August 5, 1977
You have requested a ruling as to whether, pursuant to Paragraph 5(b)(ii) of Section 30 of Chapter 63 of the General Laws, a surviving corporation in a statutory merger may use a net operating loss carryover to which the transferor corporation was entitled.
The facts that you submit are as follows. Corporation A qualifies as a new corporation that can carry forward net operating losses. It incurs a net operating loss for its taxable year ended March 31, 1977. On that date, it merges with Corporation B in a statutory merger with Corporation B being the surviving corporation. Corporation B, organized on March 24, 1972, is on a fiscal year ending September 30. After the merger, 20% of the capital stock of Corporation B is owned by another corporation and 40% each by two individual stockholders. Your specific question is whether Corporation A's unused net operating loss carryover, or any portion thereof, may be used by Corporation B on its Massachusetts corporation excise return for its taxable year ending September 30, 1977.
G.L. c. 63, sec. 30, para. 5(b)(ii) authorizes losses sustained in other taxable years to be deducted only in certain limited circumstances. During the first five consecutive taxable years of a corporation, measured from its date of organization, it may deduct so much of a net operating loss carryover as determined under Section 172 of the Federal Internal Revenue Code as is represented by net operating loss carryovers for taxable years ending December 31, 1973 and thereafter. Such carryovers are not allowed if more than 50% of the corporation's voting stock is owned by another corporation; or, in the case of a foreign corporation, the loss was incurred before it became subject to tax in Massachusetts.
The Massachusetts carryover provision in paragraph 5(b)(ii) deals with losses sustained by the reporting corporation in other taxable years. There is no statutory language, either expressed or implied, that allows a surviving corporation to take advantage of a net operating loss sustained in a prior taxable year by a transferor corporation. This is further confirmed by the fact that said paragraph refers only to Section 172 of the Federal Internal Revenue Code and does not incorporate therein Section 381 of the Code, which specifically deals with net operating loss carryovers in corporate acquisitions.
Therefore, it is ruled that a surviving corporation in a statutory merger may not use a net operating loss carryover to which the transferor corporation was entitled under G.L. c. 63, sec. 30, para. 5(b)(ii).
Very truly yours,
/s/Owen L. Clarke
Owen L. Clarke
Commissioner of Corporations