12C-1.013: Adjusted Federal Income Defined
PURPOSE AND EFFECT: Chapter 2009-18, L.O.F., and Chapter 2009-192, L.O.F., amend Section 220.13(1)(e), F.S., to require adjustments for the special 50 percent bonus depreciation, and section 179, I.R.C., expense in excess of $128,000. In addition, Chapter 2009-192, L.O.F., amends Section 220.13(1)(e), F.S., to address the deferral of cancellation of indebtedness income. These provisions were added to the Internal Revenue Code by the American Recovery and Reinvestment Act of 2009, Public Law 111-5, and the Economic Stimulus Act of 2008, Public Law 110-185. The proposed amendments to Rule 12C-1.013, F.A.C. (Adjusted Federal Income Defined), are necessary to update the provisions for adjustments to federal income for Florida income tax purposes and to establish procedures for reporting the additions and claiming the subtractions required by Section 220.13(1)(e), F.S., and to provide procedures for filing amended Florida corporate income tax returns for the 2007 and 2008 tax years.
SUMMARY: The proposed amendments: (1) provide the additions that taxpayers are required to make for the amount of the federal deduction claimed under I.R.C. section 179 that exceeds $128,000, the amount of special 50 percent bonus depreciation, and the amount of deferral of cancellation of indebtedness; (2) provide the subtractions that are available in each of seven tax years beginning with the year an addition is made under Section 220.13(1)(e), F.S.; (3) require taxpayers to maintain a schedule reflecting all adjustments made under Section 220.13(1)(e), F.S.; (4) provide that these adjustments do not affect the basis of the property; (5) require taxpayers who filed their Florida corporate income tax returns in a manner other than provided in Chapter 2009-18, L.O.F., to amend their Florida tax return; (6) provide that penalty and interest that are a direct result of the changes in Chapter 2009-18, L.O.F., will be compromised or waived when an amended Florida corporate income tax return is filed; (7) provide when the subtractions under Section 220.13(1)(e), F.S., are not to be included in a taxpayer’s Florida corporate income tax return; and (8) provide when the deductions allowed under section 179, I.R.C., and for special 50 percent bonus depreciation are not required to be included in a taxpayer’s Florida corporate income tax return.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 213.06(1), 220.51 FS., s. 4, Ch. 2009-18, s. 3, Ch. 2009-192, L.O.F.
LAW IMPLEMENTED: 220.02(3), 220.03(5), 220.13, 220.131(1), 220.43(1), (3) FS.
A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:
DATE AND TIME: May 3, 2010, 3:00 p.m.
PLACE: Room 118, Carlton Building, 501 S. Calhoun Street, Tallahassee, Florida
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 48 hours before the workshop/meeting by contacting: Larry Green at (850)922-4830. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Robert DuCasse, Revenue Program Administrator I, Technical Assistance and Dispute Resolution, Department of Revenue, P. O. Box 7443, Tallahassee, Florida 32314-7443, telephone (850)922-4111
THE FULL TEXT OF THE PROPOSED RULE IS:
12C-1.013 Adjusted Federal Income Defined.
(1) through (13) No change.
(14) Adjustments for excess s. 179, I.R.C., expense, special 50 percent bonus depreciation (s. 168(k), I.R.C.), and deferred cancellation of indebtedness income.
(a) Additions Required:
1. For tax years that begin in 2008 and 2009, taxpayers are required to add back the amount of the federal deduction claimed under s. 179, I.R.C., that exceeds $128,000. All amounts in excess of $128,000 are required to be added back, including amounts carried over from previous tax years under s. 179(b)(3)(B), I.R.C. The increased overall investment limitation contained in s. 179(b)(2), I.R.C., is the same for Florida as it is for federal income tax purposes.
2. Taxpayers are required to add back the amount of the federal deduction claimed as special 50 percent bonus depreciation under s. 168(k), I.R.C., for assets placed in service after December 31, 2007, and before January 1, 2010.
3. For indebtedness acquired after December 31, 2008, and before January 1, 2010, taxpayers are required to add back the gross amount of cancellation of indebtedness income that is deferred under s. 108(i), I.R.C. (relating to business indebtedness discharged by the reacquisition of a debt instrument). The deferral of the deduction for original issue discount in debt for debt exchanges required by s. 108(i)(2), I.R.C., is also required for Florida corporate income tax purposes.
(b) Subtractions allowed for special 50 percent bonus depreciation and s. 179, I.R.C., expense previously added back:
1. In each of the seven tax years commencing with the year the addition is made under Section 220.13(1)(e), F.S., taxpayers may subtract one-seventh of the amount of excess s. 179, I.R.C., expense and one-seventh of the special 50 percent bonus depreciation that is added back under Section 220.13(1)(e), F.S.
2. The total amount that may be subtracted over the seven-year period should equal, but may not exceed, the amounts of s. 179, I.R.C., expense and special 50 percent bonus depreciation that have been added back to Florida taxable income under Section 220.13(1)(e), F.S.
3. Subtractions may be transferred to the surviving company in a merger or acquisition. Otherwise, if a taxpayer ceases to do business during the seven-year period, it may not accelerate, transfer, or otherwise utilize a subtraction.
(c) Subtractions for cancellation of indebtedness deferred under s. 108(i), I.R.C.:
1. Taxpayers may subtract the income required to be added back under Section 220.13(1)(e)3., F.S., when the deferred cancellation of indebtedness income is recognized for federal income tax purposes. The subtraction may not exceed the amount of income from deferred cancellation of indebtedness that is added back under Section 220.13(1)(e)3., F.S.
2. Cancellation of indebtedness income is included in the tax base, but it is excluded from the apportionment formula by all taxpayers under Section 220.15(5)(a), F.S.
(d) A schedule reflecting all of the adjustments made under Section 220.13(1)(e), F.S., must be created and maintained. Taxpayers must also report any additions on Schedule I, Additions and/or Adjustments to Federal Taxable Income, of the Florida Corporate Income/Franchise and/or Emergency Excise Tax Return (Form F-1120, incorporated by reference in Rule 12C-1.051, F.A.C.) and any subtractions on Schedule II (Subtractions from Federal Taxable Income), of the return for the current tax year. Partnerships filing a Florida Partnership Information Return (Form F-1065, incorporated by reference in Rule 12C-1.051, F.A.C.) are required to make the adjustments required by Section 220.13(1)(e)1. and 3., F.S., on Part I (Florida Adjustment to Partnership Income), of the return. The additions and subtractions under Section 220.13(1)(e)1. and 3., F.S., must be reported in Part I of Form F-1065. Partnerships must report the amount of expenses claimed under s. 179, I.R.C., to their partners, so that their partners can compute the amount under subparagraph (14)(a)1.
(e) Basis of Property. The adjustments required by Section 220.13(1)(e)1. and 2., F.S. (relating to excess s. 179, I.R.C., expense and special 50 percent bonus depreciation), do not affect the basis of the underlying property. The basis of the property for Florida corporate income tax purposes is the same as the basis of the property for federal income tax purposes. If the property is sold or otherwise disposed of, the gain or loss for Florida corporate income tax purposes is the same as the gain or loss for federal income tax purposes and is included in federal taxable income apportioned to Florida. Differences in the apportionment fraction from one year to the next are disregarded. The applicable depreciation conventions, methods, and recovery periods are computed in the same manner as they are computed in determining federal taxable income.
(f) Example: On its calendar-year 2009 federal income tax return, Taxpayer claimed $250,000 in s. 179, I.R.C., expense, of which $25,000 was a carryover from 2006 allowed under s. 179(b)(3)(B), I.R.C. Taxpayer also claimed $300,000 in special 50 percent bonus depreciation under I.R.C. s. 168(k) and $50,000 of depreciation under I.R.C. s. 168(b) for assets placed in service during the 2009 calendar year. Taxpayer is required to add back $122,000 ($250,000 minus $128,000) of s. 179, I.R.C., expense and $300,000 of the special 50 percent bonus depreciation in computing its Florida taxable income. Taxpayer is not required to add back the amount of regular depreciation (non-special 50 percent bonus depreciation) it claimed under s. 168(b), I.R.C., on its 2009 federal income tax return. On its 2009 Florida corporate income tax return, the taxpayer may also claim subtractions for one-seventh of the amount of special 50 percent bonus depreciation required to be added back ($300,000 divided by seven equals $42,857.14) and one-seventh of the amount of s. 179, I.R.C., expense required to be added back ($122,000 divided by seven equals $17,428.57). In each of the subsequent six tax years, the Taxpayer may subtract $42,857.14 and $17,428.57. At the end of these years, the subtractions should equal the amount(s) required to be added back. If Taxpayer disposes of the property, the gain or loss is the same for Florida as it is for federal income tax purposes. Any differences resulting from additions to Florida income are recovered solely through the subtraction process, even though the underlying property may be disposed of or fully depreciated.
(g) Example: In 2009, Taxpayer purchased its own indebtedness, a $10,000 bond it had previously sold for face value. Taxpayer was able to reacquire its bond for $7,000 and elected to defer recognition of the $3,000 of cancellation of indebtedness income under s. 108(i), I.R.C. Under Section 220.13(1)(e), F.S., Taxpayer would add back the deferred cancellation of indebtedness income ($3,000) to Florida income. In 2014 through 2018 (five years from 2009), the Taxpayer is required under s. 108(i), I.R.C., to recognize the $3,000 of cancellation of indebtedness income it deferred in 2009. Therefore, Taxpayer would be allowed under Section 220.13(1)(e), F.S., to subtract the cancellation of indebtedness income as it is recognized for federal tax purposes (provided that this income was added back in computing Florida net income in 2009). When Taxpayer recognizes the $600 of cancellation of indebtedness income in 2014 for federal tax purposes, a Florida subtraction is allowed in 2014 for the same amount, $600. The addition and subtractions to income associated with the cancellation of indebtedness income are excluded from the sales factor of the apportionment formula.
(h) Example: In 2009, Taxpayer issued new indebtedness in order to acquire its previously issued indebtedness. Taxpayer issued a 10-year, $10,000 bond, for $9,000, which was used to purchase a $15,000 bond it had previously sold for face value. The Taxpayer makes an election under s. 108(i), I.R.C., to defer recognition of cancellation of indebtedness income. Taxpayer is prevented by s. 108(i)(2)(A), I.R.C., from amortizing the $1,000 original issue discount on the new $10,000 bond. Under Section 220.13(1)(e), F.S., Taxpayer would add back the deferred cancellation of indebtedness income of $5,000 to Florida income and would also be prohibited from amortizing the $1,000 original issue discount. When Taxpayer recognizes the $5,000 ($1,000 per year) in cancellation of indebtedness income for federal tax purposes, a Florida subtraction is allowed for the same amount (provided that this income was added back in computing Florida net income). The deduction for the $1,000 original issue discount will be recognized for Florida corporate income tax purposes when it is allowed as a deduction for federal tax purposes.
(i) Amended returns and Section 220.13(1)(a)14. and 15., F.S. The original law (Chapter 2009-18, L.O.F.), which created Section 220.13(1)(e), F.S., repealed Section 220.13(1)(a)14. and 15., F.S., and made these changes retroactive to January 1, 2008. Taxpayers that filed their Florida corporate income tax returns and reported additions to tax for special 50 percent bonus depreciation and s. 179, I.R.C., expense under Sections 220.13(1)(a)14. and 15., F.S., or pursuant to Emergency Rule 12CER08-31, F.A.C., are required to amend their Florida corporate income tax return(s) to conform to the new law, Chapter 2009-18, L.O.F. To the extent that any tax is due and paid on a 2007 or 2008 amended return(s) as a result of the differences between the additions and subtractions required by Sections 220.13(1)(a)14., and 15., F.S., and the adjustments required by Section 220.13(1)(e), F.S., additional interest or penalty will be compromised or waived. The provisions of this rule do not relieve a taxpayer of its obligation to file a Florida corporate income tax return and report the adjustments required by Section 220.13(1)(e), F.S.
(j) The subtractions allowed by Section 220.13(1)(e), F.S., are the means by which the additions required by Section 220.13(1)(e), F.S., are reconciled and recovered. If a taxpayer does not claim a deduction for special 50 percent bonus depreciation, does not claim a deduction for s. 179, I.R.C., expense in excess of $128,000, or does not elect to defer cancellation of indebtedness income pursuant to s. 108(i), I.R.C., on the related federal income tax return(s), no add back is required or subtraction allowed for Florida corporate income tax purposes. Similarly, if a taxpayer did not add back special 50 percent bonus depreciation, or did not add back excess s. 179, I.R.C., expense, or deferred cancellation of indebtedness income because, for example, it was not subject to the Florida corporate income tax in that year, no subtraction is allowed for Florida corporate income tax purposes.
(k) Bonus depreciation claimed for assets placed in service prior to January 1, 2008, is not required to be added back under Section 220.13(1)(e), F.S. Section 179, I.R.C., expense claimed in tax years beginning before January 1, 2008, is not required to be added back. No subtraction is allowed for special 50 percent bonus depreciation, s. 179, I.R.C., expense, or deferred cancellation of indebtedness income unless it has been added back in computing Florida taxable income under Section 220.13(1)(e), F.S.
(14) through (20) renumbered (15) through (21) No change.
Rulemaking Authority 213.06(1), 220.51 FS., s. 4, Ch. 2009-18, s. 3, Ch. 2009-192, L.O.F. Law Implemented 220.02(3), 220.03(5), 220.13, 220.131(1), 220.43(1), (3) FS. History–New 10-20-72, Amended 1-19-73, 10-20-73, 10-8-74, 4-21-75, 5-10-78, 11-13-78, 12-18-83, Formerly 12C-1.13, Amended 12-21-88, 12-7-92, 5-17-94, 10-19-94, 3-18-96, 10-2-01, 4-14-09,_________.