§ 153.15. Net loss deduction.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
(1) Net loss—For a corporation ineligible to allocate or apportion its income, the negative amount for a taxable year arrived at under section 401(3)1. of the TRC (72 P. S. § 7401(3)1.). For a corporation eligible to allocate or apportion its income, the negative amount for a taxable year arrived at under section 401(3)2. of the TRC. Negative amounts shall be allocated and apportioned in the same manner as positive amounts.
(2) Net loss deduction—The net loss deduction for a taxable year is the lesser of the amount of the net loss which may be carried over to the taxable year or taxable income for the taxable year.
(3) Taxable year—The taxable year of a corporation is the taxable year which the corporation, or a consolidated group with which the corporation participates in the filing of consolidated returns, actually used in reporting taxable income to the Federal government.
(b) General rule. For taxable years beginning in 1982 and thereafter, a net loss deduction will be allowed from taxable income as arrived at under section 401(3)1. of the TRC for corporations which do not qualify to allocate or apportion their income for the taxable year or from taxable income as arrived at under section 401(3)2. of the TRC for corporations which qualify to allocate or apportion their income for the taxable year.
Example 1. Corporation ‘‘A’’ has a loss of $100,000 before allocation and apportionment. Corporation ‘‘A’’ is entitled to allocate and apportion its income. Corporation ‘‘A’’ has a three factor apportionment formula percentage of 25%. Corporation ‘‘A’’ has a nonbusiness loss of $30,000 allocable to state ‘‘X’’ and nonbusiness income of $10,000 allocable to Pennsylvania. Corporation ‘‘A’’ has a net loss of $10,000, determined as follows:
Taxable Income or (Loss) ($100,000) Less: Nonbusiness Loss Allocable to State ‘‘X’’ ($30,000) Less: Nonbusiness Income Allocable to Pennsylvania 10,000 Apportionable Business Income ($80,000) Pennsylvania Apportionment Percentage 25% Business Income or (Loss) Apportioned to Pennsylvania ($20,000) Nonbusiness Income Allocable to Pennsylvania 10,000 Net Loss ($10,000)
Example 2. For the 12-month taxable year ended December 31, 1986, Corporation ‘‘A’’ has taxable income, after allocation and apportionment, of $100,000. For the taxable year ended December 31, 1985, Corporation ‘‘A’’ had a net loss of $90,000. Corporation ‘‘A’’ has no other net losses.
Corporation ‘‘A’’ has a net loss deduction of $90,000 for its taxable year ended December 31, 1986.
(c) Carryover. A net loss for a taxable year may only be carried forward under the following schedule:
Taxable Year Carryover Period 1981 1 taxable year 1982 2 taxable years 1983 and thereafter 3 taxable years The earliest net loss shall be carried over to the earliest taxable year to which it may be carried under this schedule.
Example. For its taxable year ended December 31, 1986, Corporation A has taxable income, after allocation and apportionment of $50,000. Corporation A has the following net losses available:
For taxable year ended December 31, 1983 $15,000 For taxable year ended December 31, 1984 30,000 For taxable year ended December 31, 1985 20,000 All the taxable years are full 12 month years.
For its taxable year ended December 31, 1986, Corporation A has a net loss deduction of $50,000. The deduction consists of the $15,000 net loss from taxable year 1983, the $30,000 net loss from taxable year 1984 and $5,000 of the net loss from taxable year 1985.
The remaining $15,000 of net loss from taxable year 1985 is available for carryover to Corporation A’s next 2 taxable years.
(d) Pennsylvania S Corporations.
(1) While a corporation is in Pennsylvania S status, no loss may be carried over from a taxable year when the corporation was subject to the Corporate Net Income Tax to a taxable year when the corporation is treated as a Pennsylvania S corporation. If a corporation’s Pennsylvania S election is either terminated or revoked, no loss may be carried over from a taxable year when the corporation is treated as a Pennsylvania S corporation to a taxable year during which the corporation is subject to the Corporate Net Income Tax.
(2) A taxable year during which a corporation is a Pennsylvania S corporation is considered a taxable year for determining the number of years to which a net loss may be carried. The short taxable year of a corporation after revocation or termination of Pennsylvania S status is treated as a taxable year.
(e) Change in ownership. Under section 401(3)4.(g) of the TRC, in the case of a change in the ownership of a corporation effected in a manner described in sections 381 or 382 of the IRC (26 U.S.C.A. § § 381 or 382), certain limitations provided the IRC with respect to the use of net operating losses after a change in ownership shall apply for the purpose of computing the portion of the net loss available for carry-over as a deduction against income subject to the Corporate Net Income Tax, whether the change is effected by purchase, liquidation, acquisition of stock or reorganization. The applicable limitations include limitations imposed by the IRC solely on account of a change in ownership, including but not limited to, sections 269, 318 (insofar as it defines the scope of section 382 of the IRC (26 U.S.C.A. § 382)), 381 and 382 of the IRC (26 U.S.C.A. § § 269, 318, 381 and 382). The carryover of net losses is not limited by the Federal consolidated return regulations.
Authority The provisions of this § 153.15 issued under section 408 of the Tax Reform Code of 1971 (72 P. S. § 7408).
Source The provisions of this § 153.15 adopted January 16, 1987, effective January 17, 1987, 17 Pa.B. 273.
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