Jan. 1, 2017, began the final countdown for paying taxes on funds tucked away offshore in deferred-compensation plans. On Dec. 31, 2016, Code Section 457A put to an end to the strategy of deferring compensation in tax-advantaged jurisdictions offshore.

While the legislative initiatives of the 115^th Congress that began today may bring some certainty to the question of repatriation of money held overseas, one thing is already certain, and it’s not the one-time tax holiday that President-elect Donald Trump talked about during the campaign. It’s a tax aimed specifically at the offshore deferred compensation arrangements that have been accumulating overseas, many from the 1990s. Changes to the Internal Revenue Code were introduced in 2008 as part of the Emergency Economic Stabilization Act. While some have brought funds home already, others will have major planning decisions to make in the coming year when billions of dollars held offshore face taxation, according to Withers Bergman partners Jim Brockway and N. Todd Angkatavanich.

Code Section 457A requires income recognition no later than 2017 on certain pre-2009 offshore deferred compensation arrangements, regardless of whether such income has actually been received by the fund principal, unless the arrangement continues to be subject to a substantial risk of forfeiture.

The aim behind the code section was “not to allow U.S. persons to defer their otherwise taxable income by using a tax-indifferent party,” said Brockway. “The accruals that had run up by the end of 2008 were not taxed then, but will be taxed on the full principal balance by the end of 2017. Fund managers have been aware of the change, but most decided to wait on the sidelines for new legislation to postpone it. However, there’s nothing in Trump’s proposals that would do this, so the day of reckoning is here, or will be at the end of the year.”

The recognition of income applies regardless of receipt, he indicated. “It’s just taxable, so virtually everyone that has not received their interest in the fund by now will be taking it into income and receiving dollars, because they will need the dollars to pay the tax,” he said.

“Because many of these arrangements were used to defer tens of millions, if not hundreds of millions, from current income taxation, 2017 presents a substantial liquidity issue,” said Angkatavanich. “There are massive tax and liquidity issues with more than $100 billion to be recognized. Although there are a number of ways to approach it, there’s no magic bullet.”

“The balances in these arrangements are enormous,” noted Brockway. “They will be taxed as ordinary income, so in a high income tax state, the tax on $100 million could approach $50 million. Most approaches involve some sort of charitable planning to offset the income. Assuming a cap on itemized deductions doesn’t come into play, there are various types of split-interest charitable trusts that could provide payments to a charity for a number of years, and what is left comes back to you or to whomever you want.”

A charitable lead annuity trust, or CLAT, is one of these, according to Angkatavanich. “Structured correctly, a CLAT can be funded with assets that appreciate significantly during the charitable term. This will effectively address philanthropic goals by providing an up-front or ‘lead’ stream of annuity payments to a charity. It also achieves income tax goals by generating corresponding charitable deductions, and achieves transfer tax goals by passing all assets remaining after the annuity term to the remainder beneficiaries, free of gift or estate tax,” he said. “If you can get your interest in the CLAT to grow, you can get what you need to pay out of the CLAT and have the balance grow to pass on to your kids or go back to you.”

Roger Russell is senior editor for tax with Accounting Today, and a tax attorney and a legal and accounting journalist.