Tax Type
Individual Income Tax
Description
Net Operating Loss Carryover
Topic
Taxable Income
Date Issued
08-04-1992
August 4, 1992
Re: §58.1-1821 Application: Individual Income Tax
Dear******************
This will reply to your letter of February 8, 1991 in which you seek correction of an individual income tax assessment for*********the "Taxpayer").
FACTS
The Taxpayer is a nonresident of Virginia. The Taxpayer owned shares in an S corporation which conducted its operations in Virginia. For the period 1979 through 1988 the corporation experienced losses which the Taxpayer recognized on his federal return. He did not file Virginia returns for the tax years the corporation experienced such losses since he did not have any other income from Virginia sources.
In 1989 the corporation ceased its operations and liquidated its holdings. The Taxpayer recognized a gain on the liquidation. The Taxpayer included the entire amount of the gain in federal taxable income. When calculating his Virginia tax liability for 1989 the Taxpayer offset the gain with the losses previously recognized for federal purposes but had not recognized for Virginia income tax purposes.
The Taxpayer has been assessed with a deficiency for failing to pay Virginia income tax on the gain. The department has denied the Taxpayer's use of the prior year losses for Virginia tax purposes. The Taxpayer contests the denial of his use of the losses.
DETERMINATION
There is no provision in the Code of Virginia for a Virginia net operating loss. However, since the starting point on a Virginia individual income tax return is federal adjusted gross income, there is such an implied provision for net operating losses to the extent such losses are included in federal adjusted gross income.
With only this implied provision for net operating losses, there can be no carryback or carryforward of a loss to any year in which there is no carryback or carryforward for federal purposes. The transitional modification provisions of Virginia Code §58.1-315 are the only exceptions to this rule and they are not applicable in this case.
The facts indicate that for federal purposes the Taxpayer recognized the entire amount of the losses in the years the corporation incurred such losses. The Taxpayer did not carry any of the corporate losses forward to his 1989 federal return to offset the gain he realized upon the liquidation of the corporation since he had already consumed the entire amount of such losses in earlier years.
Since there is no provision in the Virginia Code for tracking losses for Virginia tax purposes the Taxpayer's attempt to offset the amount of income subject to Virginia tax with the losses not deducted in the 1989 federal return is denied. The assessment shall remain unchanged and the total amount of the assessment is now due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner