ELECTION TO RELINQUISH ENTIRE NOL CARRYBACK PERIOD FOR REGULAR TAX PURPOSES IS SUFFICIENT TO RELINQUISH CARRYBACK PERIOD FOR AMT NOL.

Rev. Rul. 87-44

ISSUE

Whether an election under section 172(b)(3)(C) of the Internal Revenue Code to relinquish the entire carryback period for a net operating loss for regular tax purposes is necessary and sufficient to relinquish the carryback period for purposes of the alternative minimum tax net operating loss.

LAW AND ANALYSIS

Section 172(b)(3)(C) provides that a taxpayer entitled to carry a net operating loss back to a prior taxable year may elect to relinquish the entire carryback period for any taxable year ending after 1975.

Section 55 of the Code, as amended by the Tax Reform Axt of 1986 (the Act), section 701(a), 1986-3 (Vol. 1) C.B. 237, imposes a tax equal to the excess, if any, of the tentative minimum tax for a taxable year over the regular tax for that year. The tentative minimum tax for a taxable year is based, in part, on alternative minimum taxable income. Alternative minimum taxable income means the taxpayer's taxable income adjusted pursuant to sections 56, 57, and 58.

Section 56(a)(4), as amended by the Act, provides that alternative minimum taxable income is to be reduced by the alternative tax net operating loss deduct in lieu of the net operating loss deduction allowed by section 172. Section 56(d) defines the alternative tax net operating loss deduction as the net operating loss deduction for the taxable year under section 172(c) determined with the adjustments provided in sections 56 and 58 (denial of certain losses) and reduced by the items of tax preference determined under section 57.

For taxable years beginning after 1982 and before 1987, former section 55 of the Code imposed a similar alternative minimum tax on taxpayers other than corporations. For purposes of computing that alternative minimum tax, former section 55(b)(1)(A) allowed an alternative tax net operating loss deduction in determining alternative minimum taxable income. Former section 55(d)(2) defines the alternative tax net operating loss deduction for years beginning after December 31, 1982, as the net operating loss deduction for the taxable year under section 172, reduced by the items of tax preference which were taken into account in computing the net operating loss in the loss year, and computed by taking into account only alternative tax itemized deductions that were allowed in computing the net operating loss under section 172.

Under both section 56(d) and former section 55(d)(2), the alternative tax net operating loss deduction for a taxable year is determined by making specified adjustments to the taxpayer's net operating loss deduction for the year under section 172. Accordingly, an election under section 172(b)(3)(C) to relinquish the carryback period is effective for purposes of both the regular tax net operating loss deduction and the alternative tax net operating loss deduction. This point is clarified in the Conference Report for the Act. See 2 H.R. Rep. No. 99-841, 99th Cong., 2d Sess. II-262 (1986). Conversely, neither section 56(d) as amended by the Act nor former section 55(d)(2) contains a provision allowing a taxpayer to relinquish the net operating loss carryback period solely for alternative minimum tax purposes. Thus, the only way for a taxpayer to relinquish the carryback period in computing the alternative tax net operating loss deduction is by making the election under section 172(b)(3)(C) for regular tax purposes.

HOLDING

An election for any taxable year under section 172(b)(3)(C) of the Code to relinquish the net operating loss carryback period applies for purposes of both the regular tax and the alternative minimum tax. Moreover, an election under section 172(b)(3)(C) to relinquish the net operating loss deduction carryback period for regular tax purposes must be made in order to relinquish the carryback period for purposes of the alternative tax net operating loss deduction.