Hawaii Administrative Rules Title 18 — Department of Taxation

HAR § 18-235-7-14

(Reserved) HRS §235-7(d) §18-235-7-15 Net operating loss deduction

Official textfiles.hawaii.gov13 subsections

# (a)

No net operating loss shall be carried back to any taxable year ending prior to January 1, 1967, as provided by section 235-7(d)(2), HRS.

# (b)

In computing the net operating loss to be carried back or carried over, there shall be included in gross income the amount of interest which is excluded from gross income by section 235-7(a), HRS, decreased by the amount of interest paid or accrued which is disallowed as a deduction by section 235-7(e), HRS.

# (c)

A net operating loss carryback shall be limited to three taxable years preceding the taxable year of such loss.

# (d)

A net operating loss carryover shall be limited to fifteen taxable years following the taxable year of such loss.

# (e)

In computing the net operating loss, deductions shall be allowed only to the extent they are connected with and allocable to income taxable in this State under section 235-5, HRS, and section 265 (with respect to expenses and interest relating to tax-exempt income), IRC, as operative under chapter 235, HRS.

# (f)

A taxpayer’s election under section 172(b)(3)(C) (with respect to election to waive carryback), IRC, as operative under chapter 235, HRS, does not extend the net operating loss carryover period beyond fifteen taxable years following the taxable year of such loss. No taxpayer shall make such an election as to a net operating loss of a business where the net operating loss occurred in the taxpayer’s business prior to the taxpayer entering business in this State. The election is made by attaching a statement to that effect to the taxpayer’s return (or amended return) for the taxable year of the loss, and must be made no later than the due date of the return (including extensions) for that year.

# (g)

A refund of Hawaii income tax resulting from a net operating loss carryback is properly included in the gross income of a taxpayer using the accrual method of accounting for the taxable year of the loss which gives rise to the refund.

# (h)

A deficiency attributable to the application to the taxpayer of a net operating loss carryback may be assessed at any time before the expiration of the period within which a deficiency may be assessed for the taxable year of the net operating loss which results in the carryback.

# (i)

For rules governing when a claim for credit or refund attributable to a net operating loss carryback may be filed, see section 235-111(d), HRS, and section 18-235-111(a)(2).

# (j)

For corporations that have elected or are electing under subchapter S, IRC, as operative under chapter 235, HRS:

# (1)

No carryforward, and no carryback, arising for a taxable year for which a corporation is a C corporation may be carried to a taxable year for which the corporation is an S corporation, except as provided in section 235-125.5, HRS.

# (2)

No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which the corporation is an S corporation, pursuant to section 235-7(d)(3), HRS, and section 1371(b)(2), IRC.

# (3)

Nothing in paragraph (1) or (2) shall prevent treating a taxable year for which the corporation is an S corporation as a taxable year for purposes of subsections (c) and (d).

Last amended: [Eff 2/16/82; am and ren §18-235-7-15 12/8/94] (Auth: HRS §§231-3(9), 235-2.5(b), 235-118) (Imp: HRS §§235-7, 235-111) Historical note: §18-235-7-15 is based substantially upon §18-235-7(d). [Eff 2/16/82; am and ren §18-235- 7-15 12/8/94] §18-235-8 to

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