3.3.1.13

NET OPERATING LOSSES

1. A. Net operating losses; generated by deduction of income from United States obligations.

   (1) Section 3.3.1.13 NMAC and subsections thereunder apply to the income of a taxpayer derived from any unincorporated business.

   (2) If, for an unincorporated business, the exclusion of income from obligations of the United States of America results in a negative amount for New Mexico net income for that business for a taxable year, the resulting negative amount may be deemed to be a net operating loss for that taxable year. The taxpayer must establish the loss from exclusion of income from obligations of the United States of America by filing a New Mexico return or amended return within the time period set forth in Section 7-2-12 NMSA 1978, Subsections B, C and E of Section 7-1-26 NMSA 1978. An amended return carrying back or forward any such net operating loss must be filed within the time period set forth in Subsections B, C and E of Section 7-1-26 NMSA 1978. The taxpayer shall apply relevant provisions of 26 U.S.C. Section 172 of the Internal Revenue Code to determine the years to which the net operating loss may be applied.

   (3) Any net operating loss deemed created by this subsection (3.3.1.13A NMAC) may be carried back or forward in accordance with the provisions of Section 7-2-2 NMSA 1978 and Subsections A through E of Section 3.3.1.13 NMAC. For taxable years beginning prior to January 1, 1991, the resulting taxable income shall then be allocated and apportioned in that year pursuant to the provisions of Section 7-2-11 NMSA 1978.

   (4) For the purposes of Subsections A through E of Section 3.3.1.13 NMAC, the term "unincorporated business" includes:

   (a) S corporations taxed as partnerships for federal income tax purposes; and

   (b) limited liability companies formed pursuant to the Limited Liability Company Act or a similar law of another state which are not taxed as corporations for federal income tax purposes.

2. B. Net operating losses; time limitation.

   (1) A net operating loss, including any net operating loss deemed created pursuant to Subsection 3.3.1.13A NMAC, for a taxable year may be excluded from the base income of any other taxable year only if the net operating loss for the taxable year is established by the filing of a return, either original or amended, within the time periods set forth in Subsections B, C and E of Section 7-1-26 NMSA 1978.

   (2) Example: In 1997, a taxpayer who reports income tax on a calendar year basis discovers an error which relates to the taxpayer's state returns for 1990 and 1993. The original 1990 and 1993 returns were timely filed in 1991 and 1994, respectively. Absent the time limitations on filing amended returns, correcting the error through filing of amended returns would create net operating losses in both 1990 and 1993. An amended return may be filed only for 1993 and only the 1993 loss may be excluded from the base income of any other year.

3. C. Net operating losses; must be deductible for federal income tax purposes. The net operating loss carryover of an unincorporated business acquired by the taxpayer or otherwise included, as for example through a change in reporting method, in the taxpayer's return for a taxable year may be excluded from New Mexico base income only to the extent the Internal Revenue Code and regulations issued thereunder would permit deduction of such loss carryovers for federal income tax purposes for that taxable year by that taxpayer.

4. D. Net operating losses; carryover and carryback rules for taxable years beginning after 1990.

   (1) For taxable years beginning on or after January 1, 1991, any net operating loss for federal tax purposes and any net operating loss deemed created pursuant to Subsection 3.3.1.13A NMAC included in net income derived from an unincorporated business may be carried forward only. These loss carryovers may be excluded from base income only for five years or until the total amount of the loss carryover has been excluded, whichever occurs first. The first year in which the loss carryover may be excluded from base income is:

   (a) in the case of a timely filed original return, the next taxable year; and

   (b) in all other cases, the first taxable year beginning after the date on which the return establishing the loss is filed, not the next taxable year following the taxable year in which the loss occurred.

   (2) Example: B reports for income tax purposes on a calendar year basis. The 1991 original return included a net operating profit from a partnership in which B is a partner. Subsequently, the partnership reports revised information to B, showing a net operating loss instead of the original net operating profit. Consequently, in June, 1993, B files an amendment to B's timely filed 1991 original New Mexico individual income tax return. B may first apply the 1991 net operating loss reported on the 1993 amended return to B's New Mexico individual income tax return for 1994. B may not apply this net operating loss to 1992 or 1993.

   (3) For taxable years beginning on or after January 1, 1991, net operating loss carryovers must be applied in the following order:

   (a) net operating loss carryovers from taxable years beginning prior to January 1, 1991, beginning with the carryover from the oldest taxable year; and

   (b) net operating loss carryovers from taxable years beginning on or after January 1, 1991, beginning with the carryover from the oldest taxable year.

   (4) Example: Z began operating a sole proprietorship on January 1, 1988. Z has timely filed (on a calendar year basis) income tax returns every year. Z's business earns a net operating profit in 1988, a net operating profit of zero in 1989 and a net operating loss in 1990 which exceeded the 1988 profit by $5,000. Z's business sustains another net operating loss of $11,000 for 1991 but creates a net operating profit of $8,000 for 1992. In applying the loss carryovers, Z must first apply the net operating loss from 1990 to 1988. On Z's 1992 return, Z first applies the $5,000 carryover balance originating from 1990 and then the loss carryover deriving from 1991.

   (5) For taxable years beginning on or after January 1, 1991, any taxpayer excluding a net operating loss carryover from a prior taxable year must attach to the New Mexico return for that taxable year a schedule showing the taxable year in which each net operating loss being carried forward occurred, the amount of each loss excluded in each taxable year following the taxable year in which the loss occurred and the amount of the loss being applied to the taxable year for which the return is being filed.

   (6) For any taxable year beginning on or after January 1, 1991, the net operating loss for that taxable year may not be carried back to any preceding taxable year.

5. E. Net operating losses; carryover and carryback rules for taxable years beginning before 1991.

   (1) For taxable years beginning prior to January 1, 1991, any net operating loss, including any net operating loss deemed created pursuant to Subsection 3.3.1.13A NMAC, may be carried forward or carried back to any other taxable year beginning prior to January 1, 1991 in accordance with the provisions of the Internal Revenue Code unless contrary to the provisions of the Income Tax Act and Title 3, Chapter 3 NMAC.

   (2) For taxable years beginning prior to January 1, 1991, a net operating loss, including any net operating loss deemed created pursuant to Subsection 3.3.1.13A NMAC, may be carried back only to those prior taxable years for which an individual income tax return was originally due, without regard to any extension, in the period beginning with the January 1 of the third calendar year preceding the calendar year in which began the taxable year for which the loss is established and ending with the day before the first day of the taxable year for which the loss is established.

   (3) Example: D operates an unincorporated business and files on a fiscal year basis. D's fiscal year ends April 30. In September, 1993, D files an amended individual income tax return for D's taxable year starting May 1, 1989 and ending April 30, 1990. The amendment establishes a net operating loss for that taxable year. The oldest year to which D may carry back the net operating loss is D's taxable year beginning May 1, 1985 and ending April 30, 1986, the return for which was originally due July 15, 1986.

   [3/16/92, 12/28/94, 1/15/97; 3.3.1.13 NMAC - Rn & A, 3 NMAC 3.1.13, 12/14/00]

   HISTORY OF 3.3.1 NMAC:

   Pre-NMAC History: The material in this part was derived from that previously filed with the State Records Center:

   BOR 71-1, (Income Tax Regulation 10-1) Attachment of Federal Schedule C to New Mexico Income Tax Return, filed 1/5/71.

   BOR 72-1, Regulation for Income Tax Act Section 72-15A-10 NMSA 1953, filed 1/12/72.

   BOR 72-2, (Income Tax Reg. 10-2) Filing of New Mexico Partnership Returns, filed 1/18/72.

   BOR 74-1, Regulations in Effect and Pertaining to the New Mexico Income Tax Act and the New Mexico Uniform Division of Income for Tax Purposes Act, filed 1/15/74.

   TRD Rule 4-88, Regulations Pertaining to the Uniform Division of Income for Tax Purposes Act Sections 7-4-1 to 7-4-21 NMSA 1978, filed 9/16/88.

   BOR 77-2, Solar Heating and Cooling Tax Credit Regulations, filed 8/8/77.

   R.D. 78-2, Solar Heating and Cooling Tax Credit Regulations, filed 11/9/78.

   Rule No. 7-2-16, Regulations Pertaining to the Income Tax Act (Solar Heating and Cooling Tax Credit), 7-2-16 NMSA 1978, filed 2/18/80.

   R.D. Statute 7-2-16, Regulations Pertaining to the Income Tax Act (Solar and Wind Energy Tax Credit), 7-2-16 NMSA 1978, filed 2/23/82.

   R.D. Statute 7-2-16, Regulations Pertaining to the Solar or Wind Energy Tax Credit under the Income Tax Act, 7-2-16 NMSA 1978, Laws of 1983, Chapter 213, filed 5/18/84.

   R.D.I.T. Reg. 7(b), Tax Tables - Regulations Pertaining to the Income Tax Act, Section 7-2-7.1 NMSA 1978, filed 12/11/81.

   R.D.I.T. Regulation 2.1, Modified Gross Income Definitions Regulation Pertaining to the Income Tax Act, Section 7-2-2 (Q) NMSA 1978, filed 1/18/82.

   R.D.I.T. Regulation 20:1, Information Returns: Royalties - Regulations Pertaining to the Income Tax Act, Section 7-2-20 NMSA 1978, filed 2/4/82.

   R.D.I.T. Regulation 20:1, Regulations Pertaining to the Information Returns: Rents and Royalties Income Tax Act, Section 7-2-20 NMSA 1978, filed 1/25/83.

   R.D. Statute 7-2B-1, Regulations Pertaining to the Income Tax Act (Solar Capital Investments Credit), Section 7-2B-1 NMSA 1978, filed 2/23/82.

   R.D.I.T. Regulation 12:1, Regulation Pertaining to Reporting Methods for the Income Tax Act, Laws 1971, Chapter 20, Section 3, Section 7-2-12 NMSA 1978, filed 6/10/82.

   R.D.I.T. Regulation 5.2:1, Exemption Apportionment Regulation Pertaining to the Income Tax Act, Section 7-2-5.2 NMSA 1978, filed 6/22/82.

   I.T. Regulation 5.2:2, Regulation Pertaining to Apportionment Income Tax Act, Section 7-2-5.2 NMSA 1978, filed 3/3/89.

   R.D. Statute 7-2-17, Regulation Pertaining to the Income Tax Act (Credit for Solar Irrigation; Refund), Section 7-2-17 NMSA 1978, filed 5/2/83.

   R.D. Statute 7-2-17, Regulation Pertaining to the Income Tax Act Credit for Solar Irrigation; Refund, Section 7-2-17 NMSA 1978, Laws of 1983, Chapter 17, Section 1, filed 5/18/84.

   R.D.I.T. Regulation 18.1:1, Regulation Pertaining to Definition of “Dependent” for Purposes of the Child Care Credit Income Tax Act, Section 7-2-18.1(5) NMSA 1978, filed 11/10/83.

   R.D.I.T. Regulation 7(D) & (E), Proration for Fiscal Year Taxpayer - Regulation Pertaining to the Income Tax Act, Section 7-2-7(D) & (E) NMSA 1978, filed 1/6/84.

   R.D.-I.T. Regulation 11:1, Regulation Pertaining to the Computation for Non-Resident Taxpayers Who Have New Mexico Royalty Income Under the Income Tax Act, Section 7-2-11(E) NMSA 1978, filed 2/15/84.

   R.D.-I.T. Regulation 11:1 and 11.2, Regulation Pertaining to Income Tax Act Section 7-2-11 NMSA 1978, filed 8/12/85.

   R.D.-I.T. Regulation 12:2 Regulation Pertaining to Requirement for the Acceptance of Computer Generated Form PIT-1 and Related Schedules Income Tax Act, Section 7-2-12 NMSA 1978, filed 4/2/84.

   I.T. Regulation 12:4, Regulation Pertaining to Requirement for the Acceptance of Computer Generated Form PIT-1 and Related Schedules Income Tax Act, Section 7-2-12 NMSA 1978, filed 9/4/87.

   R.D.I.T. Regulation 12:3, Regulation Pertaining to Requirement for the Preparation of Acceptable Reproductions of New Mexico Income Tax forms Income Tax Act, Section 7-2-12 NMSA 1978, filed 4/18/84.

   R.D. - I.T. Regulations 18.2:1, 2, 3, 4, Regulation Pertaining to Income Tax Act, Section 7-2-18.2 NMSA 1978, filed 5/17/85.

   R.D. - I.T. Regulation 2(L), Regulation Pertaining to Income Tax Act, Section 7-2-2 NMSA 1978, filed 10/23/85.

   R.D.I.T. Regulation 7.1:1 & 2, Regulation Pertaining to the Income Tax Act, filed 3/31/86.

   I.T. Regulation 11:3/4, Regulations Pertaining to Income Allocation Apportionment Income Tax Act, Section 7-2-11 NMSA 1978, filed 2/28/89.

   I.T. Regulation 5.4:1, Regulations Pertaining to Exemption Apportionment Income Tax Act, Section 7-2-5.4 NMSA 1978, filed 3/3/89.

   I.T. Regulation 2(N):2, Regulation Pertaining to Income from United States Obligations Income Tax, Section 7-2-11 NMSA 1978, filed 5/25/89.

   TRD - I.T. Regulation 18.1:2/3, Regulation Pertaining to the Income Tax Act, Section 7-2-18.1 NMSA 1978, filed 10/24/89.

   TRD Rule 2-89, Regulations Pertaining to the Income Tax Act, Sections 7-2-1 to 7-2-30 NMSA 1978, filed 12/29/89.

   TRD Rule IT-91, Regulations Pertaining to the Income Tax Act, Sections 7-2-1 to 7-2-30 NMSA 1978, filed 3/16/92.

   History of Repealed Material: [RESERVED]

   NMAC History:

   3 NMAC 1.1, Personal Income Taxes - General Provisions, filed 12/31/96.

   3.3.1 NMAC, Personal Income Taxes - General Provisions, filed 12/1/2000.