Rev. Rul. 67-93

Advice has been requested whether a net operating loss carryover is to be applied against income before or after the annualization of income for the periods specified in section 6655(d)(3) of the Internal Revenue Code of 1954.

Section 6655(a) of the Code provides that in the case of any underpayment of estimated tax by a corporation, except as provided in section 6655(d), there shall be added to the tax under chapter 1 for the taxable year an amount determined at the rate of 6 percent per annum upon the amount of the underpayment for the period of the underpayment. Section 6655(d) provides that not withstanding the provisions of section 6655(a) the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds an amount to be determined under paragraph (1), (2), or (3) of section 6655(d) of the Code.

Section 1.6655-2(d) of the Income Tax Regulations provides that, in determining the applicability of the exception described in section 6655(d)(3) of the Code, there must be an accurate determination of the amount of income and deductions for the appropriate period, that is, for the first 3, 5, 6, 8, 9, or 11 months of the taxable year. A net operating loss carryover is an allowable deduction under the provisions of section 172 of the Code. As in the case of other allowable deductions, a net operating loss is deductible in computing taxable income under section 6655(d)(3) of the Code.

Accordingly, the entire amount of a net operating loss carryover should be deducted from the income for the appropriate period under section 6655(d)(3) of the Code prior to annualization of the income for such period, for the purpose of determining the applicability of the provisions of section 6655(d)(3) of the Code.