A. A
deduction similar to that allowed under
26 U.S.C. §
172, except as provided in §§
13.5(A)(1), (2) and
(3) of this Part, may be allowable in
computing entire net income for the purposes of R.I. Gen. Laws §
44-11-11.
The Rhode Island net operating loss deduction is the same as that allowed for
federal tax purposes subject to limitations:
1. One of these limitations is that any net
operating loss which may be carried forward for federal tax purposes must be
adjusted to reflect the inclusions and exclusions from entire net income
required by R.I. Gen. Laws §§
44-11-11(a)
and
44-11-11.1.
a. Example 1 - For the calendar year 2013, a
taxpayer has federal gross income of $400,000, including $100,000 dividends
from corporations qualifying for the 85% dividend exclusion and has deductible
operating expenses of $400,000, including $5,000 Rhode Island corporation tax.
Its federal net operating loss is $85,000 and its Rhode Island net operating
loss is $80,000, computed as follows:
(1)
Federal Filing
|
Gross Income
|
$400,000
|
|
Less Operating Expense
|
($400,000)
|
|
Taxable Income Before Special Deduction
|
0
|
|
Less Special Dividend Received Deduction
|
($85,000)
|
|
Net Operating Loss
|
($85,000)
|
(2) Rhode Island Filing
|
Federal Taxable Income
|
($85,000)
|
|
Add: Amount of Federal Deduction for Rhode Island
Business Corporation Tax
|
$5,000
|
|
Rhode Island Net Operating Loss
|
($80,000)
|
2. The second limitation is that in any year
the Rhode Island net operating loss deduction may not exceed the deduction
allowable for that year for federal tax purposes under
26 U.S.C. §
172.
a.
Example 2 - If the dividends in the example 1 were from corporations subject to
tax under R.I. Gen. Laws Chapter 44-11, the Rhode Island net operating loss
would be $95,000 computed as follows:
|
Federal Taxable Income Before Special
Deductions
|
$0
|
|
Less: Special Deductions
|
($85,000)
|
|
Less: Exempt Dividends & Interest
|
($15,000)
|
|
Subtotal
|
($100,000)
|
|
Add: Amount of Federal Deduction for Rhode Island
Business Corporation Tax
|
$5,000
|
|
Rhode Island Operating Loss
|
($95,000)
|
|
Maximum Rhode Island Operating Loss (Limitation
13.5(A)(2) of this Part)
|
($85,000)
|
b.
Example 3 - If the taxpayer in the example 2 in 2014 had federal gross income
of $300,000, including $100,000 of dividends from corporations subject to Rhode
Island corporation tax and expenses of $100,000 including Rhode Island
corporation taxes of $5,000, its federal and state net operating loss deduction
will be computed as follows:
(1) Federal
Filing
|
Gross Income
|
$300,000
|
|
Expenses
|
($100,000)
|
|
Subtotal
|
$200,000
|
|
Net Operating Loss Deduction from 1983 (See example
2 Assume only as a carryforward)
|
($85,000)
|
|
Federal Taxable Income Before Special
Deduction
|
$115,000
|
|
Less: Special Dividends Received Deduction (Current
Year)
|
($85,000)
|
|
Federal Taxable Income
|
$30,000
|
(2) Rhode Island Filing
|
Federal Taxable Income Before Special
Deduction
|
$115,000
|
|
Add: Amount of Federal Deduction for Rhode Island
Business Corporation Tax
|
$5,000
|
|
Less: Special Dividends Received Deduction
|
($85,000)
|
|
Less: Exempt Dividends & Interest
|
($15,000)
|
|
Rhode Island Taxable Income
|
$20,000
|
3. The third limitation is that no deduction
is allowable for a loss sustained during any taxable year in which a taxpayer
was not subject to tax under R.I. Gen. Laws Chapter 44-11.
a. Example 4 - A corporation incorporated in
Pennsylvania in January 2012. During the taxable year 2012 it sustained an
operating loss of $10,000. In January 2013, it began to do business in Rhode
Island. For the taxable year it had entire net income of $10,000. No deduction
is allowed for any part of the loss sustained in 2012, since the corporation
was not subject to Rhode Island business corporation tax in 2012.
4. The fourth limitation is that
such deduction for a taxable year may not be carried back to any other taxable
year for Rhode Island purposes but shall only be allowable on a carry forward
basis for the five (5) succeeding taxable years.
a. Example 5
(1) Federal Filing
|
Gross Income
|
$100,000
|
|
Expenses
|
($125,000)
|
|
Federal Taxable Income (NOL)
|
($25,000)
|
(2) Rhode Island Filing
|
Federal Taxable Income (NOL)
|
($25,000)
|
|
Add: Amount of Federal Deduction for Rhode Island
Business Corporation Tax
|
$1,000
|
|
Rhode Island taxable Income
|
($24,000)
|
(3) If the $25,000 Federal Net Operating Loss
is carried forward, then the Rhode Island Net Operating Loss of $24,000 would
also be allowed to be carried forward.
(4) If the Federal carry forward remains to
be used for a sixth year then there would be no further Rhode Island
carryforward because of the limitation of Rhode Island carryforward for five
(5) succeeding taxable years.
(5)
If the Federal Net Operating Loss is carried back, there is no Rhode Island Net
Operating Loss (except to the extent any unused Federal NOL is carried forward)
to be used as either a carryback or carryforward since the Rhode Island NOL is
limited to a carryforward only and may not exceed the deduction allowable for
that year for federal tax purposes.
B. Consolidated Net Operating Losses - for
tax years beginning on or before 12/31/2014
1.
Each corporation within the consolidated return shall compute its own net
operating loss as outlined in §
13.5(A) of
this Part, except that:
a. A corporation
which reports as part of a consolidated group for federal income tax purposes
but on a separate basis for purposes of Rhode Island, computes its net
operating loss deduction as if it were filing on a separate basis for federal
income tax purposes.
b. Any
carryforward for a year for which a Rhode Island consolidated return was filed
must be based upon the combined net operating loss of the group of companies
filing such return.
2.
The portion of the combined loss attributable to any member of the group which
files a separate return for a preceding or succeeding taxable year will be an
amount bearing the same relation to the combined loss as the net operating loss
of such corporation bears to the total net operating losses of all members of
the group having such losses, to the extent that they are taken into account in
computing consolidated net operating losses.
a. Example 6 - In the taxable year 2012, the
X corporation filed a separate Rhode Island return showing net income of
$20,000 and also filed a separate federal return showing federal taxable income
in the same amount. In 2014, it filed a separate federal return showing a net
operating loss of $10,000 but joined with W Corporation, Y Corporation and Z
Corporation in filing a consolidated Rhode Island return showing the following:
|
W Corporation-Net Income
|
$7,500
|
|
X Corporation- Net Operating Loss
|
($10,000)
|
|
Y Corporation-Net Income
|
($20,000)
|
|
Z Corporation-Net Income
|
$7,500
|
|
Combined Net Operating Loss
|
($15,000)
|
3. For Rhode Island purposes the deduction
allowable to X Corporation against its 2012 income must be based upon the
combined net operating loss shown above. The portion of the combined loss
attributable to X Corporation is one-third $10,000/($10,000 + $20,000).
Therefore, the deduction allowable to X Corporation against its 2012 income
would be ($5,000), i.e., 1/3 x ($15,000).
C. Net Operation Loss on Combined Reporting
Tax Returns
1. For tax years beginning on or
after January 1, 2015 see Regulation Business Corporation Tax - Combined
Reporting (§
10.13 of this
Subchapter).
