Magazine article The CPA Journal

Connecticut NOL Deduction by the Survivor of a Merger

Magazine article The CPA Journal

Connecticut NOL Deduction by the Survivor of a Merger

Article excerpt

The Connecticut Department of Revenue Services (DRS) has consistently disallowed net operating loss carryovers after a merger or reorganization. A recent Connecticut Superior Court decision has allowed a survivor corporation to utilize the merged corporations' losses because the business unit continued essentially unchanged.

The prior DRS position has been that only the entity which sustained the loss can claim the NOL in a subsequent year; when the corporate merger extinguishes the loss corporation, the loss corporation's attributes die with it. Unlike the IRC, there is no separate Connecticut code section authorizing carryovers after a merger.

The case, Grade A Market, Inc. v. Commissioner, was facts sensitive. Three retail supermarkets were owned by one family who organized them as three separate corporations. One corporation acquired the other two in a statutory merger. The nontax justification for the merger was to reduce administrative expenses. There was no change in ownership and no change in business operation of any of the retail markets. The surviving corporation attempted to deduct carryover premerger losses incurred by each of the merged corporations on its post-merger Connecticut return. …

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