Issue Date: July 10, 2000 This is the policy of the Department and is applicable to all open tax years. RE: Composite Return Net Operating Losses Georgia Code Section 48-7-129 (b)(1) provides for composite returns for partnerships, Subchapter "S" corporations, and limited liability companies. It indicates that the entity files a return and remits the tax on behalf of the nonresident members. Since the entity is filing on behalf of the members, the net operating loss provisions that apply to members would also apply to nonresident members that are included on the composite return. Georgia Regulation 560-7-8-.34 provides additional guidance for composite returns but does not deal with net operating losses. The following questions should help to clarify the issues involved in net operating losses. Question 1: Georgia Regulation 560-7-8-.34 provides three options to compute the composite tax and indicates that the election of the options may be changed annually. For a member, can a net operating loss computed on a composite return, be carried to another composite return year where a different option was used? Answer 1: The purpose of the composite return filing is to lower the administrative burden for the member and the Department. Accordingly, a net operating loss computed on a composite return can be carried to another composite return year where a different option was used. However, the income, for the year or years that the loss is being carried to, must be recomputed using the option that was used for the loss year before the loss is carried to that year. Example 1: If option 1 was used in the loss year but option 2 was used in the carryback year, the loss could still be carried to the option 2 carryback year. However, the option 2 carryback years income would have to be recomputed using option 1 before the loss is applied. Question 2: Can a loss be carried from a year where the member is not included on the composite return to a year the member is included on the composite return? Answer 2: The composite returns purpose is to reduce the administrative burden on the Department and the member by allowing the entity to report income on behalf of the member. Allowing this would increase the administrative burden by increasing the number of entities that are included in the net operating loss computation. Additionally, if this is not allowed the member would not loose the benefit of the loss. Accordingly, a loss can not be carried from a year where the member is not included on the composite return to a year the member is included on the composite return. This would not be allowed even if the year the member was not included on the composite return, they only had income from the entity. In these situations, the member should continue to not be included on the composite return. Question 3: Can a loss be carried from a year where the member is included on the composite return to a year the member is not included on the composite return? Answer 3: Georgia Regulation 560-7-8-.34(3)(d) indicates that nonresident members having income within Georgia from sources other than the entity may not be included in the entities composite return. The situation might arise where the member can not continue to be included on the composite return because of this regulation. Additionally, the member might choose to not be included for other reasons. If this is not allowed the member would loose the benefit of the loss. Accordingly, a loss can be carried from a year where the member is included on the composite return to a year the member is not included on the composite return. This would apply even if the member decided to not be included for reasons other than Georgia Regulation 560-7-8-.34(3)(d). Question 4: Can an entity, on behalf of a member, elect to waive the carryback period of a net operating loss on a composite return? Answer 4: Yes, an entity, on behalf of a member, can elect to waive the carryback period of a net operating loss on a composite return. The same provisions that would apply to the member if they were not included on the composite return would apply to the composite return. Please note: The purpose of a policy statement is to provide interpretive guidance to dealers, the general public and governmental employees. A policy statement is a position statement, which provides interpretation, details, or supplementary information concerning the application of the law. Relevant statute, case law, or rules and regulations, as well as subsequent policy statements may modify or negate any or all of the provisions of any policy statements. Back to Policy List |