Tax Type
Corporation Income Tax
Description
Taxable Income; Net Operating Loss
Topic
Computation of Income
Date Issued
08-30-1991
August 30, 1991
Re: Request for Ruling: Corporation Income Tax
Dear****************
This will reply to your letter of December 13, 1990, in which you request a ruling regarding the carryback of a net operating loss (NOL) for Virginia purposes for *********** (the "Taxpayer").
FACTS
On December 30, 1986, the taxpayer, a multistate corporation doing business in Virginia, was merged into a related subsidiary. A final Virginia return was filed for the taxpayer for the period February 1, 1986 to December 31, 1986, reporting taxable income. An initial Virginia return was filed for the new company (Newco) for the period of February 1, 1986 to January 31, 1987; the return reported a loss. Both companies were included in the consolidated federal corporation income tax return filed for the parent company for FYE January 31, 1987.
For FYE January 31, 1990, Newco had a federal NOL; this loss was carried back to the federal consolidated return for the parent company for FYE January 31, 1987 (which included both the taxpayer and Newco). The NOL for federal purposes was fully utilized in FYE January 31, 1987.
You request a ruling on the carryback of the net operating loss for Virginia purposes. Specifically, you ask that since the NOL for Newco was carried back to a federal consolidated return and netted against income from the taxpayer, can a refund be claimed based on the Virginia return filed that year for the taxpayer?
RULING
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.
When federal and Virginia returns are prepared on a different basis, then the federal taxable income (including NOLD) must be computed for Virginia purposes as if the federal return were filed on the same basis as the Virginia return. In computing federal taxable income for Virginia purposes, a NOLD is allowable only if, and to the extent that, it would be allowable on a separate federal return for each corporation filing a separate Virginia return.
Had separate returns been filed at the federal level, there is nothing in the federal laws or regulations which would have allowed the NOL to be carried back to the taxpayer's income. In fact, the regulations under IRC §381 provide that a net operating loss sustained by an acquiring corporation after a corporate acquisition may not be carried back in computing the taxable income of the acquired corporation, but shall be carried back in computing the taxable income of the acquiring corporation only. See Treas. Reg.§1.381(c)(1). The taxpayer received the benefit of the NOLD at the federal level solely because the group filed consolidated returns for all years involved. The Virginia returns were filed on a separate basis; under federal law, the NOLD could not be carried back if separate returns were prepared. Therefore, for Virginia purposes, Newco's NOLD cannot be carried back to the separate return of the taxpayer, and no refund is allowed.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner