Colorado Issues IRC Sec. 965 Repatriation Transition Tax Guidance

Colorado has issued guidance on the federal IRC Sec. 965 repatriation transition tax enacted by the Tax Cuts and Jobs Act (TCJA). Certain taxpayers must include untaxed foreign earnings and profits from post-1986 tax years. The TCJA also includes a deduction that reduces the tax rate on those earnings.

Reporting IRC Sec. 965 Income on Colorado Returns

Colorado income tax is based on federal taxable income. Consequently, Colorado taxpayers that report IRC Sec. 965 income for federal income tax purposes must also report that income to Colorado. The steps necessary to report this income on the state return depend on how the income is reported federally.

Taxpayers with IRC Sec. 965 income must submit a copy of their federal IRC 965 Transition Tax Statement with their Colorado income tax return. The statement may be submitted as a .pdf attachment with a file name of “965 Tax.” Multiple statements should be combined into a single .pdf file.

Installment Payments

Unlike federal law, Colorado does not allow taxpayers an election to defer payment of any portion of the tax. Any Colorado tax related to IRC Sec. 965 income is due at the same time as the Colorado return on which it is reported. The Department of Revenue will allow taxpayers to request a monthly installment agreement. However, penalties and interest will continue to accrue until the tax has been paid in full.

Foreign Source Income Exclusion

Taxpayers that claim a federal deduction or credit for foreign taxes paid on IRC Sec. 965 income can claim a corresponding portion of the IRC Sec. 965 income as a foreign source income exclusion on the taxpayer’s Colorado return.

Penalties

Penalties will be imposed on taxpayers that do not remit full payment of tax due, including:

  • late payment penalty; and
  • penalty for underpayment or late payment of estimated taxes.

A waiver may be requested for penalties resulting from tax underpayments related to IRC Sec. 965 income.

Colorado Treatment of Foreign Earnings Subject to Federal Transition Tax Under IRC Sec. 965, Colorado Department of Revenue, June 11, 2018

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