Connecticut revised its guidance on reporting requirements for the IRC §965 repatriation transition tax enacted by the Tax Cuts and Jobs Act. The revised guidance discusses legislation that modified the corporate business tax dividends received deduction. It also provides information on payment plans for individual income taxpayers.
What Is the IRC §965 Repatriation Transition Tax?
IRC §965 requires taxpayers to include untaxed foreign earnings and profits from post-1986 tax years in their Subpart F income for the 2017 tax year. A taxpayer must also report IRC §965 income, in its entirety, on its 2017 Connecticut return. Unlike federal law, Connecticut does not allow taxpayers an election to defer payment of any portion of the tax on that income.
How Will Connecticut Treat IRC §965 Income?
Connecticut provides a deduction that fully offsets the dividend income that a corporation received from foreign corporations. The dividends received deduction (DRD) can include 100% of a taxpayer’s IRC §965 income. However, taxpayers must reduce the DRD by expenses related to those dividends.
Connecticut enacted legislation that sets nondeductible expenses at 5% of all dividends received by a corporation during the tax year. A previous version of the legislation excluded 10% of those expenses. The exclusion amount applies to tax years beginning after 2017.
How Do Individuals Request a Payment Plan?
Individuals unable to pay their 2017 tax liability on time may email the Connecticut Division of Revenue Services (DRS) at firstname.lastname@example.org to request a payment plan agreement. The email should include “IRC 965 Payment Plan Request” in the subject line. The body of the email should include the individual’s:
- name and social security number;
- mailing address and phone number; and
- unpaid or estimated unpaid tax balance due.
Authorized representatives requesting a payment plan agreement for an individual must also include Form LGL-001, Power of Attorney.
The DRS can grant penalty relief if it determines failure to pay the tax on time related to IRC §965 income. However, the DRS cannot waive interest.
Which Guidance did not Change?
The revised guidance did not otherwise change procedures on how to report the income on:
- corporation business tax returns (Form CT-1120);
- resident, nonresident, or part-year resident income tax returns (Form CT-1040 or Form CT-1040NR/PY);
- fiduciary income tax returns (Form CT-1041); and
- composite income tax returns (Form CT-1065/CT-1120S).
Office of the Commissioner Guidance OCG-4, Connecticut Department of Revenue Services, May 11, 2018, ¶401-863