Corporate Close-Up: Ohio Updates Instructions for Electing Alternate I.R.C. Conformity Date

Ohio corporate taxpayers wishing to elect an IRC conformity date other than March 30, 2018, should follow recently updated guidance, which includes detailed instructions for making the election prior to filing a tax return. This new guidance reverses a previous version that allowed taxpayers to include the conformity election with their filed returns.

Taxpayers who followed the previous guidance on or before Oct. 16, 2018, are not affected by the updated guidance; all other taxpayers must conform to the updated guidance. However, taxpayers who filed returns prior to June 25, 2018 (the date the original guidance was issued) and who intended to conform to the most recent version of the IRC must submit their requests as soon as possible.

Although most business entities in Ohio are subject to the Commercial Activity Tax (as measured by gross, not net, income and therefore generally unaffected by many federal reform provisions) taxpayers, particularly individual taxpayers, that still look to federal taxable income for purposes of calculating their state taxable income should take notice.

Ohio passed its conformity bill back in March, in response to Pub. L. No. 115-97, which specifically decouples from federal bonus depreciation and expensing provisions, and instead requires taxpayers add back five-sixths of the federal bonus depreciation claimed for that taxable year and deduct one-fifth of the disallowed amount over the five succeeding years.

Ohio generally conforms to the federal tax treatment of net operating losses (NOLs), however NOL carrybacks or carryforwards are not permitted to the extent the corresponding carryback or carryforward resulted from a depreciation deduction under the federal bonus depreciation and expensing provisions. Also important to note is that the 20 percent 199A deduction available for certain PTE owners at the federal level won’t affect a taxpayer’s Ohio income tax liability because the deduction does not apply to federal adjusted gross income.

For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and impending changes, with pertinent cites attached.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Why would Ohio taxpayers be better off electing an earlier conformity date? What provisions of federal tax reform will negatively impact Ohio taxpayers?

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