Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 25 - Business Corporation Tax
Part 15 - Treatment of Repatriated Income 2017 (280-RICR-20-25-15)
Section 280-RICR-20-25-15.5 - Findings of Fact

1. The United States Congress passed legislation commonly known as the Tax Cuts and Jobs Act ("TCJA") (Pub. Laws 115-97) on December 20, 2017. The President of the United States signed the TCJA into law on December 22, 2017.

2. The TCJA includes a number of significant tax updates, including changes that affect individuals, businesses, and international entities.

3. The TCJA, under 26 U.S.C. § 965(a), imposes a one-time transition tax on the accumulated post-1986 deferred foreign income (deemed dividend) of certain deferred foreign income corporations earned before the end of calendar year 2017. This transition tax is established for tax year 2017.

4. R.I. Gen. Laws § 44-11-11(a) defines "net income" as federal taxable income subject to certain adjustments. R.I. Gen. Laws § 44-11-12 states what type of income is not included in Rhode Island net income.

5. 26 U.S.C. § 965(c) provides for a deduction that reduces the tax liability on 965 Income. 26 U.S.C. § 965(h) allows taxpayers the option to pay the 965 Income tax liability over eight (8) years. However, Rhode Island has no authority to defer payment on recognized income without adding interest and penalty.

6. 26 U.S.C. § 965 provides S corporation shareholders the option to make an election for deferred recognition of Section 965 net tax liability at the federal level until certain "triggering events". Rhode Island recognizes income for Rhode Island purposes at the time it is recognized for federal income tax purposes.

7. Rhode Island law currently contains no statutory requirement to provide a dividend received deduction ("DRD") for Subpart F income. Nor does Rhode Island law allow for any increased Rhode Island income tax liability arising from 965 Income to be paid in installments over the course of several years.

8. In response to federal and Rhode Island case law, since Rhode Island does not have statutory authority to provide a DRD for dividend income provided by corporations not subject to the Business Corporation Tax, Rhode Island has historically administratively allowed corporate taxpayers to take a DRD for certain types of foreign-source income such as non-U.S. source dividends and Subpart F income received by a C corporation. The amount of the Rhode Island DRDs in the context of foreign source income has been equivalent to the level of DRD provided to corporations under prior federal income tax law for dividends paid by domestic corporate subsidiaries to parent C corporations as disclosed on their Federal Corporate Income Tax Return.

9. The TCJA is imposing a one-time repatriation tax on 965 Income subject to a special and additional Section 965(c) deduction amount, and Rhode Island now employs combined reporting for C corporations. These facts distinguish the prior case law and urge against Rhode Island providing a DRD for 965 Income amounts included as net income at the Rhode Island level.