Current through Register Vol. 35, No. 18, September 24, 2024
A.
Net operating losses; generated by deduction of income from United States
obligations.
(1) Section 3.3.1.13 NMAC
and subsections thereunder apply to the income of a taxpayer derived from any
unincorporated business.
(2) If,
for an unincorporated business, the exclusion of income from obligations of the
United States of America results in a negative amount for New Mexico net income
for that business for a taxable year, the resulting negative amount may be
deemed to be a net operating loss for that taxable year. The taxpayer must
establish the loss from exclusion of income from obligations of the United
States of America by filing a New Mexico return or amended return within the
time period set forth in Section
7-2-12
NMSA 1978, Subsections B, C and E of Section
7-1-26
NMSA 1978. An amended return carrying back or forward any such net operating
loss must be filed within the time period set forth in Subsections B, C and E
of Section
7-1-26
NMSA 1978. The taxpayer shall apply relevant provisions of
26 U.S.C. Section
172 of the Internal Revenue Code to determine
the years to which the net operating loss may be applied.
(3) Any net operating loss deemed created by
this subsection (3.3.1.13A NMAC) may be carried back or forward in accordance
with the provisions of Section
7-2-2 NMSA 1978 and
Subsections A through E of Section 3.3.1.13 NMAC. For taxable years beginning
prior to January 1, 1991, the resulting taxable income shall then be allocated
and apportioned in that year pursuant to the provisions of Section
7-2-11
NMSA 1978.
(4) For the purposes of
Subsections A through E of Section 3.3.1.13 NMAC, the term "unincorporated
business" includes:
(a) S corporations taxed
as partnerships for federal income tax purposes; and
(b) limited liability companies formed
pursuant to the Limited Liability Company Act or a similar law of another state
which are not taxed as corporations for federal income tax purposes.
B.
Net operating
losses; time limitation.
(1) A net
operating loss, including any net operating loss deemed created pursuant to
Subsection 3.3.1.13A NMAC, for a taxable year may be excluded from the base
income of any other taxable year only if the net operating loss for the taxable
year is established by the filing of a return, either original or amended,
within the time periods set forth in Subsections B, C and E of Section
7-1-26
NMSA 1978.
(2) Example: In 1997, a
taxpayer who reports income tax on a calendar year basis discovers an error
which relates to the taxpayer's state returns for 1990 and 1993. The original
1990 and 1993 returns were timely filed in 1991 and 1994, respectively. Absent
the time limitations on filing amended returns, correcting the error through
filing of amended returns would create net operating losses in both 1990 and
1993. An amended return may be filed only for 1993 and only the 1993 loss may
be excluded from the base income of any other year.
C.
Net operating losses; must be
deductible for federal income tax purposes. The net operating loss
carryover of an unincorporated business acquired by the taxpayer or otherwise
included, as for example through a change in reporting method, in the
taxpayer's return for a taxable year may be excluded from New Mexico base
income only to the extent the Internal Revenue Code and regulations issued
thereunder would permit deduction of such loss carryovers for federal income
tax purposes for that taxable year by that taxpayer.
D.
Net operating losses; carryover and
carryback rules for taxable years beginning after 1990.
(1) For taxable years beginning on or after
January 1, 1991, any net operating loss for federal tax purposes and any net
operating loss deemed created pursuant to Subsection 3.3.1.13A NMAC included in
net income derived from an unincorporated business may be carried forward only.
These loss carryovers may be excluded from base income only for five years or
until the total amount of the loss carryover has been excluded, whichever
occurs first. The first year in which the loss carryover may be excluded from
base income is:
(a) in the case of a timely
filed original return, the next taxable year; and
(b) in all other cases, the first taxable
year beginning after the date on which the return establishing the loss is
filed, not the next taxable year following the taxable year in which the loss
occurred.
(2) Example: B
reports for income tax purposes on a calendar year basis. The 1991 original
return included a net operating profit from a partnership in which B is a
partner. Subsequently, the partnership reports revised information to B,
showing a net operating loss instead of the original net operating profit.
Consequently, in June, 1993, B files an amendment to B's timely filed 1991
original New Mexico individual income tax return. B may first apply the 1991
net operating loss reported on the 1993 amended return to B's New Mexico
individual income tax return for 1994. B may not apply this net operating loss
to 1992 or 1993.
(3) For taxable
years beginning on or after January 1, 1991, net operating loss carryovers must
be applied in the following order:
(a) net
operating loss carryovers from taxable years beginning prior to January 1,
1991, beginning with the carryover from the oldest taxable year; and
(b) net operating loss carryovers from
taxable years beginning on or after January 1, 1991, beginning with the
carryover from the oldest taxable year.
(4) Example: Z began operating a sole
proprietorship on January 1, 1988. Z has timely filed (on a calendar year
basis) income tax returns every year. Z's business earns a net operating profit
in 1988, a net operating profit of zero in 1989 and a net operating loss in
1990 which exceeded the 1988 profit by $5,000. Z's business sustains another
net operating loss of $11,000 for 1991 but creates a net operating profit of
$8,000 for 1992. In applying the loss carryovers, Z must first apply the net
operating loss from 1990 to 1988. On Z's 1992 return, Z first applies the
$5,000 carryover balance originating from 1990 and then the loss carryover
deriving from 1991.
(5) For taxable
years beginning on or after January 1, 1991, any taxpayer excluding a net
operating loss carryover from a prior taxable year must attach to the New
Mexico return for that taxable year a schedule showing the taxable year in
which each net operating loss being carried forward occurred, the amount of
each loss excluded in each taxable year following the taxable year in which the
loss occurred and the amount of the loss being applied to the taxable year for
which the return is being filed.
(6) For any taxable year beginning on or
after January 1, 1991, the net operating loss for that taxable year may not be
carried back to any preceding taxable year.
E.
Net operating losses; carryover and
carryback rules for taxable years beginning before 1991.
(1) For taxable years beginning prior to
January 1, 1991, any net operating loss, including any net operating loss
deemed created pursuant to Subsection 3.3.1.13A NMAC, may be carried forward or
carried back to any other taxable year beginning prior to January 1, 1991 in
accordance with the provisions of the Internal Revenue Code unless contrary to
the provisions of the Income Tax Act and Title 3, Chapter 3 NMAC.
(2) For taxable years beginning prior to
January 1, 1991, a net operating loss, including any net operating loss deemed
created pursuant to Subsection 3.3.1.13A NMAC, may be carried back only to
those prior taxable years for which an individual income tax return was
originally due, without regard to any extension, in the period beginning with
the January 1 of the third calendar year preceding the calendar year in which
began the taxable year for which the loss is established and ending with the
day before the first day of the taxable year for which the loss is
established.
(3) Example: D
operates an unincorporated business and files on a fiscal year basis. D's
fiscal year ends April 30. In September, 1993, D files an amended individual
income tax return for D's taxable year starting May 1, 1989 and ending April
30, 1990. The amendment establishes a net operating loss for that taxable year.
The oldest year to which D may carry back the net operating loss is D's taxable
year beginning May 1, 1985 and ending April 30, 1986, the return for which was
originally due July 15, 1986.