Did Virginia's net-operating-loss carryforward method apply to a corporation filing separate Virginia returns?

Plain-English summary

Virginia rejected the corporation's argument that the Department had used an NOL regulation limited to consolidated or combined filers. The regulation cross-referenced another provision that applied to all corporations, including those filing separate Virginia returns.

Under that method, the loss year's Virginia additions and subtractions follow the loss proportionately into the year in which the net operating loss deduction is claimed. The Department also cited a prior public document applying the calculation regardless of filing method.

Because the same NOL method applied to the taxpayer's separate return, Virginia upheld the prior carryforward adjustment and refused to abate the 2013 corporate income tax assessment.

Common questions

Did the rule apply only to consolidated and combined filers? No. The cross-referenced calculation provision applied to all corporations.

Did separate-return filing change the NOL methodology? No. The Department applied the same carryback and carryforward method.

What happened to the taxpayer's reconsideration request? The Department upheld the prior adjustment and denied abatement.

Citations and references

• 23 VAC 10-120-325 B
• 23 VAC 10-120-100 B 5
• Va. Code § 58.1-1821

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-189

Original ruling text

October 30, 2018

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department’s determination letter issued as Public Document (P.D.) 18-127 (6/26/2018) to * (the “Taxpayer”) for the taxable year ended December 31, 2013.

FACTS

In P.D. 18-127, the Department determined that the Taxpayer did not have a net operating loss (NOL) in 2011 that could be carried forward to offset its federal taxable income (FTI) for the 2013 taxable year. Thus, the Department upheld the assessment of Virginia corporate income tax for the 2013 taxable year. The Taxpayer seeks a reconsideration of that determination, contending that the Department’s methodology for calculating the NOL carryback and carryforwards is based on the incorrect regulation.

DETERMINATION

In P.D. 18-127, the Department determined that Title 23 of the Virginia Administrative Code (VAC) 10-120-325 provided the proper methodology that a corporation filing a separate return must use to calculate net operating loss deduction (NOLD) carrybacks and carryforwards. The Taxpayer asserts that Title 23 VAC 10-120-325 only applies to corporations filing consolidated or combined Virginia corporate returns. As such, it argues that the methodology for calculating carrybacks and carryforwards in this regulation does not apply to corporations filing separate Virginia corporate returns.

Title 23 VAC 10-120-325 B specifically references Title 23 VAC 10-120-100 B 5 for computing NOLs. Title 23 VAC 10-120-100 B 5, which applies to all corporations regardless of whether they file consolidated, combined or separate returns, provides the methodology for calculating NOL carrybacks and carryforwards. This regulation specifically states that the Virginia additions and subtractions of the loss year follow the loss in proportion to the year the NOLD is claimed. Furthermore, P.D 16 -22 (3/8/2016), applies the NOL carryback and carryforward calculation to corporations regardless of their filing method.

Accordingly, the Department’s adjustment of the NOLD carryforward is upheld, and the Taxpayer’s request for the abatement of the Virginia corporate income tax assessed for the taxable year ended December 31, 2013 cannot be granted.

The regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1753.B