In 1960 the taxpayer undertakes the operation of a trade or business and sustains therein a net operating loss of $4,700. In 1961 he sustains a net operating loss of $10,000 in the operation of the business. Under section 172(b) (2), it is determined that the entire amount of each loss, $4,700 and $10,000, is a carryback to 1959. In determining the amount of the carryover of the 1961 loss to 1962, the taxable income for 1959 as computed under this paragraph is $3,870, determined as follows: (iii) Minimum limitation. The taxable income, as modified under this paragraph, shall in no case be considered less than zero. (4) Electing small business corporations. For special rule applicable to corporations which were electing small business corporations under subchapter S (section 1371 and following), chapter 1 of the Code, during one or more of the taxable years described in section 172 (b) (1), see paragraph (g) of § 1.172–1. (b) Taxable year subject to 1939 Code (1) In general. For the computation of the net income for any taxable year (other than the taxable years described in subparagraphs (2) and (3) of this paragraph) subject to the 1939 Code which is subtracted from the net operating loss for any other taxable year to determine the portion of such loss which is a carryback or a carryover to a particular taxable year, see 26 CFR (1939) § 39.122-4(c) (Regulations 118) or the corresponding section of prior applicable regulations. (2) Taxable years beginning in 1953 and ending in 1954. The net income for any taxable year beginning in 1953 and ending in 1954 which is subtracted from the net operating loss for any other taxable year to determine the portion of such net operating loss which is a carryback or a carryover to a particular taxable year shall be the sum of (i) That portion of the net income for such taxable year, computed as provided in clauses (i) and (ii) of the first sentence of section 122(b) (2) (B) of the Internal Revenue Code of 1939, which the number of days in such taxable year before January 1, 1954, bears to the total number of days in such taxable year, and (ii) That portion of the net income for such taxable year, computed (a) As provided in clauses (i) and (ii) of the first sentence of section 122 (b) (2) (B) of the Internal Revenue Code of 1939 but without regard to the modifications provided in section 122(d) (1) and (2) of such Code, and (b) By allowing as a deduction an amount equal to the sum of the credits allowable for such taxable year under section 26(b) (relating to credit for dividends received) and section 26 (h) (relating to credit for dividends paid on certain preferred stock) of the Internal Revenue Code of 1939 in determining normal-tax net income, which the number of days in such taxable year after December 31, 1953, bears to the total number of days in such taxable year. (3) Taxable years beginning after DeIcember 31, 1953, and ending before August 17, 1954. The net income for any taxable year beginning after December 31, 1953, and ending before August 17, 1954, which is subtracted from the net operating loss for any other taxable year to determine the portion of such net operating loss which is a carryback or a carryover to a particular taxable year shall be the net income for such taxable year, computed (i) As provided in clauses (1) and (ii) of the first sentence of section 122(b) (2) (B) of the Internal Revenue Code of 1939 but without regard to the modifications provided in section 122(d) (1) and (2) of such Code, and (ii) By allowing as a deduction an amount equal to the sum of the credits allowable for such taxable year under section 26(b) (relating to the credit for dividends received) and section 26(h) (relating to the credit for dividends paid on certain preferred stock) of the Internal Revenue Code of 1939 in determining normal-tax net income. (4) Statute of limitations, etc.; interest. If a refund or credit of any overpayment resulting from the application of subparagraph (2) or (3) of this paragraph is prevented on September 2, 1958, or within six months after such date, by the operation of any law or rule of law other than section 3760 of the Internal Revenue Code of 1939 or section 7121 of the Internal Revenue Code of 1954, relating to closing agreements, and other than section 3761 of the Internal Revenue Code of 1939 or section 7122 of the Internal Revenue Code of 1954, relating to compromises, refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefor is filed on or before March 2, 1959. No interest shall be paid or allowed on any overpayment resulting from the application of subparagraph (2) or (3) of this paragraph. See section 14 (c) of the Technical Amendments Act of 1958 (72 Stat. 1611). (T.D. 6500, 25 F.R. 11402, Nov. 26, 1960, as amended by T.D. 6862, 30 F.R. 14428, Nov. 18, 1965; T.D. 6900, 31 F.R. 14641, Nov. 17, 1966] § 1.172-6 Illustration of net operating loss carrybacks and carryovers. The application of § 1.172-4 may be illustrated by the following example: (a) Facts. The books of the taxpayer, whose return is made on the basis of the calendar year, reveal the following facts: Net operating loss--. Taxable income for 1954 $15,000 carryback from 1958)-- 30,000 Taxable income for 1957 (computed without the deduction of the carry over from 1956 or the $75,000 (5) Carryover to 1959. The carryover to this year is $10,000, computed as follows: (4) Carryover to 1959. The carryover to this year is $150,000, computed as follows: Net operating loss---- Taxable income for 1955 (the $30,000 taxable income for such year reduced by the carryback to such year of $60,000 from 1956, the carryback from 1958 to 1955 not being taken into account) Taxable income for 1956 (a year in which a net operating loss was sustained). Taxable income for 1957 (the $20,000 taxable income for such year reduced by the carryover to such year of $30,000 from 1956, the carryback from 1958 to 1957 not being taken into account) Carryover-- $150,000 150,000 (5) Carryover to 1960. The carryover to this year is $130,000, computed as follows: Net operating loss---- Taxable income for 1955 Taxable income for 1957 (the $20,000 taxable income for such year reduced by the carryover to such year of $30,000 from 1956, the carryback from 1958 to 1957 not being taken into account)-Taxable income for 1959 (the $30,000 taxable income for such year reduced by the carryover to such year of $10,000 from 1956, the carryover from 1958 to 1959 not being taken into account) Carryover.. 0 $20,000 $150,000 20,000 130,000 (6) Carryover to 1961. The carryover to this year is $95,000, computed as follows: Net operating loss---- Taxable income for 1955 (the $30,000 taxable in- Taxable income for 1956 Taxable income for 1957 (the $30,000 taxable income for such year reduced by the carryover to such year of $10,000 from 1956, the carryover from 1958 to 1959 not being taken into account) --Taxable income for 1960 (the $35,000 taxable income for such year reduced by the carryover to such year of $0 from 1956, the carryover from 1958 to 1960 not being taken into account) Carryover... $20,000 $150,000 35,000 55,000 95,000 Less Continued Taxable income for 1957 (the $20,000 taxable insuch year come for reduced by the carryover to such year of $30,000 from 1956, the carryback from 1958 to 1957 not being taken into account). Taxable income for 1959 (the $30,000 taxable income for such year reduced by the carryover to such year of $10,000 from 1956, the carryover from 1958 to 1959 not being taken into account) Taxable income for 1960 (the $35,000 taxable income for such year reduced by the carryover to such year of $0 from 1956, the carryover from 1958 to 1960 not being taken into account) Taxable income for 1961 (the $75,000 taxable income for such year reduced by the carryover to such year of 80 from 1956, the carryover from 1958 to 1961 not being taken into account) Carryover-- (8) Carryover to 1963. to this year is $3,000, follows: Net operating loss.-- Taxable income for 1955 (a year in which a net Taxable income for 1957 (the $20,000 taxable income for such year reduced by the carryover to such year of $30,000 from 1956, the carryback from 1958 to 1957 not being taken into account) $20,000 85,000 75,000 $130,000 20,000 Less-Continued come Taxable income for 1959 (the $30,000 taxable infor such year reduced by the carryover to such year of $10,000 from 1956, the carryover from 1958 to 1959 not being taken into account) --Taxable income for 1960 (the $35,000 taxable income for such year reduced by the carryover to such year of 80 from 1956, the carryover from 1958 to 1960 not being taken into account) Taxable income for 1961 (the $75,000 taxable income for such year reduced by the carryover to such year of 80 from 1956, the carryover from 1958 to 1961 not being taken into account) Taxable income for 1962 (computed without the deduction of the carryover from 1958). Carryover $20,000 35,000 75,000 17,000 $147,000 3,000 (d) Determination of net operating loss deduction for each year. The carryovers and carrybacks computed under paragraphs (b) and (c) of this section are used as a basis for the computation of the net operating loss deduction in the following manner: Net operating loss deduction The carryover computed as $150,000 |