Instructions For Shedule Nol (Form 720) - Mandatory Nexus Consolidation

41A720NOL (10-06)

Page 2

INSTRUCTIONS FOR SCHEDULE NOL (FORM 720)

Purpose of This Schedule—This schedule is to be used by cor-

Line 9—Enter the following: if the AMC tax is greater than the

porations that are required to file a mandatory nexus consoli-

regular income tax, (1) calculate the TNIE of the alternative mini-

dated return in order to determine the loss limitation. It is also

mum calculation; (2) divide it by the apportionment factor; (3)

to be used by corporations filing a separate entity return, an

subtract it from the net income on Form 720, Part I, Line 17, if

elective consolidated return or mandatory nexus return to track

Line 18 is a negative amount, or subtract it from Line 19 if Line

the NOL carryforward.

18 is a positive amount. If the TNIE is greater than the net in-

come on Form 720, Part I, Line 17 or Line 19, enter -0-.

The includible corporations of the mandatory consolidated nexus

return that have earned a net operating loss shall not deduct an

Net income is defined as Form 720, Part 1, Line 17 if Line 18 is a

amount that exceeds, in the aggregate, 50 percent of the income

negative amount or Line 19 if Line 18 is a positive amount.

realized by the remaining includible corporations that did not

LIne 10—Only enter if the AMC tax is paid and an amount, other

realize a net operating loss.

than zero, is entered on Line 9. Add Line 3, Column B and Line 9.

Part I—Mandatory Nexus Consolidation

Section B (Complete only if there is a prior year NOL and/or

General Instructions—This is only for mandatory nexus returns

current year loss adjustment.)

filed in accordance with KRS 141.200(8-14).

Current year loss disallowed is the amount of Kentucky losses

The 50 percent limitation, net operating loss(es) and net

from Line 3, Column B that are disallowed due to first using

operating loss carryforwards are determined prior to the appli-

prior year NOL carryforward(s) to meet the 50 percent limita-

cation of the apportionment factor. If one or more of the

tion. It is available for carryforward.

"includible corporations" brings an NOL carryforward to the

mandatory consolidated group, the common parent may make

Line 1, Income Tax Paid—If Line 4 is greater than or equal to

an irrevocable election to carry all NOL carryforwards as an

Line 5, enter the difference of Line 6 less Line 4. If this difference

apportioned NOL. Otherwise, the NOL carryforward for each

is less than zero, enter -0-;

member of the consolidated group must be recomputed to a

preapportioned amount.

If Line 5 is greater than Line 4, enter the amount from Line 3,

An “includible corporation” that brings its NOL carryforward

Column B.

from another consolidated group will determine its NOL based

AMC Tax Paid and TNIE is Greater Than Net Income—If Line 4 is

upon Section 1502 of the Internal Revenue Code and related regu-

greater than or equal to Line 5, enter the amount of Line 3, Column

lations, adjusted for differences between KRS Chapter 141 and

B minus (Line 4 minus Line 5); however, if an amount is on Line 8

the Internal Revenue Code.

and Line 3, Column B is greater than Line 5, enter Line 5.

Any NOL carryforward is utilized first in meeting its 50 percent

limitation.

If Line 5 is greater than Line 4, enter the lesser of Line 3, Column

Section A—Enter the name and Kentucky corporation account

B or Line 5 unless Line 3, Column A is less than Line 3, Column

number of the common parent and includible subsidiaries.

B, then enter Line 3, Column B.

Column A—Enter only Kentucky net income of includible

AMC Tax Paid and TNIE is Less Than Net Income—If Line 10 is

corporations, from Schedule KCR (Form 720), Line 19.

greater than or equal to Line 5, enter the difference of Line 6

less Line 10. If this difference is less than zero, enter -0-;

Column B—Enter only Kentucky net losses of includible

corporations, from Schedule KCR (Form 720), Line 19. Enter as

a positive amount.

If Line 5 is greater than Line 10, enter the amount from Line 3,

Line 3—Enter the totals for Column A and Column B. Column B

Column B.

should reflect a positive amount.

Line 3, Income Tax Paid—Enter the lesser of Part I, Section A,

Line 4—This is the limitation provided by KRS 141.200(11)(b).

Line 4, or Part I, Section A, Line 5. If equal, enter amount from

Part I, Section A, Line 5.

Line 5—Enter the prior year NOL carryforward as a positive amount.

AMC Tax Paid and TNIE is Greater Than Net Income and Form

Line 7—The amount on Line 7 is the amount of the net operat-

720, Line 18 is a Positive Amount—Enter the lesser of Part I,

ing loss(es) of the includible corporation(s) that exceeds the 50

Section A, Line 4, or Part I, Section A, Line 5. If equal, enter

percent loss limitation. It is an addback in computing Kentucky

amount from Part I, Section A, Line 5, or;

net income and is entered on Form 720, Part I, Line 18. If an

amount is entered and income tax is paid, skip to Section B,

Form 720, Line 18 is a Negative Amount—If Line 5 is greater

Line 1. If Line 3, Column B is less than Line 4, Column A, leave

than or equal to Line 3, Column B, enter Line 3, Column B;

blank and go to Line 8.

Line 8—If Line 4 is greater than Line 3, Column B, enter the lesser

If Line 5 is less than Line 3, Column B, enter Line 5 .

of this difference or Line 5. (This difference is Line 4 less Line 3,

Column B.) Otherwise, leave blank. This is the amount of addi-

AMC Tax Paid and TNIE is Less Than Net Income—Enter the

tional loss(es) from the includible corporation(s) that can be used

lesser of Part I, Section A, Line 10, or Part I, Section A, Line 5,. If

to meet the 50 percent loss limitation. It is a deduction in com-

equal, enter amount from Part I, Section A, Line 5. If Part I, Sec-

puting Kentucky net income and is entered on Form 720, Part I,

tion A, Line 9 is zero, enter -0-.

Line 18, as a negative amount.

Part II—Separate Entity and Elective Consolidated Filers

Taxable Net Income Equivalent (TNIE)

If the AMC tax is paid, it is necessary to compute the TNIE of

General Instructions—This section is to be used only by sepa-

the AMC.

rate entity and elective consolidated filers in order to calculate

the available NOL carryforward. Follow the instructions as indi-

The TNIE equivalent for the AMC tax of $6,000 is $121,429

cated on Lines 1 through 4.

1. First $50,000 is taxed at the 4% rate = $2,000

2. The next $50,000 is taxed at the 5% rate =$2,500

Line 2—Enter only if Form 720, Part I, Line 20 is a loss and enter

3. The tax for the first $100,000 = $4,500.

as a positive number.

4. ($6,000 - $4,500) / 7% rate = $21,429.

5. $100,000 + $21,429 = $121,429.

Line 3—Enter the following: If the AMC tax is greater than the

regular income tax, (1) calculate the TNIE and subtract it from

If the corporation is filing a nexus consolidated return divide

the taxable net income before the net operating loss deduction

the TNIE by its apportionment factor from Schedule A, Appor-

(Form 720, Part I, Line 20), but not more than the net operating

tionment and Allocation.

loss deduction (Form 720, Part I, Line 21). If the TNIE is greater

If the TNIE exceeds taxable net income, then no NOLD is used

than net income, enter -0-.

Instructions For Shedule Nol (Form 720) - Mandatory Nexus Consolidation - 2006

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