Insights Blog

18 Feb, 2016

Virginia NOL in Lock-step with Federal IRC

Posted by Andy McComas and David Mikulka on Feb 18, 2016 1:19:34 PM


Casualty Losses carrybacks for NOL's

The Virginia Tax Commissioner recently[1] reversed the Virginia Department of Taxation’s denial of a three-year carryback for casualty and theft losses permitted under the Internal Revenue Code.[2]  The carryback, which followed the filing of amended federal returns for the same adjustment, was originally denied on examination by the Department of Taxation.



Virginia statutory law does not provide for a computation of the state’s Net Operating Loss deduction. Rather, VA Code § 58.1-301 provides that the terminology used in Title 58.1 has the same meaning as provided in the IRC, with certain exceptions, unless a different meaning is explicitly required.


IRC § 172 Basics:

  • Two-year carryback and twenty-year carry forward;
  • Provides an election to forego the two-year carryback;
  • Losses must be carried back to the earliest of the carryback years and then to the next earliest in chronological order.

Among Virginia’s departures from the IRC[3] is a limitation of certain NOL carrybacks. VA Code § 58.1-301 states only that the IRC’s five-year carryback provided for in tax years 2008 and 2009 will not be followed for Virginia income tax purposes. However, because Virginia conforms to IRC § 172 and has no explicit de-conformity provisions pertaining to IRC § 172(b)(1)(F), taxpayers should be allowed a three-year carryback of casualty and theft losses.


Other IRC § 172 Provisions
Taxpayers should be aware that in addition to the three-year carryback time period for casualty and theft losses, Virginia generally conforms to these other unique loss carryback rules found in IRC § 172:

  • Ten-year carryback for “Specified Liability” losses;[4]
  • REITs may carry back NOLs to any tax year; entities that were formerly REITS may carryback NOLs to any year  in which it was a REIT;[5]
  • Three-year carryback for small business ( < $5.0 mil of receipts) located within Federally declared disaster areas;  [6]
  •  Five-year carryback for farming losses.[7]

Do you review your NOL balances every quarter?

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 [1] Document Number 15-233; Issued 12/16/2015. 

 [2]  IRC § 172(b)(1)(E). 

 [3]  See VA Code § 58.1-301 (listing provisions that explicitly decouple from IRC conformity)

 [4]  RC § 172(b)(1)(C).

 [5] IRC § 172(b)(1)(B).

 [6] IRC § 172(b)(1)(E)(iii).

 [7] IRC § 172(b)(1)(F).