REG 4 - Net Operating Losses

Question 1

How long can a net operating loss for a corporation be carried back? How long can a net operating loss for a corporation be carried forward?

Answer 1

• 2 year carryback, 20 year carryforward.

Question 2

What the four deductions not allowed when calculation net operating losses?

Answer 2

The following cannot be used in calculating net operating losses.

1) No charitable contribution deduction is allowed in calculating NOL.
2) The taxable income limitation normally imposed on the dividends-received deduction does not apply for NOL
3) Domestic production activities deduction under Section 199 is not allowed in calculating NOL

4) Corporation can deduct a capital loss carryover from a current year capital gain in calculating an NOL,
BUT it cannot deduct a capital loss carryback against a net capital gain in determining an NOL.

Question 3

Can a corporation choose not to deduct carryback of NOL? Why would they want to not deduct carryback of NOL?

Answer 3

Corporation may elect to forgo the carryback period and only carry the NOL forward.

Corporations may choose to forgo carryback period because the corporation was in a lower tax bracket in previous years, and the following years are expecting more income.