Current through Register Vol. 56, No. 24, December 18, 2024
(a) Usage of prior net operating loss
conversion carryovers in a combined group context. A prior net operating loss
conversion carryover (PNOL) of a member of a combined group shall be deducted
from the entire net income allocated to this State, as follows:
1. Such prior net operating loss conversion
carryover deduction shall be allowed to offset only the entire net income,
allocated to this State, of the corporation that created the prior net
operating loss; the prior net operating loss conversion carryover cannot be
shared with other members of the combined group;
2. The prior net operating loss conversion
carryover deduction computed pursuant to N.J.A.C. 18:75.21 shall be applied
against the entire net income, allocated to this State, of the corporation that
created the prior net operating loss prior to subtracting the net operating
loss carryover computed pursuant to N.J.A.C. 18:7-5.21(b);
3. Each member shall apply its prior net
operating loss conversion carryover against its share of entire net income
allocated to this State, as if filing on a separate entity basis;
4. For information on PNOLs of a corporation
or combined group that is a party to a merger or acquisition, see (i) below;
and
5. A member of a combined group
may sell a prior net operating loss conversion carryover to other members of
the combined group, if otherwise applicable and allowable pursuant to section 2
at
P.L.
1997, c. 334
(N.J.S.A.
54:10A-4.2) and section 1 at
P.L.
1997, c. 334
(N.J.S.A. 34:1B-7.42a); provided, however, such sale of
a prior net operating loss conversion carryover must be made at arm's length
price at the same rate as though the sale was to an unrelated taxpayer. The
members must qualify and be eligible and meet the terms and conditions of the
program.
(b) The
calculation of the combined group net operating losses and the combined group
members' share of the net operating loss carryovers shall be deducted from
entire net income allocated to this State pursuant to
N.J.S.A. 54:10A-4.6.h, as follows:
1. For privilege periods beginning on or
after the first day of the initial privilege period on or after July 31, 2019,
for which a combined return is required pursuant to N.J.A.C. 18:7-21.4, if the
computation of a combined group's entire net income allocated to this State
results in a net operating loss, a taxable member of such group may carry over
the net operating loss allocated to this State, as calculated pursuant to this
section and N.J.A.C. 18:7-21.7, 21.8, 21.10, and 21.13, and shall be deductible
from entire net income allocated to this State derived from the unitary
business in a future privilege period to the extent that the carryover and
deduction is otherwise consistent with N.J.A.C. 18:7-5.21;
2. Where a taxable member of a combined group
has a net operating loss carryover derived from a loss incurred by a combined
group in a privilege period beginning on or after the first day of the initial
privilege period on or after July 31, 2019, for which a combined return is
required, then the taxable member may share the net operating loss carryover
with other taxable members of the combined group if such other taxable members
were members of the combined group in the privilege period that the loss was
incurred. Any amount of net operating loss carryover that is deducted by
another taxable member of the combined group shall reduce the amount of net
operating loss carryover that may be carried over by the taxable member that
originally incurred the loss;
3.
Where a taxable member of a combined group has a net operating loss carryover
derived from a loss incurred in a privilege period during which the taxable
member was not a member of such combined group, the carryover shall remain
available to be deducted by that taxable member or other group members that, in
the year the loss was incurred, were part of the same combined group as such
taxable member. Such carryover shall not be deductible by any other members of
the combined group;
4. A net
operating loss carryover shall not include any net operating losses (PNOLs
pursuant to N.J.A.C. 18:7-5.21(a) or separate return NOLs pursuant to N.J.A.C.
18:7-5.21(b)) incurred during privilege periods beginning prior to the first
day of the initial privilege period for which a combined return is required for
the combined group;
5. Where a
taxable member of a combined group has a net operating loss carryover derived
from a loss incurred by a combined group in a privilege period beginning on or
after the first day of the initial privilege period for which a combined
unitary tax return is required and the taxable member departs the combined
group and continues to be a taxpayer for the purposes of the Corporation
Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.), the taxable member shall
be entitled to take its respective portion of the combined group net operating
loss carryover and the combined group shall not be entitled to use such portion
of the net operating loss carryover; and
6. To the extent consistent with the
Corporation Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.), the Federal rules and
regulations governing consolidated return net operating losses and net
operating loss carryovers shall apply to the New Jersey net operating loss
carryover provisions pursuant to this subsection as though the combined group
filed a Federal consolidated return, regardless of how the members of the
combined group filed for Federal purposes.
(c) The provisions at
N.J.A.C.
18:7-5.14 shall not apply between members of
the combined group reported on the combined return.
(d) Subsections (a) and (b) above will apply
in the same manner to taxpayers that are included as members on the New Jersey
elective combined returns.
(e)
Where a taxable member leaves a combined group and has net operating loss
carryovers from the privilege periods the taxable member was a member of the
combined group, and the former member files a separate New Jersey corporation
business tax return, the former member may deduct their portion of those net
operating loss carryovers at (b)5 above on their return.
(f) Post-allocation net operating losses of a
separate return taxpayer that subsequently joins a combined group are not
shareable. In privilege periods ending on and after July 31, 2019, where a
taxpayer was filing a separate return and subsequently joined the combined
group in later privilege periods, the taxpayer may use its separate return year
post-allocation net operating loss carryovers either against its assigned
portion of the combined group entire net income or its allocated entire income
on Schedule X (if applicable), but may not share these separate return
post-allocation net operating loss carryovers with the other members of the
combined group.
(g) Separate
activity net operating losses of combined group members derived from activities
that are not part of the unitary business of the combined group are not
shareable with other members of the combined group. Where the member of the
combined group has activities that are not part of the unitary business of the
combined group, and those independent activities of that member generate a net
operating loss that the member reports on Schedule X for the privilege period,
the net operating loss is a separate net operating loss that can be used by the
member in future privilege periods on Schedule X or a separate return in the
case of a member that leaves the group, but cannot be shared with other members
of the combined group or used on the combined return.
(h) For more on the reduction by the amount
of the allocated discharge of indebtedness income excluded from Federal tax
purposes, see
N.J.S.A. 54:10A-4(k)(6)(F),
54:10A-4(u)(1),
54:10A-4(v)
(3),
54:10A-4.6.c,
54:10A-4.6.h(1), 54:10A-4.6.n, and 54:10A-4.6.m.
(i) The Director may disallow the prior net
operating loss carryovers or net operating loss carryovers at (a) through (g)
above if the Director determines that the merger or acquisition was for the
principle purpose of harvesting the members tax attributes. However, the prior
net operating loss carryovers or net operating loss carryovers will survive
where the merger or acquisition is:
(1)
between members of a combined group reported on a combined return in New
Jersey;
(2) between members of an
affiliated group reported on the elective combined return in New Jersey; or
(3) if corporations that were
parties to the merger would be members of the combined group reported on a
combined return in New Jersey within one group privilege period subsequent to
the date of the merger, unless there is an unforeseen delay due to required
approvals from Federal or other state regulatory authorities that delays the
finality of the merger or acquisition. In a situation where there is delay due
to the regulatory approval requirements of Federal or other state regulatory
authorities, the corporations may petition the Director, in a form and manner
prescribed by the Director, documenting that the corporations' plan to be a
combined group filing a New Jersey combined return upon approval of the merger
or acquisition by the Federal or other state regulatory authorities. Within 180
days of approval by the Federal or other state regulatory authorities of the
merger or acquisition, the corporations shall notify the Division of the
approval and the Director shall issue a stamped certificate of attestation
(CBT-M) attesting that the net operating loss carryovers are not extinguished.
The provisions of this subsection shall only apply to mergers and acquisitions
occurring on or after November 4, 2020, and shall not apply to a binding
agreement in effect prior to November 4, 2020.
(j) Members must keep accurate books and
records to keep track of the various PNOLs and NOLs.
(k) For privilege periods beginning on and
after January 1, 2020, the provisions of the Internal Revenue Code, the Federal
rules, limitations, and restrictions, thereto, governing Federal net operating
losses, Federal net operating loss carryovers with regard to, but not limited
to: mergers, acquisitions, reorganizations, spin-offs, split-offs, dissolution,
bankruptcy, or any form of cessation of a business, or any other provision that
limits or reduces Federal net operating losses and Federal net operating loss
carryovers, shall apply to New Jersey net operating loss carryovers pursuant to
subsection (v) of section 4 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-4) and the New Jersey net operating
loss carryover provisions of subsection h. of section 18 at
P.L.
2018, c. 48
(N.J.S.A. 54:10A-4.6).
