235-3 Legislative intent, how Internal Revenue Code shall apply, in general. (a) It is the intent of this chapter, in addition to the essential purpose of raising revenue, to conform the income tax law of the State as closely as may be with the Internal Revenue Code in order to simplify the filing of returns and minimize the taxpayer's burdens in complying with the income tax law. The rules and regulations, forms and procedures adopted and established under this chapter shall conform as nearly as possible, and unless there is good reason to the contrary, to the rules and regulations, forms and procedures adopted and established under the Internal Revenue Code.

(b) The Internal Revenue Code, so far as made operative by this chapter, is a statute adopted and incorporated by reference. The Internal Revenue Code shall be applied using changes in nomenclature and other language, including the omission of inapplicable language, where necessary to effectuate the intent of this section. In the Internal Revenue Code, references to terms such as:

(1) "Secretary or his delegate" shall refer to the director of taxation and the director's duly authorized subordinates;

(2) "Estate taxes" shall refer to the estate and transfer tax imposed by chapter 236D or the estate and generation-skipping [transfer] tax imposed by chapter 236E, as applicable;

(3) "The highest rate of tax imposed upon individuals" or "39.6 per cent" shall refer to the highest rate imposed upon individuals under section 235-51;

(4) "The highest rate of tax imposed upon corporations" shall refer to the highest rate imposed upon corporations under section 235-71; and

(5) "Interest at the underpayment rate" or "interest at the overpayment rate" shall refer to the interest rate set forth in section 231-39(b)(4) or section 231-23(d)(1), as the case may be.

(c) Where, under a provision of the Internal Revenue Code made operative in this chapter, the allowance or disallowance to a taxpayer of a deduction, exclusion, adjustment, credit, or exemption is dependent on whether, under the Internal Revenue Code or a prior applicable federal income tax law, the following was or was not, is or is not, in relation to the same taxpayer or another taxpayer, for the same taxable year or a prior taxable year, an operative factor: the imposition or payment of an income tax, an inclusion in gross income, an exclusion from gross income, or a deduction from gross income--the allowance or disallowance under this chapter of such deduction, exclusion, adjustment, credit, or exemption shall depend on the operativeness of such factor or factors under this chapter or a prior applicable income tax law of the State. This subsection shall govern the application of such sections of the Internal Revenue Code as, for example, sections 111, 215, 668(b), and 7852(c) and all matters of a similar nature.

(d) Whenever, in a taxable year of a corporation or its shareholders not governed by the income tax law of 1957, a distribution of money, stock, securities, or other property (whether in complete or partial liquidation or otherwise) has been made by a corporation to shareholders owning such shares in the State, or stock, securities, or other property has been transferred to a corporation, or corporate stock or securities exchanged, in the course of a corporate organization or reorganization effected under the laws of the State, in the application of the income tax law of 1957 effect shall be given to the recognition of income by the income tax laws of 1901 and 1932, if any, to the extent necessary to avoid double taxation, for example, in determining the earnings and profits of any corporation involved or the basis of any stock, securities, or other property so received, transferred, or exchanged. No increase in basis shall be allowed on account of such events in taxable years not governed by the income tax law of 1957, except as provided by this subsection. As used in this subsection the words "double taxation" mean and refer to double taxation of the same taxpayer, or taxation of both a corporation and its shareholders when the taxation of both would not have occurred had the income tax law of 1957 governed prior taxable years.

(e) In the determination of the basis or adjusted basis of any stock, securities, or other property:

(1) If the property was acquired by an exchange (including an involuntary conversion or the sale of an old residence and purchase of a new residence where both occur within a one-year period) the "cost" thereof to the taxpayer shall be deemed to include among other things, any income of the taxpayer recognized by the income tax laws of 1901 and 1932 as a result of the exchange;

(2) If the basis is dependent upon acquisition from a decedent, the property shall be deemed to have been acquired from a decedent if deemed so acquired for the purposes of chapter 236 prior to July 1, 1983, or after June 30, 1983, under this chapter but not otherwise, and the residence or nonresidence of the decedent, the location of the property, and chapter 236 for property acquired prior to July 1, 1983, or this chapter where the property has been acquired after June 30, 1983, shall be considered;

(3) If the basis is dependent upon deductions, exclusions, or exemptions taken or allowable, under the Internal Revenue Code or a prior applicable federal income tax law, in a prior year, it shall depend upon deductions, exclusions, or exemptions taken or allowable under the income tax law of the State governing such prior years;

(4) If the basis is dependent upon the election provided for by section 307, Internal Revenue Code, it shall be governed by the election actually made under the Internal Revenue Code for the taxable year, whether or not the taxable year was governed by the income tax law of 1957. [L Sp 1957, c 1, pt of 2; am L Sp 1959 2d, c 1, 16; Supp, 121-2; HRS 235-3; am L 1979, c 62, pt of 2; am L 1983, c 217, 7(1), (2); gen ch 1985; am L 1996, c 187, 4; am L 2014, c 43, 1]

 

 

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