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