- 7 -
the taxpayer’s net operating loss for the taxable year; (2) the
expense generating the specified liability loss is deductible
under chapter 1 of the Internal Revenue Code; (3) the liability
arose under a Federal or State law; (4) the act or failure to act
which gave rise to the liability occurred at least 3 years before
the taxable year at issue; (5) the taxpayer used the accrual
method of accounting throughout the period in which the acts or
failures to act giving rise to the liabilities occurred; and (6)
the specified liability loss does not exceed the taxpayer’s net
operating loss for the year. See Sealy Corp. v. Commissioner,
107 T.C. 177, 183 (1996), affd. 171 F.3d 655 (9th Cir. 1999).3
Petitioner contends that it properly carried back to 1984
the State taxes and interest on Federal and State taxes that
Lynchburg paid during 1992.4 Petitioner argues that the State
3In the Omnibus Consolidated and Emergency Supplemental
Appropriations Act for 1999 (OCESAA), Pub. L. 105-277, sec.
3004(a), 112 Stat. 2681, 2681-905, Congress amended the
definition of a specified liability loss under sec. 172(f)(1)(B)
to limit it to a liability under a Federal or State law
requiring: (1) The reclamation of land; (2) the decommissioning
of a nuclear power plant; (3) the dismantlement of a drilling
platform; (4) the remediation of environmental contamination; or
(5) a payment under any workers compensation act. The above-
described amendment was made effective with respect to net
operating losses arising in taxable years ending after Oct. 21,
1998. OCESAA sec. 3004(b), 112 Stat. 2681-906. The legislative
history underlying the provision states: “No inference regarding
the interpretation of the specified liability loss carryback
rules under present law is intended.” H. Conf. Rept. 105-825, at
1590 (1998).
4Notwithstanding the 10-year carryback period provided in
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011