Federal tax changes related to net operating losses, excess interest deductions, and loss limitations are among the changes with which Indiana has not conformed, according to the state revenue department.
In a February 9 information bulletin, the Department of Revenue explained that changes made to the federal tax code after January 1, 2020, "are not captured by Indiana." As such, the state doesn’t conform to some provisions of the Coronavirus Aid, Relief, and Economic Security Act and other changes to the federal code, according to the bulletin.
For example, Indiana does not conform to the CARES Act provision that temporarily eliminates the 80 percent NOL limitation and allows taxpayers to carry back NOLs from 2018, 2019, and 2020 for five years. However, according to the bulletin, because Indiana has an addback provision for federal NOL deductions and because of "conformity modifications" and specific state code sections, the treatment of NOLs "will remain unchanged."
The bulletin noted that Indiana decoupled from IRC section 163(j) in 2018 to allow taxpayers to deduct the full amount of business interest and therefore does not conform to the CARES Act provision that increased to 50 percent the amount taxpayers can deduct for tax years 2019 and 2020.
The state does not conform to the CARES Act provision that temporarily suspends the section 461(l) limitation on excess business losses of noncorporate taxpayers, according to the bulletin, which explained that taxpayers will instead have to "add back the amount of any current-year excess loss that would have been disallowed for federal tax purposes" and add the disallowed amount to NOL available for carryforward.
Also, taxpayers will be required to add back any charitable contributions made under IRC section 62(a)(22) to determine state adjusted gross income, according to the bulletin. Part-year residents would need to add back only the charitable contributions they made during the time they were a state resident.
Other changes the state does not conform to include those related to student loan payments, qualified improvement property, business meals, and expenses incurred for teacher supplies related to the COVID-19 pandemic.
The bulletin also explains that the state does follow federal treatment for "various exemptions, deductions, and other rules incorporated into federal law outside the Internal Revenue Code." These include Paycheck Protection Program loans, emergency financial aid grants, and other grants and loans related to the CARES Act and the COVID-related Tax Relief Act of 2020. Taxpayers will be allowed to exclude PPP loan forgiveness from their state adjusted gross income, according to the bulletin.