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2012 Instructions for Form FTB 3805Q

Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations — Corporations

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).

What’s New

The carryover period for an NOL incurred in

If the corporation has a current year NOL under

taxable years:

R&TC Sections 24416.2, 24416.5, and 24416.6

Net Operating Loss – For taxable years beginning on

(relating to Enterprise Zone (EZ), Local Agency

•

Beginning before January 1, 2002, have been

or after January 1, 2012, California has reinstated the

Military Base Recovery Area (LAMBRA), or Targeted

extended for two years.

Net Operating Loss (NOL) carryover deduction.

Tax Area (TTA) NOLs), the corporation must elect on

•

Beginning on or after January 1, 2002, and

its tax return for the taxable year in which the loss

Important Information

before January 1, 2003, have been extended

is incurred to carryover the loss either under that

for one year.

section or the loss under R&TC Section 24416.20

•

For taxable years beginning in 2010 and

For more information, get FTB Legal Ruling

(relating to general NOLs). If the corporation elects

2011, California suspended the NOL carryover

2011-04.

to compute the NOL under R&TC Section 24416.1(c)

deduction. Corporations continued to compute

•

The general NOL carryover percentage varies

(relating to EZ, LAMBRA, or TTA NOLs), the

and carryover NOLs during the suspension

for NOLs incurred prior to January 1, 2004. See

corporation must:

period. However, corporations with net income

General Information F, Types of NOLs, for more

after state adjustments (pre-apportioned

•

Make the election in a statement attached to the

information.

income) of less than $300,000 or with disaster

original tax return.

loss carryovers were not affected by the NOL

•

In 1998, the Franchise Tax Board (FTB)

•

Use the applicable economic development area

suspension rules.

implemented the new Principal Business Activity

(EDA) form to calculate the NOL.

(PBA) Codes chart that is based on the North

If taxpayers are required to be included in a

The election is irrevocable. Get form FTB 3805Z,

American Industry Classification System (NAICS)

combined report, the 2010 and 2011 NOL

Enterprise Zone Deduction and Credit Summary,

in the corporate tax booklets. However, the

limitation amount of $300,000 or more

FTB 3807, Local Agency Military Base Recovery Area

California Revenue and Taxation Code (R&TC)

shall apply to the aggregate amount of pre-

Deduction and Credit Summary, or FTB 3809, Target

still uses the Standard Industrial Codes (SIC) for

apportioned income for all members included in

Tax Area Deduction and Credit Summary, for more

purposes of the new business and eligible small

the combined report.

information.

business NOL.

For taxable years beginning in 2008 and

B Apportioning Corporations

2009, California suspended the NOL carryover

General Information

deduction. Corporations continued to compute

The loss carryover for a corporation that apportions

and carryover an NOL during the suspension

In general, for taxable years beginning on or after

income is the amount of the corporation’s loss, if

period. However, corporations with taxable

January 1, 2010, California law conforms to the Internal

any, after adding income or loss apportioned to

income of less than $500,000 or with disaster

Revenue Code (IRC) as of January 1, 2009. However,

California with income or loss allocable to California

loss carryovers are not affected by the NOL

there are continuing differences between California and

under Chapter 17 of the Corporation Tax Law. The

suspension rules.

federal law. When California conforms to federal tax

loss carryover may be deducted from income of that

law changes, we do not always adopt all of the changes

The carryover period for any NOL or NOL

corporation apportioned and allocable to California in

made at the federal level. For more information, go

carryover, for which a deduction is disallowed

subsequent taxable years.

to ftb.ca.gov and search for conformity. Additional

because of the 2008-2011 suspension, are

information can be found in FTB Pub. 1001,

C Combined Reporting

extended by:

Supplemental Guidelines to California Adjustments, the

•

One year for losses incurred in taxable years

Corporations that are members of a unitary group

instructions for California Schedule CA (540 or 540NR),

beginning on or after January 1, 2010, and

filing a single tax return must use intrastate

and the Business Entity tax booklets.

before January 1, 2011.

apportionment, separately computing the loss

The instructions provided with California tax forms

•

Two years for losses incurred in taxable years

carryover for each corporation in the group

are a summary of California tax law and are only

beginning before January 1, 2010.

using its individual apportionment factors (R&TC

intended to aid taxpayers in preparing their state

•

Three years for losses incurred in taxable

Section 25108). Complete a separate form

income tax returns. We include information that is

years beginning before January 1, 2009.

FTB 3805Q for each taxpayer included in the

most useful to the greatest number of taxpayers

•

Four years for losses incurred in taxable

combined report. Attach the separate forms for

in the limited space available. It is not possible to

years beginning before January 1, 2008.

each taxpayer member behind the combined form

include all requirements of the R&TC in the tax

FTB 3805Q for all members.

For more information, get FTB Legal Ruling

booklets. Taxpayers should not consider the tax

2011-04.

Unlike the loss treatment for a federal consolidated

booklets as authoritative law.

tax return, a California loss carryover for one

Also, NOLs incurred in taxable years beginning

A Purpose

member in a combined report may not be applied

on or after January 1, 2013, may be carried back

to the income of another member included in the

to each of the preceding two taxable years.

Use form FTB 3805Q, Net Operating Loss (NOL)

combined report. Get FTB Pub. 1061, Guidelines for

The allowable NOL carryback percentage varies.

Computation and NOL and Disaster Loss Limitations

Corporations Filing a Combined Report, for more

For an NOL incurred in a taxable year beginning

— Corporations, to figure the current year NOL and

information.

on or after:

to limit NOL and disaster loss carryover deductions.

Note. If taxpayers are required to be included in a

•

January 1, 2013, and before January 1, 2014,

Exempt trusts should use form FTB 3805V, Net

combined report, the 2010 and 2011 NOL limitation

the carryback amount shall not exceed 50%

Operating Loss (NOL) Computation and NOL and

amount of $300,000 or more shall apply to the

of the NOL.

Disaster Loss Limitations – Individuals, Estates, and

aggregate amount of pre-apportioned income for all

•

January 1, 2014, and before January 1, 2015,

Trusts.

members included in the combined report.

the carryback amount shall not exceed 75%

The California NOL is figured the same way as the

of the NOL.

D Water’s-Edge

federal NOL, except that for California:

•

January 1, 2015, the carryback amount shall

be 100% of the NOL.

•

The carryover period and the amount to be

For water’s-edge taxpayers, R&TC

carried over differ from federal allowances. See

Section 24416.20(c) imposes a limitation on the

•

For NOLs incurred in taxable years beginning on

General Information F, Types of NOLs, for more

NOL deduction if the NOL is generated during a

or after January 1, 2008, California has extended

information.

non-water’s-edge taxable year. The NOL carryover

the NOL carryover period from 10 taxable years

•

An NOL may be carried over only to future years

is limited to the lesser amount as re-determined by

to 20 taxable years following the year of the loss.

(no carrybacks are allowed).

computing the income and factors of the original

•

For taxable years that began in 2002 and

worldwide combined reporting group as if the

2003, California suspended the NOL carryover

Note: California will allow NOLs incurred

water’s-edge election had been in force for the

deduction. Corporations continued to compute

in taxable years beginning on or after

taxable year of the loss. If R&TC Section 24416.20(c)

and carryover an NOL during the suspension

January 1, 2013, to be carried back to each of the

applies, the NOL carryover for each corporation may

period. However, the deduction for disaster losses

preceding two taxable years.

be decreased, but not increased.

was not affected by the NOL suspension rules.

FTB 3805Q Instructions 2012 Page 1

California Form 3805q Draft - Net Operating Loss (Nol) Computation And Nol And Disaster Loss Limitations - Corporations - 2012 Page 3

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