form 965-C?

IRS Form 965-C, officially titled “Transfer Agreement Under Section 965(h)(3),” is a specialized federal tax agreement issued by the Internal Revenue Service (IRS), an agency of the U.S. Department of the Treasury.

It is used when a taxpayer who elected to pay their Section 965 transition tax (repatriation tax) in eight annual installments undergoes a corporate transaction or asset transfer. Form 965-C functions as a legally binding agreement between a seller (transferor), a buyer (transferee), and the IRS to transfer the remaining unpaid 8-year tax installment obligations without triggering immediate tax acceleration.

2. Purpose of the Form – Why Does Form 965-C Exist?

Under the Tax Cuts and Jobs Act (TCJA) of 2017, Internal Revenue Code (IRC) Section 965 required U.S. shareholders of foreign corporations to pay a mandatory transition tax on untaxed offshore earnings. To ease cash flow impacts, Section 965(h) allowed taxpayers to pay this net tax liability in eight annual installments.

However, IRC Section 965(h)(3) contains a strict rule: if a “covered acceleration event” occurs—such as a corporate liquidation, sale of substantially all assets, or ceasing business operations—all remaining unpaid 8-year installments immediately become due and payable. This could cause catastrophic tax bills during corporate reorganizations or business sales.

Form 965-C provides a statutory exception to this rule. By filing Form 965-C, the acquiring company (transferee) formally assumes full legal responsibility for the remaining installment payments. This allows the tax deferral to remain intact under the original 8-year payment schedule, protecting the seller from immediate tax acceleration while securing government revenue collection rights.

3. Who Needs to File This Form

Form 965-C is executed jointly by business entities or individuals involved in corporate asset transfers. You must execute and file Form 965-C if your situation meets these criteria:

• Eligible Section 965(h) Transferors: Taxpayers who made an 8-year Section 965(h) installment election and undergo a covered acceleration event (such as selling assets, merging, or liquidating).
• Eligible Section 965(h) Transferees: Purchasing corporations, successor entities, or acquiring taxpayers that agree to assume financial liability for the remaining unpaid Section 965(h) tax installments.
• Consolidated Group Restructurings: Members of consolidated corporate groups undergoing ownership changes or subchapter S status changes where transfer agreements are authorized by Treasury regulations.

4. Who Is Exempt / Not Required to File

Form 965-C is required only when transferring Section 965(h) installment liabilities during a covered event. You are exempt or not required to file Form 965-C if any of the following apply:

• Paid-in-Full Taxpayers: Taxpayers who have fully satisfied their Section 965 transition tax liabilities and have zero remaining installment balances.
• Standard Asset Sales: Transactions that do not constitute a covered acceleration event under IRC Section 965(h)(3) regulations.
• S Corporation Triggering Events: S corporation shareholders who transfer deferred tax liabilities under Section 965(i) execute Form 965-D instead of Form 965-C.
• Unassumed Liabilities: Transactions where the buyer refuses to assume the transition tax liability. (In this case, no transfer agreement is filed, and the seller must pay the full remaining tax balance immediately).

5. When to File

Form 965-C is subject to a strict statutory deadline following a corporate transaction.

The executed Form 965-C must be submitted to the IRS within 30 days of the date on which the covered acceleration event occurs. In addition to this initial 30-day submission, both the transferor and transferee must attach a copy of the approved Form 965-C to their respective annual federal income tax returns for the tax year in which the acceleration event took place.

6. Where and How to File

Form 965-C is a bilateral legal contract that requires original signatures from authorized representatives of both the transferor and transferee. It cannot be filed through standard electronic tax return software during initial processing.

The completed paper agreement must be mailed via certified mail or an approved private delivery service directly to the specific IRS unit handling Section 965 transfer agreements as per instructions for Form 965-C. Do not send Form 965-C to standard tax return processing centers.

7. Step-by-Step Instructions to Fill the Form

Form 965-C consists of six core parts that identify the parties, describe the acceleration event, report unpaid balances, and evaluate financial solvency. The table below summarizes the main sections of the form.

Form Part	Part Name	Instruction / Description
Part I	Transferor Information	Provide the full legal name, Taxpayer Identification Number (TIN), address, and entity type of the selling party.
Part II	Transferee Information	Enter the legal name, EIN/SSN, address, and entity classification of the buying party assuming the debt.
Part III	Acceleration Event Details	Specify the exact date and detailed legal nature of the covered acceleration event (liquidation, asset sale, etc.).
Part IV	Unpaid Tax Liability Report	State the exact remaining unpaid Section 965(h) net tax liability being assumed and the next installment due date.
Part V	Transferee Solvency Evaluation	Answer financial capacity questions, including whether the transferee’s leverage ratio exceeds 3:1.
Part VI	Terms & Signatures	Requires binding agreement declarations and authorized signatures from both transferor and transferee.

Detailed Filling Steps

1. Complete Transferor & Transferee Details (Parts I & II): Enter full legal business names, street addresses, and taxpayer identification numbers (EIN or SSN) for both parties.
2. Detail the Acceleration Event (Part III): Check the box corresponding to the specific acceleration event type. Enter the exact effective date of the transaction and provide a detailed explanation of the transaction structure.
3. Report Unpaid Installment Liability (Part IV): Enter the exact dollar amount of the transferor’s remaining unpaid Section 965(h) tax liability being assumed by the transferee. State the due date of the next upcoming installment payment.
4. Assess Transferee Ability to Pay (Part V): Confirm that the transferee has the financial capacity to make future installment payments. State whether the transferee’s leverage ratio exceeds 3:1, and attach supporting financial balance sheets if required.
5. Execute Signatures (Part VI): Corporate officers, partners, or individuals authorized to legally bind both the transferor and transferee must sign, date, and enter their official corporate titles.

8. Required Documents/Information Needed Before Filling

Before completing Form 965-C, assemble the following legal and financial documentation:

• Taxpayer Identification Numbers: Verified EINs or SSNs for both transferor and transferee entities.
• Closing Transaction Files: Executed purchase agreements, merger contracts, or liquidation resolutions establishing the exact effective closing date.
• Prior Form 965-A / Form 965-B Filings: Most recent Section 965 tracking schedules confirming the remaining unpaid installment balance.
• Transferee Financial Statements: Certified balance sheets and leverage ratio calculations proving the acquiring company can satisfy future tax payments.
• Form 2848 (Power of Attorney): Required if a CPA or tax attorney is signing the transfer agreement on behalf of either party.

9. Common Mistakes to Avoid

Filing errors on Form 965-C can cause the IRS to reject the transfer agreement and accelerate tax debts. Watch out for these frequent mistakes:

• Missing the 30-Day Window: Failing to mail Form 965-C to the IRS within 30 days of the acceleration event date.
• Incomplete Signatures: Submitting the form with signatures from only one party instead of both transferor and transferee.
• Inaccurate Unpaid Balance Figures: Entering original transition tax numbers rather than the net remaining unpaid installment balance.
• Failing the Leverage Ratio Test: Checking “Yes” to leverage ratios exceeding 3:1 without providing sufficient financial explanation proving solvency.
• Confusing Form 965-C with Form 965-D: Using Form 965-C for S corporation triggering events instead of Form 965-D.

10. Penalties for Non-Filing or Errors

If Form 965-C is not filed on time, or if the IRS rejects the agreement due to transferee insolvency, the consequences are immediate and severe:

• Invalidation of Agreement: The IRS will declare the transfer agreement void.
• Immediate Tax Acceleration: The exception under Section 965(h)(3) fails, causing 100% of the remaining unpaid 8-year tax balance to become due immediately for the transferor.
• Accrued Interest and Late Payment Penalties: The IRS will assess failure-to-pay penalties (0.5% per month up to 25%) and compound interest retroactive to the acceleration event date.

11. Related Forms or Schedules

Taxpayers managing Form 965-C frequently interact with these related federal tax forms:

• Form 965: Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System.
• Form 965-A: Individual Report of Net 965 Tax Liability.
• Form 965-B: Corporate Report of Net 965 Tax Liability.
• Form 965-D: Transfer Agreement Under Section 965(i)(2).
• Form 965-E: Consent Agreement Under Section 965(i)(4)(D).

12. Frequently Asked Questions

1. What is the primary purpose of IRS Form 965-C?

Form 965-C is a formal agreement that allows a buyer or successor entity to assume a seller’s remaining Section 965 transition tax installments, preventing immediate tax acceleration upon a business sale or restructuring.

2. What is a covered acceleration event under Section 965(h)(3)?

An acceleration event includes corporate liquidations, sales of substantially all business assets, ceasing to exist, or failing to pay a required annual Section 965 installment on time.

3. What is the deadline for filing Form 965-C?

Form 965-C must be submitted to the IRS within 30 days of the date the acceleration event occurs.

4. What happens if the IRS rejects Form 965-C?

If the IRS rejects Form 965-C (for example, if the transferee fails solvency checks), the remaining transition tax balance becomes due immediately for the transferor.

5. How does Form 965-C differ from Form 965-D?

Form 965-C applies to Section 965(h) 8-year installment payment transfers, while Form 965-D applies to Section 965(i) S corporation tax deferral transfers.

6. Can Form 965-C be filed online?

No. Form 965-C requires original executed signatures from both parties and must be mailed via certified paper delivery to the designated IRS Section 965 unit.

13. Conclusion – Key Takeaways

IRS Form 965-C is a critical risk-management tool for business owners and corporate buyers involved in mergers, asset acquisitions, or corporate liquidations where Section 965 transition tax liabilities exist. Executing Form 965-C allows acquiring entities to step into the shoes of the seller, preserving the 8-year installment payment schedule and preventing massive tax acceleration bills. To ensure seamless IRS approval, act quickly upon closing a deal, complete all financial solvency sections accurately, obtain dual corporate signatures, and submit Form 965-C within the strict 30-day window.