Cite as: 532 U. S. 822 (2001)
Opinion of the Court
I
A "net operating loss" results from deductions in excess of gross income for a given year. 26 U. S. C. § 172(c).1 Under § 172(b)(1)(A), a taxpayer may carry its net operating loss either backward to past tax years or forward to future tax years in order to "set off its lean years against its lush years, and to strike something like an average taxable income computed over a period longer than one year," Libson Shops, Inc. v. Koehler, 353 U. S. 382, 386 (1957).
Although the normal carryback period was at the time three years, in 1978, Congress authorized a special 10-year carryback for "product liability loss[es]," 26 U. S. C. § 172(b)(1)(I), since, it understood, losses of this sort tend to be particularly "large and sporadic." Joint Committee on Taxation, General Explanation of the Revenue Act of 1978, 95th Cong., 232 (Comm. Print 1979). The Code defines "product liability loss," for a given tax year, as the lesser of (1) the taxpayer's "net operating loss for such year" and (2) its allowable deductions attributable to product liability "expenses." 26 U. S. C. § 172( j)(1). In other words, a taxpayer's product liability loss (PLL) is the total of its product liability expenses (PLEs), limited to the amount of its net operating loss (NOL). By definition, then, a taxpayer with positive annual income, and thus no NOL, may have PLEs but can have no PLL.2
1 Unless otherwise noted, all statutory references are to the Internal Revenue Code of 1954, 26 U. S. C. § 1 et seq. (1982 ed. and Supp. V), as in effect between 1983 and 1986, the tax years here in question.
2 If, for example, a company had $100 in taxable income, $50 in deductible PLEs, and $75 in additional deductions, its NOL would be $25 (i. e., $100[H11502]$50[H11502]$75[H11505] [H11502]$25); it could count only $25 of its $50 in PLEs as PLL. If the company had $100 in income, $50 in PLEs, and $125 in additional deductions, its NOL would be $75, and it could count its entire $50 in PLEs as PLL. And, finally, if the company had $100 in income, $50 in PLEs, and $40 in additional deductions, it would have positive income and, thus, no NOL and no PLL.
825
Page: Index Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NextLast modified: October 4, 2007