CCA 201928014: Corporate Charitable Contribution Carryover Adjustment Determined Using NOL Absorption Computation

The IRS in CCA 201928014 ruled that a corporation with several years of NOL carryovers and charitable contribution carryovers must determine a charitable contribution carryover adjustment using a chronological, year-by-year NOL absorption computation. The IRS stated that using an aggregate basis standard to determine the adjustment was not accurate.

The IRS also stated that the corporation must reduce its current year charitable contributions that triggered the adjustment by the adjustment amount before reducing its earliest year’s charitable contribution carryover. The CCA’s stated issues and conclusions are as follows:

ISSUES

(1) Taxpayer has both charitable contribution and net operating loss carryovers from multiple tax years available in the year at issue. Section 170(d)(2)(B) requires a reduction to a taxpayer’s charitable contribution carryover to the extent an excess charitable contribution reduces modified taxable income (as computed under

§ 172(b)(2)) and increases an NOL carryover, so as to eliminate a double tax benefit. Is Taxpayer required to calculate the charitable contribution carryover adjustment using a year-by-year or an aggregate NOL computation under § 172(b)(2)?

(2) Taxpayer has a charitable contribution carryover set to expire in the year at issue pursuant to the five-year carryover period provided in § 170(d)(2). Section 170(d)(2)(B) requires a reduction to a taxpayer’s charitable contribution carryover to the extent an excess charitable contribution reduces modified taxable income (as computed under

§ 172(b)(2)) and increases an NOL carryover. Is Taxpayer required to reduce its current year charitable contributions first or can it choose to reduce a prior year’s charitable contribution carryover to prevent its expiration?

CONCLUSIONS

(1) Section 172(b)(2) requires Taxpayer to use a year-by-year NOL absorption computation to determine the charitable contribution carryover adjustment under § 170(d)(2)(B).

(2) Taxpayer must first reduce its current year charitable contributions by the adjustment under § 170(d)(2)(B) before reducing its earliest year’s charitable contribution carryover.

Click CCA 201928014 to see full CCA.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..

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