Massachusetts Releases Draft Guidance on International TCJA Provisions

first_imgMassachusetts released draft guidance on its treatment of selected international provisions in the Tax Cuts and Jobs Act (TCJA). The guidance applies to:– corporate excise taxpayers; and– personal income taxpayers.It explains how taxpayers should treat and report:– IRC Sec. 965 repatriation income;– IRC Sec. 951A global intangible low-taxed income (GILTI);– the IRC Sec. 245A participation exemption deduction for foreign-source dividends; and– the IRC Sec. 250 deduction from foreign-derived intangible income (FDII) and GILTI.Repatriation IncomeIRC Sec 965 requires a one-time inclusion of certain untaxed foreign earnings and profits in a taxpayer’s Subpart F income. It also allows a deduction for part of the earnings that reduces the tax rate on this income.A taxpayer can elect to pay tax on the income in installments over 8 years. An S corporation shareholder can elect to defer the tax liability until the tax year in which a triggering event occurs.GILTIIRC Sec. 951A requires U.S. shareholders of any controlled foreign corporation to include its share of the CFC’s GILTI in gross income. The GILTI inclusion applies to tax years beginning after 2017.FDII and GILTI DeductionIRC Sec. 250 allows a corporation with GILTI and FDII to deduct part of that income on its federal return. The deduction reduces the rate of U.S. tax on GILTI and FDII.Participation Exemption DeductionThe TCJA established a participation exemption system for the taxation of foreign income. It replaces a system that taxed earnings from a foreign corporation only after it distributed the income to US shareholders. IRC Sec 245A provides a 100% deduction for dividends received from certain foreign corporations.Massachusetts TreatmentTaxpayers computing Massachusetts excise or income tax liability must include:– IRC Sec 965 repatriation income; and– IRC Sec. 951A GILTI.Massachusetts does not allow the:– IRC Sec 965 deduction for excise or income taxpayers;– IRC Sec. 250 FDII or GILTI deduction for excise taxpayers; or– IRC Sec. 245A participation exemption deduction for excise taxpayers.Massachusetts treats the repatriation income and GILTI as dividend income. So, excise taxpayers can claim a dividends received deduction for 95% of that income if they meet stock ownership requirements.A corporation must exclude repatriation income or GILTI from the sales factor of its apportionment formula. A financial institution must also exclude this income from the receipts factor of its apportionment formula. The apportionment guidance on repatriation income for financial institutions represents a change in previous guidance. This resulted from changes later enacted by supplemental budget legislation (TAXDAY, 2018/10/26, S.8).Massachusetts taxpayers cannot elect to pay tax liability on repatriation income in installments. An S corporation shareholder also cannot defer Massachusetts tax liability on that income.Working Draft TIR 19-XX: Massachusetts Implications of Selected International Provisions of the Federal Tax Cuts and Jobs Act, Massachusetts Department of Revenue, January 16, 2019Login to read more tax news on CCH® AnswerConnect or CCH® Intelliconnect®.Not a subscriber? Sign up for a free trial or contact us for a representative.last_img

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