The taxpayer has a federal net operating loss of $90,000 in tax year 2000. The entire loss is carried back; $40,000 is applied to 1998 and $50,000 to 1999. From 1993 through 2000, Maine was in conformity with the Internal Revenue Code regarding net operating losses, so all federal carryback amounts were accepted for Maine income tax purposes. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the NOL incurred in that year and carried back federally. This is shown in the example below, where a $90,000 Maine addition modification is entered in the column for tax year 2000. This addition modification is required under 36 MRSA, § 5200-A(1)(B).

1998 1999 2000 2001 2002

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B) $90,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ _______ _______ _______

Maine Taxable Income $3,000 $4,000 $5,000 $31,000 $77,000

The addition modification in this example brings federal income for the taxpayer to zero. Therefore, since the taxpayer has used the full amount of the loss to reduce prior years’ income, the addition modification prevents the taxpayer from eliminating other Maine addition modifications in the year of the loss. In the above example, the addition under § 5200-A(1)(B) keeps the taxpayer from avoiding tax on the other $5,000 income modification in addition to reducing income in 1998 and 1999 by a total of $90,000.

Example #2 – NOL in 2000, some of the loss is carried back, some is carried forward.

The taxpayer has a federal net operating loss of $90,000 in tax year 2000. Part of the loss ($70,000) is carried back; $20,000 is applied to 1998 and $50,000 to 1999. From 1993 through 2000, Maine was in conformity with the Internal Revenue Code regarding net operating losses, so all federal carryback amounts were accepted for Maine income tax purposes. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the NOL incurred in that year and carried back federally. This is shown in the example below, where a $70,000 Maine addition modification is entered in the column for tax year 2000. This addition modification is required under 36 MRSA, § 5200-A(1)(B). In this example, a second addition modification is required (see 36 MRSA, § 5200-A(1)(C)) to offset the reduction of Maine income in the year of the loss. Since only a portion of the loss is carried back, the entire amount of the loss is not required to be added back to Maine income. As a result, the amount that is used as a federal carryforward is available in the year of the loss to offset Maine addition modifications. In this example, $5,000 of Maine income is offset by the $20,000 carried forward federally. In order to prevent the loss carryforward from reducing Maine income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. This modification is located in the example below under tax year 2001 as an addition of $5,000.

1998 1999 2000 2001 2002

Federal Income, prior to NOL $20,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______

Federal Taxable Income $0 $0 ($90,000) $5,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B) $70,000

§5200-A(1)(C) $5,000

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ _______ _______ _______

Maine Taxable Income $3,000 $4,000 ($15,000) $16,000 $77,000

In the above example, the addition under § 5200-A(1)(C) allows the taxpayer to avoid tax on the $5,000 general modification in 2000, but reduces income in future years by the full carryover amount. Of the $20,000 carried forward federally, $5,000 is used to offset Maine income in 2000. Therefore, the $20,000 carryforward must be reduced by that $5,000 in 2001, at the end of the carryforward period.

Example #3 – NOL in 2000, all of the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2000. The entire amount of the loss is carried forward: $25,000 to 2001 and $65,000 to 2002. From 1993 through 2000, Maine was in conformity with the Internal Revenue Code regarding net operating losses, so all federal carryforward amounts were accepted for Maine income tax purposes. In this example, however, an addition modififcation is required (see 36 MRSA § 5200-A(1)(C)) to offset the reduction of Maine income in the year of the loss. The amount that is used as a federal carryforward is available in the year of the loss to offset Maine addition modifications. In this example, $5,000 of Maine income is offset by the $90,000 carried forward federally. In order to prevent the loss carryforward from reducing Maine income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. This modification is located in the example below under tax year 2002 as an addition of $5,000.

1998 1999 2000 2001 2002

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C) $5,000

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $43,000 $54,000 ($85,000) $6,000 $17,000

In the above example, the addition under § 5200-A(1)(C) keeps the taxpayer from avoiding tax on the $5,000 modification in 2000, as well as reducing income in future years by the full carryover amount. Of the $90,000 carried forward federally, $5,000 is used to offset Maine income in 2000. Therefore, the $90,000 carryforward must be reduced, at the end of the carryforward period, by that $5,000 in 2002.

Chapter 1.2 – Subtraction Modifications

Example #4 – NOL in 2000, all of the loss is carried back two years

1998 1999 2000 2001 2002

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B) $90,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ _______ _______ _______

Maine Taxable Income ($3,000) ($4,000) ($5,000) $19,000 $63,000

The addition modification in the this example brings the federal income for the taxpayer to zero. In the above example, the addition under § 5200-A(1)(B) has no substantial effect, since negative income amounts due to subtraction modifications do not create a separate Maine NOL.

Example #5 – NOL in 2000, some of the loss is carried back, some is carried forward

1998 1999 2000 2001 2002

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) _______ ($20,000) _______

Federal Taxable Income $20,000 $0 ($90,000) $5,000 $70,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B) $70,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $17,000 ($4,000) ($25,000) ($1,000) $63,000

In the above example, the addition modification under § 5200-A(1)(B) has no substantial effect, since negative income amounts due to subtraction modifications do not create a separate Maine NOL.

Example #6 – NOL in 2000, all of the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2000. The entire amount of the loss is carried forward, $25,000 to 2001 and $65,000 to 2002. From 1993 through 2000, Maine was in conformity with the Internal Revenue Code regarding net operating losses, so all federal carryforward amounts were accepted for Maine income tax purposes. In this example, no NOL modification is required.

1998 1999 2000 2001 2002

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $37,000 $46,000 ($95,000) ($6,000) ($2,000)

PART 2 – ACCOUNTING FOR TAX YEAR 2001 LOSSES

Chapter 2.1 – Addition Modifications

Example #7 –NOL in 2001, all the loss is carried back two years

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire loss is carried back; $40,000 is applied to 1999 and $50,000 to 2000. For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years. Maine law decoupled from federal carrybacks of more than two years. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the total NOL incurred in that year and carried back federally, regardless of how many years the loss was carried back. The add-back for the loss year is shown in the example below, where a $90,000 Maine addition modification is entered in the column for tax year 2001. This addition modification is required under 36 MRSA, § 5200-A(1)(B).

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B) $90,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ _______ _______ _______

Maine Taxable Income $3,000 $4,000 $5,000 $31,000 $77,000

The addition modification in the this example brings the federal income for the taxpayer to zero. Therefore, since the taxpayer has used the full amount of the loss to reduce prior years’ income, the addition modification prevents the taxpayer from eliminating other Maine addition modifications in the year of the loss. In the above example, the addition modification under § 5200-A(1)(B) keeps the taxpayer from avoiding tax on the $5,000 modification in addition to reducing income in 1999 and 2000 by a total of $90,000. Since the taxpayer, in this example, carried back the loss only two years, no other Maine modification is necessary.

Example #8 – NOL in 2001, all of the loss is carried back five years

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire loss is carried back to the federal maximum five years; $40,000 is applied to 1996, another $40,000 to 1997 and the remaining $10,000 to 1998. For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years. Maine law decoupled from federal carrybacks of more than two years. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the total NOL incurred in that year and carried back federally, regardless of how many years the loss was carried back. The add-back for the loss year is shown in the example below, where a $90,000 Maine addition modification is entered in the column for tax year 2001. This addition modification is required under 36 MRSA § 5200-A(1)(B). A second addition modification is required to offset the carryback amounts used in 1996, 1997 and 1998. This modification is required under § 5200-A(1)(M), but may also be recaptured up to two years prior to the loss year or up to the federal carryover limit for years after the loss year. In this example, $43,000 of the offset is recaptured in 1999 and the remaining $47,000 is recaptured in 2000.

1996 1997 1998 1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $40,000 $40,000 $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($40,000) ($10,000) _______ _______ _______ _______ _______

Federal Taxable Income $0 $0 $30,000 $40,000 $50,000 ($90,000) $25,000 $70,000

Addition $3,000 $3,000 $3,000 $3,000 $4,000 $5,000 $6,000 $7,000

§5200-A(1)(B) $90,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M) $40,000 $40,000 $10,000

§5200-A(2)(L) _______ _______ _______ ($43,000) ($47,000) _______ _______ _______

Maine Taxable Income $43,000 $43,000 $43,000 $0 $7,000 $5,000 $31,000 $77,000

Example #9 – NOL in 2001, some of the loss is carried back, some is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. Part of the loss ($70,000) is carried back; $20,000 is applied to 1999 and $50,000 to 2000. For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years. Maine law decoupled from federal carrybacks of more than two years. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the total NOL incurred in that year and carried back federally. This is shown in the example below, where a $70,000 Maine addition modification is entered in the column for tax year 2001. This addition modification is required under 36 MRSA, § 5200-A(1)(B). In this example, a second addition modification is required (see 36 MRSA, § 5200-A(1)(C)) to offset the reduction of Maine income in the year of the loss. Since only a portion of the loss is carried back, the entire amount of the loss is not required to be added back to Maine income. As a result, the amount that is used as a federal carryforward is available in the year of the loss to offset Maine addition modifications. In this example, $5,000 of Maine income is offset by the $20,000 carried forward federally. In order to prevent the loss carryforward from reducing income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. This modification is located in the example below under tax year 2002 as an addition modification of $5,000.

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______

Federal Taxable Income $20,000 $0 ($90,000) $5,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B) $70,000

§5200-A(1)(C) $5,000

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ _______ _______ _______

Maine Taxable Income $23,000 $4,000 ($15,000) $16,000 $77,000

In the above example, the addition modification under § 5200-A(1)(C) allows the taxpayer to avoid tax on the $5,000 modification in 2001, but reduces income in future years by the full carryover amount. Of the $20,000 carried forward federally, $5,000 is used to offset Maine income in 2001. Therefore, the $20,000 carryforward must be reduced by that $5,000 in 2002, at the end of the carryforward period.

Example #10 – NOL in 2001, all of the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire amount of the loss is carried forward: $25,000 to 2002 and $65,000 to 2003. For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years. Maine law decoupled from federal carrybacks of more than two years. In this example, however, an addition modification is required (see 36 MRSA, § 5200-A(1)(C)) to offset the reduction of Maine income in the year of the loss. The amount that is used as a federal carryforward is available in the year of the loss to offset Maine addition modifications. In this example, $5,000 of Maine income is offset by the $90,000 carried forward federally. In order to prevent the loss carryforward from reducing income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. This modification is located in the example below under tax year 2003 as an addition of $5,000.

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ _______ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C) $5,000

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $43,000 $54,000 ($85,000) $6,000 $17,000

In the above example, the addition modification under § 5200-A(1)(C) allows the taxpayer to avoid tax on the $5,000 modification in 2001, but reduces income in future years by the full carryover amount. Of the $90,000 carried forward federally, $5,000 is used to offset Maine income in 2001. Therefore, the $90,000 carryforward must be reduced by that $5,000 in 2003, at the end of the carryforward period.

Chapter 2.2 – Subtraction Modifications

Example #11 – NOL in 2001, all the loss is carried back two years

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire loss is carried back: $40,000 is applied to 1999 and $50,000 to 2000. For tax years beginning or ending in 2001, Maine was in conformity with the Internal Revenue Code regarding net operating losses carried back two years. Maine law decoupled from federal carrybacks of more than two years. In the year of the loss, however, the taxpayer was required to add to income an amount equal to the NOL incurred in that year and carried back federally. This is shown in the example below, where a $90,000 Maine addition modification is entered in the column for tax year 2001. This addition modification is required under 36 MRSA § 5200-A(1)(B).

All of federal loss is carried back two years

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B) $90,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) ________ _______ _______ _______ _______

Maine Taxable Income ($3,000) ($4,000) ($5,000) $19,000 $63,000

The addition modification under § 5200-A(1)(B) in the this example brings the federal income for the taxpayer to zero. However, the modification has no substantial effect since negative income taxable amounts due to subtraction modifications do not create a separate Maine NOL.

Example #12 – NOL in 2001, some of the loss is carried back, some is carried forward

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $ 25,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______

Federal Taxable Income $20,000 $0 ($90,000) $ 5,000 $70,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($ 4,000) (7,000)

NOL Modifications: §5200-A(1)(B) $70,000

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $17,000 ($4,000) ($25,000) $1,000 $63,000

In the above example, the addition modification under § 5200-A(1)(B) has no substantial effect, since negative income amounts due to subtraction modifications do not create a separate Maine NOL.

Example #13 – NOL in 2001, all the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2001. The entire amount of the loss is carried forward, $25,000 to 2002 and $65,000 to 2003. In this example, no NOL modification is required.

1999 2000 2001 2002 2003

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ ________ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ ________ _______

Maine Taxable Income $37,000 $46,000 ($95,000) ($6,000) ($2,000)

PART 3 – ACCOUNTING FOR TAX YEAR 2002

(and subsequent years) LOSSES

Chapter 3.1 – Addition Modifications

Example #14 – NOL in 2002, all the loss is carried back two years

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. The entire loss is carried back; $40,000 is applied to 2000 and $50,000 to 2001. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. Unlike prior years, the taxpayer was no longer required, in the year of the loss, to add to income an amount equal to the NOL carried back federally, regardless of how many years the loss was carried back. However, an addition modification is required in the year to which the loss is carried. In the example below, an addition modification of $40,000 is required in 2000 and an addition modification of $50,000 is required in 2001 (see 36 MRSA § 5200-A(1)(H)). The addition modifications can be recaptured in years subsequent to the year of the loss, but only to the extent taxable income is not reduced below zero, the taxable year is within the allowable federal carryover period and the amount has not been previously used to offset otherwise Maine taxable income. (see 36 MRSA § 5200-A(2)(H)). In the example below, $31,000 is recaptured in 2003 and the remaining $54,000 ($90,000 carryback minus the $31,000 used in 2003 minus the $5,000 modification offset in 2002) is recaptured in 2004.

2000 2001 2002 2003 2004

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ _______ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H) $40,000 $50,000

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ ($31,000) ($54,000)

Maine Taxable Income $43,000 $54,000 ($85,000) $0 $23,000

The addition modifications in the this example bring the federal income for the taxpayer to zero in the carryback years. The recapture of the addition modifications must be reduced by amounts previously used to offset Maine income, including addition modifications in the year of the loss.

Example #15 – NOL in 2002, some of the loss is carried back, some is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. Part of the loss ($70,000) is carried back; $20,000 is applied to 2000 and $50,000 to 2001. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. Unlike prior years, the taxpayer was no longer required, in the year of the loss, to add to income an amount equal to the NOL carried back federally, regardless of how many years the loss was carried back. However, an addition modification is required in the year to which the loss is carried. In the example below, an addition modification of $20,000 is required in 2000 and an addition modification of $50,000 is required in 2001 (see 36 MRSA, § 5200-A(1)(H)). The addition modifications can be recaptured in years subsequent to the year of the loss, but only to the extent taxable income is not reduced below zero, the taxable year is within the allowable federal carryover period and the amount has not been previously used to offset otherwise Maine taxable income. (see 36MRSA § 5200-A(2)(H)). In the example below, $11,000 is recaptured in 2003 and the remaining $54,000 ($70,000 carryback minus the $11,000 used in 2003 minus the $5,000 modification offset in 2002) is recaptured in 2004.

2000 2001 2002 2003 2004

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______

Federal Taxable Income $20,000 $0 ($90,000) $5,000 $70,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H) $20,000 $50,000

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ ($11,000) ($54,000)

Maine Taxable Income $43,000 $54,000 ($85,000) $ 0 $23,000

Example #16 – NOL in 2002, all the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. The entire amount of the loss is carried forward; $25,000 to 2003 and $65,000 to 2004. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. In the example below, since there is no federal loss carryback, there is no related addition modification required. However, in order to prevent the loss carryforward from reducing income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. This modification is located in the example below under tax year 2004 as an addition of $5,000 as required by 36 M.R.S.A. § 5200-A(1)(C).

2000 2001 2002 2003 2004

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ ________ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Addition $3,000 $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C) $5,000

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $43,000 $54,000 ($85,000) $6,000 $17,000

In the above example, the federal NOL in 2002 is used to offset the Maine addition modification of $5,000. Therefore, the $90,000 NOL carryforward must be reduced by that $5,000 in 2004, at the end of the carryforward period.

Chapter 3.2 – Subtraction Modifications

Example #17 – NOL in 2002, all of the loss is carried back two years

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. The entire loss is carried back; $40,000 is applied to 2000 and $50,000 to 2001. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. Unlike prior years, the taxpayer was no longer required, in the year of the loss, to add to income an amount equal to the NOL carried back federally, regardless of how many years the loss was carried back. However, an addition modification is required in the year to which the loss is carried. In the example below, an addition modification of $40,000 is required in 2000 and an addition modification of $50,000 is required in 2001 (see 36 MRSA, § 5200-A(1)(H)). The addition modifications can be recaptured in years subsequent to the year of the loss, but only to the extent taxable income is not reduced below zero, the taxable year is within the allowable federal carryover period and the amount has not been previously used to offset otherwise Maine taxable income. (see 36 MRSA § 5200-A(2)(H)). In the example below, $19,000 is recaptured in 2003, $63,000 is recaptured in 2004 and the remaining $8,000 ($90,000 carryback minus the $19,000 used in 2003 minus the $63,000 used in 2004) is recaptured in 2005.

2000 2001 2002 2003 2004 2005

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000 $70,000

NOL carryback/carryforward ($40,000) ($50,000) ________ ________ ________ _______

Federal Taxable Income $0 $0 ($90,000) $25,000 $70,000 $70,000

Other Maine modifications:

Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000) ($7,000)

NOL Modifications:

§5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H) $40,000 $50,000

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ ($19,000) ($63,000) ($8,000)

Maine Taxable Income $37,000 $46,000 ($95,000) $0 $0 $55,000

The addition modifications in the this example bring the federal income for the taxpayer to zero in the carryback years. Although not applicable in this example, the recapture of the addition modifications must generally be reduced by amounts previously used to offset Maine income.

Example #18 – NOL in 2002, some of the loss is carried back, some is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. Part of the loss ($70,000) is carried back; $20,000 is applied to 2000 and $50,000 to 2001. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. Unlike prior years, the taxpayer was no longer required, in the year of the loss, to add to income an amount equal to the NOL carried back federally, regardless of how many years the loss was carried back. However, an addition modification is required in the year to which the loss is carried. In the example below, an addition modification of $20,000 is required in 2000 and an addition modification of $50,000 is required in 2001 (see 36 MRSA, § 5200-A(1)(H)). The addition modifications can be recaptured in years subsequent to the year of the loss, but only to the extent taxable income is not reduced below zero, the taxable year is within the allowable federal carryover period and the amount has not been previously used to offset otherwise Maine taxable income. (see 36 MRSA § 5200-A(2)(H)). In the example below, $63,000 is recaptured in 2004 and the remaining $7,000 ($70,000 carryback minus the $63,000 used in 2004) is recaptured in 2005.

2000 2001 2002 2003 2004 2005

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000 $70,000

NOL carryback/carryforward ($20,000) ($50,000) ________ ($20,000) _______ _______

Federal Taxable Income $20,000 $0 ($90,000) $5,000 $70,000 $70,000

Other Maine modifications:

Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000) ($7,000)

NOL Modifications:

§5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H) $20,000 $50,000

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ ________ ($63,000) ($7,000)

Maine Taxable Income $37,000 $46,000 ($95,000) ($1,000) $0 $56,000

Example #19 – NOL in 2002, all of the loss is carried forward

The taxpayer has a federal net operating loss of $90,000 in tax year 2002. The entire amount of the loss is carried forward; $25,000 to 2003 and $65,000 to 2004. For tax years beginning on or after January 1, 2002, Maine decoupled from the Internal Revenue Code regarding net operating loss carrybacks. In the example below, since there is no federal carryback, there is no related addition modification required. However, in order to prevent the loss carryforward from reducing income twice, Maine requires an addition modification for amounts previously offset by NOL amounts carried forward at the federal level. Since the modification in the loss year is a subtraction, no Maine income was offset and there is no related NOL modification required in this example.

2000 2001 2002 2003 2004

Federal Income, prior to NOL $40,000 $50,000 ($90,000) $25,000 $70,000

NOL carryback/carryforward _______ _______ ________ ($25,000) ($65,000)

Federal Taxable Income $40,000 $50,000 ($90,000) $0 $5,000

Other Maine modifications: Subtraction ($3,000) ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(B)

§5200-A(1)(C)

§5200-A(1)(H)

§5200-A(1)(M)

§5200-A(2)(H) _______ _______ ________ _______ _______

Maine Taxable Income $37,000 $46,000 ($95,000) ($6,000) ($2,000)

PART 4 – ACCOUNTING FOR CARRYOVERS AND RECAPTURES IN TAX YEAR 2008 AND SUBSEQUENT YEARS

Chapter 4.1 – Addition Modifications

Example #20– NOL in 2007, all the loss is carried back one year

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. The entire loss is carried back to 2006. Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. In the example below, an addition modification of $150,000 is required in 2006 (see 36 MRSA § 5200-A(1)(H)). The addition modification can be recaptured in years subsequent to the year of the loss through a recapture subtraction modification (see 36 MRSA § 5200-A(2)(H)). The recapture modification must be reduced by any Maine income offset in the year of the loss. For tax years beginning in 2008 the NOL recapture modification is limited to $100,000. In the example below, $100,000 is recaptured in 2008 and the remaining $45,000 ($150,000 carryback minus the $100,000 used in 2008 minus the $5,000 offset in 2007) is recaptured in 2009.

2006 2007 2008 2009

Federal Income, prior to NOL $150,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ($150,000) _________ _______ _______

Federal Taxable Income $0 ($150,000) $150,000 $150,000

Maine general modification: Addition $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(H) $150,000

§5200-A(2)(H) _______ ________ ($100,000) ($45,000)

Maine Taxable Income $154,000 ($145,000) $56,000 $112,000

The addition modification in the this example brings the federal income for the taxpayer to zero in the carryback year. The recapture of the addition modification must be reduced by the amount previously used to offset Maine income, including addition modifications in the year of the loss.

Example #21– NOL in 2007, some of the loss is carried back, some is carried forward

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. Part of the loss ($100,000) is carried back to 2006. The remaining $50,000 is carried forward to 2008. Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. In the example below, an addition modification of $100,000 is required in 2006 (see 36 MRSA § 5200-A(1)(H)). The addition modification can be recaptured in years subsequent to the year of the loss through a recapture subtraction modification (see 36 MRSA § 5200-A(2)(H)). The recapture modification must be reduced by any Maine income offset in the year of the loss. For tax years beginning in 2008 the NOL recapture modification is limited to $100,000 per year. In the example below, the entire $95,000 available ($100,000 carryback minus the $5,000 offset in 2007) is recaptured in 2008.

2006 2007 2008 2009

Federal Income, prior to NOL $100,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ($100,000) _________ ($50,000) _______

Federal Taxable Income $0 ($150,000) $100,000 $150,000

Maine general modification: Addition $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(H) $100,000

§5200-A(2)(H) _______ ________ ($95,000) _______

Maine Taxable Income $104,000 ($145,000) $11,000 $157,000

Example #22– NOL in 2007, all the loss is carried forward

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. The entire loss is is carried forward to 2008. Maine has decoupled from federal carryback provisions. In the example below, since there is no federal carryback, there is no related addition modification required. However, if an addition modification in the year of the loss is offset by the federal loss, the federal carryover amount must be reduced by the same amount to avoid a double subtraction of income (see 36 MRSA § 5200-A(1)(C)). In the example below, a $5,000 addition modification is required in 2008. Also, for tax years beginning in 2008, federal carryover amounts are reduced by 10% of the carryover amount that exceeds $100,000. In the example below, a $5,000 addition modification (($150,000 - $100,000) * 10% = $5,000) is required against the federal carryover amount of $150,000 (see 36 MRSA § 5200-A(1)(U)). This addition modification is recaptured in the following year (see 36 MRSA § 5200-A(2)(S)).

2006 2007 2008 2009

Federal Income, prior to NOL $150,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ________ _________ ($150,000) _______

Federal Taxable Income $150,000 ($150,000) $0 $150,000

Maine general modification: Addition $4,000 $5,000 $6,000 $7,000

NOL Modifications: §5200-A(1)(C) $5,000

§5200-A(1)(U) $5,000

§5200-A(2)(S) _______ ________ _______ ($5,000)

Maine Taxable Income $154,000 ($145,000) $16,000 $152,000

In the above example, the federal NOL in 2007 is used to offset the Maine addition modification of $5,000. The $150,000 federal NOL carryforward, therefore, must be reduced by that $5,000 in 2008, when the carryforward is used.

Chapter 4.2 – Subtraction Modifications

Example #23– NOL in 2007, all of the loss is carried back to 2006

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. The entire loss is carried back to 2006. Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. In the example below, an addition modification of $150,000 is required in 2006 (see 36 MRSA § 5200-A(1)(H)). The addition modification can be recaptured in years subsequent to the year of the loss through a recapture subtraction modification (see 36 MRSA § 5200-A(2)(H)). for tax years beginning in 2008 the NOL recapture modification is limited to $100,000. In the example below, $100,000 is recaptured in 2008 and the remaining $50,000 is recaptured in 2009.

2006 2007 2008 2009

Federal Income, prior to NOL $150,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ($150,000) _________ _______ _______

Federal Taxable Income $0 ($150,000) $150,000 $150,000

Maine general modification: Subtraction ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(H) $150,000

§5200-A(2)(H) _______ ________ ($100,000) ($50,000)

Maine Taxable Income $146,000 ($155,000) $44,000 $93,000

The addition modification in the carryback year brings the federal income for the taxpayer to its previous level of $150,000. This addition modification is recaptured in tax years 2008 and 2009.

Example #24– NOL in 2007, some of the loss is carried back, some is carried forward

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. Part of the loss ($100,000) is carried back to 2006. The remaining $50,000 is carried forward to 2008. Maine has decoupled from federal carryback provisions. Any federal carryback must be offset by an addition modification of the same amount in the year of the carryback. In the example below, an addition modification of $100,000 is required in 2006 (see 36 MRSA § 5200-A(1)(H)). The addition modification can be recaptured in years subsequent to the year of the loss through a recapture subtraction modification (see 36 MRSA § 5200-A(2)(H)). For tax years beginning in 2008 the NOL recapture modification is limited to $100,000. In the example below, $94,000 is recaptured in 2008, which brings Maine taxable income to zero. The remaining $6,000 is recaptured in 2009.

2006 2007 2008 2009

Federal Income, prior to NOL $100,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ($100,000) _________ ($50,000) _______

Federal Taxable Income $0 ($150,000) $100,000 $150,000

Maine general modification: Addition ($4,000) ($5,000) ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(H) $100,000

§5200-A(2)(H) _______ ________ ($94,000) ($6,000)

Maine Taxable Income $96,000 ($155,000) $0 $137,000

The addition modification in the carryback year brings the federal income for the taxpayer to zero. The recapture of the addition modification is applied to tax years 2008 and 2009.

Example #25– NOL in 2007, all of the loss is carried forward

The taxpayer has a federal net operating loss of $150,000 in tax year 2007. The entire loss is is carried forward to 2008. Maine has decoupled from federal carryback provisions. In the example below, since there is no federal carryback, there is no related addition modification. However, if an addition modification in the year of the loss is offset by the federal loss, the federal carryover amount must be reduced by the same amount to avoid a double subtraction of income (see 36 MRSA § 5200-A(1)(C)). In the example below, a $5,000 addition modification is required in 2008. Also, for tax years beginning in 2008, federal carryover amounts are reduced by 10% of the carryover amount that exceeds $100,000. In the example below, a $5,000 addition modification (($150,000 - $100,000) * 10% = $5,000) is required against the federal carryover amount of $150,000 (see 36 MRSA § 5200-A(1)(U)). This addition modification is recaptured in the following year (see 36 MRSA § 5200-A(2)(S)).

2006 2007 2008 2009

Federal Income, prior to NOL $150,000 ($150,000) $150,000 $150,000

NOL carryback/carryforward ________ _________ ($150,000) _______

Federal Taxable Income $150,000 ($150,000) $0 $150,000

Maine general modification: Addition ($4,000) $5,000 ($6,000) ($7,000)

NOL Modifications: §5200-A(1)(C) $5,000

§5200-A(1)(U) $5,000

§5200-A(2)(S) _______ ________ _______ ($5,000)

Maine Taxable Income $146,000 ($145,000) $4,000 $138,000

In the above example, the $150,000 federal carryforward must be reduced by $5,000 in 2008, when the carryforward is used.