The application of Sec. 1.172-4 may be illustrated by the following example:
(a) Facts. The books of the taxpayer, whose return is made on the basis of the calendar year, reveal the following facts: ------------------------------------------------------------------------
Net
Taxable year Taxable operating
income loss------------------------------------------------------------------------1954.............................................. $15,0001955.............................................. 30,0001956.............................................. ......... ($75,000)1957.............................................. 20,0001958.............................................. ......... (150,000)1959.............................................. 30,0001960.............................................. 35,0001961.............................................. 75,0001962.............................................. 17,0001963.............................................. 53,000------------------------------------------------------------------------ The taxable income thus shown is computed without any net operating loss deduction. The assumption is also made that none of the other modifications prescribed in Sec. 1.172-5 apply. There are no net operating losses for 1950, 1951, 1952, 1953, 1964, 1965, or 1966.
(b) Loss sustained in 1956. The portions of the $75,000 net operating loss for 1956 which shall be used as carrybacks to 1954 and 1955 and as carryovers to 1957, 1958, 1959, 1960, and 1961 are computed as follows:
(1) Carryback to 1954. The carryback to this year is $75,000, that is, the amount of the net operating loss.
(2) Carryback to 1955. The carryback to this year is $60,000, computed as follows: Net operating loss........................................... $75,000Less:
Taxable income for 1954 (computed without the deduction of 15,000
the carryback from 1956)..................................
----------
Carryback................................................ 60,000
(3) Carryover to 1957. The carryover to this year is $30,000, computed as follows: Net operating loss................................ ......... $75,000Less:
Taxable income for 1954 (computed without the $15,000 .........
deduction of the carryback from 1956)..........
Taxable income for 1955 (computed without the 30,000 .........
deduction of the carryback from 1956 or the
carryback from 1958)...........................
-----------
......... 45,000
----------
Carryover..................................... ......... 30,000
(4) Carryover to 1958. The carryover to this year is $10,000, computed as follows: Net operating loss................................ ......... $75,000Less:
Taxable income for 1954 (computed without the $15,000 .........
deduction of the carryback from 1956)..........
Taxable income for 1955 (computed without the 30,000 .........
deduction of the carryback from 1956 or the
carryback from 1958)...........................
Taxable income for 1957 (computed without the 20,000 .........
deduction of the carryover from 1956 or the
carryback from 1958)...........................
-----------
......... 65,000
----------
Carryover..................................... ......... 10,000
(5) Carryover to 1959. The carryover to this year is $10,000, computed as follows: Net operating loss................................ ......... $75,000Less:
Taxable income for 1954 (computed without the $15,000
deduction of the carryback from 1956)..........
Taxable income for 1955 (computed without the 30,000
deduction of the carryback from 1956 or the
carryback from 1958)...........................
Taxable income for 1957 (computed without the 20,000
deduction of the carryover from 1956 or the
carryback from 1958)...........................
Taxable income for 1958 (a year in which a net 0
operating loss was sustained)..................
-------- 65,000
----------
Carryover..................................... ......... 10,000
(6) Carryover to 1960. The carryover to this year is $0, computed as follows: Net operating loss................................ ......... $75,000Less:
Taxable income for 1954 (computed without the $15,000
deduction of the carryback from 1956)..........
Taxable income for 1955 (computed without the 30,000
deduction of the carryback from 1956 or the
carryback from 1958)...........................
Taxable income for 1957 (computed without the 20,000
deduction of the carryover from 1956 or the
carryback from 1958)...........................
Taxable income for 1958 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1959 (computed without the 30,000
deduction of the carryover from 1956 or the
carryover from 1958)...........................
-------- 95,000
----------
Carryover..................................... ......... 0
(7) Carryover to 1961. The carryover to this year is $0, computed as follows: Net operating loss................................ ......... $75,000Less:
Taxable income for 1954 (computed without the $15,000
deduction of the carryback from 1956)..........
Taxable income for 1955 (computed without the 30,000
deduction of the carryback from 1956 or the
carryback from 1958)...........................
Taxable income for 1957 (computed without the 20,000
deduction of the carryover from 1956 or the
carryback from 1958)...........................
Taxable income for 1958 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1959 (computed without the 30,000
deduction of the carryover from 1956 or the
carryover from 1958)...........................
Taxable income for 1960 (computed without the 35,000
deduction of the carryover from 1956 or the
carryover from 1958)...........................
-------- 130,000
----------
Carryover..................................... ......... 0
(c) Loss sustained in 1958. The portions of the $150,000 net operating loss for 1958 which shall be used as carrybacks to 1955, 1956, and 1957 and as carryovers to 1959, 1960, 1961, 1962, and 1963 are computed as follows:
(1) Carryback to 1955. The carryback to this year is $150,000, that is, the amount of the net operating loss.
(2) Carryback to 1956. The carryback to this year is $150,000, computed as follows: Net operating loss........................................... $150,000Less:
Taxable income for 1955 (the $30,000 taxable income for 0
such year reduced by the carryback to such year of $60,000
from 1956, the carryback from 1958 to 1955 not being taken
into account).............................................
----------
Carryback................................................ 150,000
(3) Carryback to 1957. The carryback to this year is $150,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
-------- 0
----------
Carryback..................................... ......... 150,000
(4) Carryover to 1959. The carryover to this year is $150,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1957 (the $20,000 taxable 0
income for such year reduced by the carryover
to such year of $30,000 from 1956, the
carryback from 1958 to 1957 not being taken
into account)..................................
-------- 0
----------
Carryover..................................... ......... 150,000
(5) Carryover to 1960. The carryover to this year is $130,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1957 (the $20,000 taxable 0
income for such year reduced by the carryover
to such year of $30,000 from 1956, the
carryback from 1958 to 1957 not being taken
into account)..................................
Taxable income for 1959 (the $30,000 taxable $20,000
income for such year reduced by the carryover
to such year of $10,000 from 1956, the
carryover from 1958 to 1959 not being taken
into account)..................................
-------- 20,000
----------
Carryover..................................... ......... 130,000
(6) Carryover to 1961. The carryover to this year is $95,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1957 (the $20,000 taxable 0
income for such year reduced by the carryover
to such year of $30,000 from 1956, the
carryback from 1958 to 1957 not being taken
into account)..................................
Taxable income for 1959 (the $30,000 taxable $20,000
income for such year reduced by the carryover
to such year of $10,000 from 1956, the
carryover from 1958 to 1959 not being taken
into account)..................................
Taxable income for 1960 (the $35,000 taxable 35,000
income for such year reduced by the carryover
to such year of $0 from 1956, the carryover
from 1958 to 1960 not being taken into account)
-------- 55,000
----------
Carryover..................................... ......... 95,000
(7) Carryover to 1962. The carryover to this year is $20,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1957 (the $20,000 taxable 0
income for such year reduced by the carryover
to such year of $30,000 from 1956, the
carryback from 1958 to 1957 not being taken
into account)..................................
Taxable income for 1959 (the $30,000 taxable $20,000
income for such year reduced by the carryover
to such year of $10,000 from 1956, the
carryover from 1958 to 1959 not being taken
into account)..................................
Taxable income for 1960 (the $35,000 taxable 35,000
income for such year reduced by the carryover
to such year of $0 from 1956, the carryover
from 1958 to 1960 not being taken into account)
Taxable income for 1961 (the $75,000 taxable 75,000
income for such year reduced by the carryover
to such year of $0 from 1956, the carryover
from 1958 to 1961 not being taken into account)
-------- 130,000
----------
Carryover..................................... ......... 20,000
(8) Carryover to 1963. The carryover to this year is $3,000, computed as follows: Net operating loss................................ ......... $150,000Less:
Taxable income for 1955 (the $30,000 taxable 0
income for such year reduced by the carryback
to such year of $60,000 from 1956, the
carryback from 1958 to 1955 not being taken
into account)..................................
Taxable income for 1956 (a year in which a net 0
operating loss was sustained)..................
Taxable income for 1957 (the $20,000 taxable 0
income for such year reduced by the carryover
to such year of $30,000 from 1956, the
carryback from 1958 to 1957 not being taken
into account)..................................
Taxable income for 1959 (the $30,000 taxable $20,000
income for such year reduced by the carryover
to such year of $10,000 from 1956, the
carryover from 1958 to 1959 not being taken
into account)..................................
Taxable income for 1960 (the $35,000 taxable 35,000
income for such year reduced by the carryover
to such year of $0 from 1956, the carryover
from 1958 to 1960 not being taken into account)
Taxable income for 1961 (the $75,000 taxable 75,000 .........
income for such year reduced by the carryover
to such year of $0 from 1956, the carryover
from 1958 to 1961 not being taken into account)
Taxable income for 1962 (computed without the 17,000
deduction of the carryover from 1958)..........
-------- 147,000
----------
Carryover..................................... ......... 3,000
(d) Determination of net operating loss deduction for each year. The carryovers and carrybacks computed under paragraphs (b) and (c) of this section are used as a basis for the computation of the net operating loss deduction in the following manner: ----------------------------------------------------------------------------------------------------------------
Carryover Carryback Net
---------------------------------------- operating
Taxable year From From From From loss
1956 1958 1956 1958 deduction----------------------------------------------------------------------------------------------------------------1954......................................................... $0 $0 $75,000 $0 $75,0001955......................................................... 0 0 60,000 150,000 210,0001957......................................................... 30,000 0 0 150,000 180,0001959......................................................... 10,000 150,000 0 0 160,0001960......................................................... 0 130,000 0 0 130,0001961......................................................... 0 95,000 0 0 95,0001962......................................................... 0 20,000 0 0 20,0001963......................................................... 0 3,000 0 0 3,000----------------------------------------------------------------------------------------------------------------