Rhode Island provided guidance on its tax treatment of IRC Sec. 965 income for individuals and pass-through entities.
Under the federal Tax Cuts and Jobs Act (P.L. 115-97), taxpayers with untaxed foreign earnings must include accumulated post-1986 deferred foreign income, or IRC Sec. 965 income, in income for 2017. This income is subject to tax at special effective tax rates. The tax on foreign E&P is referred to as the “repatriation transition tax”and, sometimes, the “toll tax.”
Certain taxpayers can elect to defer payment of a portion of their repatriation transition tax. This election, however, does not defer recognition of the IRC Sec. 965 income. Therefore, the IRC Sec. 965 income, in its entirety, is recognized and included on a taxpayer’s federal return for its last tax year beginning before 2018.
Rhode Island Treatment
The Rhode Island treatment of IRC Sec. 965 income is as follows:
- Individuals – Included in federal adjusted gross income, so it should be included for Rhode Island purposes on Form RI-1040, line 1.
- Partnerships and Limited Liability Companies – Included on line 11 of federal Schedule K, so it should be included for Rhode Island purposes on Form RI-1065, line 1 (the income also flows through to owners on Schedule K-1).
- S Corporations – Included in federal taxable income, so it should be included for Rhode Island purposes on Form RI-1120S, Schedule A, line 1.
For apportionment purposes, IRC Sec. 965 income is only included in the apportionment formula’s denominator, not in the numerator.
Guidance is expected to come later for fiduciaries (trusts and estates) and C corporations.
Advisory for Tax Professionals 2018-19, Rhode Island Department of Revenue, Division of Taxation, April 17, 2018, ¶200-948