Current through Register Vol. 56, No. 18, September 16, 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).
