"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
422.35(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 501.3(4).)
(2)
Accrual basis taxpayer.
a. The amount of federal income tax to be
allowed as a deduction for an accrual basis taxpayer is limited to 50 percent
of the actual federal income tax liability for that year.
b. Additional federal income taxes and
refunds of federal income taxes (except for 502.12(2)"c")
shall be a part of the tax liability accrued for such prior years.
c. Refunds resulting from net operating loss
carrybacks, investment credit carrybacks, unused excess profits tax credits,
and similar items shall be included in income for Iowa corporation income tax
purposes in the year in which such refunds are legally accrued.
(3) Reserved.
(4)
Consolidated federal income tax
allocation.
a. When a corporation
joins with at least one other corporation in the filing of a consolidated
federal income tax return, the allowable deduction shall be 50 percent of the
consolidated federal income tax liability allocable to that corporation. The
allocation of the consolidated federal income tax shall be determined as
follows: The net consolidated federal income tax liability is multiplied by a
fraction, the numerator of which is the taxpayer's federal taxable income as
computed on a separate basis, and the denominator of which is the total federal
taxable incomes of each corporation included in the consolidated return. If the
computation of the taxable income of a member results in an excess of
deductions over gross income such member's taxable income shall be zero.
Sibley State Bank v. Bair, State Board of Tax Review, Docket
No. 182, May 26, 1978. Internorth, Inc., and Northern Propane Gas
Company v. Iowa State Board of Tax Review, Iowa Department of Revenue and
GeraId D. Bair, Director of Revenue, 333 N.W.2d 471 (Iowa
1983).
b. If a corporation joins
with at least one other corporation in the filing of a consolidated federal
income tax return, the federal income tax deduction allowed the Iowa taxpayer
shall not exceed 50 percent of the consolidated federal income tax
liability.
This rule is intended to implement Iowa Code section
422.35.
