Louisiana modified its Net Operating Loss provisions last year for any original or amended return filed on or after July 1, 2015. The modifications serve as an example of how seemingly simple tax law changes can create a myriad of complexities that taxpayers must consider when filing returns and managing audits.
In a nutshell, the newly enacted statute:
- Extends the carryforward period to twenty years (previously 15 years);
- Eliminates the three year carryback provision; and
- Reduces the amount of the NOL carryforwards to be utilized in any year before 2018 to 72% of taxable income
The legislation also clarifies that the changes will not apply to an amended return filed on or after July 1, 2015, relating to a net operating loss deduction properly claimed on an original return filed prior to July 1, 2015.
Louisiana’s new provisions present a number of unanswered questions of which Louisiana taxpayers should be aware:
1) The legislation changes found in § 47:246(G) and § 47:287.86(A) specifically state that the rules apply to “any return filed on or after July 1, 2015”. This provision, by the plain reading, seems to exclude audits or other negotiated settlements or incentives agreements in which the LA Department of Revenue may be engaged at some point in the future.
2) Does this provision pass muster under the uniformity clause of the Louisiana Constitution?
Article 5, Section 44(5) in defining “General Law” states that: “…law of statewide concern enacted by the legislature which is uniformly applicable to all persons or to all political subdivisions in the state or which is uniformly applicable to all persons or to all political subdivisions within the same class”
If “Persons… within the same class” can be applied in the context of the recently enacted NOL statute to mean: Taxpayers filing within the same tax year, then challenges may arise which are similar in nature to the recently decided Nextel case in Pennsylvania (98 F.R. 2012, Commonwealth Court of Pennsylvania), as taxpayers filing before July 1, 2015, for example, would have the ability to carryback losses to earlier years where as those filing on or after July 1, 2015, would not.
3) If a taxpayer has previously carried back an NOL on a RAR Amended Return and is now faced with amending that return again as the result of an IRS appeals settlement, will the Louisiana Department of Revenue respect the carryback taken on a previously filed amended return?
These issues are not directly addressed by the new legislation. Until the Louisiana Department of Revenue provides guidance or these issues are addressed through litigation, corporate tax departments and counsel will need to develop reasonable positions to justify their approaches.
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