Could a Louisiana corporation deduct expenses allocated to an IRC § 78 foreign-dividend gross-up that Louisiana excluded from corporation income tax?

Plain-English summary

Expenses allocated to an untaxed foreign-dividend gross-up were not deductible for Louisiana corporation income tax.

The gross-up entered federal gross income under IRC § 78 and therefore began as Louisiana income, but La. R.S. 47:287.71(B)(5) specifically removed it from Louisiana tax. The Department then applied La. R.S. 47:287.81 to disallow related expenses.

How the ruling connected income and expenses

The federal gross-up represented foreign taxes deemed paid when a domestic corporation used the specified foreign tax credit provisions. Louisiana started with the same federal gross-income item and dollar amount, subject to state modifications.

Because part of the corporation's expenses was attributable to that deemed dividend income, and Louisiana did not tax the income, those expenses could not reduce other Louisiana taxable income.

Common questions

Q: Did Louisiana treat the gross-up as something other than income?

A: No. It treated the gross-up as income and then specifically excluded it from tax.

Q: Could the related expenses still be deducted?

A: No.

Citations and references

• IRC § 78 — foreign-dividend gross-up
• IRC §§ 902(a) and 960(a)(1) — deemed-paid foreign taxes cited in the ruling
• La. R.S. 47:287.61 — Louisiana corporate gross-income starting point
• La. R.S. 47:287.71(B)(5) — foreign-dividend gross-up exclusion
• La. R.S. 47:287.81 — related-expense disallowance applied in the ruling
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 02-007

Original ruling text

RPage 1 of 2Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx
Transactions by Roustabouts, Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 02- 007
May 17, 2002
Corporation Income Tax

Expenses Related to Foreign Dividend Gross-Ups
Purpose: The purpose of this Revenue Ruling is to set out the Department of Revenue s position
concerning the taxability of foreign dividend gross up and related expenses.
Discussion: Foreign dividend gross ups are commonly considered to be any amounts required by
I.R.C. ⁄ 78 (West 2001) to be included in gross income. Under the provisions of La. Rev. Stat.
Ann. ⁄ 47:287.71(B)(5) (West 2001), foreign dividend gross ups are not subject to Louisiana
corporation income tax.
Analysis: La. Rev. Stat. Ann. ⁄ 47:287.61 (West 2001), provides that Gross income of a
corporation means the same items and the same dollar amount required by federal law to be
reported as gross income on the corporation s federal income tax return for the same taxable
year, subject to the modifications specified in this Part, whether or not a federal income tax
return is actually filed.
I.R.C. ⁄ 78 (West 2001) states:
If a domestic corporation chooses to have the benefits of subpart A of part III of
subchapter N (relating to foreign tax credit) for any taxable year, an amount equal
to the taxes deemed to be paid under I.R.C. ⁄ 902(a) (West 2001)(relating to
taxes paid by foreign corporation) or under I.R.C. ⁄ 960(a)(1) (West 2001)(relating
to taxes paid by foreign corporation) for such taxable year shall be treated for
purposes of this title as a dividend received by such domestic corporation from the
foreign corporation.
Since foreign dividend gross-ups are required by federal law to be reported as gross income on
the corporation s federal income tax return, they are income for purposes of Louisiana law. A
portion of the expenses of the corporation receiving the deemed dividend income will be
attributed to that deemed dividend income. However, Under La. Rev. Stat. Ann. ⁄
47:287.71(B)(5), foreign dividend gross ups are not subject to Louisiana corporation income tax.
Therefore, the expenses attributed to foreign dividend gross ups are disallowed under La. Rev.
Stat. Ann. ⁄ 47:287.81 (West 2001).
Conclusion(s): Since foreign dividend gross-ups are actually income, expenses will be attributed
to the foreign dividend gross-up. Because foreign dividend gross up is not taxed by Louisiana,

Revenue Ruling No. 02-007
Page 2 of 2
the expenses related to foreign dividend gross up are not deductible in computing Louisiana
taxable income.
Cynthia Bridges
Secretary
By:

William (Mac) E. Little
Attorney
Policy Services Division

A Revenue Ruling is issued under the authority of LAC 61III.101 (C ). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department’s position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.