Nov 20, 2017
From KPMG TaxWatch
In the recent Nextel case, the Pennsylvania Supreme Court (agreeing with the Commonwealth Court) held that the $3 million net loss deduction limitation in effect for the 2007 tax year at issue violated the Uniformity Clause of the Pennsylvania Constitution. The Pennsylvania Supreme Court, however, departed from the lower court on the question of an appropriate remedy. The Commonwealth court had allowed the taxpayer to take an uncapped loss deduction for the 2007 closed tax year at issue. The high court severed the flat-dollar limitation, but kept intact the percentage limitation (12.5 percent of taxable income for the tax year at issue). As such, the taxpayer was not entitled to a refund. On November 1, 2017, the taxpayer requested re-argument before the Pennsylvania Supreme Court on the remedy issue.
Although the request for re-argument is still pending, the Department recently issued guidance (Corporation Tax Bulletin 2017-01) on the Nextel decision. Specifically, the Department will revise its forms and procedures to implement the decision of the Court on a prospective basis. The flat-dollar cap on the NOL, currently at $5 million, will not be available for taxable years beginning in 2017 and thereafter. The NOL limitation of 30 percent of taxable income will continue to be effective for taxable years beginning in 2017. Unfortunately, the Department did not provide any guidance on how it will apply Nextel to prior, open tax years. Also, recently-enacted House Bill 542 amends the net loss deduction carryover for tax years beginning after December 31, 2017 to 35 percent of taxable income and for tax years beginning after December 31, 2018 and after to 40 percent of taxable income. Please contact Howard Sklaroff at (267) 256-2891 with questions.
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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.