Section I-1122 - Taxes Not Deductible (Louisiana Code of Regulations)

§ I-1122. Taxes Not Deductible

A. General. R.S. 47:287.83 provides that federal income tax levied on net income upon which no Louisiana income tax has been incurred, or upon which, for any reason whatsoever, no Louisiana income tax will be paid, is not deductible.

B. Federal Alternative Minimum Tax. Federal alternative minimum tax attributable to tax preference items such as, but not limited to, accelerated depreciation, depletion, and intangible drilling and development cost is not deductible. Federal alternative minimum taxable net income from sources other than tax preference items is deductible to the extent that it is applicable to regular federal taxable income.

C. Net Operating Loss Carryback. Federal income tax deducted from Louisiana net income in taxable periods to which a net operating loss is carried back shall be computed to determine the amount of federal income tax attributable to net income which is taxed by the federal but which is not taxed by Louisiana as a result of a net operating loss carryback. Federal income tax attributable to net income which is not taxed by Louisiana as a result of a net operating loss carryback is the excess of allowable federal income tax deducted from Louisiana net income before the net operating loss carryback over the allowable deduction after the net operating loss carryback. The federal income tax attributable to net income which is not taxed by Louisiana shall be treated as a reduction to the net operating loss deduction. If the amount of the federal income tax attributable to the net income which is not taxed by Louisiana exceeds the Louisiana net operating loss deduction, such excess shall be treated as income in the year of the transaction that gave rise to the excess. These principles are illustrated in the following examples.

D. Examples

Example 1

The ABC Corporation does not include its net income in a consolidated federal income return as provided by Section 1501 of the Internal Revenue Code. ABC files state and federal income tax returns on a calendar year basis. ABC Corporation's net income and other financial information used to file state and federal income tax returns for the four-year period ending December 31, 1987, include the following:

Taxable Periods

1984

1985

1986

1987

Federal net income or (loss)

$ 2,000,000

$ 4,000,000

$ 5,000,000

$ 600,000

Louisiana net income or (loss)

1,200,000

1,800,000

3,000,000

(1,000,000)

Federal income tax

800,000

1,600,000

2,000,000

240,000

Federal income tax deducted from Louisiana net income

467,280

706,240

1,171,200

-0-

State income tax deducted from federal net income but not Louisiana net income

57,500

86,000

144,000

-0-

Income tax apportionment ratio

55%

40%

50%

50%

Louisiana taxable income

732,720

1,093,760

1,828,800

-0-

ABC Corporation elects to carry their 1987 Louisiana net operating loss back to 1984 pursuant to R.S. 47:287.86. Federal income tax attributable to net income which is not taxed by Louisiana as a result of the net operating loss carryback is computed as follows:

1. Louisiana net income, 1984

  

$1,200,000

2. Less: State income tax deduction allowed by the federal but not Louisiana

$57,500

  

Multiplied by the income tax apportionment ratio

55%

  

Balance

$31,625

  

Louisiana net operating loss, 1987

$1,000,000

  

Adjustment

  

$1,031,625

3. Louisiana net income after deducting the net operating loss carryback (line 1 minus line 2)

  

$ 168,375

4. Federal net income, 1984

  

$2,000,000

5. Ratio (line 3 divided by line 4)

  

8.4188%

6. Federal income tax, 1984

  

$ 800,000

7. Allowable federal income tax deduction after the Louisiana net operating loss carryback (line 6 multiplied by line 5)

  

$ 67,350

8. Federal income tax deducted from Louisiana net income before the net operating loss carryback

  

$ 467,280

9. Federal income tax attributable to net income which is not taxed by Louisiana (line 8 minus line 7)

  

$ 399,930

10. Louisiana net operating loss before deduction for federal income tax attributable to net income which is not taxed by Louisiana

  

$1,000,000

11. Federal income tax attributable to net income which is not taxed by Louisiana (from line 9)

  

$ 399,930

12. Louisiana net operating loss after deduction for federal income tax attributable to net income which is not taxed by Louisiana (line 10 minus line 11)

  

$ 600,070

Example 2

Assume the same facts in Example 1 except that the ABC Corporation sustained a $2,000,000 federal net operating loss in 1987 and elects to carry the federal loss back to 1984. Federal income tax after the net operating loss carryback is zero.

1. Louisiana net income, 1984

  

$1,200,000

2. Less: State income tax deduction allowed by the federal but not Louisiana

$57,500

  

Multiplied by the income tax apportionment ratio

55%

  

Balance

$31,625

  

Louisiana net operating loss, 1987

$1,000,000

  

Adjustment

  

$1,031,625

3. Louisiana net income after deducting the net operating loss carryback (line 1 minus line 2)

  

$ 168,375

4. Federal net income, 1984

  

$2,000,000

5. Federal net operating loss carryback from 1987

  

($2,000,000)

6. Federal net income after federal net operating loss carryback from 1987 (line 4 minus line 5)

  

-0-

7. Ratio (line 3 divided by line 6)

  

-0-

8. Federal income tax after the federal net operating loss carryback

  

-0-

9. Allowable federal income tax deduction after the net operating loss carryback (line 8 multiplied by line 7)

  

-0-

10. Federal income tax deducted from Louisiana net income before the net operating loss carryback

  

$ 467,280

11. Federal income tax attributable to net income which is not taxed by Louisiana (line 10 minus line 9)

  

$ 467,280

12. Louisiana net operating loss before deduction for federal income tax attributable to net income which is not taxed by Louisiana

  

$1,000,000

13. Federal income tax attributable to net income which is not taxed by Louisiana (from line 11)

  

$ 467,280

14. Louisiana net operating loss after deduction for federal income tax attributable to net income which is not taxed by Louisiana (line 12 minus line 13)

  

$ 532,720

Example 3

Assume the same facts in Examples 1 and 2 except that the Louisiana and federal net operating losses in 1987 are $350,000 and $1,800,000 respectively. Federal income tax after the net operating loss carryback is $80,000.

1. Louisiana net income, 1984

  

$1,200,000

2. Less: State income tax deduction allowed by the federal but not Louisiana

$57,500

  

Multiplied by the income tax apportionment ratio

55%

  

Balance

$31,625

  

Louisiana net operating loss, 1987

$350,000

  

Adjustment

  

$ 381,625

3. Louisiana net income after deducting the net operating loss carryback (line 1 minus line 2)

  

$ 818,375

4. Federal net income, 1984

  

$2,000,000

5. Federal net operating loss carryback from 1987

  

($1,800,000)

6. Federal net income after federal net operating loss carryback from 1987 (line 4 minus line 5)

  

$ 200,000

7. Ratio (line 3 divided by line 6)

  

100%

8. Federal income tax after the federal net operating loss carryback

  

$ 80,000

9. Allowable federal income tax deduction after the net operating loss carryback (line 8 times line 7)

  

$ 80,000

10. Federal income tax deducted from Louisiana net income before the net operating loss carryback

  

$ 467,280

11. Federal income tax attributable to net income which is not taxed by Louisiana, 1984 (line 10 minus line 9)

  

$ 387,280

12. Louisiana net operating loss before deduction for federal income tax attributable to net income which is not taxed by Louisiana

  

$ 350,000

13. Federal income tax attributable to net income which is not taxed by Louisiana (from line 11)

  

$ 387,280

14. Louisiana net operating loss after deduction for the amount of federal income tax attributable to net income which is not taxed by Louisiana (line 12 minus line 13)

  

-0-

15. Additional Louisiana taxable income for 1987 due to excess of federal income tax attributable to net income which is not taxed by Louisiana over the Louisiana net operating loss (line 13 minus line 12)

  

$ 37,280

E. Definitions. For the purposes of this Section, alternative minimum tax, regular federal income tax, alternative tax on capital gains, and regular tax on ordinary net income are defined as provided in § 1123. F.

(Promulgated by the Department of Revenue and Taxation, Income Tax Section, LR 14:96 (February 1988), repromulgated by the Department of Revenue, Policy Services Division, LR 30:470 (March 2004), amended by the Department of Revenue, Policy Services Division, LR 33:295 (February 2007).)

AUTHORITY NOTE: Promulgated in accordance with R.S. 47:287.83, R.S. 47:1511.

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