Kentucky Administrative Regulations
Title 103 - FINANCE AND ADMINISTRATION CABINET - DEPARTMENT OF REVENUE
Chapter 16 - Income Tax; Corporations
Section 103 KAR 16:250 - Net operating loss computation and deduction for corporations
Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO: KRS 141.011, 141.120, 141.121, 141.200, 141.201, 141.202, 141.901
NECESSITY, FUNCTION AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.150(4) requires the department to promulgate administrative regulations and rules necessary for the proper administration of KRS Chapter 141. This administrative regulation establishes methods of computing a corporation's net operating loss deduction and application of the deduction to subsequent taxable years on taxable net income as authorized by KRS 141.011, 141.200(11)(c), and 141.202(5).
Section 1. Definitions.
Section 2. Computation and Application of Net Operating Loss.
Section 3. Net Operating Loss Limitation.
Section 4. Net operating losses by corporations included in a combined group return shall be determined in accordance with KRS 141.202(5)(c).
Section 5. This administrative regulation shall apply to the computation of the net operating loss deduction of corporations for taxable years beginning on or after January 1, 2018, except where otherwise noted in this administrative regulation.
Section 6. Examples for the computation and application of net operating losses. The following examples relate to the net operating loss computations found in Sections 2 through 4 of this administrative regulation:
Figure 1-1
Year 1 |
Year 2 |
Year 3 |
|
Sub A In-come/(Loss) |
($25,000) |
($25,000) |
($15,000) |
Sub B In-come/(Loss) |
(10,000) |
(10,000) |
(10,000) |
Sub C In-come/(Loss) |
(5,000) |
30,000 |
50,000 |
Parent Corporation Income/(Loss) |
(5,000) |
(5,000) |
(15,000) |
Group In-come/(Loss) |
($45,000) |
($10,000) |
$10,000 |
Nexus Group NOL Adjustment |
45,000 |
25,000 |
15,000 |
Group Taxable Income |
0 |
15,000 |
25,000 |
Accumulating Group NOL Carryforward |
$45,000 |
$70,000 |
$85,000 |
Figure 1-2
Year 1 Apportion-ment Factor |
Year 2 Apportion-ment Factor |
Year 3 Apportion-ment Factor |
|
Nexus Group |
23% |
28% |
32% |
The following steps determine the post-apportioned net operating loss allocated to Sub A when it departs the group as well as the pre-apportioned NOL that will be carried forward by the group to Year 4.
Figure 1-3
Year 1 |
Year 2 |
Year 3 |
|
Sub A Loss |
$25,000 |
$25,000 |
$15,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
$40,000 |
Allocation Percentage |
55.56% |
62.5% |
37.5% |
Remaining Loss In Group Carryforward |
$5,000 |
$40,000 |
$40,000 |
Allocated Remaining Sub A Loss |
$2,777 |
$25,000 |
$15,000 |
Sub B Loss |
$10,000 |
$10,000 |
$10,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
$40,000 |
Allocation Percentage |
22.22% |
25.0% |
25.0% |
Remaining Loss In Group Carryforward |
$5,000 |
$40,000 |
$40,000 |
Allocated Remaining Sub B Loss |
$1,111 |
$10,000 |
$10,000 |
Sub C Loss |
$5,000 |
- |
- |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
$40,000 |
Allocation Percentage |
11.11% |
- |
- |
Remaining Loss In Group Carryforward |
$5,000 |
$40,000 |
$40,000 |
Allocated Remaining Sub C Loss |
$556 |
- |
- |
Parent Corporation Loss |
$5,000 |
$5,000 |
$15,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
$40,000 |
Allocation Percentage |
11.11% |
12.5% |
37.5% |
Remaining Loss In Group Carryforward |
$5,000 |
$40,000 |
$40,000 |
Allocated Remaining Parent Loss |
$556 |
$5,000 |
$15,000 |
Figure 1-4
Year 1 |
Year 2 |
Year 3 |
|
Sub A NOL Carryforward |
$2,777 |
$25,000 |
$15,000 |
Nexus Group Apportionment Factor |
23% |
28% |
32% |
Post-Apportioned NOL Carryforward Per Year |
$638 |
$7,000 |
$4,800 |
Accumulating Total Sub A Carryforward |
$638 |
$7,638 |
$12,438 |
Figure 1-5
Year 1 |
Year 2 |
Year 3 |
|
Remaining Sub B Loss |
$1,111 |
$10,000 |
$10,000 |
Remaining Sub C Loss |
$556 |
- |
- |
Remaining Parent Loss |
$556 |
$5,000 |
$15,000 |
Group Carryforward Per Year |
$2,223 |
$15,000 |
$25,000 |
Accumulating Group Carryforward |
$2,223 |
$17,223 |
$42,223 |
Figure 2-1
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
Sub B In-come/(Loss) |
($10,0 00) |
($10,0 00) |
($10,0 00) |
($10,0 00) |
Sub C In-come/(Loss) |
(5,000) |
30,000 |
50,000 |
60,000 |
Parent Corporation In-come/(Loss) |
(5,000) |
(5,000) |
(15,00 0) |
(30,00 0) |
Group Income (loss) |
N/A |
N/A |
N/A |
$20,00 0 |
Nexus Group NOL Adjustment |
N/A |
N/A |
N/A |
10,000 |
Group Taxable Income |
N/A |
N/A |
N/A |
30,000 |
Group NOL Generated |
$2,223 * |
$15,00 0* |
$25,00 0* |
$10,00 0 |
Accumulating Group Carryforward |
$2,223 |
$17,22 3 |
$42,22 3 |
$52, 223 |
* See "Group Carryforward Per Year" amounts from Figure 1-5
Figure 2-2
Year 1 Apportion-ment Factor |
Year 2 Apportion-ment Factor |
Year 3 Apportion-ment Factor |
Year 4 Apportion-ment Factor |
|
Nex us Gro up |
23% |
28% |
32% |
17% |
Figure 2-3
Year 3 |
Year 4 |
|
Sub B Loss |
$10,000 |
$10,000 |
Total Losses of all Loss Corporations |
$25,000 |
$40,000 |
Allocation Percentage |
40% |
25% |
Remaining Loss in Group Carryforward |
$12,223 |
$40,000 |
Allocated Remaining Sub B Loss |
$4,890 |
$10,000 |
Parent Corporation Loss |
$15,000 |
$30,000 |
Total Losses of all Loss Corporations |
$25,000 |
$40,000 |
Allocation Percentage |
60% |
75% |
Remaining Loss in Group Carryforward |
$12,223 |
$40,000 |
Allocated Remaining Parent Loss |
$7,333 |
$30,000 |
Group NOL Per Year |
$12,223 |
$40,000 |
Accumulating Group NOL |
$12,223 |
$52,223 |
Figure 2-4
Year 3 |
Year 4 |
|
Sub B NOL Carryforward |
$4,890 |
$10,000 |
Nexus Group Apportionment Factor |
32% |
17% |
Sub B Post-Apportioned NOL Carryforward |
$1,564 |
$1,700 |
Accumulating Sub B Post-Apportioned NOL Carryforward |
$1,564 |
$3,264 |
Parent Corporation NOL Carryforward |
$7,333 |
$30,000 |
Nexus Group Apportionment Factor |
32% |
17% |
Parent Corp Post-Apportioned NOL Carryforward |
$2,346 |
$5,100 |
Accumulating Parent Post-Apportioned NOL Carryforward |
$2,346 |
$7,446 |
Figure 3-1
Year 1 |
Year 2 |
Year 3 |
|
Sub A In-come/(Loss) |
($25,000) |
($25,000) |
($15,000) |
Sub B In-come/(Loss) |
(10,000) |
(10,000) |
(10,000) |
Sub C In-come/(Loss) |
(5,000) |
30,000 |
50,000 |
Parent Corporation In-come/(Loss) |
(5,000) |
(5,000) |
(15,000) |
Group In-come/(Loss) |
($45,000) |
($10,000) |
$10,000 |
Group Apportionment Factor |
50% |
40% |
30% |
Taxable Net In-come/(Loss) |
($22,500) |
($4,000) |
$3,000 |
NOL Generat-ed/(Used) |
22,500 |
4,000 |
(3,000) |
Accumulating Group NOL Carryforward |
$22,500 |
$26,500 |
$23,500 |
Figure 3-2
Year 1 |
Year 2 |
|
Sub A Loss |
$25,000 |
$25,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
Allocation Percentage |
55.56% |
62.5% |
Remaining Loss in Group Carryforward |
$19,500 |
$4,000 |
Allocated Remaining Sub A Loss Per Year |
$10,833 |
$2,500 |
Accumulating Sub A Loss |
$10,833 |
$13,333 |
REMAINING GROUP |
||
Sub B Loss |
$10,000 |
$10,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
Allocation Percentage |
22.22% |
25% |
Remaining Loss in Group Carryforward |
$19,500 |
$4,000 |
Allocated Remaining Sub B Loss Per Year |
$4,333 |
$1,000 |
Sub C Loss |
$5,000 |
- |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
Allocation Percentage |
11.11% |
- |
Remaining Loss in Group Carryforward |
$19,500 |
$4,000 |
Allocated Remaining Sub C Loss Per Year |
$2,167 |
- |
Parent Corporation Loss |
$5,000 |
$5,000 |
Total Losses of all Loss Corporations |
$45,000 |
$40,000 |
Allocation Percentage |
11.11% |
12.5% |
Remaining Loss in Group Carryforward |
$19,500 |
$4,000 |
Allocated Remaining Parent Corporation Loss Per Year |
$2,167 |
$500 |
Remaining Group NOL Per Year |
$8,667 |
$1,500 |
Accumulating Remaining Group NOL Carryforward |
$8,667 |
$10,167 |
Figure 4-1
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
Sub B In-come/(Los s) |
(10,0 00) |
(10,0 00) |
(10,00 0) |
(15,0 00) |
Sub C In-come/(Los s) |
(5,00 0) |
30,00 0 |
50,00 0 |
25,0 00 |
Parent Corporation In-come/(Los s) |
(5,00 0) |
(5,00 0) |
(15,00 0) |
(20,0 00) |
Group In-come/(Los s) |
N/A |
N/A |
N/A |
($10, 000) |
Group Apportion-ment Factor |
N/A |
N/A |
N/A |
30% |
NOL Remaining per year* |
$8,66 7** |
$1,50 0* |
$ - |
3,00 0 |
Accumulating Group NOL Carryforward |
$8,66 7** |
$10,1 67 |
$10,1 67 |
$13, 167 |
* See Figure 3-2 from Example 3.
** Year 1 NOL of $8,667 is already reduced by the $3,000 NOL utilized in year 3 (See Figure 3-1)
Figure 4-2
Year 1* |
Year 2* |
Year 4 |
|
Sub B Loss |
$15,000 |
||
Total Losses of all Loss Corporations |
$35,000 |
||
Allocation Percentage |
42.85% |
||
Remaining Loss in Group Carryforward |
$3,000 |
||
Allocated Remaining Sub B Loss Per Year |
$4,333 |
$1,000 |
$1,286 |
Accumulating Sub B NOL Carryforward |
$4,333 |
$5,333 |
$6,619 |
Allocated Remaining Sub C Loss Per Year |
$2,167 |
- |
- |
Accumulating Sub C NOL Carryforward |
$2,167 |
$2,167 |
$2,167 |
Parent Corporation Loss |
$20,000 |
||
Total Losses of all Loss Corporations |
$35,000 |
||
Allocation Percentage |
57.15% |
||
Remaining Loss in Group Carryforward |
$3,000 |
||
Allocated Remaining Parent Loss Per Year |
$2,167 |
$500 |
$1,714 |
Accumulating Parent NOL Carryforward |
$2,167 |
$2,667 |
$4,381 |
Accumulating Group NOL Carryforward |
$8,667 |
$10,167 |
$13,167 |
* See Figure 3-2 from Example 3
NOTE: Year 3 is omitted from Figure 4-2. The $3,000 NOL utilized in Year 3 was accounted for in the Year 1 remaining losses.
Figure 5-1
Parent |
Sub A |
Sub B |
Sub C |
|
2019 Group Income |
$50,000 |
$50,000 |
$50,000 |
$50,000 |
2019 Apportionment Factor |
20% |
10% |
10% |
5% |
2019 Taxable Income |
$10,000 |
$5,000 |
$5,000 |
$2,500 |
2017 NOL Carryforward* |
$2,000 |
$12,000 |
$3,500 |
$0 |
2018 NOL Carryforward* |
$5,000 |
$0 |
$1,700 |
$0 |
* 2017 (and earlier years) NOL can be applied against 100 percent of taxable income. 2018 (and later years) NOL is limited to eighty (80) percent of net income. |
Figure 5-2
NOL Limitations |
Parent |
Sub A |
Sub B |
Sub C |
2017 and Prior NOLs (Up to 100% of 2019 taxable income) |
$ 10,000 |
$5,000 |
$5,000 |
$2,500 |
Max |
$ |
$ |
$4,000 |
$2,000 |
Amount of Allowable 2018 NOL (Up to 80% of 2019 Taxable Income) |
8,000 |
4,000 |
||
Max of Allowable Shared Amount (Up to 50% of 2019 Taxable Income) |
$ 5,000 |
$ 2,500 |
$2,500 |
$1,250 |
Figure 5-3
Parent |
Sub A |
Sub B |
Sub C |
|
2019 Taxable Income |
$10,000 |
$ 5,000 |
$5,000 |
$2,500 |
Less: Entity's 2017 NOL |
($ 2,000) |
($5,000) |
($3,500) |
$0 |
Taxable Income Remaining |
$ 8,000 |
$0 |
$1,500 |
$2,500 |
Less: Entity's 2018 NOL |
($ 5,000) |
N/A |
($1,500) |
$0 |
Taxable Income Remaining |
$ 3,000 |
$0 |
$ 0 |
$2,500 |
Less: Shared NOL |
($ 3,000) |
N/A |
N/A |
($1,250) |
Net Taxable Income After NOLD |
$0 |
$0 |
$0 |
$ 1,250 |
NOL Carryforward to 2020 |
$0 |
$ 2,750* |
$200** |
$0 |
*After sharing of NOLs, Sub A carries forward $2,750 of its 2017 NOL into 2020. **Sub B carries forward $200 of its 2018 NOL into 2020 ($1,700 - $1,500). |
||||
Figure 6-1
Parent |
Sub A |
Sub B |
Sub C |
|
2020 Group Income |
$50,000 |
$50,000 |
$50,000 |
$50,000 |
2020 Apportionment Factor |
20% |
0% |
10% |
5% |
2020 Taxable Income |
$10,000 |
$0 |
$5,000 |
$2,500 |
2018 NOL Carryforward |
$0 |
$12,000 |
$0 |
$0 |
2019 NOL Carryforward |
$7,500 |
$5,000 |
$1,000 |
Figure 6-2
NOL Limitations |
Parent |
Sub B |
Sub C |
80% of 2020 Taxable Income |
$8,000 |
$4,000 |
$2,000 |
Figure 6-3
Parent |
Sub A |
Sub B |
Sub C |
|
2019 Taxable Income |
$10,000 |
$0 |
$5,000 |
$2,500 |
Less: Entity's Own 2019 NOL |
($ 7,500) |
n/a |
($4,000) |
($1,000) |
Taxable Income Remaining |
$ 2,500 |
$0 |
$1,000 |
$1,500 |
Less: Shared NOL |
($ 500) |
N/A |
$ 0 |
($ 500) |
Taxable Income Remaining |
$ 2,000 |
$0 |
$1,000 |
$1,000 |
2018 NOL Remaining |
$0 |
$12,000 |
$0 |
$0 |
2019 NOL Remaining |
$0 |
$0 |
$0** |
$0 |
Figure 6-4
Sub B 2019 NOL |
$5,000 |
Offset Max of 80% of Sub B 2020 Income |
($4,000) |
NOL Remaining |
$1,000 |
Utilized by Parent (up to 80% limit) |
($ 500) |
NOL Remaining |
$ 500 |
Utilized by Sub C |
($ 500) |
NOL Remaining |
$ 0 |
STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.050