New York Advisory Opinion TSB-A-81(6)I: If a taxpayer filed a separate federal return in the year she had a net operating loss, but filed a joint federal return with her spouse in the earlier carryback year, can she carry her separate net operating loss back to the couple's joint New York return for that earlier year?

Plain-English summary

Sylvia Machlis had a net operating loss for federal tax purposes in 1978, a year in which she and her spouse elected to file separate federal returns. They then carried that loss back to their joint 1975 federal return. She asked the Department whether that same separate-loss-to-joint-carryback-year treatment was proper on their New York personal income tax return.

The Department pointed to the federal regulation governing this exact situation: 26 CFR 1.172-7(b) provides that when a husband and wife file a joint return for a year but didn't file jointly for the loss year, a separate net operating loss carried back (or forward) to the joint-return year becomes a joint net operating loss carryback for that year. Since federal adjusted gross income is defined (IRC § 62) as gross income minus trade-or-business deductions - and a net operating loss deduction under IRC § 172 is exactly that kind of deduction - the federal carryback is automatically baked into the couple's federal adjusted gross income for 1975.

Because Tax Law section 612(a) defines a resident's New York adjusted gross income as starting from federal adjusted gross income (with certain modifications not relevant here), whatever the federal carryback did to the couple's 1975 federal adjusted gross income carries straight through to their New York adjusted gross income for that same year. The Department therefore confirmed it was proper for Machlis to carry her separate 1978 net operating loss back to the couple's joint 1975 New York return.

What this means for you

Married taxpayers who filed separately in a loss year but jointly in the carryback year

Your separate net operating loss carries back to the joint return as a joint net operating loss, both federally and on your New York return - you don't need a separate New York carryback mechanism or a matching filing status between the loss year and the carryback year.

Accountants preparing net operating loss carrybacks across a change in filing status

Confirm the federal treatment under 26 CFR 1.172-7(b) first; since New York adjusted gross income starts from federal adjusted gross income, whatever carryback result is proper on the federal joint return for the earlier year automatically carries through to the New York joint return for that year, with no independent New York analysis needed.

Couples changing their filing status from year to year around a loss event

A mismatch between your filing status in the loss year and your filing status in the carryback year doesn't block the carryback - federal law (and by extension New York law) already has a rule for converting a separate-year loss into a joint carryback when the earlier year was filed jointly.

Common questions

Q: I had a net operating loss and filed separately that year, but my spouse and I filed jointly in the earlier year I'm carrying the loss back to - does the carryback still work?
A: Yes. Federal regulations convert your separate loss into a joint net operating loss carryback for that earlier joint-return year, and that federal treatment carries straight through to your New York return.

Q: Do I need to do anything different on my New York return to claim this carryback?
A: No - since New York adjusted gross income starts from your federal adjusted gross income, the carryback already reflected on your amended joint federal return for the earlier year is automatically reflected on your New York return for that year too.

Q: Does this rule work the same way for a carryforward as it does for a carryback?
A: Yes - the federal regulation cited in this opinion (26 CFR 1.172-7(b)) applies the same joint-conversion treatment to both a separate-year loss carried back and one carried forward to a joint-return year.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a81_6i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81 (6) I
Income Tax
July 15, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I810311A

On March 11, 1981, a Petition for Advisory Opinion was received from Sylvia Machlis, 20
East 9th Street, New York, New York 10003.
The issue raised by Petitioner is the proper treatment, for purposes of the State Personal
Income Tax imposed under Article 22 of the Tax Law, of a net operating loss where Petitioner filed
a separate return in the loss year, but where a joint return was filed, by Petitioner and her spouse, in
a carry back year.
For taxable year 1978, Petitioner sustained a net operating loss for federal tax purposes.
Petitioner and her spouse elected to file separate federal returns for 1978 and to carry the net
operating loss back to their joint 1975 federal return, pursuant to 26 CFR 1.172-7(b), which provides
as follows: "If a husband and wife, making a joint return for any taxable year, did not make a joint
return for any of the taxable years involved in the computation of a net operating loss carryover or
a net operating loss carry back to the taxable year for which the joint return is made, such separate
net operating loss carryover or separate net operating loss carry back is a joint net operating loss
carryover or joint net operating loss carry back to such year."
Section 612(a) of the Tax Law provides that the New York adjusted gross income of a
resident individual, the starting point in determining his New York taxable income, means his federal
adjusted gross income, with certain modifications. Section 62 of the Internal Revenue Code defines
federal adjusted gross income as "gross income minus the deductions allowed by this chapter ...
which are attributable to a trade or business carried on by the taxpayer .... "Net operating loss
deductions, provided for under section 172 of the Code, constitute such a trade or business
deductions. Therefore, the application of a federal net operating loss deduction is automatically
reflected in the taxpayer's federal adjusted gross income.
Accordingly, since Petitioner is allowed to carry a separate federal net operating loss back
to her joint federal return for 1975, and since such carry back affects Petitioner's federal adjusted
gross income for that year, it is proper for Petitioner to carry her separate net operating loss back to
her joint New York State personal income tax return for the same year.

DATED: June 23, 1981

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR