South Carolina ~ Corporate Income Tax: DOR Issues Guidance on Use of NOLs Following Change in Ownership

CCH Tax Day Report

The South Carolina Department of Revenue has issues a corporate income tax revenue ruling that provides guidance regarding the Use of net operating losses (NOLS) following a change in ownership.

South Carolina adopts IRC §382. However, the South Carolina §382 limitation amount depends on whether the loss corporation conducts its entire business inside South Carolina, or conducts its business partly inside and partly outside South Carolina, during the taxable year that the ownership change occurs. If, during the taxable year that the ownership change occurs, the loss corporation has conducted its entire business inside South Carolina, the federal §382 limitation and the South Carolina §382 limitation generally will be the same. The guidance also states that if the loss corporation has apportioned its South Carolina income/losses because it has conducted its business partly inside and partly outside South Carolina, during the taxable year that the ownership change occurs the South Carolina §382 limitation is calculated by apportioning the federal §382 limitation using the South Carolina apportionment ratio for the taxable year that the ownership change occurs.

Taxpayers are reminded that the §382 limitation is an annual limitation on the amount of taxable income that can be offset by a pre-ownership change NOL carryforward. The §382 limitation amount remains the same each year, except in the case of certain built-in gains. Any pre-ownership change South Carolina NOL carryforward that cannot be deducted in the taxable year because of the South Carolina §382 limitation is carried forward to the following year. The South Carolina NOL remains subject to the maximum 20 year carryforward period.

The ruling also provides several examples to help provide additional guidance for taxpayers.

Revenue Ruling 16-17, South Carolina Department of Revenue, July 6, 2016, ¶400-824

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