Tax News
Big Business

Clarification of Net Operating Loss Suspended Carryover Period

On September 23, 2011, Legal Ruling 2011-04 was issued to clarify the calculation of the remaining carryover periods when the deduction of a net operating loss (NOL) was suspended under California law for the 2002, 2003, and 2008 through 2011 taxable years.

Under the California NOL suspension provisions, the carryover period for each year’s NOL is extended only where a NOL deduction is denied, in whole or in part, because of the application of the suspension provision to that year’s NOL.

For tax years 2010 and 2011, there is an exception to the suspension provision for taxpayers with pre-apportioned income (CORP) or modified adjusted gross income (PIT) of less than $300,000. There is also an exception for tax years 2008 and 2009 for taxpayers with taxable income (CORP) or net business income (PIT) of less than $500,000. Accordingly, a NOL or NOL carryover will not have an extended carryover period if the exception is met, and no portion of the NOL deduction was denied by operation of the suspension provisions.

This legal ruling also includes three detailed examples that illustrate the ordering of the NOL carryovers, and the effects of the suspension and extension periods.

The following table provides a brief summary of NOL limitations:

Taxable Years Carryover Period Allowed Carryover Rate Extension if Denied in 2002 or 2003 Extension if Denied in 2008 through 2011 Two Preceding Year Carryback Rate
January 1, 1987 - December 31, 1999 5 Years 50% 2 Years Expired N/A
January 1, 2000 - December 31, 2001 10 Years 55% 2 Years 4 Years N/A
January 1, 2002 - December 31, 2002 10 Years 60% 1 Year 4 Years N/A
January 1, 2003 - December 31, 2003 10 Years 60% N/A 4 Years N/A
January 1, 2004 - December 31, 2007 10 Years 100% N/A 4 Years N/A
January 1, 2008 - December 31, 2008 20 Years 100% N/A 3 Years N/A
January 1, 2009 - December 31, 2009 20 Years 100% N/A 2 Years N/A
January 1, 2010 - December 31, 2010 20 Years 100% N/A 1 Year N/A
January 1, 2011 - December 31, 2011 20 Years 100% N/A N/A N/A
January 1, 2012 - December 31, 2012 20 Years 100% N/A N/A N/A
January 1, 2013 - December 31, 2013 20 Years 100% N/A N/A 50%
January 1, 2014 - December 31, 2014 20 Years 100% N/A N/A 75%
January 1, 2015 - 20 Years 100% N/A N/A 100%

Back to November 2011 Tax News