United States

Alabama: Appeals Court Holds that Losses Can Be Shared Among Affiliated Group Members

Sep 18, 2017
From KPMG TaxWatch

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The Alabama Court of Civil Appeals recently addressed whether losses generated by a parent company when filing separately could be carried forward and used to offset the income of related entities in a later year when a consolidated return was filed. The taxpayer at issue reported losses on its separately filed Alabama returns for several tax years. In 2007, the taxpayer and two subsidiaries filed their first Alabama consolidated return. They used the taxpayer’s previously generated losses to offset the income of one of the subsidiaries. The Department of Revenue, after reviewing the return, disallowed the use of the NOLS on the basis that 2007 was the first year the group had filed an Alabama consolidated return and  any losses incurred  in years prior to 2007 could not be used to offset income of other group members. After an Alabama Administrative Law Judge (ALJ) and a trial court ruled in the taxpayers’ favor, the Department of Revenue appealed.

Relying heavily the prior ALJ and trial court decisions, the appeals court ruled in the taxpayers’ favor. Notably, the relevant statute generally allows Alabama affiliated group members to share NOL carryovers, unless the NOL was generated by an entity before it became a member of the Alabama affiliated group. According to the court, the Alabama affiliated group exists regardless of whether the group has elected to file a consolidated return. Thus, losses generated in years when there was an Alabama affiliated group could be used in future years to offset the income of other group members—despite the fact that a consolidated return was not filed in the years the losses were generated. Please contact Varoon Laddha at 404-979-2047 with questions on State Dep’t of Revenue v. Coca-Cola Refreshments USA, Inc.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.