103 KAR 16:030. Net operating loss deductions of corporations.


      RELATES TO: KRS 141.012


      NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation explains the requirements for, and computation of, the limited net operating loss carry forward authorized by KRS 141.012.


      Section 1. General Requirements. Any corporation engaging in business for the first time in Kentucky after January 1, 1962, which permanently owns or leases $100,000 of real property in Kentucky, may carry forward a net-operating loss determined under Section 2 of this administrative regulation except:

      (1) A corporation which is a successor to a previously existing corporation doing business in Kentucky; or

      (2) A new corporation which resulted from the incorporation of an operating division(s) because of corporate reorganization.


      Section 2. Computation. Net income or loss for the purpose of this administrative regulation must be determined by separate accounting. Any net-operating losses incurred prior to the first full year of operations shall be carried forward to the first full year of operations. Operations means production, or other similar activity, regardless of the level of production or product quality, and does not include construction. Net-operating losses in prior years and any net-operating loss incurred in the first full year of operations must be deducted in the next taxable year. Separate accounting will not be permitted after the second full year of operations unless approved by the cabinet.


      Section 3. Example. Corporation X which has never operated in Kentucky, begins construction of a $2,000,000 plant in Kentucky on March 1, 1970. Construction is completed June 30, 1971, and operations begin. In this example, 1972 is the first full year of operations. Thus, any operating losses incurred from 1970 through 1972 may be carried forward to 1973 unless such losses were applied against income earned in any prior year(s). (IC-3; 1 Ky.R. 138; eff. 12-11-74.)