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paid the Michigan Single Business Tax deficiencies and the
related interest. The aforementioned interest on a Federal
income tax deficiency arose out of an audit by the Internal
Revenue Service (the Service) of the group's consolidated Federal
income tax returns for 1987 and the resulting adjustment to
Lynchburg's separate taxable income for that year. During 1992,
Lynchburg and the Service resolved their differences, and
Lynchburg paid interest on its agreed upon 1987 Federal income
tax deficiency. During 1992, Lynchburg properly deducted the
additional State taxes and interest it paid during that year.
OPINION
Section 172(a) allows a "net operating loss deduction" for
the aggregate of net operating loss carrybacks and carryovers to
the taxable year. The term "net operating loss" (NOL) is defined
in section 172(c) to mean the excess of deductions allowed by
chapter 1 over gross income. Section 172(b) provides the
carryback and carryover periods for NOL's. Section 172(b)(1)(A)
generally provides that the carryback period for an NOL is 3
years and that the carryover period is 15 years.1 Section
172(b)(1)(C) provides a special rule that extends the carryback
period from 3 years to 10 years for specified liability losses.
1 Effective for taxable years beginning after Aug. 5, 1997,
the carryback period for an NOL is 2 years and the carryforward
period is 20 years. Taxpayer Relief Act of 1997, Pub. L. 105-34,
sec. 1082(a), 111 Stat. 950.
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