Corporate Close-Up: Minnesota Department of Revenue Revises Policy on Section 382 Limitations to Match Minnesota Tax Court Opinions and Statutory Law


The Minnesota Department of Revenue’s official policy on Section 382 limitations finally caught up to the longstanding treatment of the Minnesota Tax Court when the Department revoked Revenue Notice 99-07 and issued Revenue Notice 17-09, effective Nov. 6, 2017.

On Aug, 9, 1999, the Department published Revenue Notice 99-07, issuing guidance to taxpayers on how to apply the Internal Revenue Code § 382 limitation on net operating loss (NOL) deductions after certain corporate ownership changes, while complying with Minn. Stat. § 290.095, which provides Minnesota’s own limitation on NOL deductions after corporate ownership changes. Statutory law requires that any federal limitation amount determined under I.R.C. § 382 after a corporate acquisition must be applied to net income prior to apportionment in each post-change year to which a NOL is carried forward.

The Tax Court officially disagreed with the notice in 2012’s Express Scripts, Inc. v. Commissioner. In 2010, Express Scripts, Inc., a Delaware corporation, filed an appeal challenging the wording of Minn. Stat. § 290.095, which the Department used to reduce Express Scripts’ limitation from $30 million to a mere $120,000. Express Scripts argued that the use of the words “before apportionment” should be interpreted to mean that no apportionment ratio applies to the § 382 limitation. Because the statute does not specify whether a taxpayer uses the apportionment ratio for the income year or the loss year, Express Scripts argued that the intent of the legislature was that no apportionment ratio be applied at all, and therefore the Commissioner exceeded his authority in requiring apportionment of Express Scripts’ subsidiary’s § 382 limitation. In its August 2012 order, the Tax Court agreed, finding that the plain language of the statute does not require taxpayers to apportion their § 382 limitation and that the language contained in Revenue Notice 99-07 is not precedential.

Despite the Tax Court’s disagreement with the language in Revenue Notice 99-07, the notice continued to be available as a representation of the Department’s policy for the next five years. In 2016, Sinclair Broadcast Group, Inc. filed an appeal challenging the Department’s interpretation of the statutory language under Revenue Notice 99-07, which resulted in a reduction of its NOL deduction by nearly 85 percent. In Sinclair Broad. Grp., Inc. v. Commissioner, the Tax Court found that the Commissioner’s “double-application theory” relied on in Revenue Notice 99-07 had no basis in statutory law and there was no evidence that the legislature intended that § 382 limitation be apportioned. The Tax Court again emphasized the non-precedential nature of the revenue notice and granted the taxpayer’s motion for summary judgment on Aug. 11, 2017.

After over 18 years of mismatch between the plain language of Minn. Stat. § 290.095 and the Commissioner’s application of it in Revenue Notice 99-07, the Department finally revoked Revenue Notice 99-07 on Nov. 6, 2017, by publishing Revenue Notice 17-09. In Revenue Notice 17-09, the Department waved the white flag, acquiescing to the Tax Court’s decision in Sinclair. Going forward, any Minnesota § 382 limitation calculated under Minn. Stat. § 290.095 is computed in the same manner as the federal limitation under I.R.C. § 382 and is not apportioned.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How does your state generally address disconnects between statutory law and department policy?

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