CO: Guidance issued on reporting section 965 income

The Colorado Department of Revenue recently issued guidance on how IRC section 965 income should be reported for state income tax purposes. The guidance clarifies that any amounts included in income under section 965 must also be included in the amount of federal taxable income reported on the taxpayer’s Colorado return. Corporate taxpayers that report section 965 income on the separate transition tax statement for federal purposes must report on line 1 of their Colorado returns the sum of their federal taxable income and the includible amount reported on line 1 of their IRC 965 Transition Tax Statement, less the deductions reported on line 3 of the statement. A copy of the IRC 965 Transition Tax Statement must be attached to the Colorado return. Taxpayers that file their Colorado return electronically must submit the IRC 965 Transition Tax Statement as an attachment to their return, in Portable Document Format (.pdf) with a filename of “965 Tax.”

Under Colorado law, for corporate income tax allocation and apportionment purposes, an exclusion applies to foreign source income. The excludible portion is based on the federal deduction or federal credit the taxpayer claims for foreign taxes paid. If a taxpayer subject to Colorado corporate income tax apportionment and allocation properly claims a federal deduction or  federal credit for foreign taxes paid on IRC section 965 income, a corresponding portion of the IRC section 965 income will be eligible for the foreign source income exclusion on the taxpayer’s Colorado return. Finally, the guidance clarifies that Colorado does not allow an election to pay the tax on section 965 income over a period of years and that taxpayers that owe tax as a result of section 965 income can request a waiver of penalties from tax underpayments attributable to such income. Please contact Mark Kaye at 303-382-7855 with questions.