Tax Facts

7696 / How is excess inclusion income from a REMIC residual interest coordinated with a taxpayer’s net operating losses?

Any “excess inclusion” (see Q 7695) for any taxable year is not to be taken into account in determining the amount of any net operating loss (NOL) for the taxable year (i.e., in determining the loss for a “loss year”).1 Any excess inclusion for a taxable year is not to be taken into account in determining taxable income for the taxable year for purposes of Subsection (a)(2)(B)(ii)(I) and the second sentence of IRC Section 172(b)(2).2

The Service has ruled that in computing an NOL for the taxable year, no excess inclusion is taken into account. If, during the same taxable year, a taxpayer both recognizes an excess inclusion and incurs an NOL, the excess inclusion may not be offset by the NOL and is not taken into account in determining the amount of the NOL that may be carried to another taxable year.

The Service has further ruled that if an NOL is carried back or carried over to a taxable year in which an excess inclusion is recognized, the excess inclusion cannot be offset by the NOL carryback or carryover, and is not included in the calculation of taxable income for NOL absorption purposes.3

1.   IRC § 860E(a)(3)(A).

2.   IRC § 860E(a)(3)(B), as amended by the 2020 CARES Act.

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