Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 53 - Determination of Net Income › Rule 701-53.12 - Federal Income Tax Deduction

Current through Register Vol. 47, No. 3, July 24, 2024
"Federal income taxes" shall mean those income taxes paid or
				  payable to the United States Government and shall not include taxes paid or
				  payable or taxes deemed to have been paid to a foreign
				  country.
Construction Products, Inc. v. Briggs, State Board of Tax
				  Review,
Case No. 25, February 1, 1972. "Federal income taxes" includes
				  the federal alternative minimum tax. For tax years beginning on or after
				  January 1, 1990, and before January 1, 1996, "federal income taxes" includes
				  the federal environmental tax. Because the federal environmental tax is
				  deducted in computing federal taxable income and Iowa Code subsection
				  42235(4).
				  only allows a deduction for 50 percent of the federal income tax paid or
				  accrued, the federal environmental tax deducted in computing federal taxable
				  income must be added to federal taxable income.
(1)
Cash basis taxpayer.
a. When a taxpayer is reporting on the cash
				basis, 50 percent of the amount of federal income taxes actually paid during
				the taxable period is allowable as a deduction, whether or not such taxes
				represent the preceding year's tax or additional taxes for prior years. Fifty
				percent of a federal tax refund shall be reported as income in the year
				received.
b. A corporation
				reporting on the cash basis may deduct 50 percent of the federal income tax on
				the accrual basis if an election is made upon filing the first return. If the
				corporation claims an accrual deduction on the first return, it shall be
				considered as an election. Once the election is made, the corporation may
				change the basis of federal income tax deduction only with the permission of
				the director. If a change in accounting method is approved or required by the
				Internal Revenue Service, the director is deemed to have approved the change in
				the basis of the federal tax deduction.
c. The federal income tax deduction during
				the transitional period following a change in accounting method from cash to
				accrual is the accrual deduction in the year of change, plus any cash payment
				of federal income tax paid in the year of the change for the tax year prior to
				the change in accounting method, reduced by a refund of federal income tax paid
				for the tax year prior to the year of the change in accounting method received
				in the year of the change. For the year of change and years subsequent to the
				year of the change, the deduction shall be the accrual deduction plus any
				federal income tax paid for a tax year prior to the year of change as a result
				of an amended federal return or federal audit, reduced by any refund of federal
				income tax paid for a tax year prior to the year of the change in accounting
				method.
d. The federal income tax
				deduction during the transitional period following a change in accounting
				method from accrual to cash is the cash deduction in the year of change, plus
				any cash payment of federal estimated income tax paid in the year prior to the
				year of the change for the year of the change. Any refund of federal income tax
				from a tax year prior to the year of the change received in the year of the
				change or in a subsequent year is properly accrued to the prior tax year. Any
				payment of federal income tax due to an amended return or federal audit for a
				tax year prior to the year of the change made in the year of the change or a
				subsequent year is accrued to that prior tax year. (For information on amended
				returns, see 701-subrule 52.3(4).)