Tax Type
Corporation Income Tax
Description
Net Operating Loss carryback on combined return
Topic
Returns/Payments/Records
Date Issued
07-29-1993
July 29, 1993
Re: §58.1-1824; Protective Claim Corporate income taxes:
Dear**********
This will reply to your letter of July 24, 1992 regarding the protective claim filed on behalf of************* (the "Taxpayer") with respect to the net operating loss carryback for the taxable year ended September 30, 1988.
FACTS
The Taxpayer and affiliates filed a combined Virginia return for the year ended September 30, 1988. The Taxpayer incurred a federal net operating loss (NOL) for this taxable year, and carried back the federal NOL to the third preceding year. Based upon advice received from the department, the Taxpayer filed a separate company Virginia carryback claim on behalf of a member of the affiliated group which incurred a separate company NOL at September 30, 1988, and had separate company federal taxable income in the carryback year. No other member of the affiliated group had a separate company NOL at September 30, 1988 and separate company taxable income in a carryback year. The department accepted this return after certain adjustments, and issued a refund to the Taxpayer.
The Taxpayer also filed a protective claim, in which the combined NOL from September 30, 1988 was carried back against combined taxable income in the carryback year, without regard to which company incurred the loss or had prior year income. The Taxpayer's position is that the department's existing guidelines did not clearly address their circumstances, and that the protective claim is filed under a more appropriate methodology.
DETERMINATION
The department has had a long-standing policy prohibiting NOL carrybacks or carryovers on a combined basis. The department's policy is that a separate federal NOL may be carried back and forward in computing separate federal taxable income (for Virginia purposes) of the affiliate which incurred the NOL, but such net operating loss deduction cannot create a negative federal taxable income which would offset the income of any other affiliate. See Public Document 88-303 (10/31/88), copy attached.
Accordingly, your protective claim is hereby denied. The separate company NOL carryback, as adjusted by the department, is upheld.
On January 19, 1993 the department adopted Virginia Regulation 6303-442, copy attached. This regulation, which is effective for taxable years beginning on or after January 1, 1993, changed certain aspects of how Virginia additions and subtractions modify NOL's from combined returns. The method prescribed by this regulation is generally consistent with the department's prior policy for combined NOL's. However, because the new regulation does differ in certain aspects, we will allow the Taxpayer to modify the September 30, 1988 NOL carryover in tax years beginning before 1993 using either the new regulation or the method prescribed by the department. The method chosen must be applied consistently until 1993 taxable years, when the new regulation must be followed. In any event, adjustments will be required to the extent necessary to prevent a double benefit.
If you have questions regarding the modifications necessary to the 1988 NOL's, or application of the new regulation, we will be pleased to schedule a meeting to assist you.
Sincerely,
W. H. Forst
Tax Commissioner
OTP3451N
Rulings of the Tax Commissioner