New Jersey provides updated guidance on GILTI reporting for S corporation shareholders

The New Jersey Division of Taxation (the “Division”) recently issued guidance updating how S corporation shareholders should report Global Intangible Low-Taxed Income (“GILTI”), which may mean that some taxpayers need to amend their returns.

The Tax Cuts & Jobs Act of 2017 (P.L. 115-97) introduced many changes to the Internal Revenue Code (“IRC”), including GILTI, which was a new category of gross income for federal tax purposes.  Under IRC §951A, U.S. shareholders of any controlled foreign corporation (“CFC”) were required to pay tax on its share of GILTI for the applicable tax year.  The Division’s initial guidance prescribed that shareholders in an S corporation should report GILTI in the same amount and in the same tax year as what is reported for federal purposes.

The Division recently put forth guidance to update its treatment of GILTI for S Corporation shareholders in response to recent guidance issued by the Internal Revenue Service.   As a result of the final federal regulations and IRS Notice 2019-46, taxpayers (now including partners of partnerships and S corporation shareholders) are to report GILTI on their New Jersey income tax returns in the year that the income is actually distributed from earnings and profits as dividend income.  The reason for this change is that GILTI does not meet the definition of “S Corporation Income” under N.J.S.A. 54A: 5-10 when considered under the revised federal regulations.

The Division has commented that “the Division of Taxation’s initial guidance for the reporting of GILTI to S corporation shareholders for Gross Income Tax purposes was based on the original IRS proposed regulations, which were issued in 2018.  Since then, the treatment of this income changed under finalized regulations issued by the IRS and as applied in the tax return forms and instructions, necessitating a change to our guidance.”

Mazars’ Insight

For S corporations that included GILTI in the income passed through to their shareholders, the shareholders may amend their returns. 

Please contact your Mazars USA professional for additional information.

Published on August 20, 2020

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.