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Business Income Tax Guidance

On December 22, 2017, President Donald Trump signed Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act (TCJA). The law added new section 965 to the federal Internal Revenue Code (IRC). Section 965 requires U.S. shareholders of specified foreign corporations to include in their federal income for the last tax year beginning before January 1, 2018 (generally, tax year 2017), accumulated post-1986 deferred foreign income. For more information on which taxpayers are affected and which income is included, see IRC section 965 and IRS guidance.

Iowa has not conformed to any changes included in the TCJA for tax year 2017. As a result, any accumulated post-1986 deferred foreign income included in a taxpayer’s 2017 federal income tax return pursuant to Section 965 should not be included on that taxpayer’s 2017 Iowa income tax return.

This information is intended to reflect tax year 2017. Certain taxpayers may be eligible for special elections under Section 965 that would cause some of this income to be able to be included in later years. Due to changes in IRC conformity from year to year, Iowa may treat the amounts included in federal income in future years under Section 965 differently for Iowa purposes than as described here.

What does this mean?

  • No income or deductions resulting from Section 965 should be included on any 2017 Iowa income tax return.
  • Iowa taxpayers may include the amount of any federal taxes paid during the tax year on Section 965 income in calculating their Iowa deduction for federal taxes paid.
  • The steps a taxpayer needs to take to ensure Section 965 income and deductions are not included on their Iowa return may be different depending on tax type.