Section 45IAC3.1-1-9. Allowance of corporate net operating loss; modifications

   Corporate Net Operating Loss. The net operating loss as described in Internal Revenue Code §172 is an allowable deduction for corporations in computing Indiana Adjusted Gross Income. The amount of the loss which may be deducted is the Federal net operating loss after:

  (1) All modifications required under IC 6-3-1-3.5(b); and

  (2) After apportionment, if the taxpayer is doing business in more than one state and is required to apportion his income.

  The computation of the loss is subject to the following exceptions, limitations, and additions:

  (1) For those corporations subject to apportionment, nonbusiness deductions which are attributable to nonbusiness income are allowed only to the extent that such nonbusiness deductions were attributable to Indiana nonbusiness income.

  (2) There shall be included in computing gross income only the net amount of exempt interest (i.e., U.S. Government bond interest decreased by the amount of interest paid or accrued to purchase or carry investments earning such interest).

  (3) In the case of a taxpayer whose entire net income is assigned to Indiana (without apportionment) under IC 6-3-2-2 the net operating loss of such business is determined in the same manner as if the entire gross income were assignable to the State and the entire amount of the net operating loss is carried back or forward as a deduction in computing Indiana adjusted gross income.

  (4) Losses connected with income-producing activities, the income from which is not required to be either assigned to this State or included in computing taxable net income, are not allowed in computing a net operating loss.

  (5) If a taxpayer's business is conducted partly within and partly without the State, and a net operating loss is sustained, the net operating loss is carried back or forward and deducted in arriving at Indiana adjusted gross income subject to apportionment. The amount by which Indiana adjusted gross income is reduced by reason of the net operating loss deduction may not exceed the amount of net operating loss deduction determined to be from Indiana sources.

  The computation of a corporate net operating loss pertains only to the determination of the taxpayer's Adjusted Gross and Supplemental Net Income Tax liability. The loss cannot be taken in computing the Indiana Gross Income Tax. Moreover, taxpayers must irrevocably elect, by the due date of the annual return (including extensions of time for filing) for the tax year in which the loss is sustained, the same carryback and carryforward treatment of the loss for Adjusted Gross Income Tax purposes as was elected for Federal tax purposes.

  Any refund of adjusted gross income tax due as a result of a net operating loss cannot be reduced below the amount of gross income tax due. In applying for a refund as a result of a net operating loss, Schedule IT-20NOL is required, with a complete explanation. A taxpayer must claim a refund for a net operating loss carryback within three years of the original due date of the return for the loss year. If a taxpayer fails to claim a carryback loss within the time prescribed, the effect of the loss must be computed by the proper carryback even though no refund will be allowed in a situation where the taxpayer has other losses in years still within the statute of limitations. For a net operating loss carryforward, a taxpayer must claim a refund within the time prescribed by Regulation 6-3-6-4(a)(010). Only the unused portion of the net operating loss after the proper carryback or carryforward will be available for the refund if the statute of limitations has expired to claim the original loss. Adjustments will also be required in re-determining the credit for contributions to Indiana colleges and universities. (See Example 1).

  When a corporate merger takes place or a new subsidiary is included in a consolidated Indiana Adjusted Gross Income Tax return, the Department follows the guidelines of the Internal Revenue Code as to the treatment of net operating losses sustained by any of the corporations involved. For requirements of filing consolidated returns, see Regulation 6-3-4-14(010)-(030) [45 IAC 3.1-1-110─45 IAC 3.1-1-112].

	Example 1
	Corporations Filing Indiana Income Tax Returns Adjusted Gross Income Tax Computation
1.	Net federal taxable income (loss) (before net operating loss or special deductions). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (85,000)
2.	Adjustments, if any (other than Indiana net operating loss deductions)	-0-
3.	Net taxable income (loss) after adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (85,000)
4.	Add back:
	(a) All state income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  5,000
	(b) All real estate and personal property taxes. . . . . . . . . . . . . . . . . . .	$  5,000
	(c) All charitable contributions, gifts, etc.. . . . . . . . . . . . . . . . . . . . . .	-0-
5.	Total lines 4 (a), (b), and (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  10,000
6.	Deduct interest of U.S. government obligations included on federal return	$  5,000
7.	Subtotal (line 3 plus line 5 less line 6) (If you do not apportion enter here and on line 13; if you do apportion, continue on the next line). . . . . . . . . . . . . . . . .	$  (80,000)
8.	Enter net nonbusiness income from all sources. . . . . . . . . . . . . . . . . . . . . . . . .	$  13,000	(a)
9.	Net taxable business income (Line 7 less 8). . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (93,000)
10.	Apportionment percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50%
11.	Business income apportioned to Indiana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (46,500)
12.	Indiana nonbusiness income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  13,000
13.	Total Indiana adjusted gross income (loss) (line 11 plus line 12) (before Indiana net operating loss carryback/ carryforward deduction). . . . . . . . . . . . .	$  (33,500)	(b)
14.	Deduct apportioned Indiana net operating loss carryback/carry-forward. . . . . .	-0-	(c)
15.	Total Indiana adjusted gross income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (33,500)

(a) Interest income assumed to be $15,000 in ths example, with $2,000 of nonbusiness expenses.

(b) This figure is the Indiana net operating loss for the current year which can be applied against the income in the three preceeding [sic.] years and five succeeding years. Effective January 1, 1977, a taxpayer may irrevocably elect at the time the return is due for the loss year to forego a carryback and merely carryforward the loss pursuant to the Internal Revenue Code. All taxpayers will be required to make the same election for federal income tax purposes as for State income tax purposes.

(c) On this line you would deduct (or add to the current year's loss) any apportioned Indiana carryback/carryforward from other taxable years.

(Department of State Revenue; Reg 6-3-1-3.5(b)(020); filed Oct 15, 1979, 11:15 am: 2 IR 1517; errata, 2 IR 1743)