OAR 150-316-0230: Subtraction for Previously Taxed Contributions

(1)(a) For tax years beginning on or after January 1, 1991, Oregon will allow resident taxpayers a subtraction for distributions from an individual retirement account, Keogh plan or Simplified Employee Pension plan for the contributions to the plan that have already been taxed by another state. The subtraction is allowed only if all of the following conditions are met: (A) The distributions consist of contributions made during a period in which the taxpayer was a nonresident of Oregon; (B) The distributions consist of contributions made during a period in which the taxpayer was a resident of a state that imposes an income tax; (C) The distributions consist of contributions for which no deduction, exclusion or exemption for the contributions was allowed or allowable in the state in which the taxpayer was a resident prior to becoming an Oregon resident; and (D) No deduction, exclusion, subtraction or other tax benefit has been allowed for the distributions by another state before the taxpayer becomes a resident of Oregon. Example 1: In 1997 Sam was a resident of a state that imposes no income tax. He made a deductible IRA contribution in 1997. In 1998 Sam converted his regular IRA of $2,000 to a Roth IRA. The distribution will be reported over a 4-year period. Sam became a permanent Oregon resident on April 1, 1998. Sam is not entitled to a subtraction because the contributions were not previously taxed. Sam will be taxed on $375 (3/4 of $500 for the period April through December 1998) on his 1998 part year Oregon return. If Sam remains an Oregon resident he will be taxed on $500 in 1999, 2000 and 2001. (b) If any portion of the distributions received by a resident of Oregon qualify for the subtraction, those distributions first received by the taxpayer are allowed to be subtracted. The subtraction continues until the distributions that qualify for the subtraction are recovered. Any distributions received after that are fully taxable to the Oregon resident. (c) The following contributions do not qualify for the subtraction: (A) Contributions made during a period when the taxpayer was a nonresident required to file an Oregon return to the extent that a deduction or exclusion was allowable for those contributions; or (B) Contributions made during a period when the taxpayer was a resident of a state that does not impose an income tax; or (C) Contributions for which the taxpayer was allowed a credit for taxes paid to another state. Example 2: Taxpayer is a resident of California from 1980 to 1990 and qualifies to make contributions to an individual retirement account for both federal and California. Taxpayer contributes $1,500 in 1980 and 1981 and from 1982 to 1990 contributes $2,000 per year. Both California and federal allowed a maximum $1,500 deduction for 1980 and 1981. For 1982 through 1986, federal allowed a maximum $2,000 deduction while California only allowed a maximum deduction of $1,500. For 1987 through 1990, both federal and California allowed a maximum deduction of $2,000. Taxpayer made contributions of $2,500 ($500 ¥ 5 years) while a California resident for which no deduction was allowed on the California return. Taxpayer retires and moves to Oregon in June 1991 and begins to receive payments from the IRA account established in California. Oregon taxes all of the IRA distributions received after June 1991 but will allow the taxpayer a subtraction on the Oregon return for the $2,500 of contributions which were not deductible. Taxpayer receives 7 payments of $350 in 1991 for a total of $2,450 ($350 ¥ 7). Taxpayer would claim a subtraction of $2,450 for 1991. In 1992, the taxpayer received 12 payments of $350 for a total of $4,200 ($350 ¥ 12). The taxpayer would be able to subtract the balance of $50 ($2,500 – $2,450). From that point on, no subtraction is allowed on the Oregon return for recovery of contributions. (2) If the taxpayer has already received distributions from an IRA, Keogh or SEP that is a recovery of contributions that meet the provisions of Section (1), then the taxpayer will be allowed a subtraction in 1991 for those contributions. Taxpayer will then be allowed a subtraction each year until all qualifying contributions are recovered. From that point on, no subtraction is allowed on the Oregon return for recovery of contributions. Example 3: Use the same facts as Example 2, except that the taxpayer retires and moves to Oregon in June 1989. Taxpayer made contributions while a California resident for which no deduction was allowed of $2,500 ($500 ¥ 5 years). The taxpayer has already received $2,450 ($350 ¥ 7 months) of IRA distributions in 1989 and $4,200 ($350 ¥ 12) of IRA distributions in 1990. For tax year 1991, taxpayer may claim a subtraction of $2,500, the full amount of contributions for which no deduction was allowed on the California return. The $2,500 subtraction consists of recovery of contributions of $2,450 in 1989 and $50 of recovery of contributions in 1990. After that, no subtraction is allowed on the Oregon return for recovery of contributions since the taxpayer has recovered all $2,500 of qualifying contributions. Example 4: Use the same facts as Example 3. The taxpayer retires and moves to Oregon in June 1989 but instead of receiving periodic payments, the taxpayer withdraws the entire balance of the IRA from California as a lump-sum distribution. The lump-sum distribution is taxable by both Oregon and California. Taxpayer made contributions while a California resident for which no deduction was allowed of $2,500 ($500 ¥ 5 years). For tax year 1991, the taxpayer will claim a one time subtraction for all contributions for which no deduction was allowed on the California return. The subtraction is limited to federal adjusted gross income and cannot create a net operating loss. If the taxpayer does not claim a subtraction for all of the contributions for which no deduction was allowed due to the federal adjusted gross income limitation, no subtraction may be claimed in subsequent years for the balance of the contributions. Taxpayer has adjusted gross income of $18,000 so may claim the full subtraction of $2,500 in 1991.