United States

Connecticut: Guidance Issued on Mandatory Repatriation

Apr 16, 2018
From KPMG TaxWatch

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The Connecticut Department of Revenue Services has released an Office of the Commissioner Guidance (OGC-4) document explaining how Connecticut corporate and individual taxpayers should treat and report amounts required to be included in income under IRC section 965. First, the guidance confirms that all taxpayers must report section 965 income, in its entirety, on the 2017 Connecticut return and that the state will not follow the federal election allowing taxpayers to spread payment of the tax associated with section 965 income over eight years. That said, because section 965 income is treated as Subpart F income for federal tax purposes, Connecticut will treat such income as dividend income consistent with its long-standing policy. For Corporation Business Tax purposes, the state’s dividends-received deduction will fully offset the income that is included under section 965. After a corporation claims the dividends-received deduction, Connecticut then requires the corporation to add back the expenses related to its dividend income. Therefore, a corporation must review its records to determine the extent to which its post-1986 expenses relate to its section 965 income and add back such related expenses on its 2017 return. There is currently pending legislation that would relieve corporations of this administrative burden by setting the amount of expenses related to dividend income at 10 percent of the dividend income. Thus, a corporation would multiply its section 965 income by 10 percent to determine its expenses related to dividend income. Despite the fact that the legislation is still pending, the Department recommends that taxpayers follow its provisions as the 10 percent figure historically has been found to reasonably approximate a corporation’s expenses related to dividend income. The guidance document provides specific instructions to corporations for reporting the section 965 income and related expenses. For individual income tax purposes, there is no dividends-received deduction allowed, and the net amount of section 965 income (section 965(a) minus 965(c)) will be included in a taxpayer’s federal taxable income and Connecticut taxable income. The guidance document again provides specific instructions for reporting section 965 income for individual income tax, as well as trusts and estate tax purposes. Please contact Steve Kralik at (860) 297- 5431 with questions on Connecticut’s treatment of mandatory repatriation.

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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.