Section 280-RICR-20-25-15.7 - Dividend Received DeductionA. C Corporations 1. Rhode Island Net Income. A C-corporation that receives Net 965 Income attributable to a foreign corporation subsidiary must include such income in Rhode Island income, subject to the provisions of this regulation regarding DRDs, intercompany eliminations, apportionment, and other matters.2. Other Includible Income. Net 965 Income is includible in income and no DRD applies if the Net 965 Income is attributable to a foreign corporation subsidiary that is treated as a member of a combined group with the corporation that recognizes such income only to the extent of such foreign corporation subsidiary's U.S. source income and factors as discussed in § 10.7(H)(2)(a) of this Subchapter. a. Example: Alpha Corp is a domestic C corporation member of a Rhode Island combined group that also includes the U.S.-source items of Alpha Corp's 100% owned subsidiary Bravo Corp, a foreign corporation, pursuant to § 10.7(H)(2)(a) of this Subchapter. Alpha Corp recognizes $350,000 in Net 965 Income attributable to Bravo Corp. Alpha Corp would include in Rhode Island taxable income the entire $350,000 Net 965 Income with no DRD offset, and the combined group return would not eliminate as an intercompany item any portion of the $350,000.3. Intercompany Eliminations. Under the Division's Combined Reporting regulation (Part 10 of this Subchapter), Net 965 Income includible in Rhode Island income that is attributable to any foreign corporation subsidiary that is a member of a combined group with the corporation that recognizes such Net 965 Income should be eliminated from a combined return as an item of intercompany income only to the extent such Net 965 Income is attributable to accumulated deferred foreign income earned by the foreign corporation subsidiary during periods in which it was a combined group member. Accordingly, to the extent such Net 965 Income is attributable to accumulated deferred foreign income earned by the foreign corporation subsidiary during periods in which it was not a combined group member, the US corporation recognizing such income will include the income in Rhode Island taxable income.a. Example: Hotel Corp is a domestic C corporation member of a Rhode Island combined group that also includes its 100% owned subsidiary India Corp, a foreign corporation. Hotel Corp and India Corp became Rhode Island combined group members together commencing on January 1, 2015, and were not Rhode Island combined group members with each other prior to that date. Hotel Corp recognizes $300,000 in Net 965 Income. $25,000 of such Net 965 Income is attributable to accumulated deferred foreign income earned by India Corp on or after January 1, 2015. Hotel Corp and the combined group would include $275,000 of the Net 965 Income in Rhode Island taxable income with no elimination or DRD offset, and the combined group would eliminate $25,000 of the Net 965 Income as an intercompany item.4. Unitary Foreign Corporation Subsidiary. No DRD applies to Net 965 Income includible in Rhode Island income that is attributable to an Unitary Foreign Corporation Subsidiary. a. Example: Charlie Corp and Delta Corp are C corporation members of a Rhode Island combined group. Echo Corp is a foreign corporation that is not a member of the combined group due to the water's edge rules, is owned 80% by Charlie Corp, and is engaged in a unitary business with Charlie Corp and Delta Corp. Charlie Corp in tax year 2017 for federal income tax purposes recognizes $100,000 in 965 Income attributable to Echo Corp, offset by 26 U.S.C. § 965(c) deductions totaling $30,000, resulting in Net 965 Income of $70,000. Charlie Corp makes a 26 U.S.C. § 965(h) election to pay the 965 net tax liability in installments for federal tax purposes. Because Echo Corp is more than 50% owned by group member Charlie Corp and is engaged in a unitary business with the group, it would be a member of the Rhode Island combined group but for the water's edge rules. Therefore, the combined group return would include as an item of income $70,000 in Net 965 Income, and no DRD would apply. Despite Charlie Corp's election under 26 U.S.C. § 965(h), the entire $70,000 must be included in the 2017 combined return and any additional Rhode Island tax due as a result of the $70,000 income item is not deferred.5. Nonunitary Foreign Corporation Subsidiary. If a corporation recognizes Net 965 Income includible in Rhode Island income, attributable to a Nonunitary Foreign Corporation Subsidiary, such Net 965 Income is entitled to a DRD equal to the DRD that would be available under federal income tax law as incorporated into Rhode Island tax computations if such subsidiary were a domestic rather than a foreign entity and the includible Net 965 Income was a dividend. a. Example: Foxtrot Corp and Golf Corp are C corporation members of a Rhode Island combined group. Hotel Corp is a foreign corporation that is not a member of the combined group, is owned 70% by Foxtrot Corp, and is not engaged in a unitary business with Foxtrot Corp and Golf Corp. Foxtrot Corp in tax year 2017 for federal income tax purposes recognizes $200,000 in 965 Income attributable to Hotel Corp, offset by 26 U.S.C. § 965(c) deductions totaling $70,000, resulting in Net 965 Income of $130,000. Even though Hotel Corp is more than 50% owned by group member Foxtrot Corp, Hotel Corp is not engaged in a unitary business with the group members and therefore would not be a member of the Rhode Island combined group even if the water's edge rules did not apply. As a result, the combined group return would include as an item of income $130,000 in Net 965 Income but a DRD of $104,000 would be available on the group return (80% of the Net 965 Income). If the facts are the same except that Hotel Corp is owned 10% by Foxtrot Corp, the combined group return would include as an item of income $130,000 in Net 965 Income but a DRD of $91,000 would be available on the group return (70% of the Net 965 Income).6. Dividend Income from Pass-Through Entity. A corporation may recognize Net 965 Income as a result of an allocation of such income from a pass-through entity that directly or through tiers of other pass-through entities owns the deferred foreign income corporation giving rise to such Net 965 Income. The corporation must include any such allocation of Net 965 Income in Rhode Island income. The availability of a DRD to such corporation shall be determined by applying the principles of § 15.7(A) of this Part to the relationship between the corporation and the foreign corporation under the Division's Combined Reporting regulation (Part 10 of this Subchapter).a. Example: Juliett Corp is a C corporation that files a separate Rhode Island return. Juliett Corp owns an 80% interest in limited partnership Kilo, LP, which owns a 70% interest in foreign corporation Lima Corp. Kilo, LP recognizes $150,000 in 965 income attributable to Lima Corp, offset by 26 U.S.C. § 965(c) deductions totaling $30,000, resulting in Net 965 Income of $120,000. Kilo, LP issues to Juliett Corp a Form K-1 allocating 80% x $120,000 = $96,000 in Net 965 Income. Juliett Corp and Lima Corp are not engaged in a unitary business and therefore if the water's edge rules did not apply would not file a combined return, irrespective of what percentage of Lima Corp is deemed to be owned by Juliett Corp for purposes of the combined return common ownership test. Juliett Corp would include in Rhode Island Income $96,000 in allocated Net 965 Income, offset by a DRD of $96,000 x 80% = $76,800.B. DRD rules not otherwise addressed in this regulation shall remain intact.280 R.I. Code R. § 280-RICR-20-25-15.7