26 CFR § 1.50A-2 - Carryback and carryover of unused credit.

§ 1.50A-2 Carryback and carryover of unused credit.

(a) Allowance of unused credit as carryback or carryover -

(1) In general. Section 50A(b)(1) provides for carrybacks and carryovers of any unused credit. An unused credit is the excess of the credit earned for the taxable year (as determined under paragraph (a) of § 1.50A-1) over the limitation based on amount of tax for such taxable year (as determined under paragraph (b) of § 1.50A-1). Subject to the limitation contained in paragraph (b) of this section, an unused credit shall be added to the amount allowable as a credit under section 40 for the years to which the unused credit can be carried. The year with respect to which an unused credit arises shall be referred to in this section as the “unused credit year.”

(2) Taxable years to which unused credit may be carried. An unused credit shall be a work incentive program (WIN) credit carryback to each of the 3 taxable years preceding the unused credit year and a WIN credit carryover to each of the 7 taxable years succeeding the unused credit year, except that an unused credit shall be a carryback only to taxable years beginning after December 31, 1971. An unused credit must be carried first to the earliest of the taxable years to which it may be carried, and then to each of the other taxable years (in order of time) to the extent that the unused credit may not be added (because of the limitation contained in paragraph (b) of this section) to the amount allowable as a credit under section 40 for a prior taxable year.

(b) Limitation on allowance of unused credit. The amount of the unused credit from any particular unused credit year which may be added to the amount allowable as a credit under section 40 for any of the preceding or succeeding taxable years to which such credit may be carried shall not exceed the amount by which the limitation based on amount of tax for such preceding or succeeding taxable year exceeds the sum of (1) the credit earned for such preceding or succeeding year, and (2) other unused credits carried to such preceding or succeeding year which are attributable to unused credit years prior to the particular unused credit year.

(c) Corporate acquisitions. For the carryover of unused credits in the case of certain corporate acquisitions, see section 381(c)(24) and the regulations thereunder. [§ 1.381(c)(24)-1]

(d) Periods of less than 12 months. A fractional part of a year which is considered as a taxable year under sections 441(b) and 7701(a)(23) shall be treated as a preceding or a succeeding taxable year for the purpose of determining under section 50A(b) and this section the taxable years to which an unused credit may be carried.

(e) Example. The provisions of paragraphs (a) through (d) of this section may be illustrated by the following example:

Example.
Corporation X files its income tax return on the basis of the calendar year. X's credit earned and its limitation based on amount of tax for each of its taxable years 1972 through 1978 are as follows:
Credit earned Limitation based on amount of tax
1972 $175,000 $200,000
1973 250,000 160,000
1974 200,000 210,000
1975 210,000 230,000
1976 220,000 260,000
1977 260,000 220,000
1978 270,000 280,000
(i) Corporation X's credit earned for 1972, $175,000, is allowable in full as a credit under section 40 for 1972 since such amount is less than the limitation based on amount of tax for such year, $200,000. Since the limitation based on amount of tax for 1973 is $160,000, only $160,000 of the $250,000 credit earned for such year is allowable under section 40 as a credit for 1973. The unused credit for 1973 of $90,000 ($250,000 less $160,000) is a WIN credit carryback to 1972 and a WIN credit carryover to 1974 and subsequent years up to and including 1980. The portion of the $90,000 unused credit which shall be added to the amount allowable as a credit under section 40 for 1972 and 1974 and subsequent years is computed as follows:

(a) 1972. The portion of the unused credit for 1973 ($90,000) which is allowable as a credit for 1972 is $25,000. This amount shall be added to the amount allowable as a credit for 1972. The balance of the unused credit for 1973 to be carried to 1974 is $65,000. These amounts are computed as follows:

Carryback to 1972 $90,000
1972 limitation based on tax $200,000
Less: Credit earned for 1972 $175,000
Unused credits attributable to years preceding 1973 0
175,000
Limit on amount of 1973 unused credit which may be added as a credit for 1972 25,000
Balance of 1973 unused credit to be carried to 1974 65,000
(b) 1974. The portion of the balance of the unused credit for 1973 ($65,000) allowable as a credit for 1974 is $10,000. This amount shall be added to the amount allowable as a credit for 1974. The balance of the unused credit for 1973 to be carried to 1975 is $55,000. These amounts are computed as follows:
Carryover to 1974 $65,000
1974 limitation based on tax $210,000
Less: Credit earned for 1974 $200,000
Unused credits attributable to years preceding 1973 0
____ 200,000
Limit on amount of 1973 unused credit which may be added as a credit for 1974 10,000
Balance of 1973 unused credit to be carried to 1975 55,000
(c) 1975. The portion of the balance of the unused credit for 1973 ($55,000) allowable as a credit for 1975 is $20,000. This amount shall be added to the amount allowable as a credit for 1975. The balance of the unused credit for 1973 to be carried to 1976 is $35,000. These amounts are computed as follows:
Carryover to 1975 $55,000
1975 limitation based on tax $230,000
Less: Credit earned for 1975 $210,000
Unused credits attributable to years preceding 1973 0
210,000
Limit on amount of 1973 unused credit which may be added as a credit for 1975 $20,000
Balance of 1973 unused credit to be carried to 1976 35,000
(d) 1976. The entire balance of the unused credit for 1973 ($35,000) is allowable as a credit for 1976, since the limitation based on amount of tax for 1976 exceeds the sum of the credit earned for 1976 and unused credits attributable to years prior to 1973 by an amount in excess of $35,000. Since the balance of the unused credit for 1973 has been fully allowed, no portion thereof remains to be carried to subsequent taxable years. This is illustrated as follows:
Carryover to 1976 $35,000
1976 limitation based on tax $260,000
Less: Credit earned for 1976 $220,000
Unused credits attributable to years preceding 1973 0
220,000
Limit on amount of 1973 unused credit which may be added as a credit for 1976 40,000
Balance of 1973 unused credit to be carried to 1977 0
(ii) Since the limitation based on amount of tax for 1977 is $220,000, only $220,000 of the $260,000 credit earned for such year is allowable as a credit for 1977. The unused credit for 1977 of $40,000 ($260,000 less $220,000) is a WIN credit carryback to 1974, 1975, and 1976 and a WIN credit carryover to 1978 and subsequent years. The portions of the $40,000 unused credit which shall be added to the amount allowable as a credit for such years are computed as follows:

(a) 1974. The portion of the unused credit for 1977 ($40,000) allowable as a credit for 1974 is zero. The balance of the unused credit for 1977 to be carried to 1975 is $40,000. These amounts are computed as follows:

Carryback to 1974 $40,000
1974 limitation based on tax $210,000
Less: Credit earned for 1974 $200,000
Unused credits attributable to years preceding 1977 (unused credit from 1973) 10,000
$210,000
Limit on amount of 1977 unused credit which may be added as a credit for 1974 0
Balance of 1977 unused credit to be carried to 1975 40,000
(b) 1975. The portion of the unused credit for 1977 ($40,000) allowable as a credit for 1975 is zero. The balance of the unused credit for 1977 to be carried to 1976 is $40,000. These amounts are computed as follows:
Carryback to 1975 $40,000
1975 limitation based on tax $230,000
Less: Credit earned for 1975 $210,000
Unused credits attributable to years preceding 1977 (unused credit from 1973) 20,000
____ 230,000
Limit on amount of 1977 unused credit which may be added as a credit for 1975 0
Balance of 1977 unused credit to be carried to 1976 40,000
(c) 1976. The portion of the unused credit for 1977 ($40,000) allowable as a credit for 1976 is $5,000. This amount shall be added to the amount allowable as a credit for 1976. The balance of the unused credit for 1977 to be carried to 1978 is $35,000. These amounts are computed as follows:
Carryback to 1976 $40,000
1976 limitation based on tax $260,000
Less: Credit earned for 1976 $220,000
Unused credits attributable to years preceding 1977 (unused credit from 1973) 35,000
____ 255,000
Limit on amount of 1977 unused credit which may be added as a credit for 1976 5,000
Balance of 1977 unused credit to be carried to 1978 35,000
(d) 1978. The portion of the balance of the unused credit for 1977 ($35,000) allowable as a credit for 1978 is $10,000. This amount shall be added to the amount allowable as a credit for 1978. The balance of the unused credit for 1977 to be carried to 1979 and subsequent years is $25,000. These amounts are computed as follows:
Carryover to 1978 $35,000
1978 limitation based on tax $280,000
Less: Credit earned for 1978 $270,000
Unused credits attributable to years preceding 1977 0
____ $270,000
Limit on amount of 1977 unused credit which may be added as a credit for 1978 $10,000
Balance of 1977 unused credit to be carried to 1979 25,000

(f) Electing small business corporation. An unused credit of a corporation which arises in an unused credit year for which the corporation is not an electing small business corporation (as defined in section 1371(b)) and which is a carryback or carryover to a taxable year for which the corporation is an electing small business corporation shall not be added to the amount allowable as a credit under section 40 to the shareholders of such corporation for any taxable year. However, a taxable year for which the corporation is an electing small business corporation shall be counted as a taxable year for purposes of determining the taxable years to which such unused credit may be carried.

[38 FR 6153, Mar. 7, 1973]