42.23.805 TREATMENT OF NET OPERATING LOSSES SPANNING A CHANGE IN REPORTING METHODS
(1) For purposes of this rule:
(a) "combined year" means a taxable period in which a corporation filed a unitary combined report as set forth in ARM 42.26.204;
(b) "water's-edge year" means a taxable period in which a corporation filed a valid water's-edge combined report as set forth in ARM 42.26.301; and
(c) "separate company year" means a taxable period in which a corporation filed as a separate and distinct entity, not as part of a unitary group.
(2) A corporation that makes a valid water's-edge election or does not renew a prior election is agreeing that unused net operating loss carryover from a water's-edge year may only be carried to a water's-edge year, and unused net operating loss carryover from a non-water's-edge year may only be carried to a non-water's-edge year. When applying the three-year carry-back, and seven-year or ten-year carry-forward limitations, provided for in 15-31-119, MCA, all taxable periods are included, even though the loss can only be deducted in those periods in which the filing method is the same.
(3) Except as provided in (2), if a corporation incurs a net operating loss and carries that loss to a year that was filed under a different filing method, the net operating loss deduction may be limited. Both the tax period in which the net operating loss is being deducted and the net operating loss must be recalculated using the correct filing method before the deduction is allowed. For example:
(a) if a corporation incurs a net operating loss in a prior separate company year, and wishes to carry that loss forward or back to a combined year and a combined return is the taxpayer's proper filing method for each period, the loss must be recalculated as if it were filed on a combined, unitary basis before being carried to the combined year; or
(b) if a corporation incurs a net operating loss in a combined year filed correctly on a unitary basis, and wishes to carry back that loss to a prior, incorrectly filed, separate company year (or other incorrect filing method), the separate company year must be recalculated as if it were filed on a combined, unitary basis before the deduction is allowed.
(4) For purposes of applying a net operating loss deduction, a taxpayer or the department may undertake the necessary corrections described in (3) even if the affected tax year has already closed via the expiration of the statute of limitations. By correcting the filing method (or net operating loss), neither the taxpayer nor the department is reopening a closed year, but rather is deriving the correct figure to use for an open-year claim.
History: 15-31-313, 15-31-501, MCA; IMP, 15-31-119, MCA; NEW, 2011 MAR p. 2053, Eff. 9/23/11; AMD, 2016 MAR p. 2198, Eff. 11/26/16; AMD, 2017 MAR p. 2327, Eff. 1/1/18.