March 16, 2021
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will reply to your letter in which you appeal the denial of a refund of corporate income tax paid by ***** (the “Taxpayer”), for the taxable year ended December 31, 2016.
FACTS
The Taxpayer filed a 2018 Corporate Application for Refund Carryback of Net Operating Loss (Form 500 NOLD), claiming a net operating loss deduction (NOLD) for the 2016 taxable year by carrying back a net operating loss (NOL) attributable to the 2018 taxable year. The Department denied the corresponding refund on the grounds that the Taxpayer could not carry back a 2018 NOL because of Virginia’s conformity with the federal Tax Cuts and Jobs Act, P.L. 115-97 (12/22/2017) (the “TCJA”). The Taxpayer appealed, contending that it is allowed to carry back the 2018 NOL under the subsequent Coronavirus Aid, Relief and Economic Security Act, P.L. 116-136 (3/27/2020) (the “CARES Act”).
DETERMINATION
Generally, Virginia income tax law does not address the NOLD. Nonetheless, Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Because Virginia starts its computation of corporate income tax with federal taxable income (FTI), the Department allows a NOLD to the extent it is allowable in computing FTI as calculated for Virginia income tax purposes.
For NOLs attributable to taxable years beginning after December 31, 2017, the TCJA repealed the two-year carryback period. See TCJA § 13302(b)(1)(A). The CARES Act, however, reintroduced a five year carryback for NOLs attributable to taxable years beginning after December 31, 2017, and before January 1, 2021. See CARES Act § 2303(b). In each case, the legislation amended IRC § 172 which provides for the NOLD generally, including the carryback periods.
Currently, however, Virginia’s conformity with the IRC extends only to such laws as they existed on December 31, 2019. See Virginia Code § 58.1-301 B. Because the CARES Act was enacted after this date, Virginia has not conformed to the five year carryback period. Therefore, the TCJA’s repeal of the two-year carryback period remained in place. Accordingly, the Department was correct in denying the NOLD the Taxpayer carried back to the 2016 taxable year from an NOL attributable to the 2018 taxable year.
The Taxpayer should await further legislative developments by the General Assembly that may affect Virginia’s conformity with the IRC. The Taxpayer may be able to re-file its claim in the future depending on such developments.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3557.M