May 17, 1999


RE: Hawaii Income Tax Conformity to the Internal Revenue Code of 1986 (IRC), as Amended

The Department of Taxation submits a bill during each regular session of the Legislature to conform (or not conform) to the changes made by the United States Congress in the previous year. The 1999 conformity bill, H.B. No. 1197, H.D. 2, S.D. 1, was passed by the 1999 Legislature, and the Governor is expected to sign this bill into law. This year's conformity bill:

    1. relaxing the requirements for obtaining "innocent spouse" relief (but requiring the taxpayer to make the election in writing in order to obtain relief);
    2. allowing an individual who has filed a joint return, but who is no longer married to, legally separated from, or no longer lives with the spouse with whom the return was filed, to elect separate liability for any deficiency with respect to the joint return; and
    3. authorizing the department to grant equitable relief from liability for unpaid taxes or deficiency in cases where the options in (1) and (2) do not apply. IRC section 6015. HRS section 235-93.5, relating to innocent spouse relieved of liability in certain cases, is repealed because of the adoption of IRC section 6015.
The conformity bill amends HRS section 235-2.4 by repealing the reference to IRC section 644, with respect to the special rule for gain on property transferred to a trust at less than fair market value. This section was repealed by the Taxpayer Relief Act (TRA) of 1997, effective for transactions after August 5, 1997, and IRC section 645, relating to the taxable year of trusts, was renumbered as IRC section 644, which is operative for Hawaii income tax purposes.1

This bill does not conform to the 1998 federal amendment repealing the "more than 18 months" holding period requirement for long-term capital gain treatment. Hawaii did not adopt the "more than 18 months" holding period requirement from the Taxpayer Relief Act of 1997, so no repeal was necessary. (IRC section 1(h)(5)).

The amendments in the conformity bill are effective for taxable years beginning after December 31, 1998, or to the federal effective date, as applicable.

Several income tax provisions that were not in the conformity bill were adopted in other bills by the 1999 Legislature (again subject to veto):

For a complete listing of the conforming and non-conforming items, please refer to our digests of the 1998 federal tax laws which may be obtained from our website, calling Jo-Ann Shintani of the Rules Office at 808-587-1530, faxing your request to 808-587-1560, or e-mailing your request to: The digests transmitted by e-mail will be available in WordPerfect 6.1, Word 97 or PDF format.

Forms and other tax information may be downloaded from the Department's website at On Oahu, forms may be ordered by calling the Department's Forms Request Line at 587-7572. Persons who are not calling from Oahu may call 1-800-222-7572 to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.

Director of Taxation

<<CLICK HERE for a pdf copy of our digest>>>

Amendments to IRC section 644 and 645 by the Taxpayer Relief Act of 1997 were not included in the 1998 conformity bill, but were included in the 1999 conformity bill.