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THE UNITED STATES TAX SYSTEM: AN OVERVIEW§ 2.17 CARRYOVERS AND CARRYBACKSThe federal income tax is imposed annually. The unit of measure is the tax year,or annual accounting period, for a taxpayer. 84 Each tax year is construed to be adiscrete and separate period. In one case, the taxpayer had a net operating lossfor its tax year and sought to carry over the loss to another year to offset income.The Supreme Court denied the taxpayer’s effort and reinforced the strict conceptof a discrete tax year. 85To overcome the result in this case, and the harsh effects of denial of an offsetin other years of a current net operating loss, Congress created the net operatingloss deduction. 86 Generally, a carryback of a net operating loss to the preceding twotax years is permitted. 87 Likewise, a carryover of such a loss to the subsequent20 years is generally allowed. 88Special rules apply to capital losses. 89 For corporate taxpayers, a carryback ofthree years and a carryover of five years is generally permitted for net capitallosses. 90 Other taxpayers are generally allowed a carryover to the next tax year of:• The excess of net short-term capital losses over net long-term capitalgains, treated as a net short-term capital loss in the succeeding year• The excess of net long-term capital losses over net short-term capitalgains, treated as a long-term capital loss in the succeeding year§ 2.18 ALTERNATIVE MINIMUM TAXIn the past, certain high-income taxpayers were able to greatly reduce theirincome tax liability because of their receipt of exempt or preferred income. Tocurb this perceived abuse, Congress adopted an alternative minimum tax toensure that taxpayers with tax preference income nonetheless pay a minimumamount of income tax. Under the federal minimum tax law, 91 corporate taxpayersare subject to a 20 percent tax on alternative minimum taxable income. 92 Forindividuals, a 26 percent rate applies to the first $175,000 of alternative minimumtaxable income in excess of the exemption amount, and a 28 percent rateapplies to the excess. 93The items of tax preference subject to the special tax include:• Amount by which the depletion deduction exceeds adjusted basis• Amount by which excess intangible drilling costs exceed 65 percent of netincome from oil, gas, and geothermal property• Certain private activity bond tax-exempt interest84 See § 2.9.85 Burnet v. Sanford & Brooks Co., 282 U.S. 359 (1931).86 IRC § 172.87 IRC § 172(b)(1)(A)(i).88 IRC § 172(b)(1)(A)(ii).89 IRC § 1212.90 Net capital loss is defined in IRC § 1222(10).91 IRC §§ 55–59.92 IRC § 55(b)(1)(B).93 IRC § 55(b)(1)(A). 50