HRS § 235-3 — Legislative intent, how Internal Revenue Code shall apply, in general


§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.