N.J. Admin. Code § 18:7-5.17

Current through Register Vol. 56, No. 11, June 3, 2024

Section 18:7-5.17 - Suspension of net operating loss carryover

(a) Except as provided below, for privilege periods beginning during calendar year 2002 and calendar year 2003, no deduction for any net operating loss shall be allowed. If and only to the extent that any net operating loss carryover deduction is disallowed by reason of this subsection, the date on which the amount of the disallowed net operating loss carryover deduction would otherwise expire shall be extended by two years. This section shall not restrict the surrender or acquisition of corporation business tax benefit certificates pursuant to N.J.S.A. 34:1B-7.42a and shall not restrict the application of corporation business tax certificates pursuant to N.J.S.A. 54:10A:4-2.

Example 1:

Minnow, Inc. is a calendar year taxpayer. In 2000, it filed a NJ CBT-100 that reported a $ 1,000,000 net operating loss. In 2001, the taxpayer had the following income:

Operating Income	$ 100,000
Dividends from wholly owned subsidiary	$ 50,000
Subtotal	$ 150,000

In 2001, Minnow, Inc., uses an NOL deduction of $ 150,000 thus decreasing its prior year NOL to $ 850,000. It does not use any dividend received deduction (DRD) in 2001.

The Business Tax Reform Act suspended the NOL deduction in tax years 2002 and 2003. Assuming the same facts set forth above, in filing its return after the law changes the use of the taxpayer's NOL deduction is suspended.

In 2003, Minnow, Inc. would use a DRD of $ 50,000 and pay taxes on Entire Net Income of $ 100,000. The company would continue to have an NOL carryover of $ 1,000,000 that it could potentially use in 2004.

Example 2:

Striper, Inc. is a calendar year taxpayer. In 2001, it filed a NJ CBT return reporting a $ 1,000,000 net operating loss. In 2002, Striper, Inc. reported the following items:

Operating Loss	($ 100,000)
Dividends from wholly owned subsidiary	$ 40,000

In 2002, as it would have done before the law change, the taxpayer offsets $ 40,000 of current year loss against the dividend received deduction. The taxpayer secures an additional NOL of $ 60,000 that will be available in 2004.

Example 3:

In 2001, a taxpayer purchased tax benefits in the Tax Benefit Certificate Program but did not use them in 2001. They can be used in 2002.

Example 4:

In 2002, a taxpayer purchased tax benefits in the Tax Benefit Certificate Program. They can be used in 2002 notwithstanding the general suspension of NOL deductions in 2002 and 2003. Tax Benefit Certificates can be both acquired and applied during the NOL suspension period.

(b) For privilege periods beginning during calendar year 2004 and calendar year 2005, there shall be allowed as a deduction for the privilege period so much of the net operating loss carryover as reduces entire net income otherwise calculated by 50 percent. If and only to the extent that any net operating loss carryover deduction is disallowed by reason of this section, the date on which the amount of the disallowed net operating loss carryover deduction would otherwise expire shall be extended by a period equal to the period for which application of the net operating loss was disallowed by this section.

(c) Any net operating deduction that was disallowed by the prohibition, and would have expired in return periods beginning in 2002 and 2003 is extended for two years. Any net operating loss deduction that was disallowed by the prohibition, and would have expired in return periods beginning in 2004 and 2005, is extended for one return period for each return period that it was disallowed.

N.J. Admin. Code § 18:7-5.17

Amended by 49 N.J.R. 1694(a), effective 6/19/2017