Income Taxes: State Treatment of Net Operating Losses from Bloomberg BNA

Income Taxes: State Treatment of Net Operating Losses (Portfolio 1200)

Product Code: TPOR44

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Income Taxes: State Treatment of Net Operating Losses focuses on the treatment of net operating losses on a state-by-state basis. This Portfolio, written by Michael H. Lippman, Alvarez & Marsal, Scott D. Smith, LeClair, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, and Glenn D. Todd, KPMG LLP, provides a detailed discussion of the computation of the net operating loss (NOL), the net operating loss carryback and carryforward provisions, the treatment of the net operating loss following various corporate reorganizations, and the treatment of net operating losses on separate, consolidated, or combined returns.

This Portfolio begins with a general overview of the federal treatment of NOLs, including certain restrictions placed on the use of NOLs by the Internal Revenue Code. The Portfolio then provides a general overview of the state treatment of NOLs, including common variances from the federal system. It provides a detailed state-by-state analysis of the treatment of NOLs in all states except Nevada, Washington, and Wyoming, which do not levy an income tax.

The detailed analysis for each state addresses issues such as:

The state’s method of calculating the NOL,
The allowance of the NOL deduction in general (including carryback and carryforward periods),
The state’s conformity with the general federal NOL rules,
The state’s conformity to federal consolidated return rules,
Combined reporting issues, and
The state treatment of NOLs subsequent to a merger, acquisition, or similar corporate transaction.

In addition, this Portfolio highlights the differences between the federal and state net operating loss provisions and discusses how these differences impact a corporation's overall multistate tax liability.

Income Taxes: State Treatment of Net Operating Losses allows you to benefit from:

Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
Invaluable practice documents including tables, charts and lists.
Plain-English guidance from world-class experts.
Real-world and in-depth analysis that lets you explore various options.
Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

Detailed Analysis

1200.01. INTRODUCTION

1200.02. FEDERAL TAX OVERVIEW

Introductory Material

A. General

1. Federal Definitions

a. Computing the Federal NOL

b. Deduction of the Federal NOL

2. Carryback and Carryforward of NOL Deductions

B. Federal Consolidated Return Limitations

C. Post–Reorganization Utilization of NOLs

1. General

2. Historical Limitations on NOL Carryovers

a. General

b. Libson Shops

3. Post–1954 Limitations on NOL Carryovers

a. Internal Revenue Code 381

b. Internal Revenue Code 382

c. Internal Revenue Code 384

d. Internal Revenue Code 269

1200.03. STATE TAX OVERVIEW

A. General

B. Computation of the NOL

1. Federal NOL as a Starting Point?

2. State Modifications

3. Effect of State Filing Options

C. Deduction of the NOL

1. Carryback and Carryforward Provisions

2. Pre– v. Post–Apportionment NOL Deduction

3. State Limitations on NOL Deduction

D. Post–Reorganization NOL Utilization

1. Incorporation of Federal Limitations

2. State–Specific Limitations on NOL Carryovers

1200.04. STATE–BY–STATE ANALYSIS

A. In General

B. Specific States

1. Alabama

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

2. Alaska

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

3. Arizona

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

4. Arkansas

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

5. California

a. Computation of the NOL

b. Deduction of the NOL

(1) Special Rules for New and Small Businesses

(2) Special Rules for Businesses in Enterprise Zones or Los Angeles Revitalization Zones

c. Post–Reorganization NOL Utilization

6. Colorado

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

7. Connecticut

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

8. Delaware

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

9. District of Columbia

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

10. Florida

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

11. Georgia

a. Computation of the NOL

b. Deduction of the NOL

c. Post-Reorganization NOL Utilization

12. Hawaii

a. Computation of the NOL

b. Deduction of the NOL

c. Post-Reorganization NOL Utilization

13. Idaho

a. Computation of the NOL

b. Deduction of the NOL

c. Post-Reorganization NOL Utilization

14. Illinois

a. Computation of the NOL

(1) NOLs Occurring on or After December 31, 1986

(2) NOLs Occurring Prior to December 31, 1986

b. Deduction of the NOL

(1) NOLs Occurring on or After December 31, 1986

(2) NOLs Occurring Prior to December 31, 1986

(3) Transition Rules

c. Post-Reorganization NOL Utilization

(1) NOLs Occurring on or After December 31, 1986

(2) NOLs Occurring Prior to December 31, 1986

15. Indiana

a. Computation of the NOL

(1) Adjusted Gross Income Tax

(2) Financial Institution Franchise Tax

(3) Supplemental Net Income Tax

b. Deduction of the NOL

(1) Adjusted Gross Income Tax

(2) Financial Institution Franchise Tax

(3) Supplemental Net Income Tax

c. Post-Reorganization NOL Utilization

(1) Adjusted Gross Income Tax

(2) Financial Institution Franchise Tax

(3) Supplemental Net Income Tax

16. Iowa

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

17. Kansas

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

18. Kentucky

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

19. Louisiana

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

20. Maine

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

21. Maryland

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

22. Massachusetts

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

23. Michigan

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

24. Minnesota

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

25. Mississippi

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

26. Missouri

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

27. Montana

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

28. Nebraska

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

29. Nevada

30. New Hampshire

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

31. New Jersey

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

32. New Mexico

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

33. New York

a. Computation of the NOL

(1) Corporate Franchise Tax

(2) Bank Franchise Tax

b. Deduction of the NOL

(1) Corporate Franchise Tax

(2) Bank Franchise Tax

c. Post–Reorganization NOL Utilization

(1) Corporate Franchise Tax

(2) Bank Franchise Tax

34. North Carolina

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

35. North Dakota

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

36. Ohio

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

37. Oklahoma

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

38. Oregon

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

39. Pennsylvania

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

40. Rhode Island

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

41. South Carolina

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

42. South Dakota – Bank Franchise Tax

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

43. Tennessee

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

44. Texas

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

45. Utah

a. Computation of the NOL

b. NOL Deduction

c. Post–Reorganization NOL Utilization

46. Vermont

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

47. Virginia

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

48. Washington

49. West Virginia

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

50. Wisconsin

a. Computation of the NOL

b. Deduction of the NOL

c. Post–Reorganization NOL Utilization

51. Wyoming

Working Papers

Item Description Sheet

Worksheet 1 State Net Operating Loss Carryback and Carryforward Provisions

Worksheet 2 IRC Sections 381 and 382 Net Operating Loss Carryover Provisions

Worksheet 3 [Reserved.]

Bibliography

Michael Lippman

Michael H. Lippman is a managing director with Alvarez & Marsal Taxand, LLC, providing planning, consulting, and controversy services to many of the country's largest corporations. Prior to joining A&M, Mr. Lippman was the National Partner in Charge of State and Local Tax Services for KPMG LLP. Mr. Lippman sits on a number of boards, including the State and Local Taxation Committee of the American Institute of Certified Public Accountants, the Georgetown Institute Advisory Board, the Advisory Board to the Vanderbilt School of Law Paul J. Hartman State and Local Forum, the New York University's State and Local Taxation Advisory Board. He received his B.S. in accounting from the University of North Carolina and an M.S. (Taxation) from Georgetown University, graduating both as valedictorian.

Scott Smith

Scott D. Smith is a partner with the Washington, D.C., firm of LeClairRyan. He was previously a partner with the firm of Plant Bauer & Smith, LLP as well as a partner with KPMG's State and Local Tax Practice, where he provided expertise on all aspects of income and franchise, employment taxation, client exposure and liability assessment. Prior to joining KPMG, Mr. Smith was Assistant Counsel for the MTC at its Washington, DC headquarters office. Mr. Smith received his B.A. in History from Mount Union College, cum laude, his J.D. from University of Toledo College of Law, and his LL.M. in Taxation from Georgetown University Law Center.

Glenn Todd

Glenn D. Todd is a partner with KPMG's State and Local Tax Practice in the Pittsburgh, Pennsylvania office. Prior to joining the Pittsburgh office, Mr. Todd served in KPMG's Washington National Tax Practice, providing state and local tax technical support and product development for KPMG's State and Local Tax Practice. Mr. Todd received his B.S. in Accounting from Duquesne University, his J.D. from Capital University Law School, magna cum laude and his LL.M. in Taxation from Georgetown University Law Center, with distinction.

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