The ALJ next upheld the failure to file penalty. The ALJ did not address the conformity issue and whether income that was not taxable in Arkansas because the state did not conform to the underlying provision was properly treated as nontaxable income for purposes of computing gross income. After reviewing the holdings in the cases, the ALJ concluded that the Department position was consistent with controlling authority and that the taxpayer had presented no authority to rebut the Department’s arguments. Co., the court had previously required nonbusiness income allocated to other states, as well as dividend income specifically excluded from gross income, to be added back in computing the Arkansas NOL. Louis Southwestern Railway and Kansas City So. The ALJ observed that in two previous Arkansas Supreme Court cases, St. The taxpayer timely protested.Īlthough not as clearly stated in the decision, the crux of the matter before the ALJ was whether income resulting from a provision of federal law that Arkansas does not adopt (IRC section 965) is treated as nontaxable income in computing the state NOL carryover. On audit, the Department adjusted the 2017 return by adding back the IRC section 965 income, which eliminated the NOL. Accordingly, in computing its NOL, the taxpayer did not treat the IRC section 965 as nontaxable income (i.e., the taxpayer did not add the deemed income back to gross income in computing the Arkansas NOL).
115-97), generally imposes a one-time transition tax on a US shareholder on certain previously untaxed post-1986 accumulated earnings of. Section 965, as amended by the 'Tax Cuts and Jobs Act' (P.L. Arkansas did not, and does not, conform to IRC section 965. On October 5, 2018, the Comptroller of Maryland (Comptroller) issued a tax alert to provide guidance on reporting and taxation of IRC Section 965 repatriation income for tax year 2017 (the Alert). As a result of the mandatory repatriation provisions in the Tax Cuts and Jobs Act, the taxpayer had a deemed inclusion of IRC section 965 income on its 2017 federal income tax return. In computing the NOL, taxpayers are required to add back all nontaxable income not required by law to be reported as gross income. Under Arkansas law, taxpayers are allowed an NOL carryforward deduction equal to the excess of allowable deductions over the gross income for the taxable year.
The federal tax on this net income is often referred to as the transition tax. It requires the recognition of certain CFC earnings and profits in an owner’s Subpart F income, coupled with deductions that reduce the effective tax rate on the income.
#IRC 965 CODE#
An Administrative Law Judge (ALJ) for the Arkansas Department of Finance and Administration Office of Hearings and Appeals recently addressed whether IRC section 965 income was included in the calculation of gross income for purposes of determining an Arkansas net operating loss (NOL). The provision is contained in Internal Revenue Code (IRC) Section 965.
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