Source: http://www.state.me.us/revenue/incomeestate/guidance/corp_nol_guidance.htm
Timestamp: 2013-12-12 21:26:54
Document Index: 464749062

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Maine Revenue Services: Income/Estate Tax - Guidance Documents - Modifications Related to Net Operating Losses - Examples for C Corporations
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MODIFICATIONS RELATED TO NET OPERATING LOSSES EXAMPLES FOR C CORPORATIONS
Part 1 Tax year 2012
Part 2 Tax years 2009 through 2011
Part 3 Tax year 2008
Part 4 Tax years 2002 through 2007
Part 5 Tax year 2001
Part 6 Tax year 2000 and earlier
If a business sustains a net operating loss (“NOL”) in a taxable year under the Internal Revenue Code, that loss may be applied against federal taxable income in years surrounding the loss. Typically, a federal loss may be carried back two years and carried forward up to twenty years. The carryback and carryforward may offset a total amount of income equal to the loss. Over the years, Maine has been in various stages of conformity with the federal loss carryback and carryforward rules. Currently, Maine law does not allow any federal loss carryback, but does permit income in future years (other than 2009, 2010 and 2011) to be offset by the amount of federal carryback not allowed on the Maine income tax return. Nonconformity with federal law requires adjustments to federal taxable income through addition and subtraction modifications. This guidance document is intended solely as advice to persons seeking information about income modifications related to federal NOLs and provides more information than is available in the filing instructions for the corporate income tax returns. The applicable statutory references are listed below. Section Applicable Years
36 M.R.S.A. 5200-A(1)(B) 1982 through 2001
36 M.R.S.A. 5200-A(1)(C) 1982 and later
36 M.R.S.A. 5200-A(1)(H) Losses in 1989 1992 and after 2001 carried back
36 M.R.S.A. 5200-A(1)(M) Loss in 2001 carried back
36 M.R.S.A. 5200-A(1)(U) Carryforwards to 2008
36 M.R.S.A. 5200-A(1)(V) Carryforwards to 2009 2011 Subtraction Modifications
36 M.R.S.A. 5200-A(2)(H) After 1989 (recapture of sub- 1, H)
36 M.R.S.A. 5200-A(2)(L) After 2001 (recapture of sub- 1, M)
36 M.R.S.A. 5200-A(2)(S) After 2008 (recapture of sub- 1, U)
36 M.R.S.A. 5200-A(2)(T) After 2011 (recapture of sub- 1, V)
Link to the statute: mainelegislature.org/legis/statutes/36/title36sec5200-A.html
Except for a four-year period from 1989 through 1992, Maine was in full conformity with federal law until 2001. For tax years beginning in 2001, Maine decoupled from the special federal allowance for carrybacks of more than two years. Beginning with 2002 tax years, Maine law has decoupled from all federal carrybacks. Except for tax years 2009 through 2011, Maine does allow an income offset in years after the loss for the federal carrybacks that were disallowed.
For tax years beginning in 2008, Maine law also disallowed a portion of large NOL carryforwards. The disallowance was equal to 10% of any loss in excess of $100,000 carried forward to 2008. The disallowed amount may be recaptured through a Maine subtraction modification in subsequent years remaining in the federal carryforward limitations period plus one year.
For tax years 2009 through 2011, all federal carryforwards and almost all Maine NOL subtractions are deferred. Starting with tax year 2012, these adjustments are again available. Amounts disallowed during the three-year period may be recaptured through subtraction modifications beginning in 2012 during the remaining federal carryforward period, plus the number of years the NOL carryforwards or Maine modifications were denied. Federal NOLs, including carrybacks and carryforwards, are reflected in the federal taxable income reported on the Maine corporate income tax return, Form 1120ME, line 1. If a Maine amended return is being filed due to a federal NOL carryback, you must attach a copy of federal Form 1139 or Form 1120X and a schedule that reflects, from year to year, the use of the federal NOL carryback or carryforward and related income modifications described in this document. A corporation included in a federal consolidated return that is filing a separate Maine return with a federal NOL carryback must complete and attach to Maine Form 1120X-ME a pro forma federal Form 1139 (or similar schedule containing all of the information required by federal Form 1139) to support that entity’s portion of the federal NOL deduction. Clearly mark the form “Maine pro forma.” The following modifications are reported on the Maine corporate income tax return: 1) For loss years from 1982 through 2001, an addition equal to the amount of any federal loss which is carried back in accordance with IRC 172 ( 5200-A(1)(B)); 2) For tax years 1982 and later, the amount of any federal NOL deduction which was used to offset Maine income in the loss year ( 5200-A(1)(C)); 3) For tax years beginning in 2008, 10% of any federal NOL carryforward in excess of $100,000 ( 5200-A(1)(U)). This addition modification is recaptured through a subtraction modification in years 2009 and later ( 5200-A(2)(S));
4) For tax years beginning in 2009, 2010 and 2011, the amount of any federal NOL carryforward ( 5200-A(1)(V)). This addition modification is recaptured through a subtraction modification in years 2012 and later ( 5200-A(2)(T));
5) In the year to which an NOL is carried back, the amount of a federal loss originating in tax years 1989, 1990, 1991 or 1992 that is applied to that carryback year ( 5200-A(1)(H)). Except for tax years beginning in 2009, 2010 and 2011, this addition modification is recaptured through a subtraction modification in years subsequent to the loss year ( 5200-A(2)(H)); 6) In the year to which an NOL is carried back, the amount of a federal loss originating in tax years 2002 or later that is applied to that carryback year ( 5200-A(1)(H)). Except for tax years beginning in 2009, 2010 and 2011, this addition modification is recaptured through a subtraction modification in years subsequent to the loss year ( 5200-A(2)(H));
7) In the year to which an NOL is carried back, the amount of a federal loss originating in a tax year ending or beginning in 2001 that is carried back more than two years ( 5200-A(1)(M)). This addition modification does not apply to 2001 losses carried back to 1999 or 2000 and does not apply to certain small businesses and farmers. Except for tax years beginning in 2009, 2010 and 2011, this addition modification is recaptured through a subtraction modification in years 2002 and later ( 5200-A(2)(L)).
For all tax years after 2001, Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. See 36 M.R.S.A. 5200-A(1)(H). Similarly, Maine disallowed carryforwards in 2009, 2010 and 2011 and any federal carryforward in those years must have been offset with a corresponding Maine addition modification. The addition modifications for a federal carryback or carryforward can be recaptured in years subsequent to the year of the loss, excluding tax years 2009, 2010 and 2011, through subtraction modifications. See 36 M.R.S.A. 5200-A(2)(H), 5200-A(2)(L) and 5200-A(2)(T). The recapture modifications must be reduced by any Maine income that is offset in the year of the loss. NOL recapture subtractions denied for tax years beginning in 2009, 2010 and 2011 can be claimed beginning with the 2012 tax year. The allowable carryover period for suspended losses and suspended recapture subtraction modifications is extended by the number of years the subtraction modification was suspended. Here are the statutory paragraphs related to NOL modifications in effect for tax years beginning in 2012.
5200-A. Modifications
1. Additions. The taxable income of the taxpayer under the laws of the United States shall be increased by:
C. The amount of any deduction claimed for the taxable year under the Code, Section 172, which has previously been used to offset the modifications provided by this subsection; H. The absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and the absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 2002 that, pursuant to the United States Internal Revenue Code, Section 172, are being carried back for federal income tax purposes to the taxable year by the taxpayer; M. The absolute value of the amount of any net operating loss arising from a tax year beginning or ending in 2001 that the taxpayer, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, carries back more than 2 years to the taxable year for federal income tax purposes; U. For tax years beginning in 2008, 10% of the absolute value in excess of $100,000 of any net operating loss that, pursuant to the Code, Section 172, is being carried over for federal income tax purposes to the taxable year by the taxpayer; and
V. For any taxable year beginning in 2009, 2010 or 2011, an amount equal to the absolute value of any net operating loss carry-forward claimed for purposes of the federal income tax. 2. Subtractions. The taxable income of the taxpayer under the laws of the United States shall be decreased by:
H. For each taxable year subsequent to the year of the loss, an amount equal to the absolute value of the net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and the absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 2002, for which federal adjusted gross income was increased under subsection 1, paragraph H and that, pursuant to the Code, Section 172, was carried back for federal income tax purposes, less the absolute value of loss used in the taxable year of loss to offset any addition modification required by subsection 1, but only to the extent that:
(2) The taxable year is within the allowable federal period for carry-over; (3) The amount has not been previously used as a modification pursuant to this subsection; (4) For taxable years beginning in 2008, the amount does not exceed $100,000. In the case of an affiliated group of corporations engaged in a unitary business, the $100,000 threshold applies with respect to the entire affiliated group of corporations; and
(5) The modification under this paragraph is not claimed for any tax year beginning in 2009, 2010 or 2011. The amount not deducted as the result of the restriction with respect to tax years beginning in 2009, 2010 or 2011 may be deducted in any tax year beginning after December 31, 2011, but only to the extent that the requirements of subparagraphs (1) and (3) are met and the taxable year is within the allowable federal period for carry-over plus the number of years that the net operating loss carry-over adjustment was not deducted as a result of the restriction with respect to tax years beginning in 2009, 2010 or 2011; L. An amount equal to the absolute value of any net operating loss arising from a tax year beginning or ending in 2001 for which federal taxable income was increased under subsection 1, paragraph M and that, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, was carried back more than 2 years to the taxable year for federal income tax purposes, but only to the extent that:
(2) The taxable year is either within 2 years prior to the year in which the loss arose or within the allowable federal period for carry-over of net operating losses; (3) The amount has not been previously used as a modification pursuant to this subsection; (4) For taxable years beginning in 2008, the amount does not exceed $100,000. In the case of an affiliated group of corporations engaged in a unitary business, the $100,000 threshold applies with respect to the entire affiliated group of corporations; and
(5) The modification under this paragraph is not claimed for any tax year beginning in 2009, 2010 or 2011. The amount not deducted as the result of the restriction with respect to tax years beginning in 2009, 2010 or 2011 may be deducted in any tax year beginning after December 31, 2011, but only to the extent that the requirements of subparagraphs (1) and (3) are met and the taxable year is within the allowable federal period for carry-over plus the number of years that the net operating loss carry-over adjustment was not deducted as a result of the restriction with respect to tax years beginning in 2009, 2010 or 2011; S. An amount equal to the value of any prior year addition modification under subsection 1, paragraph U, but only to the extent that:
(3) The amount has not been previously used as a modification pursuant to this subsection; and T. An amount equal to the value of any prior year addition modification under subsection 1, paragraph V, but only to the extent that:
(4) The modification under this paragraph is not claimed for any tax year beginning in 2009, 2010 or 2011.
Example #1.1 NOL in 2011, all of the loss is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2011. The entire amount of the loss is carried forward; $25,000 is applied to 2012 and $65,000 to 2013. Because the federal loss did not offset any Maine addition modifications in 2011, no Maine adjustment is required in 2012 and 2013.
Federal income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000
NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000)
Federal taxable income $40,000 $50,000 ($90,000) $0 $5,000
_______ _______ ________ _______ _______
Maine net income $40,000 $50,000 ($90,000) $0 $5,000
Example #1.2 NOL in 2011, all of the loss is carried back
The taxpayer has a federal net operating loss of $90,000 in tax year 2011. The entire loss is carried back; $40,000 is applied to 2009 and $50,000 to 2010. To reverse the federal carrybacks, a $40,000 Maine addition modification is entered in the column for tax year 2009 and a $50,000 addition modification is entered in the column for tax year 2010. The addition modifications in 2009 and 2010 are recaptured as subtraction modifications of $25,000 in the column for tax year 2012 and $65,000 for tax year 2013. Because the federal loss did not offset any Maine addition modifications in 2011, no addition modifications required in 2012 or 2013.
Federal income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,00
NOL carryback/carryforward ($40,000) ($50,000) _______ _______ _______
Federal taxable income $0 $0 ($90,000) $25,000 $70,000
NOL Modifications: 5200-A(1)(H) $40,000 $50,000
5200-A(2)(H) ($25,000) ($65,000)
_______ ________ ________ _______ _________
Example #1.3 NOL in 2011, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2011. Part of the loss ($70,000) is carried back; $20,000 is applied to 2009 and $50,000 to 2010. The remaining loss ($20,000) is carried forward to 2012. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2009 and a $50,000 addition modification is entered in the column for tax year 2010. The addition modifications in 2009 and 2010 are recaptured here as subtraction modifications of $5,000 in the column for tax year 2012 and $65,000 in the column for tax year 2013. 2009 2010 2011 2012 2013
Federal income, prior to NOL $20,000 $50,000 ($90,000) $25,000 $70,000
NOL carryback/carryforward ($20,000) ($50,000) _______ ($20,000) _______
Federal taxable income $0 $0 ($90,000) $5,000 $70,000
NOL Modifications: 5200-A(1)(H) $20,000 $50,000
5200-A(2)(H) ($5,000) ($65,000)
_______ _______ _______ _______________
Maine net income $20,000 $50,000 ($90,000) $0 $5,000
Example #1.4 NOL in 2011, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2011. Part of the loss ($70,000) is carried back; $20,000 is applied to 2009 and $50,000 to 2010. The remaining loss ($20,000) is carried forward to 2012. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2009 and a $50,000 addition modification is entered in the column for tax year 2010. The 2011 loss is available to offset Maine addition modifications. In this example, $5,000 of Maine income in 2011 is offset by the federal loss. In order to prevent that portion of the federal loss used to offset Maine income from also reducing income in a carryforward year, Maine requires an adjustment. The recapture subtraction modification related to the carryback offsets in 2009 and 2010 must be reduced by the amount of addition modification offset in the loss year. In this example, the $70,000 recapture modification must be reduced by $5,000, resulting in subtraction modifications of $5,000 in 2012 and $60,000 in 2013. In this example, the recapture reduction under 5200-A(2)(H) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2011 and also reducing income in 2013 by the full carryback recapture.
Maine unrelated modification $5,000
5200-A(2)(H) ($5,000) ($60,000)
Maine net income $20,000 $50,000 ($85,000) $0 $10,000
For all tax years after 2001, Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. See 36 M.R.S.A. 5200-A(1)(H). Similarly, Maine disallows carryforwards in 2009, 2010 and 2011 and any federal carryforward in those years must also be offset with a corresponding addition modification. The addition modifications for a federal carryback or carryforward can be recaptured in years subsequent to the year of the loss, beginning with tax year 2012, through subtraction modifications. See 36 M.R.S.A. 5200-A(2)(H), 5200-A(2)(L) and 5200-A(2)(T). The recapture modifications must be reduced by any Maine income that is offset in the year of the loss. In addition, for tax years beginning in 2009, 2010 and 2011, most NOL recapture subtraction modifications are suspended until 2012. The one exception to the recapture suspensions is the modification for limitations of federal carryforwards in excess of $100,000 for tax year 2008. These limitations may be recaptured beginning in tax year 2009. The allowable carryover period for suspended losses and suspended recapture subtraction modifications is extended by the number of years the subtraction modification is suspended. Here are the statutory paragraphs related to NOL modifications in effect for tax years beginning in 2009, 2010 and 2011.
Example #2.1 NOL in 2008, all of the loss is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2008. The entire amount of the loss is carried forward; $25,000 is applied to 2009 and $65,000 to 2010. All federal carryovers are deferred from tax years 2009, 2010 and 2011 to tax years 2012 and after. A $25,000 Maine addition modification is entered in the column for tax year 2009 and a $65,000 addition modification is entered in the column for tax year 2010. See 36 M.R.S.A. 5200-A(1)(V). These addition modifications may be recaptured in 2012 and later years. Here, the $90,000 total additions in 2009 and 2010 are recaptured with a subtraction modification in the column for tax year 2012. Because the federal loss did not offset any Maine addition modifications in 2008, no other Maine adjustment is required.
Federal income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000 $80,000 $90,000
NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000) _______ _______
Federal taxable income $40,000 $50,000 ($90,000) $0 $5,000 $80,000 $90,000
NOL Modifications: 5200-A(1)(V) $25,000 $65,000
5200-A(2)(T) ($90,000)
_______ _______ ________ _______ ________ _______ _______
Maine net income $40,000 $50,000 ($90,000) $25,000 $70,000 $80,000 $0
Example #2.2 NOL in 2008, all of the loss is carried back
The taxpayer has a federal net operating loss of $90,000 in tax year 2008. The entire loss is carried back; $40,000 is applied to 2006 and $50,000 to 2007. To reverse the federal carrybacks, a $40,000 Maine addition modification is entered in the column for tax year 2006 and a $50,000 addition modification is entered in the column for tax year 2007. The addition modifications in 2006 and 2007 are recaptured as a subtraction modification of $90,000 in the column for tax year 2012, the first year that the subtraction modification is allowed.
NOL carryback/carryforward ($40,000) ($50,000) _______ _______ _______ _______ _______
Federal taxable income $0 $0 ($90,000) $25,000 $70,000 $80,000 $90,000
5200-A(2)(H) ($90,000)
________ ________ ________ _______ _______ _______ _______
Example #2.3 NOL in 2008, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2008. Part of the loss ($70,000) is carried back; $20,000 is applied to 2006 and $50,000 to 2007. The remaining loss ($20,000) is carried forward to 2009. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2006 and a $50,000 addition modification is entered in the column for tax year 2007. The addition modifications in 2006 and 2007 are recaptured here as a subtraction modification of $70,000 in the column for tax year 2012, the first year that the subtraction modification is allowed. The $20,000 federal carryforward to 2009 must also be reversed through an addition modification in that year. The addition modification in 2009 is recaptured with a $20,000 subtraction modification in the column for 2012.
Federal income, prior to NOL $20,000 $50,000 ($90,000) $25,000 $70,000 $80,000 $90,000
NOL carryback/carryforward ($20,000) ($50,000) _______ ($20,000) _______ _______ _______
Federal taxable income $0 $0 ($90,000) $5,000 $70,000 $80,000 $90,000
5200-A(1)(V) $20,000
5200-A(2)(H) ($70,000)
5200-A(2)(T) ($20,000)
________________ ________ _______ _______ ________ _______
Maine net income $20,000 $50,000 ($90,000) $25,000 $70,000 $80,000 $0
Example #2.4 NOL in 2008, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2008. Part of the loss ($70,000) is carried back; $20,000 is applied to 2006 and $50,000 to 2007. The remaining loss ($20,000) is carried forward to 2009. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2006 and a $50,000 addition modification is entered in the column for tax year 2007. The 2008 loss is available to offset unrelated Maine addition modifications. In this example, $5,000 of Maine income in 2008 is offset by the federal loss. In order to prevent that portion of the federal loss used to offset Maine income from also reducing income in a carryforward year, Maine requires an adjustment. The recapture subtraction modification related to the carryback offsets in 2006 and 2007 must be reduced by the amount of addition modification offset in the loss year. In this example, the $70,000 recapture modification must be reduced by $5,000, resulting in a subtraction modification of $65,000 in 2012. The $20,000 federal carryforward to 2009 must also be reversed through an addition modification in that year. The addition modification in 2009 is recaptured with a $20,000 subtraction modification in the column for 2012. In this example, the recapture reduction under 5200-A(2)(H) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2008 and also reducing income in 2012 by the full carryback recapture.
5200-A(2)(H) ($65,000)
________________ ________ ________ _______ _______ _______
Maine net income $20,000 $50,000 ($85,000) $25,000 $70,000 $80,000 $5,000
For all tax years after 2001, Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. See 36 M.R.S.A. 5200-A(1)(H). The addition modification can be recaptured in years subsequent to the year of the loss through a recapture subtraction modification (see 36 M.R.S.A. 5200-A(2)(H)). The recapture modification must be reduced by any Maine income that is offset in the year of the loss. For tax years beginning in 2008, federal NOL carryover amounts in excess of $100,000 are reduced (through an addition modification) by 10% of the carryover amount that exceeds $100,000 (see 36 M.R.S.A. 5200-A(1)(U)). The denied federal carryover amounts may be recaptured beginning in 2009 (see 36 M.R.S.A. 5200-A(2)(S)). Also for tax years beginning in 2008, NOL recapture modifications are limited to $100,000 (see 36 M.R.S.A. 5200-A(2)(H)(4)). The disallowed recapture amounts may be recaptured beginning with the 2012 tax year (see 36 M.R.S.A. 5200-A(2)(H)(5)). Here are the statutory paragraphs related to NOL modifications in effect for tax year 2008.
Example #3.1 NOL in 2007, all of the loss is carried forward
The taxpayer has a federal net operating loss of $125,000 in tax year 2007. The entire amount of the loss is carried forward to 2008. Because the allowable amount of carryforward in 2008 is limited, an addition modification of $2,500 is required in 2008. The addition modification is equal to ten percent of the carryforward amount in excess of $100,000 ($25,000 x 0.10 = $2,500). This addition is recaptured through a $2,500 subtraction modification in 2009. Because the federal loss did not offset any Maine addition modifications in 2007, no other Maine adjustment is required in 2008.
Federal income, prior to NOL $40,000 $50,000 ($125,000) $125,000 $70,000 NOL carryback/carryforward _______ _______ ________ ($125,000) _______
Federal taxable income $40,000 $50,000 ($125,000) $0 $70,000 NOL Modifications: 5200-A(1)(U) $2,500 5200-A(2)(S) ($2,500)
Maine net income $40,000 $50,000 ($125,000) $2,500 $67,500 Example #3.2 NOL in 2007, all of the loss is carried back
The taxpayer has a federal net operating loss of $125,000 in tax year 2007. The entire loss is carried back; $75,000 is applied to 2005 and $50,000 to 2006. To reverse the federal carrybacks, a $75,000 Maine addition modification is entered in the column for tax year 2005 and a $50,000 addition modification is entered in the column for tax year 2006. The addition modifications in 2005 and 2006 may be recaptured through subtraction modifications in years following 2007. In 2008, the recapture is limited to $100,000. The remaining $25,000 recapture is postponed to 2012 because most NOL subtraction modifications are disallowed for tax years 2009, 2010 and 2011. The exception to the disallowed modifications is the recapture of the addition related to the limitation of federal carryforwards in excess of $100,000 for tax year 2008. See example #4.1.
Federal Income, prior to NOL $75,000 $50,000 ($125,000) $125,000 $70,000 NOL carryback/carryforward ($75,000) ($50,000) ________ _______ _______
Federal Taxable Income $0 $0 ($125,000) $125,000 $70,000 NOL Modifications: 5200-A(1)(H) $75,000 $50,000
5200-A(2)(H) ($100,000) _______ _______ _______ _______ _______
Maine net income $75,000 $50,000 ($125,000) $25,000 $70,000
Example #3.3 NOL in 2007, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $125,000 in tax year 2007. Part of the loss ($70,000) is carried back; $20,000 is applied to 2005 and $50,000 to 2006. The remaining $55,000 loss is carried forward to 2008. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2005 and a $50,000 addition modification is entered in the column for tax year 2006. The addition modifications in 2005 and 2006 are recaptured as a subtraction modification of $70,000 in the column for tax year 2008. Although the total federal carryover plus the recapture for 2008 exceed $100,000, no adjustment is necessary because the separate amounts are each below that threshold.
Federal Income, prior to NOL $20,000 $50,000 ($125,000) $125,000 $70,000 NOL carryback/carryforward ($20,000) ($50,000) ________ ($55,000) _______
Federal Taxable Income $0 $0 ($125,000) $70,000 $70,000 NOL Modification: 5200-A(1)(H) $20,000 $50,000
5200-A(2)(H) ($70,000) _______ _______ ________ _______ _______
Maine net income $20,000 $50,000 ($125,000) $0 $70,000 Example #3.4 NOL in 2007, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $125,000 in tax year 2007. Part of the loss ($70,000) is carried back; $20,000 is applied to 2005 and $50,000 to 2006. The remaining $55,000 loss is carried forward to 2008. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2005 and a $50,000 addition modification is entered in the column for tax year 2006. In this example, $5,000 of Maine income in 2007 is offset by the federal loss. In order to prevent that portion of the federal loss used to offset Maine income from also reducing income in a carryforward year, Maine requires an adjustment. The recapture subtraction modification related to the carryback offset in 2005 and 2006 must be reduced by the amount of addition modification offset in the loss year. In this example, the $70,000 recapture modification must be reduced by $5,000, resulting in a subtraction modification of $65,000 in 2008. Although the total federal carryover plus the recapture for 2008 exceed $100,000, no adjustment is necessary because the separate amounts are each below that threshold. In this example, the recapture reduction under 5200-A(2)(H) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2007 and also reducing income in future years by the full carryback recapture. 2005 2006 2007 2008 2009
Federal Taxable Income $0 $0 ($125,000) $70,000 $70,000 Maine unrelated modifications ($3,000) $4,000 $5,000 ($3,000) $7,000 NOL Modifications: 5200-A(1)(H) $20,000 $50,000
________ _______ _______ _______ _______
Maine net income $17,000 $54,000 ($120,000) $2,000 $77,000 PART 4 TAX YEARS 2002 THROUGH 2007
For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. Unlike prior years, the taxpayer was no longer required to add to income an amount equal to the total NOL incurred in the year of the loss and carried back federally, regardless of how many years the loss was carried back. Any federal carryback, however, was required to be offset by an addition modification in the year to which the carryback was applied (see 5200-A(1)(H)). A recapture of the carryback addition modification was allowed in years subsequent to the year of the loss. See 36 M.R.S.A. 5200-A(2)(H). Net operating loss modification recaptures are limited in tax years 2008 through 2011. For details about these restrictions, see Parts 4 and 5. Here are the statutory paragraphs related to NOL modifications in effect for tax years 2002 through 2007.
C. The amount of any deduction claimed for the taxable year under the Code, Section 172, which has previously been used to offset the modifications provided by this subsection; H. The absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and the absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 2002 that, pursuant to the United States Internal Revenue Code, Section 172, are being carried back for federal income tax purposes to the taxable year by the taxpayer; M. The absolute value of the amount of any net operating loss arising from a tax year beginning or ending in 2001 that the taxpayer, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, carries back more than 2 years to the taxable year for federal income tax purposes; 2. Subtractions. The taxable income of the taxpayer under the laws of the United States shall be decreased by:
(2) The taxable year is within the allowable federal period for carry-over; and
(3) The amount has not been previously used as a modification pursuant to this subsection; L. An amount equal to the absolute value of any net operating loss arising from a tax year beginning or ending in 2001 for which federal taxable income was increased under subsection 1, paragraph M and that, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, was carried back more than 2 years to the taxable year for federal income tax purposes, but only to the extent that:
(2) The taxable year is either within 2 years prior to the year in which the loss arose or within the allowable federal period for carry-over of net operating losses; and
(3) The amount has not been previously used as a modification pursuant to this subsection; Example #4.1 NOL in 2005, all of the loss is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2005. The entire amount of the loss is carried forward; $25,000 is applied to 2006 and $65,000 to 2007. Because the federal loss did not offset any unrelated Maine addition modifications in 2005, no Maine adjustment is required in 2006 or 2007.
Federal income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000 NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000)
Federal taxable income $40,000 $50,000 ($90,000) $0 $5,000 _______ _______ ________ _______ _______
Maine net income $40,000 $50,000 ($90,000) $0 $5,000 Example #4.2 NOL in 2005, all of the loss is carried back
The taxpayer has a federal net operating loss of $90,000 in tax year 2005. The entire loss is carried back; $40,000 is applied to 2003 and $50,000 to 2004. To reverse the federal carrybacks, a $40,000 Maine addition modification is entered in the column for tax year 2003 and a $50,000 addition modification is entered in the column for tax year 2004. The addition modifications in 2003 and 2004 are recaptured as subtraction modifications of $25,000 in the column for tax year 2006 and $65,000 for tax year 2007. Because the federal loss did not offset any unrelated Maine addition modifications in 2005, no other Maine adjustment is required in 2006 or 2007.
Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000 NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______
Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000 NOL Modifications: 5200-A(1)(H) $40,000 $50,000
Example #4.3 NOL in 2005, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2005. Part of the loss ($70,000) is carried back; $20,000 is applied to 2003 and $50,000 to 2004. The remaining loss ($20,000) is carried forward to 2006. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2003 and a $50,000 addition modification is entered in the column for tax year 2004. The addition modifications in 2003 and 2004 are recaptured as subtraction modifications of $5,000 in the column for tax year 2006 and $65,000 for tax year 2007. Because the federal loss did not offset any unrelated Maine addition modifications in 2005, no other Maine adjustment is required in 2006 or 2007.
Federal Income, prior to NOL $20,000 $50,000 ($90,000) $25,000 $70,000 NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______
Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000 NOL Modification: 5200-A(1)(H) $20,000 $50,000
5200-A(2)(H) ($5,000)($65,000) _______ _______ _______ ________ _______
Maine net income $20,000 $50,000 ($90,000) $0 $5,000 Example #4.4 NOL in 2005, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2005. Part of the loss ($70,000) is carried back; $20,000 is applied to 2003 and $50,000 to 2004. The remaining loss ($20,000) is carried forward to 2006. To reverse the federal carrybacks, a $20,000 Maine addition modification is entered in the column for tax year 2003 and a $50,000 addition modification is entered in the column for tax year 2004. Since no addition modification is necessary in 2005, the full amount of the federal loss is available to offset unrelated Maine addition modifications in that year. In this example, $5,000 of Maine income in 2005 is offset by the federal loss. In order to prevent that portion of the federal loss used to offset Maine income in 2005 from also reducing income in a carryforward year, Maine requires an adjustment. The amount of the recapture subtraction modification claimed in 2007, which is related to the carryback offsets in 2003 and 2004, must be reduced by the amount of addition modification that is offset in the loss year. In this example, the $70,000 recapture modification must be reduced by $5,000, resulting in a subtraction modification of $65,000 in the column for 2007. In this example, the recapture reduction under 5200-A(2)(H) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2005 and also reducing income in future years by the full carryback recapture. Notice that, in 2006, the NOL carryforward combined with a Maine subtraction modification unrelated to the NOL results in a negative amount for Maine net income. Since Maine has no state-level NOL, negative income amounts have no effect on Maine income tax.
Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000 Maine unrelated modifications ($3,000) $4,000 $5,000 ($6,000) $7,000 NOL Modifications: 5200-A(1)(H) $20,000 $50,000
Maine net income $17,000 $54,000 ($85,000) ($1,000) $12,000 PART 5 TAX YEAR 2001
For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years, but decoupled from federal carrybacks of more than two years. In the year of the loss, the taxpayer was required to add to income an amount equal to the total NOL incurred in that year and carried back federally. This addition modification was required under 36 M.R.S.A. 5200-A(1)(B). A second addition modification was required for 2001 losses carried back to tax years 1996, 1997 or 1998. This carryback addition modification was equal to the amount of the federal NOL carried back and applied against income in those years (see 5200-A(1)(M)). A third addition modification was required in a carryforward year if a portion of the loss was carried forward federally and a Maine addition modification was offset in the loss year (see 5200-A(1)(C) and example #2.4). Here are the statutory paragraphs related to NOL modifications in effect for tax year 2001.
B. The amount of any net operating loss in the taxable year which has been carried back to previous taxable years pursuant to the Code, Section 172;
C. The amount of any deduction claimed for the taxable year under the Code, Section 172, which has previously been used to offset the modifications provided by this subsection;
H. The absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and the absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 2002 that, pursuant to the United States Internal Revenue Code, Section 172, are being carried back for federal income tax purposes to the taxable year by the taxpayer;
M. The absolute value of the amount of any net operating loss arising from a tax year beginning or ending in 2001 that the taxpayer, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, carries back more than 2 years to the taxable year for federal income tax purposes;
2.Subtractions. The taxable income of the taxpayer under the laws of the United States shall be decreased by:
H. For each taxable year subsequent to the year of the loss, an amount equal to the absolute value of the net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and the absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 2002 that, pursuant to the Code, Section 172, was carried back for federal income tax purposes, but only to the extent that:
(3) The amount has not been previously used as a modification pursuant to this subsection; L. An amount equal to the absolute value of any net operating loss arising from a tax year beginning or ending in 2001 for which federal taxable income was increased under subsection 1, paragraph M and that, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, was carried back more than 2 years to the taxable year for federal income tax purposes, but only to the extent that: (1) Maine taxable income is not reduced below zero;
(2) The taxable year is either within 2 years prior to the year in which the loss arose or within the allowable federal period for carry-over of net operating losses; (3) The amount has not been previously used as a modification pursuant to this subsection;
Example #5.1 NOL in 2001, all of the loss is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire amount of the loss is carried forward; $25,000 is applied to 2002 and $65,000 to 2003. No addition modification is required in the loss year because none of the loss was carried back at the federal level. Further, because the federal loss did not offset any Maine addition modifications in 2001, no Maine adjustment is required in 2002 or 2003.
Maine net income $40,000 $50,000 ($90,000) $0 $5,000 Example #5.2 NOL in 2001, all of the loss is carried back
The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire loss is carried back; $40,000 is applied to 1998 and $50,000 to 1999. A $90,000 Maine addition modification equal to the federal loss carryback is entered in the column for tax year 2001 and a second addition modification of $40,000 is entered in the column for tax year 1998. Maine accepts the federal carryback to 1999, since it is within the allowable two-year carryback window. The carryback to 1998, however must be reversed through an addition modification because that carryback is beyond the allowable two-year time period. The addition modification in 1998 may be recaptured as a subtraction modification in subsequent years, within the ordinary carryback/carryover time period for federal losses. In this example, a subtraction modification is entered in the column for tax year 2000 to accomplish that recapture.
Federal Income, prior to NOL $40,000 $50,000 $50,000 ($90,000) $25,000 $70,000 NOL carryback/carryforward ($40,000) ($50,000) _______ ________ _______ _______
Federal Taxable Income $0 $0 $50,000 ($90,000) $25,000 $70,000 NOL Modifications: 5200-A(1)(B) $90,000 5200-A(1)(M) $40,000 5200-A(2)(L) ($40,000)
Maine net income $40,000 $0 $10,000 $0 $25,000 $70,000 Example #5.3 NOL in 2001, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2001. Part of the loss ($70,000) is carried back; $20,000 is applied to 1999 and $50,000 to 2000. In this example, since only a portion of the loss is carried back, only that portion must be added back to Maine income in the loss year. Also, because the loss is not carried back more than two years at the federal level, an addition modification is not required in any carryback year. The addition modification in 2001 brings Maine net income for the taxpayer to negative $20,000. Since Maine law does not accommodate a separate NOL, there are no adjustments for this $20,000 of negative Maine income. The negative $20,000 is equal to the amount of the federal loss carryforward which, in this example, is applied to reduce the 2002 federal taxable income. No other Maine adjustment is required.
Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000 NOL Modification: 5200-A(1)(B) $70,000 _______ _______ _______ _______ _______
Maine net income $0 $0 ($20,000) $5,000 $70,000 Example #5.4 NOL in 2001, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2001. Part of the loss ($70,000) is carried back; $20,000 is applied to 1999 and $50,000 to 2000. The remaining loss ($20,000) is carried forward to 2002. Only that portion of the loss carried back must be added back to Maine income in the loss year. As a result, the amount that is used as a federal carryforward is available in the year of the loss to offset unrelated Maine addition modifications. In this example, $5,000 of Maine income in 2001 is offset by the federal loss. To prevent that portion of the federal loss used to offset Maine income in 2001 from also reducing income in a carryforward year, Maine requires an adjustment. This modification is located in the table below under tax year 2002 as an addition of $5,000. The addition modification under 5200-A(1)(C) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2001 and also reducing income in future years by the full carryover amount. Of the $20,000 loss carryforward, $5,000 is used to offset Maine income in 2001. Therefore, the $20,000 carryforward must be reduced by that $5,000 in 2002. Notice that, in 1999, the NOL carryback combined with a Maine subtraction modification unrelated to the NOL results in a negative amount for Maine net income. Since Maine has no state-level NOL, negative income amounts have no effect on Maine income tax.
Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000 Maine unrelated modifications ($3,000) $4,000 $5,000 ($6,000) $7,000 NOL Modifications: 5200-A(1)(B) $70,000 5200-A(1)(C) $5,000 ________ _______ _______ _______ _______
Maine net income ($3,000) $4,000 ($15,000) $4,000 $77,000 PART 6 -- TAX YEAR 2000 AND EARLIER
From 1993 through 2000, Maine was in conformity with the Internal Revenue Code regarding net operating losses, so all federal carryback amounts were accepted for Maine income tax purposes. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the NOL incurred in that year and carried back federally. This addition modification was required by 36 M.R.S.A. 5200-A(1)(B). A second addition modification was required in a carryforward year if a portion of the loss was carried forward federally and a Maine addition modification was offset in the loss year (see 5200-A(1)(C) and example #1.4). Here are the statutory paragraphs related to NOL modifications in effect for tax year 2000.
H. The absolute value of the amount of any net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 that, pursuant to the United States Internal Revenue Code, Section 172, is being carried back for federal income tax purposes to the taxable year by the taxpayer;
H. For each taxable year subsequent to the year of the loss, an amount equal to the absolute value of the net operating loss arising from tax years beginning on or after January 1, 1989 but before January 1, 1993 and that, pursuant to the Code, Section 172, was carried back for federal income tax purposes, but only to the extent that: (1) Maine taxable income is not reduced below zero;
(3) The amount has not been previously used as a modification pursuant to this subsection; Example #6.1 NOL in 2000, all of the loss is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2000. The entire amount of the loss is carried forward; $25,000 is applied to 2001 and $65,000 to 2002. No addition modification is required in the loss year because none of the loss was carried back at the federal level. Further, because the federal loss did not offset any Maine addition modifications in 2000, no Maine adjustment is required in 2001 or 2002.
Maine net income $40,000 $50,000 ($90,000) $0 $5,000 Example #6.2 NOL in 2000, all of the loss is carried back
The taxpayer has a federal net operating loss of $90,000 in tax year 2000. The entire loss is carried back; $40,000 is applied to 1998 and $50,000 to 1999. A $90,000 Maine addition modification equal to the federal loss carryback is entered in the column for tax year 2000. The addition modification in the year of the loss brings federal income for the taxpayer to zero for 2000. No other adjustment is required.
Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000 NOL Modification: 5200-A(1)(B) $90,000 _______ _______ _______ _______ _______
Maine net income $0 $0 $0 $25,000 $70,000 Example #6.3 NOL in 2000, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2000. Part of the loss ($70,000) is carried back; $20,000 is applied to 1998 and $50,000 to 1999. The remaining loss ($20,000) is carried forward to 2001. Only that portion of the loss carried back must be added back to Maine income in the loss year. The addition modification in 2000 brings Maine net income for the taxpayer to a loss of $20,000. This $20,000 loss is equal to the amount of the federal loss carryforward which, in this example, is applied to reduce the 2001 federal taxable income. No other Maine adjustment is required.
Maine net income $0 $0 ($20,000) $5,000 $70,000 Example #6.4 NOL in 2000, some of the loss is carried back, some is carried forward
The taxpayer has a federal net operating loss of $90,000 in tax year 2000. Part of the loss ($70,000) is carried back; $20,000 is applied to 1998 and $50,000 to 1999. The remaining loss ($20,000) is carried forward to 2001. Only that portion of the loss carried back must be added back to Maine income in the loss year. As a result, the amount that is used as a federal carryforward is available in the year of the loss to offset unrelated Maine addition modifications. In this example, $5,000 of Maine income in 2000 is offset by the federal loss. To prevent that portion of the federal loss used to offset Maine income in 2000 from also reducing income in a carryforward year, Maine requires an adjustment. This adjustment is located in the table below under tax year 2001 as an addition of $5,000. The addition modification under 5200-A(1)(C) keeps the taxpayer from avoiding tax on the $5,000 unrelated modification in 2000 and also reducing income in future years by the full carryover amount. Of the $20,000 loss carryforward, $5,000 is used to offset Maine income in 2000. Therefore, the $20,000 carryforward must be reduced by that $5,000 in 2001. Notice that, in 1998, the NOL carryback combined with a Maine subtraction modification unrelated to the NOL results in a negative amount for Maine net income. Since Maine has no state-level NOL, negative income amounts have no effect on Maine income tax.
Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000 Maine unrelated modifications ($3,000) $4,000 $5,000 ($6,000) $7,000 NOL Modifications: 5200-A(1)(B) $70,000 5200-A(1)(C) $5,000 _______ _______ _______ _______ _______
Maine net income ($3,000) $4,000 ($15,000) $4,000 $77,000 Credits