Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-9-1 - FINANCIAL INSTITUTION EXCISE TAX RULES
Section 810-9-1-.06 - Financial Institutions Federal Income Tax (FIT) Deduction
Universal Citation: AL Admin Code R 810-9-1-.06
Current through Register Vol. 42, No. 11, August 30, 2024
(1) Financial Institutions may deduct Federal Income Tax (FIT) paid or accrued during the taxable year in accordance with the taxpayer's method of accounting used in computing taxable income.
(a)
Cash
Basis Taxpayer. A cash basis taxpayer must deduct federal income
tax in the year paid.
1. For a cash basis
taxpayer that does not file as a member of a federal consolidated income tax
return and who apportions and/or allocates income within and outside this
state: The amount of FIT attributable to this state is determined by
multiplying the FIT times a fraction, of which the numerator is the taxpayer's
income apportioned and/or allocated to this state, and the denominator is the
taxpayer's total income earned both within and outside this state, computed
under applicable Alabama law. The taxpayer is entitled to a federal income tax
deduction, even if the taxpayer earned a net operating loss for the tax period,
if actual federal income tax payments were made during the tax
period.
2. For a cash basis
taxpayer that files as a member of a federal consolidated income tax return:
The taxpayer must apportion the consolidated FIT only among the members of the
group that individually report positive federal taxable income. Each member is
apportioned a share of the consolidated FIT based on a fraction, the numerator
of which is the member's positive federal taxable income and the denominator of
which is the total federal taxable income of all members separately reporting
positive federal taxable income.
(b) Accrual Basis Taxpayer. An accrual basis
taxpayer must deduct federal income tax in the year for which the tax is
accrued.
1. The amount of the FIT accrued for
a tax period includes but is not limited to adjustments for:
(i) Refundable and nonrefundable
credits.
(ii) Special
deductions.
(iii) Net operating
loss (NOL) deduction.
(iv)
Alternative Minimum Tax (AMT) and Minimum Tax Credit (MTC).
(v) Similar adjustments.
2. The amount accrued may be deducted for the
tax year of the corresponding federal return, if the tax is not contested, that
is, in the absence of some objective act of protest, affirmative evidence of
protest, or affirmative evidence of denial of liability by the
taxpayer.
3. If the tax is
contested it must be accrued and subsequently paid and deducted during the year
in which the liability becomes fixed and certain, but in no case later than the
date the tax was actually paid.
4.
For an accrual basis taxpayer that does not file as a member of a federal
consolidated income tax return and who apportions and/or allocates income
within and outside this state: The amount of FIT attributable to this state is
determined by multiplying the FIT by a fraction, of which the numerator is the
taxpayer's income apportioned and/or allocated to this state, and the
denominator is the taxpayer's total income earned both within and outside
state, computed under applicable Alabama law. To the extent a net loss is
allocated and/or apportioned to this state (the numerator of the fraction is
negative), no FIT will be attributed to this state.
(i) Example: Company A is an Alabama taxpayer
who apportions a percentage of its income within and outside this state.
Company A had Federal Taxable Income of $200,000 and $40,000 in FIT for the tax
year. Company A's income apportioned to this state is $50,000. Company 'A' is
apportioned 25% or $10,000 of the net federal income tax liability.
($50,000/$200,000 = 25% * $40,000 = $10,000).
5. For an accrual basis taxpayer that files
as a member of a federal consolidated income tax return: The taxpayer must
apportion the consolidated FIT liability only among the members of the group
that individually report positive federal taxable income. Each member is
apportioned a share of the consolidated FIT based on a fraction, the numerator
of which is the member's positive federal taxable income and the denominator of
which is the total federal taxable income of all members separately reporting
positive federal taxable income.
(i) Example:
Company A, Company B, and Company C file as part of a consolidated income tax
return for federal income tax purposes. Company A is the only member of the
affiliated group that files a financial institution excise tax return in this
state. The companies have Federal Taxable Incomes of $150,000, $50,000, and
$100,000 (totaling $300,000), respectively. The affiliated group accrued and
subsequently paid $60,000 in net federal income tax during this tax year.
Company A is apportioned 50% or $30,000 of the federal income tax liability of
the group. ($150,000/$300,000 = 50% * 60,000 = $30,000).
(ii) Example: Company A, Company B, and
Company C file as part of a consolidated income tax return for federal income
tax purposes. Company A is the only member of the affiliated group that files a
financial institution excise tax return in this state. The companies have
Federal Taxable Incomes of $150,000, -$25,000, and $350,000 (positive entities
totaling $500,000), respectively. The affiliated group accrued and subsequently
paid $150,000 in federal income tax during this tax year. Company A is
apportioned 30% or $45,000 of the federal income tax liability of the group.
($150,000/$500,000 = 30% * $150,000 = $45,000).
6. AMT and MTC must be apportioned only among
the members of the group that individually report positive alternative minimum
taxable income (AMTI) or MTC income. The apportioned amount is determined by
multiplying AMT or MTC as accrued and subsequently paid by the federal
consolidated group, by a fraction. The numerator of which is the taxpayer's
positive AMT income or MTC and the denominator is the aggregate amount of
positive AMTI or MTC of the component members of such group. In no case must
the cumulative MTC attributed to a taxpayer exceed the cumulative AMT
attributed to a taxpayer.
(i) Example:
Company A, Company B, and Company C filed a consolidated income tax return for
federal income tax purposes. The following federal consolidated group paid no
regular income tax during the tax year but paid $75,000 in AMT. Company A,
Company B, and Company C computed AMTI of $150,000, $125,000 and $100,000
(totaling $375,000), respectively. Company A is apportioned 40% or $30,000 of
the AMT liability of the group (150,000/375,000 = 40% * $75,000 =
$30,000).
7. To the
extent the consolidated FIT liability for the tax period is zero or the federal
consolidated group earned a net operating loss for the tax period, the Alabama
taxpayer will be apportioned no FIT liability even if the AL taxpayer
separately computed positive federal taxable income for the tax period.
(i) Example: Company A, Company B, and
Company C file as part of a consolidated income tax return for federal income
tax purposes. Company A is the only member of the consolidated group that files
a financial institution excise tax return in this state. The companies have
Federal Taxable Incomes of $150,000, -$25,000, and $350,000, respectively. The
consolidated group earned a -$225,000 net loss and paid $0 in FIT for this tax
year. Even though Company A earned positive taxable income, no FIT was due on a
consolidated basis to be apportioned to Company A and Company A will receive no
FIT deduction for the tax period.
Author: Lessie Hallum
Statutory Authority: Code of Ala. 1975, §§ 40-2A-7(a)(5), 40-16-1.2.
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