June 8, 2018 / North America
On December 22, 2017, the United States Congress enacted Public Law 115-97, known as the “Tax Cuts and Jobs Act” (“TCJA”), which has been noted as the largest overhaul to the U.S. Internal Revenue Code (“IRC”) since 1986. As a result of the TCJA, there has been a heightened interest by taxpayers regarding how states may conform to or decouple from this legislation. Since the enactment of the TCJA, state responses have varied. Several states have issued guidance through public notices or bulletins addressing certain provisions of the TCJA (most commonly, the transitions tax under IRC Section 965). In comparison, fewer states have enacted legislation, which generally ranges in scope from merely revising the IRC conformity date to enacting provisions that decouple from certain components of the TCJA.
As states continue to digest and analyze the impact of federal tax reform through its legislative sessions and budget meetings, we expect more states will issue guidance, and/or revise prior guidance, in the coming months. Thus, the purpose of this article is to provide a summary of the more notable key state tax developments in response to the TCJA.
Alabama issued guidance regarding the treatment and reporting of the deemed repatriation income under IRC Section 965 (Notice: IRC Section 965: Guidance for Corporate Filers, Partnerships, S Corporations, and Individual Taxpayers (April 27, 2018)). The Notice provides that the deemed repatriation income and its corresponding deduction should be included in the computation of Alabama taxable income and reported as a state addition and subtraction modification, respectively, on Schedule A of the Alabama corporation income tax return (Form 20C) along with a brief description. However, Alabama permits taxpayers to utilize a dividends received deduction (“DRD”) to offset such income if the deemed dividend is received from a controlled foreign corporation of which it owns more than 20 percent. Taxpayers should claim the DRD on Schedule A of Form 20C and attach a statement to the return that provides the name, taxpayer ID and ownership interest of the controlled foreign corporation from which the IRC Section 965 deemed dividend was received. Alabama also requires taxpayers to include a copy of the IRC 965 Transition Tax Statement for documentation, or if not available, a statement describing the nature and source of the IRC Section 965 income/expense being reported.