Tax Type
Income Tax
Description
Carryback period for farming losses to the five preceding taxable years
Topic
Basis of Tax
Date Issued
10-28-2004
October 28, 2004
Re: Request for Ruling: Fixed-Date Conformity
Dear ****************:
This will respond to your request for a ruling regarding the applicable carryback period for farming losses.
FACTS
On April 8, 2002, a provision that fixed Virginia's conformity to Internal Revenue Code terminology to the Internal Revenue Code ("IRC") as it existed on December 31, 2001, was enacted. This date of conformity was advanced to December 31, 2002, by the 2003 General Assembly, and again to December 31, 2003, by the 2004 General Assembly. However, these advancements of the fixed-date of conformity did not include two provisions contained in the "Job Creation and Worker Assistance Act of 2002" ("JCWAA"). The two provisions of the JCWAA that Virginia does not conform to are the special 30% bonus depreciation provided for under § 168(k) of the Internal Revenue Code and the 5-year net operating loss carryback provided for under § 172(b)(1)(H) of the IRC. This is effective for all taxable years beginning on and after January 1, 2001.
As of December 31, 2002, the IRC allowed carrybacks of net operating losses for up to two years with certain exceptions. IRC § 172(b)(1)(G) provides that if the taxpayer had a farming loss, as defined under § 172(i) of the IRC, then the taxpayer would be allowed to carryback the farming loss to each of the five taxable years preceding the taxable year of such loss. This provision of the IRC was unaffected by the JCWAA or any other legislation that has passed since the implementation of fixed date conformity in Virginia.
You are requesting a ruling as to whether a taxpayer may carryback a farming loss to the five preceding taxable years for Virginia purposes under Virginia's policy of fixed-date conformity.
RULING
Unless a provision in the Code of Virginia specifically designates otherwise, Virginia conforms to the terminology of the IRC, as it existed on December 31, 2002. The exception that allows a carryback of farming losses to each of the five taxable years preceding the taxable year was present in the IRC on December 31, 2002. Also, there are no provisions in the Code of Virginia that prevents this carryback of five-years from flowing through to the taxpayer's Virginia income tax return.
The five-year net operating loss carryback provided by the JCWAA under § 172(b)(1)(H) of the IRC allowed all taxpayers to carryback a net operating loss to each of the five taxable years preceding the taxable year in which the loss was generated. This additional carryback is only allowed for losses generated in either the 2001 or 2002 taxable years. Virginia Code § 58.1-301 was amended by the 2003 and 2004 General Assembly specifically to exclude this provision. Virginia's conformity to § 172(b)(1)(G) of the IRC was unaffected. Therefore, Virginia will allow a farming loss, as defined under § 172(i) of the IRC that was carried back to each of the five taxable years preceding the taxable year in which the loss was generated to flow through to the Virginia income tax return.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this ruling, please contact ***** in the Office of Policy and Administration, Policy Development, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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PD/44401G
Rulings of the Tax Commissioner