D. Net Business Losses for Combined Groups

The law concerning the use of pre-2009 NBL carryforwards under combined reporting was changed by 2011 Wisconsin Act 32. If a combined group member has unused NBL incurred prior to January 1, 2009, the pre-2009 NBL carryforward not used by the corporation prior to the taxable year beginning on or after January 1, 2012, may be shared with other combined group members in taxable years beginning on or after January 1, 2012 through December 31, 2031.

Under sec. 71.255(6)(bm)1., a pre-2009 NBL carryforward is a corporation's total NBL carryforward computed under secs. 71.26(4) or 71.45(4), Wis. Stats., as of the beginning of its first taxable year that begins after December 31, 2008 and that has not been used by the corporation in any taxable year beginning before January 1, 2012. The corporation must first use the pre-2009 NBL carryforward to offset its own income. Then it must use the combined group's available shareable losses to offset its own unitary income for the year.

Up to 5% of the pre-2009 NBL carryforward may then be used to offset the income of all members of the combined group on a proportionate basis to the extent such income is attributable to the unitary business in 2012 and each of the subsequent 19 years until used or expired. If the full 5% of the pre-2009 NBL carryforward cannot be fully used to offset the Wisconsin income of all other members of the combined group in a given reporting year, the remainder may be added to that portion of pre-2009 NBL carryforward that may offset the Wisconsin income of all other members of the combined group in a subsequent year until the pre-2009 NBL carryforward is completely used or expired. Pre-2009 NBL carryforward may not be used in any taxable year that begins after December 31, 2031.

Question D1: A company that is part of a combined group had a NBL generated in 1994, 1995, and 1996. The losses, if not used, would have expired by December 31, 2009, 2010, and 2011, respectively. Are these losses eligible for the new 20-year carryforward?

Answer D1: Yes. Although these losses would have expired prior to January 1, 2012 under prior law, any pre-2009 NBL carryforward that was not used or expired under the 15-year NBL carryforward rule, found in secs. 71.26(4) or 71.45(4), Wis. Stats., becomes part of the new pre-2009 NBL carryforward and the 20-year limitation, found in secs. 71.255(6)(bm)1., 71.26(4)(b) or 71.45(4)(b), Wis. Stats.

Question D2: A company which is part of a combined group during the current reporting period had a NBL generated in years 1997 through 2008. If this NBL has not been used prior to January 1, 2012, does the NBL become eligible for the new pre-2009 NBL carryforward with an expiration date of December 31, 2031?

Answer D2: Yes. Pre-2009 NBL carryforward amounts that were not used or expired under the 15-year NBL carryforward rule are considered pre-2009 NBL carryforward amounts and qualify for the new 20-year NBL carryforward ending December 31, 2031. Regardless of the number of years remaining from the 15-year NBL carryforward period, the losses qualifying for the 20-year NBL carryforward start a new 20-year carryforward period.

Question D3: Do NBL generated by combined group members in years 2009 through 2011 continue to have a 15-year carryforward?

Answer D3: Yes. The new 20-year carryforward applies only to losses generated in years prior to 2009 which have not been used or expired. The 15-year carryforward period remains in effect for all other NBL carryforward amounts.

Question D4: Under the new statutes, up to 5% of pre-2009 NBL carryforward may be shared with other members of the combined group in each year from 2012 through 2031. How is the 5% carryforward amount calculated?

Answer D4: Each entity in the combined group performs a one-time calculation of its own pre-2009 NBL carryforward amount by first subtracting from its total pre-2009 NBL carryforward any portion of the pre-2009 NBL carryforward used during years 2009 through 2011. The remaining loss is multiplied by 5% to arrive at the annual shareable amount allowed.

Question D5: In what order must a member of a combined group use its own and other members' NBL carryforwards?

Answer D5: A combined group member shall apply net business loss carryforwards in the order that the underlying NBL was incurred and using the following sequence:

1. For 100% Wisconsin combined groups only: sharing of current year unitary losses;
2. Its own pre-2009 NBL carryforward to offset its own Wisconsin net income from separate entity items;
3. Its own pre-2009 NBL carryforward to offset its share of the Wisconsin combined group's Wisconsin income;
4. Its own post-2009 shareable NBL carryforward to offset its share of the Wisconsin combined group's Wisconsin income;
5. Its share of post-2009 shareable NBL carryforward from other combined group members to offset its share of the Wisconsin combined group's Wisconsin income;
6. Its share of shareable pre-2009 NBL carryforward from other combined group members up to the allowable 5% amount to offset its share of the Wisconsin combined group's Wisconsin income.

Question D6: A combined group member has a pre-2009 NBL equal to an annual 5% amount of $4.5 million. In 2012 the member's share of the combined group's income is $1 million. How does this affect the 5% shareable NBL amount?

Answer D6: The 5% shareable loss carryforward amount calculated based on the losses remaining prior to January 1, 2012 is not changed. The member must first apply its pre-2009 NBL carryforward against its own 2012 income to offset the total amount of the pre-2009 NBL carryforward. The member may then share up to the 5% amount - that is, up to 4.5 million - with other members of the combined group.

Question D7: What happens to a shareable pre-2009 NBL carryforward if a member does not have enough income in a given reporting year to use its proportionate share of the allowable shareable 5% of pre-2009 NBL carryforwards?

Answer D7: If a combined group member does not have enough income to use its full proportionate share of the 5% NBL, the portion not used becomes available to the other combined group members to use in the succeeding year in addition to the 5% pre-2009 NBL available for that year.

Question D8: Is it possible for a combined group to use their entire pre-2009 NBL carryforward amount over the 20-year period from 2012 through 2031?

Answer D8: Yes, if the combined group has sufficient Wisconsin taxable income over the 20-year period.

Question D9: What happens to a pre-2009 NBL carryforward if the members of the combined group choose to not use their share of the loss in the current taxable year?

Answer D9: A pre-2009 NBL that is not utilized by the originating member and not shared among other members of the combined group in the current taxable year may be carried forward to future taxable years that end prior to December 31, 2031. The remaining NBL carryforward that may be shared by all members in the following taxable year is the 5% NBL carryforward for the current taxable year plus the 5% NBL carryforward from the prior taxable year.