Tax Type
Corporation Income Tax
Description
Net operating loss; Savings and loan with service corporation subsidiaries
Topic
Taxable Income
Date Issued
07-03-1984
- July 3, 1984
Re: §58-1118 Application/Corporation Income Tax
Dear *****************
Facts
The taxpayer is a savings and loan association which owns several service corporation subsidiaries, with which it files consolidated federal and Virginia returns. Taxpayer filed amended 1976, 1979 and 1980 income tax returns to reflect the net operating loss deduction carryback from the 1982 consolidated return. The taxpayer's amended returns separately stated the 1982 net operating loss. The loss from the savings and loan association was carried back 10 years and then carried forward. The service corporations' losses were carried back 3 years and then carried forward.
The department adjusted the carryback of the 1982 loss and recomputed the 1981 net operating loss carryback, requiring that the taxpayer offset the consolidated net operating loss with consolidated income. The department took the position that the period of carryback for the consolidated group was controlled by the carryback period of the parent corporation. The sources of the consolidated loss were not separately identified and granted separate treatment. The consolidated net operating loss was carried back 10 years and then carried forward. This adjustment resulted in a reduced refund which is the subject of this appeal.
Determination
The Code of Virginia makes no statutory provision for a Virginia net operating loss as such. However, since the starting point on a Virginia corporation income tax return is federal taxable income, there is an implied statutory provision for net operating loss deductions to the extent that such losses are included in federal taxable income. In the absence of its own statutory carryback and carryover provisions, Virginia relies on the provisions of § 172 of the Internal Revenue Code. The only exceptions to this are the transitional modification provisions of Va. Code §58-151.0111, which are not at issue.
§ 172(b)(1)(F) of the I.R.C. allows for a 10 year carryback period for savings and loan associations and § 172(b)(1)(A) of the I.R.C. allows for a 3 year carryback period for other corporations. In light of these provisions of the I.R.C. and absent any contrary provisions in the Code of Virginia, the department now agrees with the taxpayer's method of separately stating the consolidated net operating loss. This method is consistent with the department's letter of December 20, 1982, concerning the treatment of a consolidated bad debt deduction.
The taxpayer's 1976, 1979 and 1980 amended returns will be adjusted to reflect this corrected treatment of carrying back the consolidated net operating loss deduction. As my staff discussed with you on May 10, the returns will be adjusted to incorporate the Internal Revenue Service changes finalized on May 4, 1984. You should receive the refund in six to eight weeks.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner