Florida Explains Treatment of Repatriation Income

first_imgAmendments made to the Internal Revenue Code (IRC) by the Tax Cuts and Jobs Act (P.L. 115-97) impose a one-time transition tax at a reduced rate on foreign earnings as if they had been repatriated to the United States, for Florida corporate income tax purposes. Florida annually adopts the IRC as it exists on January 1. As a result, Florida adopts any changes related to determining federal taxable income that were made during the previous year at the time the changes became law. Florida legislation enacted this year amends the state Income Tax Code to adopt the IRC retroactively to January 1, 2018. This means Florida’s rolling conformity follows the computation of federal taxable income, including any IRC Sec. 965 income required to be included in the last taxable year beginning before January 1, 2018.IRS Guidance on IRC Sec. 965Recently, the Internal Revenue Service (IRS) issued guidance in Publication 5292 How to Calculate Section 965 Amounts and Elections Available to Taxpayers, and questions and answers about reporting related to IRC Sec. 965 (https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns). Publication 5292, which discusses S-corporations, partnerships, and real estate investment trusts separately from other entities, instructs taxpayers to compute repatriation income outside the standard computations of federal taxable income. The IRS guidance also provides that a taxpayer should make two separate payments of any tax due:– one payment reflecting tax owed without regard to IRC Sec. 965; and– a second separate payment reflecting tax owed resulting from IRC Sec. 965 and not otherwise satisfied by another payment or credit.Repatriation IncomeGenerally, repatriation income under IRC Sec. 965 does not flow into federal taxable income. There is no Florida addition in Sec. 220.13(1)(a), Florida Statutes, for repatriated income excluded from the federal income tax computation. As a result, no Florida corporate income tax is due on repatriation income that is excluded from the standard computation of federal taxable income. Moreover, such repatriation income is excluded from the Florida apportionment fraction computation.However, to the extent repatriation income flows into federal taxable income, such as through a real estate investment trust (federal Form 1120-REIT), it would be included in the starting point of the Florida corporate income tax computation on Line 1 of the front page of the Florida return. If this occurs, pursuant to Sec. 220.13(1)(b)2.b., Florida Statutes, the repatriated amount is subtracted as subpart F income, net of direct and indirect expenses incurred in the taxable year.Tax Information Publication, No. 18C01-01, Florida Department of Revenue, April 27, 2018, ¶206-354Login to read more tax news on CCH® AnswerConnect or CCH® Intelliconnect®.Not a subscriber? Sign up for a free trial or contact us for a representative.last_img

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