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§ 7.19 CORPORATIONS’ NET OPERATING LOSS CARRYOVERS AND CARRYBACKS§ 7.19 CORPORATIONS’ NET OPERATING LOSS CARRYOVERSAND CARRYBACKSA corporation having a net operating loss carryover from any tax year mustapply a special rule concerning these carryovers 134 before computing the excesscharitable contribution carryover from any tax year.(a) Carryover RulesThis special rule is as follows: In determining the amount of excess charitablecontributions that may be deducted in tax years succeeding the contributionyear, the excess of the charitable contributions made by a corporation in the contributionyear over the amount deductible in that year must be reduced by theamount by which the excess (1) reduces taxable income for purposes of determiningthe net operating loss carryover under the net operating loss deductionrules 135 and (2) increases a net operating loss carryover to a succeeding tax year.Thus, if the excess of the contributions made in a tax year over the amountdeductible in a tax year is utilized to reduce taxable income (under the rules fordetermining net operating loss carryover 136 ) for the year, thereby increasing theamount of the net operating loss carryover to a succeeding tax year or years, acharitable contribution carryover is not available. If only a portion of the excesscharitable contribution is so used, the charitable contribution carryover must bereduced only to that extent.These rules may be illustrated by the following example:EXAMPLE 7.29Corporation Y, which reports its income on the calendar year basis, made a charitablecontribution of $20,000 during 2005. Y’s taxable income for that year was $80,000 (computedwithout regard to any net operating loss deduction and without regard to any deduction forcharitable contributions). Y had a net operating loss carryover from 2004 of $80,000. In theabsence of the net operating loss deduction, Y would have been allowed a charitablecontribution deduction for 2005 of $8,000 (10% of $80,000). After application of the netoperating loss deduction, Y was not allowed a deduction for charitable contributions, and therewas a tentative charitable contribution carryover from 2005 of $20,000. For purposes ofdetermining the net operating loss carryover to 2006, Y computed its taxable income for 2005by deducting the $8,000 charitable contribution. Thus, after the $80,000 net operating losscarryover was applied against the $72,000 of taxable income for 2005, there remained an$8,000 net operating loss carryover to 2006. Because application of the net operating losscarryover of $80,000 from 2004 reduced the taxable income of Y for 2005 to zero, no part ofthe $20,000 of charitable contributions in that year was deductible. In determining the amountof the allowable charitable contribution carryover from 2005 to 2006, 2007, 2008, 2009, and2010, however, the $20,000 had to be reduced by the portion of it ($8,000) that was used toreduce taxable income for 2005 and which thereby increased the net operating loss carryoverfrom 2004 to 2006 from zero to $8,000. aaReg. § 1.170A-11(c)(2).134IRC § 170(d)(2)(B).135IRC § 172(b)(2), second sentence.136IRC § 172(b)(2). 221