Tax Type
Corporation Income Tax
Description
Net Operating Loss Deduction
Topic
Computation of Income
Date Issued
08-30-1991
August 30, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear****************
This will reply to your letter of April 19, 1991, in which you seek correction of a corporation income tax assessment for**************** (the "Taxpayer").
FACTS
The net operating loss deduction reported on the taxpayer's 1988 return was disallowed because of lack of documentation supporting the deduction. You protest the disallowance.
DETERMINATION
Virginia law has no separate provision for a net operating loss deduction (NOLD). Therefore, an NOLD is allowable for Virginia purposes only to the extent that the NOLD is allowable as a deduction in computing federal taxable income for Virginia purposes, i.e., as if federal returns had been filed on the same basis as Virginia returns for all affected years.
The NOLD on the 1988 return was improperly applied because it reduced federal taxable income below zero. See Ruling of the Tax Commissioner dated June 24, 1983 (copy enclosed). In addition, the taxpayer failed to carry Virginia modifications with the NOLD.
At the time the audit was conducted, prior years' federal taxable income documentation was not available. The auditor was justified in disallowing the NOLD because the taxpayer's lack of supporting documentation made it impossible to reconcile the federal taxable income for Virginia purposes (separate) to actual consolidated amounts reported to the IRS or to verify the portion of the 1987 loss deemed absorbed in 1984-1986 and available for 1988.
You have supplied schedules purporting to show the computation of the taxpayer's federal taxable income on a separate basis for the applicable years to support the NOLD reported on the tax return. The audit report will be returned to the auditor to review the supporting documentation and make the appropriate adjustments.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner