Overseas Earnings and Taxes

Do you have foreign earnings or profits that are untaxed by the Indiana Department of Revenue (DOR) or Internal Revenue Service (IRS)? In the past, no additional information was requested from DOR or the IRS when filing taxes.

However, as of Dec. 31, 2017, a federal law (IRC 965) went into effect that stated that any untaxed foreign earnings or profit is now a repatriated dividend that needs to be reported when filing both state and federal taxes. Tax will now need to be paid on those earnings starting with the 2017 tax year.

Indiana passed legislation to partially align with the IRS on how this income is reported. This requires impacted taxpayers to include the gross amount of the repatriated dividend in the taxpayer’s Indiana adjusted gross income. Federal law allows a deduction for a portion of these foreign earnings in determining federal adjusted gross income. However, Indiana law requires an addback of this deduction when determining Indiana adjusted gross income.

For most C corporations, estates and trusts, this results in the income being reported on a separate schedule apart from the normal federal form. Indiana law also requires an addback to report the entire income amount.

Taxpayers who have already filed the original return will be required to file an amended return for tax year 2017, which must be filed by paper. Taxpayers who are filing under extension will not be eligible to file electronically; they must also file a paper return.

Below DOR has provided general guidelines for what to report. This information may not apply to rare or unusual situations. If an unusual situation arises, you may contact DOR at taxpolicy@dor.in.gov.

Resident individuals are required to:

  • Add back the deduction taken on the IRC 965 Transition Tax Statement, Line 3; and 
  • Use Code 139 to report the addback.

Nonresident individuals are required to:

  • Add back only the amount of the deduction apportioned to Indiana from pass-through entities (S corporations, partnerships, estates and trusts); and 
  • This amount is reported on Indiana Schedule IN K-1 from the pass-through entity as Code 139.

C Corporations (other than real estate investment trusts) are required to:

  • Add back the amount reported by the corporation on the IRC 965 Transition Tax Statement, Line 1; and
  • Use Code 138 to report addback.

Real Estate Investment Trusts are required to:

  • Add back the deduction taken on the IRC 965 Transition Tax Statement, Line 3; (elected exclusions may apply); and 
  • Use code 139 to report any addback.

Estates and Trusts

If a trust does not distribute a returned dividend:
  • Add back the portion not distributed and reported on the IRC 965 Transition Tax Statement, Line 1; and
  • Report this amount on Form IT-41, Line 2.
If a trust distributes a returned dividend to a beneficiary and does not report the deduction to the beneficiary, the trust is required to:
  • Add back the amount of the IRC 965 deduction.
If a trust does distribute a returned dividend to a beneficiary and reports the deduction to the beneficiary, the trust is required to:
  • Report this amount on Form IT-41 Schedule IN K-1 using Code 139.

S Corporations and Partnerships are required to:

  • Add back the deduction taken on the IRC 965 Transition Tax Statement, Line 3;
  • Use Code 139 to report the addback; and
  • Report the addback to the beneficiaries using Code 139 on Schedule IN K-1. For nonresident individuals, include only the apportioned amount of the addback.

Forms

Payments

If the addback of repatriated dividends results in additional tax owed for any year with a return due (prior to extensions) before May 16, 2018, you have until July 13, 2018 to pay the additional tax without penalty or interest.

Any additional tax due as a result of the repatriated earnings will not be considered in determining whether a penalty for insufficient estimated tax applies.

Individual Income Tax Payments

  • You may make a payment on DORPay or as a payment with the 2017 tax return. The payment may also be mailed as a check or money order providing your TID or SSN and indicating the payment is related to repatriated income.

C Corporation Filing Payments

  • Calendar year filers may make a payment with the coupon IT-6. Additional 2017 estimated payment may be made via DORPay or mail the payment with an IT-6.
  • Fiscal filers may make a payment with the coupon IT-6 or extension depending on fiscal due dates.

Composite Filing Payments

  • Composite filers may make a payment via DORpay  or with the IT6WTH, which must be requested from DOR. Fiscal filers may make the payment with their corporate tax return if filing on a fiscal basis.
  • The payment, check or money order, may be mailed; however, include the account period date, FID, and the company name

If you have any further questions, please send an email to taxpolicy@dor.in.gov and include “965” in the subject line.