Weekly Round-Up: State Guidance on the Application of I.R.C. §382

Although sometimes overlooked by taxpayers and tax professionals, the state tax consequences of an I.R.C. §382 ownership change, including whether any particular state requires apportionment of the I.R.C. §382 limitation, can materially impact the utilization of state tax NOLs, Brian Sullivan and Meredith Morgan, of Deloitte Tax LLP's Multistate Tax Transaction Advisory Services, explain in this week's issue of the Weekly State Tax Report.

The resolution of apportionment issues with respect to net operating losses can depend on the express rule-making authority granted to state taxing agencies related to the state's conformity to I.R.C. § 382, they write.

For example, in the 2009 case of AT&T Corp. v. Alabama Dept. of Rev., the Alabama Department of Revenue assessed tax against AT&T for applying the entire pre-apportioned I.R.C. §382 limitation against its post-apportioned Alabama NOLs, Sullivan and Morgan explain.  An administrative law ultimately held that the possibility of multiple interpretations or differing methods of computation made it such that regulations were necessary, and "without duly promulgated guidelines specifying how the §382 limitation should be apportioned and otherwise applied for Alabama purposes, the federal limitations amount must be allowed." 

 Subsequent to this case, Sullivan and Morgan explain, the Alabama Department of Revenue issued regulation 810-3-1.1-.01(4)(b)1 which provides that "when a loss corporation experiences an ownership change and the provisions of I.R.C. §382 apply, the Alabama apportionment factor of the loss corporation for the reporting period including the ownership change must be used to compute the I.R.C. section 382 limitation application to Alabama multi-state taxpayers." 

Alabama law provides express statutory authority authorizing the Department to promulgate regulations as they relate to applying Alabama's adoption of federal tax law and principles, according to Sullivan and Morgan. Because the legislature provided express authority to the Alabama Department of Revenue to promulgate regulations interpreting Alabama's conformity to the I.R.C., including I.R.C. §382, the regulation carries the power of law. One of the lessons of the Alabama development is that consideration should be given to whether appropriate rule-making authority has been delegated to the taxing agencies by the state legislatures, Sullivan and Morgan said.

For a complete look at how the resolution of apportionment issues with respect to net operating losses can depend on the express rule-making authority granted to state taxing agencies related to the state's conformity to I.R.C. § 382, check out the article by Sullivan and Morgan here.

In other developments…

Guarding Against Economic Substance, Sham Transaction Doctrines , a new BBNA webinar

Sutherland SALT Shaker : June 2013 Digest

Monday Map: State & Local Taxes & Fees on Wireless Service , by the Tax Foundation

Morrison & Foerster issues its July 2013 issue of New York Tax Insights

Compiled by Priya D. Nair

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