Tax Type
Corporation Income Tax
Description
Transitional modification net operating loss deduction
Topic
Taxable Income
Date Issued
05-19-1988
May 19, 1988
Re: §58.1-1821 Application, Corporation Income Tax
§58.1-315 Transitional Modification
Net Operating Loss Deduction
Dear**********************
This is in response to your letter of September 8, 1987, in which you applied for correction of an assessment of corporation income tax.
Facts
On its Virginia return for F.Y.E 9/30/85 the taxpayer claimed a subtraction for a Virginia net operating-loss. From the schedule attached it appears that the taxpayer computed the subtraction based on Virginia taxable income instead of federal taxable income. After an office audit the subtraction was disallowed.
The taxpayer claims that it is allowed a transitional modification based on recomputing the federal net operating loss deduction, for Virginia purposes, as if no loss had been carried back to a taxable year beginning before January 1, 1972. A detailed schedule has been submitted showing the income and application of losses for every taxable year since 1970.
Discussion
Virginia does not have a net operating loss deduction (NOLD) but recognizes the federal NOLD in computing federal taxable income for Virginia purposes. When Virginia adopted conformity to federal taxable income a transitional provision was included to disallow a NOLD attributable to losses incurred before conformity while ensuring that all losses incurred after conformity would be available for Virginia purposes.
The taxpayer's net operating losses and income over the years have been such that the transitional modification in the second paragraph of §58.1-315 applies, and may continue to apply indefinitely. We have reviewed the schedule submitted with your application and it appears to be prepared properly. The schedule lists the three taxable years beginning before conformity and every-taxable year beginning after conformity. For each taxable year the schedule shows:
- the actual federal taxable. income and years to which each net operating loss is carried for federal purposes;
- the federal taxable income for Virginia purposes showing the years to which each federal net operating loss is carried for Virginia purposes (which follows all applicable federal rules except that no loss is carried back to a year beginning before conformity); and
- the Virginia taxable income after additions and subtractions.
Determination
Accordingly, the schedule is accepted for the year in question and the assessment will be abated.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner