On May 16, 2018, the California Franchise Tax Board (FTB) posted California Guidance–Taxable Year 2017 IRC Section 965 Reporting instructions for filing certain 2017 California tax returns where the 2017 federal tax return contained an adjustment under section 965 of the Internal Revenue Code (IRC), as amended by the Tax Cuts and Jobs Act of 2017, P.L. 115-97 (Dec. 22, 2017). As addressed here, California does not conform to section 965.
The Internal Revenue Service created a supplemental statement to report section 965 adjustments and instructed affected taxpayers to complete the supplemental statement and add the results to specific line items of the 2017 federal tax returns. 2017 federal tax return section 965 adjustments should not be included on the 2017 California tax return. The FTB’s webpage identifies the affected California forms and line numbers where adjustments will be required. The FTB also recommends that taxpayers that have section 965 adjustments on their federal tax return should write “IRC 965” at the top of the California tax return, or follow software guidelines.
Taxpayers who have already filed a 2017 California tax return and included the section 965 amounts should amend their returns and schedules to exclude those amounts. For more information regarding section 965 adjustment, see the discussion beginning on page 378 of the FTB’s 2017 Summary of Federal Income Tax Changes.
For more information on state conformity, please read our blog titled "Federal tax reform and the states: Conformity is key". For more information on federal and state tax reform, please see RSM’s Tax Reform Resource Center.