Apr 09, 2018
From KPMG TaxWatch
The Tennessee Department of Revenue recently issued Notice #18-05, which addresses the state treatment of income repatriated to the U.S. under revised IRC section 965. Per the notice, the state treatment of repatriated earnings will vary depending on how taxpayers report these amounts to the IRS. Recall, the IRS recently released a Frequently Asked Questions (FAQ) document indicating that for corporations the amount of IRC section 965 income and the related tax calculation are not to be included in federal taxable income reported on page one of Form 1120. Rather these items will be included on a separate “IRC 965 Transition Tax Statement” and added to the computation of tax on page 3 of the Form 1120. Per Notice #18-05, because corporations will report repatriated earnings on the IRC 965 Transition Tax Statement and not on Federal Form 1120, the repatriated earnings should not be included in the net earnings calculation on the Tennessee Schedule J-4. Likewise, these amounts should not be deducted as dividends, and they should not be included in the apportionment formula. The same treatment applies for S Corporations because Tennessee requires S Corporations to calculate net earnings as though the Subchapter S election has not been made.For federal purposes, partnerships will report repatriated earnings and the related exclusion amount on Federal Form 1065. As such, these amounts should be included in the net earnings calculation on Tennessee Schedule J-1. A deduction for dividends received from an 80 percent or more owned corporation may be made on Schedule J in the amount of the repatriated earnings less the exclusion amount. The apportionment formula should include repatriated earnings less the related exclusion amount and dividend received deduction. Finally, the notice addresses the treatment of repatriated earnings by REITs filing Federal Form 1120-REIT.
A REIT’s net earnings calculation on Tennessee Schedule J-4 will include repatriated earnings less dividends paid. The amount received from an 80 percent or more owned corporation, net of any exclusion amount, may be deducted to the extent included on Tennessee Schedule J-4. The apportionment formula should include repatriated earnings less the related exclusion amount and any dividend received deduction. Please contact John Harper at 615.744.2170 with questions on Notice #18-05.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.