Key Takeaways
- The California Senate Revenue and Taxation Committee has proposed selective conformity to certain post-2015 IRC provisions, notably excluding key TCJA sections like GILTI inclusion and interest deductibility.
- Stakeholders had until January 15, 2025, to provide public feedback on these recommendations, which could influence California's approach to IRC conformity.
- The recommendations underscore California's cautious approach to updating its IRC conformity, focusing on case-by-case adoption—rather than a comprehensive update to the 2015 conformity date.
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The California Senate Revenue and Taxation Committee has released its 2024 tax conformity recommendations on whether California should conform to various changes made to the Internal Revenue Code after January 1, 2015 (known as "selective conformity"). The committee requested public feedback to the proposed recommendations by January 15, 2025.
California conforms to the version of the IRC that existed as of January 1, 2015. Typically, the state doesn't automatically conform to changes made to the IRC after that date — unless specifically incorporated into its tax laws.
The recommendations provide a tentative decision on whether California should conform to each IRC section under consideration. Notably, the recommendations suggest that California should not conform to several IRC sections, including:
- Section 951A relating to the inclusion of global intangible low-taxed income (GILTI) in taxpayer income as provided under the Tax Cuts and Jobs Act of 2017 (TCJA);
- Section 250 allowing a deduction for GILTI and foreign-derived intangible income as provided under the TCJA;
- Section 245A establishing the deduction for the foreign-sourced portion of dividends received by domestic corporations from specified 10-percent-owned foreign corporations as provided under the TCJA;
- Section 163 on the deductibility of indebtedness interest, including the limitation on business interest in Section 163(j) as amended by the TCJA; and
- Section 174 on the amortization of research and experimental expenditures as amended by the TCJA.
The recommendations also suggest that California conform to some IRC provisions, or a portion thereof, such as Section 951 relating to amounts included in the gross income of U.S. shareholders as amended by the TCJA.
If you provided feedback by the deadline, it will be compiled for consideration by legislative members.
Insights
- It appears the California legislature is considering selectively conforming California to specific changes made to specific IRC sections after January 1, 2015. Whether it will provide a more general update to California's overall IRC conformity date is uncertain.
- The committee has offered taxpayers an opportunity to provide public feedback on the recommendations before a formal bill is drafted and presented for legislative consideration. Your feedback should have been submitted by January 15, 2025, in the form and manner provided on the committee's website.
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