Virginia Administrative Code
Title 23 - TAXATION
Agency 10 - DEPARTMENT OF TAXATION
Chapter 120 - Corporation Income Tax
Section 23VAC10-120-325 - Consolidated and combined returns; carryovers

1. Double benefit prohibited. When any corporation elects to file, or is granted permission to file, a consolidated or combined return and subsequently incurs a net operating loss or net capital loss for federal income tax purposes, such loss may be carried back to specified prior years or carried over to specified subsequent years under federal law. To the extent a federal net operating loss is used to offset income of other members of the affiliated group in a Virginia combined or consolidated return in the year of the loss, it may not be used to reduce income for Virginia purposes of the loss corporation or other members of the group in any other years via the federal net operating loss deduction.

2. Net operating losses before December 31, 1992. If an affiliate has incurred and utilized a federal net operating loss in a taxable year beginning before December 31, 1992, and the amount of loss and Virginia modification utilized was not computed in accordance with IRC § 172 et seq.; 23VAC10-120-320 D et seq. and subdivision D of this section, an adjustment will be made within the applicable statutory period for any double benefit received.

3. Net operating losses incurred before and utilized after December 31, 1992. All affiliates having net operating losses incurred in taxable years beginning before December 31, 1992, and carried to taxable years beginning after December 31, 1992, must recompute the carryforward amount of federal net operating loss, and accompanying Virginia modification, as if all provisions of this regulation had been in effect when the federal net operating loss was first incurred. If an affiliate utilized an amount of federal net operating loss greater than would have been allowed under the provisions of this regulation, the affiliate's federal net operating loss carryforward for Virginia purposes shall be reduced by the excess amount utilized. The affiliate's Virginia modification to the federal net operating loss shall be adjusted proportionately.

1. Virginia does not have any provisions in the law permitting the deduction of net operating losses, net capital losses, or charitable contributions carried back or carried over from other taxable years except when allowable as a deduction in computing federal taxable income (See 23VAC10-120-100 B 5). When a loss is incurred in a year in which a consolidated or combined Virginia return is filed, the amount of the net Virginia modifications that follow the federal net operating loss deduction shall be computed in accordance with subdivision C (consolidated loss year return) or subdivision D (combined loss year return) of this section. No Virginia modifications follow a net capital loss or charitable contribution carryover.

2. A corporation or an affiliated group of corporations may elect to forgo carryback of a net operating loss or net capital loss for Virginia purposes independent of any such election for federal purposes if, and only if, the affiliated group files its Virginia and federal returns on a different basis, or files a federal consolidated return including corporations which are not subject to Virginia income tax. The election for Virginia purposes shall be made by filing a statement with the Virginia return for the loss year in the same manner as prescribed by federal law and regulations.

3. Virginia does not have any provisions in the law permitting the deduction of charitable contributions for the current year or carried over from other taxable years except when allowable as a deduction in computing federal taxable income. If federal and Virginia returns are filed on a different basis, or including different members, then federal taxable income, including federal limitations on the allowable deduction for charitable contributions and the interaction between contribution carryovers and loss carryovers, shall be computed in accordance with 23VAC10-120-320 D.

1. When the consolidated federal taxable income (computed in accordance with 23VAC10-120-320 D for purposes of a consolidated Virginia return) includes a federal net operating loss deduction from a loss year in which a consolidated Virginia return was filed, and which is not a separate return limitation year (as defined in § 1.1502-1(f) of the Internal Revenue Code) with respect to any affiliate for Virginia or federal tax purposes, the consolidated Virginia additions and subtractions from the loss year shall modify the consolidated federal net operating loss by being carried back or over to other years in the same proportion as the net operating loss deduction absorbed for any year for federal purposes.

2. When the separate federal taxable income of an affiliate (whether computed for purposes of a separate or combined Virginia return, or for a consolidated Virginia return affected by a separate return limitation year for federal or Virginia tax purposes) includes a net operating loss deduction from a loss year in which a consolidated Virginia return was filed then the federal net operating loss deduction shall be deemed to carry with it a Virginia modification from the loss year computed in the following manner:

1. When the separate federal taxable income of an affiliate (computed for purposes of any Virginia return) includes a net operating loss deduction from a loss year in which a combined Virginia return was filed, then the federal net operating loss deduction shall be deemed to carry with it a net Virginia NOLD modification from the loss year that includes its own additions and subtractions plus an amount representing the income of other affiliates offset by the loss in the combined return. The net Virginia NOLD modification is computed in the following manner: