As CCH’s Sandy Weiner recently reported, the North Carolina Department of Revenue (DOR) has revised its interpretation of how the corporate income tax net economic loss deduction is computed (see Important Notice: Computation of Net Economic Loss). Under North Carolina law, the net economic loss for any year is the amount by which allowable deductions for the year other than prior year losses exceed income from all sources in the year including any income not subject to North Carolina corporate income tax. The DOR is now interpreting this provision to mean that, although deductions are not taxable, income deducted may not reduce a loss in the year the loss is created. Previously, the DOR had taken the position that items not taxable included income that was deducted under N.C. Gen. Stat. §105-130.5, such as U.S. bond interest and dividends, and consequently, decreased the amount of the loss that could be claimed by the amount so deducted. Although these deductions may not decrease the amount of loss in the year that the loss is created, the DOR is not revising its previous position that such deductions do offset the amount of net economic loss carried over from previous years. Examples of how the original loss is computed and how carryovers are applied are provided in the DOR’s notice.
Taxpayers are also reminded that the DOR or the taxpayer may redetermine an item originating in a taxable year that is closed under the statute of limitations for the purpose of determining the amount of a net economic loss carryover that may be claimed in a taxable year that remains open under the applicable statute of limitations.