OAR 150-316-0055: Transitional Provision to Prevent Doubling Income or Deductions

(1) This section allows and requires adjustments to the taxpayer’s net income to alleviate inconsistent treatment of income and deductions resulting from the transition from the Personal Income Tax Act of 1953 to the Internal Revenue Code. (2) The section allows and requires adjustments to prevent income items from being doubly taxed and deduction items from being deducted twice. In addition adjustments are allowed or required to prevent income from escaping taxation or the loss of a deduction due to the inconsistent treatment. (3) This section will not apply unless it can be shown that failure to allow or require an adjustment will result in the taxation of income or allowance of a deduction that had already entered into the computation of Oregon income in years beginning prior to January 1, 1969, or, failure to allow or require an adjustment will result in income escaping taxation or loss of a deduction that had already entered into the computation of federal income in years beginning prior to January 1, 1969 and would have been taxed or deducted on an Oregon return if it were not for the change in the Oregon Law. This section does not allow or require adjustments to account for items that are not solely transitional, viz., it does not allow or require adjustments for items of income or deductions not otherwise taxable or deductible under the Internal Revenue Code in years beginning prior to January 1, 1969 or beginning on and after January 1, 1969. Example 1: Federal taxes on telephone and telegraph tolls were deductible in years beginning prior to January 1, 1969 for Oregon purposes under the Personal Income Tax Act of 1953. They are not deductible under the Internal Revenue Code and, therefore, not deductible for Oregon purposes for tax years beginning on or after January 1, 1969. No adjustment is allowed under ORS 316.047 to deduct these taxes for Oregon purposes. The item is not transitional. They were not deductible under the Internal Revenue Code for tax years beginning before January 1, 1969 nor for tax years beginning on or after January 1, 1969. Example 2: A net operating loss as defined in section 172, Internal Revenue Code, was realized in 1968 for both state and federal purposes. The loss was carried back three years and deducted for federal purposes with none to be carried forward to subsequent years. Oregon law for tax years beginning prior to January 1, 1969 allowed a five year carry-forward and no carry-back. An adjustment is allowed under this section to carry the net operating loss forward for five years. The amount of the net operating loss and the amount deductible in each year shall be determined under section 172, Internal Revenue Code, without regard to the carry-back provisions. This is a deduction that had entered into the computation of federal net income in years beginning prior to January 1, 1969 and would have been deducted on an Oregon return if it were not for the change in the Oregon law.