SEC inquired of Sun Hydraulics Corporation how it could project that it would or would not repatriate income and what the tax effect would be.

The SEC's concerns include (1) risk of future tax liabilities upon repatriation, (2) lack of liquidity due to the tax penalty that inhibits repatriation, and (3) the compounding of the lack of liquidity when borrowing is required to supply for domestic use the cash that is being held off shore.

The SEC's concern seems to have increased in the last year, as evidenced by a particularly detailed inquiry to Microsoft in a letter dated Feb. 10, 2011. The letter notes (1) the huge and growing proportion of Microsoft's income that is foreign, (2) the substantial difference between Microsoft's foreign tax rates and the U.S. nominal tax rate, and (3) the liquidity impact of holding the earnings offshore. It asked for disclosure of "how income tax planning has historically impacted or is reasonably likely to impact future results of operations and financial position."

The SEC letter to Microsoft is the only one to reference a 1992 SEC Release No. 34-30532, which asked Caterpillar, Inc. about unrepatriated Brazilian earnings.

An April 6, 2011 letter to the SEC from Microsoft explained that most of the foreign earnings was invested in U.S. Treasury debt and also explained why Microsoft borrowed money will it was holding vast amounts offshore (well actually onshore, in the hands of the Treasury).

This pattern of SEC inquiry illustrates that the issue of unrepatriated foreign earnings is not solely one of federal taxation but also of securities reporting and disclosure.