Alabama Affiliated Group Members Allowed to Share NOL Carryovers

The Court of Civil Appeals has affirmed the circuit court in upholding the decision of the ALJ that allowed members of an Alabama affiliated group to report NOLs incurred prior to 2007 by one group member to offset the current year Alabama corporate income of another member.

According to the ALJ, Alabama affiliated group members are allowed to share NOL carryovers on an Alabama consolidated return, but only if the separate return limitation year rule (SRLY) under Sec. 40-18-39(h) does not apply. The limitation rule applies if an NOL was incurred by a group member in a year before the member became a member of the Alabama affiliated group. According to the ALJ, the filing of an Alabama consolidated return is not a prerequisite to the existence of an Alabama affiliated group and, thus an Alabama affiliated group can exist before the group files its first Alabama consolidated return.

The taxpayer and its subsidiaries were members of the taxpayer’s affiliated Alabama group from 1999 forward. Therefore, taxpayer’s 1999 through 2002 and 2004 NOLs could be allowed as group NOLs on the 2007 consolidated return because the taxpayer was a member of the Alabama affiliated group in those loss years. The Court of Civil Appeals, agreed that the limitation under Sec. 40-18-39(h) does not apply if the corporation that incurred the loss was a group member in the loss year, even if the group did not file an Alabama consolidated return in the loss year. Accordingly, the judgement is affirmed.

State Department of Revenue v. Coca Cola Enterprises, Inc., Alabama Court of Civil Appeals, 2160412, September 8, 2017 , ¶201-918

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