Current through Register Vol. 56, No. 24, December 18, 2024
(a) For privilege
periods ending on and after July 31, 2019, unused unexpired net operating
losses incurred in a privilege period ending prior to July 31, 2019, are
converted to a post-allocation basis (prior net operating loss conversion
carryovers) pursuant to N.J.S.A. 54:10A-4(u). Net operating losses incurred in
a privilege period ending prior to July 31, 2019, are converted from
pre-allocation net operating losses to prior net operating loss conversion
carryovers, as follows:
1. Terms used in
calculating the prior net operating loss conversion carryover are, as follows:
i. "Base year" means the last privilege
period ending prior to July 31, 2019.
ii. "Base year BAF" means the taxpayer's
business allocation factor as provided in sections 6 through 10 at P.L. 1945,
c. 162 (N.J.S.A. 54:10A-6 through 54:10A-10) for purposes of calculating entire
net income for the base year, as such section was in effect for the last
privilege period ending prior to July 31, 2019. The base year BAF is the
allocation factor reported on the taxpayer's Schedule J of its respective New
Jersey corporation business tax return.
iii. "UNOL" means the unabsorbed portion of a
net operating loss, as calculated at N.J.S.A. 54:10A-4(k)(6), that was in
effect for the base year, the last privilege period ending prior to July 31,
2019. The UNOL is the amount that was not deductible in previous privilege
periods and was eligible for carryover on the last day of the base year subject
to the limitations for deduction pursuant to this paragraph, including any net
operating loss sustained by the taxpayer during the base year. The UNOL is the
amount reported on Form 500;
2. The prior net operating loss conversion
carryover shall be calculated, as follows:
i.
The taxpayer shall first calculate the tax value of its UNOL for the base year
and for each preceding privilege period for which there is a UNOL. The tax
value of the UNOL for each privilege period is equal to the product of:
(1) The amount of the taxpayer's UNOL for a
privilege period; and
(2) The
taxpayer's base year BAF. This result shall equal the taxpayer's prior net
operating loss conversion carryover.
ii. The taxpayer shall continue to carry over
its prior net operating loss conversion carryover to offset its allocated
entire net income as provided in sections 6 through 10 at P.L. 1945, c. 162
(N.J.S.A. 54:10A-6 through 54:10A-10) for privilege periods ending on and after
July 31, 2019. Such carryover periods shall not exceed the 20 privilege periods
following the privilege period of the initial loss. The entire amount of the
prior net operating loss conversion carryover for any privilege period shall be
carried to the earliest of the privilege periods to which the loss may be
carried. The portion of the prior net operating loss conversion carryover that
shall be carried to each of the other privilege periods shall be the excess, if
any, of the amount of the prior net operating loss conversion carryover over
the sum of the entire net income, computed without the exclusions permitted at
N.J.S.A. 54:10A-4(k)(4) and (5) allocated to this State.
iii. The prior net operating loss conversion
carryover computed pursuant to this paragraph shall be applied against the
entire net income allocated to this State before the net operating loss
carryover computed pursuant to N.J.S.A. 54:10A-4(v);
3. In calculating the prior net operating
loss conversion carryovers, taxpayers must complete Worksheet 500-P (Form
500U-P in the case of combined group members). Taxpayers must retain a copy of
Worksheet 500-P (Form 500U-P) in their books and records for inspection until
2044 (that is, four years subsequent to the original due date of the return
representing the last period for which the prior net operating loss conversion
carryover could be carried over for use before expiring);
4. The limitations provided for at N.J.S.A. 54:10A-4(k)(6)(D) and 54:10A-4(k)(6)(F) shall apply to the prior net operating
loss conversion carryovers; and
5.
Extension of net operating loss carryovers generated pursuant to N.J.S.A. 54:10A-4.3. All unused unexpired net operating loss carryovers that were
unexpired after July 31, 2019, and that were converted to prior net operating
loss conversion carryovers have an additional five-year carryover period, in
addition to the original 15-year carryover period pursuant to N.J.S.A. 54:10A-4.3.
(b) For the
purposes of the net operating loss deduction calculation pursuant to N.J.S.A. 54:10A-4 (v), a net operating loss deduction is the amount allowed as a
deduction for the net operating loss carryover to the privilege period, and is
calculated, as follows:
1. A net operating
loss for any privilege period ending on or after July 31, 2019, shall be a net
operating loss carryover to each of the 20 privilege periods following the
period of the loss. The entire amount of the net operating loss for any
privilege period shall be carried to the earliest of the privilege periods to
which the loss may be carried over. The portion of the loss that shall be
carried over to each of the other privilege periods shall be the excess, if
any, of the amount of the loss over the sum of the entire net income, computed
without the exclusions permitted at N.J.S.A. 54:10A-4(k) (4) and (5) allocated
to this State;
2. For purposes of
this subsection, the term "net operating loss" means the excess of the
deductions over the gross income used in computing entire net income, without
the net operating loss deduction provided for at N.J.S.A. 54:10A-4(k)(6)(A),
and computed without the exclusions at N.J.S.A. 54:10A-4(k)(4) and (5),
allocated to this State pursuant to sections 6 through 10 at P.L. 1945, c. 162
(N.J.S.A. 54:10A-6 through 54:10A-10);
3. A net operating loss for any privilege
period ending on or after July 31, 2019, and any net operating loss carryover
to such privilege period, shall be reduced by the amount excluded from Federal
taxable income pursuant to subparagraphs (A), (B), or (C) of paragraph (1) of
subsection (a) at section 108 of the Federal I.R.C.,
26 U.S.C. §
108, for the privilege period relating to the
discharge of indebtedness;
4. A net
operating loss carryover shall not include any prior net operating loss
conversion carryovers; and
5. Where
there is a change in 50 percent or more of the ownership of a corporation
because of redemption or sale of stock and the corporation changes the trade or
business giving rise to the loss, no net operating loss sustained before the
changes may be carried over to be deducted from income earned after such
changes. In addition, where the facts support the premise that the corporation
was acquired under any circumstances for the primary purpose of the use of its
net operating loss carryover, the Director may disallow the carryover;
provided, however, this paragraph shall not apply between members of a combined
group reported on a New Jersey combined return.
(c) 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 and Federal net operating loss carryovers with regard, 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).
1. The Federal rules and regulations
governing Federal consolidated return net operating losses and net operating
loss carryovers shall apply to New Jersey net operating loss carryover
provisions at
N.J.S.A. 54:10A-4.6.h, as though the combined group
filed a Federal consolidated return, regardless of how the members of the
combined group filed for Federal purposes to the extent consistent with the
Corporation Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.).
(d) For more information on PNOLs and NOLs in
relation to combined groups and combined reporting, see N.J.A.C.
18:7-21.
