OAR 150-316-0035: Oregon Net Operating Losses — Treatment After 1984

(1) Applicability of this rule. This rule applies to the computation of a net operating loss (NOL) occurring in loss years beginning after December 31, 1984; and a net operating loss deduction (NOLD) allowed or allowable in tax years beginning after December 31, 1984. (2) Definitions for purposes of this rule. (a) “Prohibited amounts” means those amounts that the state of Oregon is prohibited from taxing, such as all stocks, bonds, Treasury notes, and other obligations of the United States as provided in 31 United States Code Section 3124. Prohibited amounts do not include such items as federally taxable social security benefits since Oregon is not prohibited from indirectly taxing such types of income. (b) “Oregon Adjusted Gross Income (Oregon AGI)” for a full-year resident is generally the same as federal adjusted gross income (federal AGI). For a nonresident, “Oregon AGI” means the items included in federal AGI as defined in IRC Section 62 that relate to Oregon sources without modifications. (c) “Modified Oregon taxable income” for a full-year resident is generally the same as federal taxable income as modified in IRC Section 172(d). For a nonresident, it means Oregon AGI reduced by the sum of the following: (A) Federal itemized or standard deductions; (i) Federal itemized deductions. For part-year and nonresident taxpayers, only the Oregon percentage of federal itemized deductions are used; or (ii) Federal standard deduction. For part-year and nonresident taxpayers, only the Oregon percentage of the federal standard deduction is used; (B) Federal personal exemption(s); and (C) Prohibited amounts included in Oregon AGI. (3) NOL for a full-year resident. (a) For Oregon purposes, a resident’s NOL is computed in the same manner as for federal purposes without Oregon modifications. Generally, the Oregon NOL is the same as the federal NOL. The only modification necessary is to subtract prohibited amounts. (b) The computation of the Oregon NOL begins with the Oregon AGI to arrive at modified Oregon taxable income. Modified Oregon taxable income is then adjusted as required by IRC Section 172(d). Example 1: [See PDF link below] (4) Application of an NOL for a full-year resident. (a) General rule. An Oregon NOL for any loss years is applied in the same manner as the federal NOL as provided in IRC Section 172(b). If the loss was not attributable to Oregon sources and was incurred while the taxpayer was a nonresident, there is no Oregon NOL to carry over even if the taxpayer later becomes an Oregon resident. In such cases, the amount of the NOL carryover that is not attributable to Oregon sources is added back on the Oregon resident tax return. If a taxpayer carries back a federal NOL, the taxpayer is treated as carrying the loss back for Oregon purposes as well. If a taxpayer makes an election to carry over the federal NOL, the taxpayer is treated as making the same irrevocable election for Oregon purposes as well. (b) Exceptions. (A) If a taxpayer has an Oregon NOL but does not have a federal NOL, the taxpayer may elect to carry the Oregon NOL over to the next succeeding year. This is an irrevocable election that a taxpayer makes on a timely filed Oregon loss year return (including extensions). If no such election is made, then the taxpayer may only carry the Oregon loss forward or back in the same manner as provided in IRC Section 172(b). (B) If a taxpayer is not required to file an Oregon return for all years to which the federal NOLD is applied, the Oregon NOL is carried to the year in which the loss may be first applied. (C) The total number of years to which an NOL may be carried back or forward is the same for Oregon and federal (including exceptions and limitations). Example 2: Kian has an NOL for federal and Oregon purposes for tax year 2016. For federal purposes, Kian carried his federal NOL back to 2014. Since he carried back his loss for federal purposes, he must carry back the loss for Oregon purposes to his 2014 Oregon tax return. If he is not required to file an Oregon tax return for 2014, he may carry his Oregon NOL to his 2015 Oregon tax return. Example 3: Assume the same facts as in Example 2. However, Kian was not required to file an Oregon tax return prior to tax year 2016. Kian may carry his Oregon NOL over to his 2017 Oregon tax return even if the loss was carried back for federal purposes. Example 4: Marc, an Oregon resident and business owner, incurs a loss in 2016. He is eligible to carry back his loss up to three years (instead of the normal two years) because the loss was due to fire. Marc chose to carry his loss back three years on his federal return, so he must use the same three-year carryback for purposes of his Oregon return. (5) NOLD carryback and carryover amount for a full-year resident. (a) A taxpayer’s NOLD, carryback, and carryover amount is computed in the same manner as for federal purposes. The method to compute the carryback and carryover amount is not modified for Oregon purposes. (b) For a full-year resident, generally an NOLD, carryback, and carryover amount is the same as for federal purposes except that prohibited amounts as defined in section (2)(a) of this rule are not taken into consideration. Example 5: [See PDF link below] (6) NOL for a part-year resident and a nonresident. (a) A nonresident is allowed an Oregon NOL for any loss year when the NOL is attributable to Oregon sources. A taxpayer is not allowed an NOL or carryover on the Oregon return if the loss was incurred while the taxpayer was a nonresident and the loss was not attributable to Oregon. The computation of the allowable NOL for Oregon purposes begins with Oregon AGI as defined in this rule, which is generally income after federal adjustments in the Oregon column. (b) Next, calculate federal modified taxable income as it relates to Oregon. Starting with Oregon AGI, subtract federal itemized or standard deductions as multiplied by the Oregon percentage (as calculated on the Oregon return). Note: Federal exemptions are not required to be used in this calculation and may be ignored, because they always have a net effect. (c) Add back any modifications provided in IRC Section 172(d) applied to all items of income and deduction included in Oregon AGI or federal deductions. The IRC Section 172(d) modifications attributable to Oregon sources are the following: (A) Oregon NOLD from prior years included in Oregon income after adjustments. (B) Net Oregon capital loss deduction. (C) Excess of nonbusiness deductions over nonbusiness income that are from Oregon sources. Do not include the standard deduction or itemized deductions or non-Oregon items in this calculation. (D) Nonbusiness federal itemized deductions or standard deduction multiplied by the Oregon percentage. (d) Add back prohibited amounts as defined in this rule. Example 6: [See PDF link below] (7) Application of an NOL for a part-year resident and a nonresident. (a) General rule. An Oregon NOL for any loss years is applied in the same manner as the federal NOL as provided in IRC Section 172(b). If the loss was not attributable to Oregon sources and was incurred while the taxpayer was a nonresident, there is no Oregon NOL to carry over. If a taxpayer carries back a federal NOL, the taxpayer is treated as carrying the loss back for Oregon purposes as well. If a taxpayer makes an election to carry over the federal NOL, the taxpayer is treated as making the same irrevocable election for Oregon purposes as well. (b) Exceptions. (A) If a taxpayer has an Oregon NOL but does not have a federal NOL, the taxpayer may elect to carry the Oregon NOL forward or back in the same manner as provided in IRC Section 172(b). (B) If a taxpayer is not required to file an Oregon return for all years to which the federal NOLD is applied, the Oregon NOL is carried to the year in which the loss may be first applied. (C) The total number of years to which an NOL may be carried back or forward is the same for Oregon and federal (including exceptions and limitations). Example 7: Barbara has an NOL for federal and Oregon purposes for tax year 2016. For federal purposes, Barbara carried her federal NOL back to 2014. Since she carried back her loss for federal purposes, she must carry back the loss for Oregon purposes to her 2014 Oregon tax return. If she is not required to file an Oregon tax return for 2014, she may carry her Oregon NOL to her 2015 Oregon tax return. Example 8: Assume the same facts as in Example 7. However, Barbara was not required to file an Oregon tax return prior to tax year 2016. Barbara may carry her Oregon NOL over to her 2017 Oregon tax return even if the loss was carried back for federal purposes. Example 9: Devin, a Washington resident, incurs a $25,000 NOL in 2016 from his Washington area business and elects to carry the loss forward. Devin moves to Oregon on January 1, 2017. Since the loss was incurred while Devin was a nonresident of Oregon and the loss is not from an Oregon source, there is no Oregon NOL. Devin must make an addition on his 2017 Oregon return to add back the $25,000 NOL included in federal AGI. (8) NOLD carryback and carryover amount for a part-year resident and a nonresident. (a) A taxpayer’s NOLD, carryback, and carryover amount is computed in the same manner as for federal purposes. The method to compute the carryback and carryover amount is not modified for Oregon purposes. (b) A part-year resident and a nonresident use the federal method without modifications, except that prohibited amounts are not taken into consideration, and the NOLD, carryback and carryover are based only upon amounts attributable to Oregon sources. Example 10: [See PDF link below] Example 11: [See PDF link below] [Publications: C ontact the Oregon Department of Revenue for information about how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and ORS 183.355(1)(b).] [ED. NOTE: To view attachments referenced in rule text, click here to view rule.]