Tax Type
Corporation Income Tax
Description
Net operating loss carryback; Transitional modifications
Topic
Computation of Income
Taxable Income
Date Issued
10-01-1984
October 1, 1984
Re: §58-1118 Application - Corporation Income Tax
Dear ***************
This is in reply to your letter of June 7, 1974, in which you petition for relief from the decision to deny the taxpayer's claim for a refund for taxable year 1979.
The taxpayer filed an amended 1979 corporation income tax return on September 12, 1983, to reflect the carryback of a 1982 federal net operating loss. The Virginia return was filed using a concept that basically ignored allocable income. The return, as filed, reflected a different carryback amount on the Virginia return than was reflected on the amended federal return. This method of treating a net operating loss is contrary to Virginia law.
The Code of Virginia requires that the computation of Virginia taxable income begin with federal taxable income and there is no provision in the Code for a Virginia net operating loss. Therefore, a net operating loss can be claimed on a Virginia return only to the extent that such loss is included in federal taxable income. The starting point on the Virginia return should have been the recomputed federal taxable income as shown on the federal Form 1139 or Form 1120X.
Virginia taxable income is composed of federal taxable income with certain statutorily defined Virginia modifications. Under longstanding departmental policy, the Virginia modifications from the loss year are carried with the federal net operating loss deduction. Thus, if the federal net operating loss is fully utilized in a carryback or a carryover year, the net amount of Virginia modifications will be applied to such year. If, however, the federal net operating loss is partially utilized in each of several years, the net Virginia modifications will be applied in the same ratio to the several years.
The method employed by the taxpayer ignored Virginia law by not beginning the computation with the recomputed federal taxable income. Furthermore, the taxpayer failed to carry the Virginia modifications with the loss.
The department's method of treating a federal net operating loss is clearly stated in the instructions for preparing corporation income tax forms and on Form 500-NOLD. Therefore, I must deny your application and affirm the earlier decision to deny your claim for a refund.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner