Note: This version of section effective 1-1-2023. See also preceding version of this section, effective 1-1-2022 until 1-1-2023.

     Sec. 2.6. (a) This section applies to a corporation or a nonresident person.

     (b) Corporations and nonresident persons are entitled to a net operating loss deduction. The amount of the deduction taken in a taxable year may not exceed the taxpayer’s unused Indiana net operating losses carried over to that year. A taxpayer is not entitled to carryback any net operating losses after December 31, 2011.

     (c) An Indiana net operating loss equals the sum of the following:

(1) Subject to subsection (m), any separately stated net operating loss derived from sources within Indiana, plus each of the following, as applicable:

(A) In the case of an individual, any deductions allowable in determining the separately stated net operating loss for the taxable year that are derived from sources within Indiana but not allowable in determining federal adjusted gross income.

(B) In the case of a separately stated net operating loss that results from an excess business loss (as defined in Section 461(l) of the Internal Revenue Code) for a taxable year beginning after December 31, 2022, the modifications required by IC 6-3-1-3.5, as set forth in subsection (d)(1), that result in an increase of the taxpayer’s Indiana adjusted gross income and that arise from federal deductions that resulted in the excess business loss.

(C) In the case of a separately stated net operating loss not described in clause (B), the modifications required by IC 6-3-1-3.5, as set forth in subsection (d)(1). For purposes of this clause, a modification that results in an increase to a taxpayer’s adjusted gross income is considered an addition, and a modification that results in a decrease to a taxpayer’s adjusted gross income is considered a subtraction.

If the amount determined under this subdivision is less than zero (0), the amount is an Indiana net operating loss.

(2) Subject to subsection (m), the taxpayer’s preliminary federal net operating loss for a taxable year derived from sources within Indiana plus the sum of the following:

(A) The application of certain modifications required by IC 6-3-1-3.5 as set forth in subsection (d)(1). For purposes of this clause, a modification that results in an increase to a taxpayer’s adjusted gross income is considered an addition, and a modification that results in a decrease to a taxpayer’s adjusted gross income is considered a subtraction.

(B) In the case of an individual, any deductions derived from sources within Indiana and allowable in determining the preliminary federal net operating loss for the taxable year but not allowable in determining federal adjusted gross income.

If the amount determined under this subdivision is less than zero (0), the amount is an Indiana net operating loss. If the amount determined under this subdivision is equal to or greater than zero (0), the Indiana net operating loss under this subdivision is zero (0).

(3) The excess business loss deduction disallowed under IC 6-3-1-3.5(a)(29) and IC 6-3-1-3.5(f)(14) and incurred from Indiana sources.

     (d) The following provisions apply for purposes of subsection (c):

(1) The modifications that are to be applied are those modifications required under IC 6-3-1-3.5 for the same taxable year in which each net operating loss was incurred, except that the modifications do not include the modifications required under:

(A) IC 6-3-1-3.5(a)(3);

(B) IC 6-3-1-3.5(a)(4);

(C) IC 6-3-1-3.5(a)(5);

(D) IC 6-3-1-3.5(a)(36);

(E) IC 6-3-1-3.5(b)(22);

(F) IC 6-3-1-3.5(d)(20);

(G) IC 6-3-1-3.5(e)(20);

(H) IC 6-3-1-3.5(f)(19); and

(I) any modification required under Section 172(d) or Section 512(b) of the Internal Revenue Code that is also required under IC 6-3-1-3.5 in determining Indiana adjusted gross income.

(2) The amount of the taxpayer’s net operating loss that is derived from sources within Indiana shall be determined in the same manner that the amount of the taxpayer’s adjusted gross income derived from sources within Indiana is determined under section 2 of this chapter for the same taxable year during which each loss was incurred.

     (e) Subject to the limitations contained in subsections (g) through (l), an Indiana net operating loss carryover shall be available as a deduction from the taxpayer’s adjusted gross income derived from sources within Indiana (as defined in section 2 of this chapter) in the carryover year provided in subsection (f), but not in excess of the taxpayer’s adjusted gross income (as defined in IC 6-3-1-3.5) in the carryover year determined without regard to the deduction allowable under this section.

     (f) Carryovers shall be determined under this subsection as follows:

(1) An Indiana net operating loss shall be an Indiana net operating loss carryover to each of the carryover years following the taxable year of the loss.

(2) An Indiana net operating loss may not be carried over for more than twenty (20) taxable years after the taxable year of the loss.

     (g) The entire amount of the Indiana net operating loss for any taxable year shall be carried to the earliest of the taxable years to which (as determined under subsection (f)) the loss may be carried. The amount of the Indiana net operating loss remaining after the deduction is taken under this section in a taxable year may be carried over as provided in subsection (f). The amount of the Indiana net operating loss carried over from year to year shall be reduced to the extent that the Indiana net operating loss carryover is used by the taxpayer to obtain a deduction in a taxable year, or as required by subsection (i), until the occurrence of the earlier of the following:

(1) The entire amount of the Indiana net operating loss has been used as a deduction or reduced as required by subsection (i).

(2) The Indiana net operating loss has been carried over to each of the carryover years provided by subsection (f).

     (h) An Indiana net operating loss deduction determined under this section shall be allowed notwithstanding the fact that in the year the taxpayer incurred the net operating loss the taxpayer was not subject to the tax imposed under section 1 of this chapter because the taxpayer was:

(1) a life insurance company (as defined in Section 816(a) of the Internal Revenue Code); or

(2) an insurance company subject to tax under Section 831 of the Internal Revenue Code.

     (i) Notwithstanding subsection (g), the following apply to an Indiana net operating loss:

(1) An Indiana net operating loss that arises after the application of Section 512(a)(6) of the Internal Revenue Code shall be allowable only:

(A) in a taxable year in which the trade or business that generated the federal net operating loss has an adjusted gross income derived from sources within Indiana greater than zero (0) as determined under IC 6-3-1-3.5; and

(B) against the trade’s or business’s adjusted gross income;

until the federal net operating loss from the trade or business has been exhausted. When the federal net operating loss from the trade or business has been exhausted, and subject to the limitations of this section, any remaining Indiana net operating loss shall be allowable against any trade or business of the taxpayer.

(2) In the case of a corporation described in section 2.8(2) of this chapter, an Indiana net operating loss deduction that is attributable to a preconversion year may not be greater than any net recognized built-in gain of the corporation as defined in Section 1374(d)(2) of the Internal Revenue Code derived from sources within Indiana.

     (j) The following rules apply to an Indiana net operating loss:

(1) If the taxpayer had a discharge of indebtedness derived from Indiana sources that is excluded from gross income under Section 108(a)(1)(A), Section 108(a)(1)(B), or Section 108(a)(1)(C) of the Internal Revenue Code, the Indiana net operating loss shall be reduced by the remainder of:

(A) the amount of discharge of indebtedness excluded from federal gross income derived from Indiana sources; minus

(B) the amount of discharge of indebtedness derived from Indiana sources that reduced the tax attributes under Section 108(b)(2)(D), Section 108(b)(2)(E), or Section 108(b)(2)(F) of the Internal Revenue Code or was applied for federal tax purposes under Section 108(b)(5) of the Internal Revenue Code.

(2) Any reduction in an Indiana net operating loss shall be first applied to the Indiana net operating loss for the taxable year of the discharge, and then to any Indiana net operating loss carryovers.

(3) The provisions of Section 108(d)(6) and Section 108(d)(7) of the Internal Revenue Code shall apply to any discharge of indebtedness for purposes of determining the reduction of net operating losses under this section.

     (k) If a taxpayer has an ownership change for which the limitations of net operating losses under Section 382 of the Internal Revenue Code apply, the following shall apply:

(1) The amount a taxpayer may claim as an Indiana net operating loss deduction for a taxable year beginning after December 31, 2022, shall not exceed the limitation imposed by Section 382(b)(1) of the Internal Revenue Code multiplied by the apportionment percentage determined under section 2 of this chapter for the year in which the net operating loss is being claimed, unless otherwise provided by this subsection. The following apply:

(A) The limitation under this subdivision does not apply to adjusted gross income accrued in the portion of the taxable year on or before the change date (as defined in Section 382(j) of the Internal Revenue Code). For purposes of this subdivision, the adjusted gross income of the taxpayer shall be multiplied by the number of days in the taxable year on or before the change date to the number of days in the taxable year.

(B) For the portion of the taxable year after the change date (as defined in Section 382(j) of the Internal Revenue Code), the limitation under this subdivision shall be the limitation otherwise computed in this subdivision multiplied by the number of days in the taxable year after the change date to the number of days in the taxable year.

(2) If a taxpayer’s Indiana net operating loss determined under this subsection is not fully deductible as a result of subsection (e) for a taxable year, the limitation under this subsection for the following taxable year shall be increased by the net operating loss determined but not allowable as a deduction for the taxable year.

(3) If the continuity of business requirements under Section 382(c) of the Internal Revenue Code are not met, the Indiana net operating loss available for carryforward shall be zero (0) except to the extent of recognized built in gains derived from Indiana sources and amounts allowable under subdivision (2).

(4) If the limitation under Section 382(b) of the Internal Revenue Code is increased for a taxable year under Section 382(h) of the Internal Revenue Code, the limitation under subdivision (1) for that taxable year shall be increased by the federal increase in the net operating loss limitation for the taxable year multiplied by the Indiana apportionment percentage for that taxable year.

(5) For purposes of any other matters not provided for in subdivisions (1) through (4), the taxpayer and the department are required to apply the limitations and rules under Section 382 of the Internal Revenue Code in a manner consistent with this subsection.

(6) This subsection applies to a taxpayer regardless of whether the taxpayer actually has a federal net operating loss subject to Section 382 of the Internal Revenue Code or whether any federal net operating losses have been exhausted.

     (l) If two (2) or more corporations file a consolidated return under IC 6-3-4-14 or a combined return under this chapter and have an Indiana net operating loss on a consolidated or combined basis for a taxable year:

(1) the Indiana net operating loss attributable to each corporation included in the consolidated or combined return shall be determined in a manner consistent with the attribution of federal net operating losses for consolidated groups as provided under the Internal Revenue Code and regulations promulgated thereunder;

(2) the application of Indiana net operating losses and reduction of losses attributable to each member shall be in a manner consistent with the application and reduction of federal net operating losses for consolidated groups as provided under the Internal Revenue Code and regulations promulgated thereunder; and

(3) the availability of net operating losses to each corporation upon an ownership change or change in filing status shall be in a manner consistent with the availability and use of federal net operating losses for consolidated groups as provided under the Internal Revenue Code and regulations promulgated thereunder.

     (m) The following apply for purposes of calculating an Indiana net operating loss under subsection (c):

(1) An itemized deduction shall be applied first under subsection (c)(1), and any amount not applied under subsection (c)(1) to make the net operating loss equal to zero (0) shall be applied under subsection (c)(2).

(2) In the case of a modification under IC 6-3-1-3.5 required to modify a separately stated net operating loss or a preliminary federal net operating loss, the amount of the modification may not exceed the amount prescribed under IC 6-3-1-3.5 and must be applied in the following order:

(A) Against a separately stated net operating loss under subsection (c)(1)(B), but only to the extent necessary to increase the separately stated net operating loss, after application of subsection (c)(1)(A) and (c)(1)(B), to an amount not greater than zero (0).

(B) Against a separately stated net operating loss under subsection (c)(1)(C), but only to the extent necessary to increase the separately stated net operating loss to an amount not greater than zero (0).

(C) To compute a modification to a preliminary federal net operating loss under subsection (c)(2).

As added by P.L.91-1987, SEC.4. Amended by P.L.192-2002(ss), SEC.73; P.L.81-2004, SEC.11; P.L.2-2005, SEC.21; P.L.182-2009(ss), SEC.193; P.L.113-2010, SEC.56; P.L.172-2011, SEC.57; P.L.239-2017, SEC.13; P.L.86-2018, SEC.71; P.L.214-2018(ss), SEC.6; P.L.234-2019, SEC.12; P.L.199-2021, SEC.5; P.L.165-2021, SEC.74; P.L.137-2022, SEC.36; P.L.1-2023, SEC.3; P.L.194-2023, SEC.13.