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Division of Taxation

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NJ Division of Taxation - Federal Tax Cuts and Jobs Act (TCJA) - Questions and Answers

The federal Tax Cuts and Jobs Act, (P.L. 115-97) was signed into law on December 22, 2017, and contained numerous changes to the federal Internal Revenue Code (IRC).

Sections of the Code require U.S. shareholders of certain foreign corporations to pay tax on previously untaxed earnings of those companies. This Q&A explains how the Code applies to New Jersey Gross Income Tax and focuses on IRC §965 deemed repatriation dividends and IRC §951A global intangible low-taxed income (GILTI).

IRC §965: Reporting and Payment

How is income under IRC §965 reported for New Jersey Gross Income Tax purposes?
Dividends are an enumerated category of income. Therefore, deemed repatriation dividends reported under IRC §965 must be included in New Jersey gross income in the same tax year and in the same amount as reported for federal purposes.

When is a taxpayer required to pay the tax resulting from the IRC §965 income inclusion?
Income reported under IRC §965 must be included in New Jersey gross income in the same tax year and in the same amount as reported for federal purposes.  Taxpayers are required to pay their New Jersey tax liability at the same time that the IRC §965 income is included in New Jersey gross income.

IRC §965 Income Tax payments must be paid timely. New Jersey law does not provide for any deferment of payment or the installment payment method.  Therefore, New Jersey does not follow IRC §965(h), IRC §965 (i), or any other federal election to defer payment.

IRC §965: Pass-through Entities

How is income under IRC §965 reported for a sole proprietorship?
Deemed repatriation dividends reported under IRC §965 for a sole proprietorship are reported in the same tax year and in the same amount as for federal purposes.  Sole proprietors should report this income as Net Profits from Business on the NJ-1040.

Is the IRC §965(c) deduction allowed for a sole proprietorship?
No. The New Jersey Gross Income Tax Act does not allow for the IRC §965(c) deduction or any similar deduction. The IRC §965(c) deduction is a participation exemption designed to create an effective federal tax rate, and therefore, is not an allowable deduction for New Jersey Gross Income Tax purposes.

How is income under IRC §965 reported by a partner in a partnership?
Deemed repatriation dividends reported under IRC §965 flow through a partnership and are reported in the same tax year and in the same amount as for federal purposes.

Partners should report this income as Distributive Share of Partnership Income on the NJ-1040.

Is the IRC §965(c) deduction allowed for a partnership?

No. The New Jersey Gross Income Tax Act does not allow for the IRC §965(c) deduction or any similar deduction. The IRC §965(c) deduction is a participation exemption designed to create an effective federal tax rate, and therefore, is not an allowable deduction for New Jersey Gross Income Tax purposes.

How is income under IRC §965(c) reported by a shareholder in an S corporation?
Deemed repatriation dividends reported under IRC §965 flow through an S corporation and are reported in the same tax year and in the same amount as for federal purposes.

Shareholders should report this income as Net Pro Rata Share of S Corporation Income on the NJ-1040.

Is the IRC §965(c) deduction allowed for an S corporation?
The IRC §965(c) deduction is allowed for an S corporation in accordance with N.J.S.A 54A:5-10.

How is income under IRC §965(c) reported by an individual who has ownership in a C corporation?
Dividends are an enumerated category of income and are defined by N.J.S.A. 54A:5-1 (f).  Therefore, they are reportable and taxable in the same period that the deemed distribution is reported for federal income tax purposes.

Under N.J.S.A.54A:8-3 (c): “A taxpayer’s accounting method under this act shall be the same as their accounting method for Federal income tax purposes…”  A taxpayer’s method of accounting for federal income tax purposes determines not only the method used to compute income, but it also determines when the income should be recognized and reported. Therefore, taxpayers will recognize and report income in the same period as they do for federal income tax purposes.

Shareholders should report this income as Dividends on the NJ-1040.

IRC §951A: Reporting and Payment/Pass-through Entities

How is income under IRC §951A (GILTI) reported for New Jersey Gross Income Tax purposes?
In accordance with both the final federal regulations and IRS Notice 2019-46, taxpayers (including partners in a partnership and shareholders of an S corporation), should report GILTI for New Jersey Gross Income Tax purposes when the income is actually distributed from earnings and profits as Dividend Income.

Under the revised federal regulations GILTI no longer meets the "S Corporation Income" definition under N.J.S.A. 54A: 5-10 and therefore GILTI is not required to be included in the income of New Jersey S corporation shareholders. Taxpayers may amend their returns if this change affects their situation.

Taxpayers are responsible for keeping track of differences in their federal and New Jersey basis, so that the proper New Jersey gain or loss from the disposition of foreign stock is reported.

IRC §163(j) Limitation on the Deduction for Business Interest Expense

Does the New Jersey Gross Income Tax conform to the business interest expense limitations for partnership tax returns in accordance with IRC §163(j)?
“…For federal purposes, the business interest expense disallowed as a deduction under IRC §163(j) is carried forward to the next taxable year as a disallowed business interest expense carryforward. The disallowed business interest expense carryforward may be limited in the next taxable year if the section 163(j) limitation continues to apply.

For New Jersey Gross Income Tax purposes, New Jersey does not conform to the business interest expense limitation for partnership tax returns in accordance with IRC §163(j). The New Jersey Gross Income Tax Act also does not have any carryforward or carryback provisions. The partnership can deduct 100% of the interest expense within the taxable year on indebtedness. The partnership can deduct the amount disallowed for federal purposes as an “other subtraction” on its NJ-1065 return.

In the year that the partnership uses the carried forward deduction amount for federal purposes, the partnership must add back that amount as an “other addition” on its NJ-1065 return. This addition is necessary since the partnership previously deducted 100% of the interest expense for New Jersey purposes, and the deduction cannot be taken twice…”


Last Updated: Monday, 07/27/20