Illinois Administrative Code › Title 86 - REVENUE › Part 100 - INCOME TAX › Subpart N - ACCOUNTING › Section 100.4500 - Carryovers of Tax Attributes (IITA Section 405)

Current through Register Vol. 48, No. 28, July 12, 2024
a) In general. Except as expressly provided
				by statute, carryovers of net loss deductions and credits are only allowed to
				be claimed by the taxpayer that incurred the loss or earned the credit. See,
				e.g., New Colonial Ice Co. v. Helvering, 292 U.S. 435(1934).
1) A corporation that acquires the business
				of another corporation that has incurred net losses may not carry forward the
				losses incurred by the old corporation. See New Colonial Ice Co.
2) One exception to this general rule occurs
				in cases where, as the result of a statutory merger, a corporation is treated
				as the same taxable entity as the corporations merged into it. Even then,
				carryovers are allowed only to the extent there is a continuity of business
				enterprise between the pre- and post-merger entities. See Libson Shops, Inc. v.
				Koehler, 354 U.S. 382(1957); Newmarket Manufacturing Co. v. U.S., 233 F.2d 493
				(1st Cir. 1956).
3) In other
				situations that are not covered by an express provision of the IITA, net loss
				deductions incurred and credits earned by one entity may be carried back or
				forward for use only by that same entity, and cannot be used by a different
				entity. This rule applies to prevent the carryover of items when an entity is
				deemed to be a new entity for purposes of the Internal Revenue Code and the
				IITA despite its continued legal existence. For example:
A) Company, a limited liability company
				wholly owned by Corporation A, has made an election under Treas. Reg. Section
				301.7701(a) to be disregarded as a separate entity and to be treated as a
				division of Corporation A. On January 1, 2000, Company elects to be treated as
				a corporation. On that same date, Corporation A sells its interest in Company.
				Before January 1, 2000, Company and Corporation A are treated as a single
				corporation. See Section
				100.9750(b)(1)
				 of this Part. After the election, Company is
				treated as a new corporation to which Corporation A has contributed assets in
				exchange for stock. See Section
				100.9750(b)(2)(A)
				of this Part. Because Company is treated as a new corporation separate and
				distinct from Corporation A, net losses incurred and credits earned by Company
				and Corporation A before January 1, 2000 cannot be carried forward and used by
				Company after that date, and losses incurred by Company on or after January 1,
				2000 cannot be carried back and used by Corporation A or Company in years prior
				to that date.
B) The stock of
				Corporation B is sold in a transaction for which an IRC Section 338 election is
				made. Corporation B is treated as a new corporation that purchased all of the
				assets of Corporation B. Because Corporation B is treated as two separate and
				distinct corporations before and after the election, net losses incurred and
				credits earned by "old" Corporation B before the election may not be carried
				forward, and losses incurred by "new" Corporation B after the election may not
				be carried back. See Section
				100.9750(b)(2)(B)
				of this Part.