(a) The net operating loss deduction allowed under article 9-A is presumably the same as that which is allowed for Federal income tax purposes, subject to the three limitations explained in subdivisions (b), (c) and (d) of this section.

(b) The first limitation on the net operating loss deduction for purposes of article 9-A is that no deduction is allowed for a loss sustained during any taxable year beginning prior to January 1, 1961, or sustained during any year in which the corporation sustaining the loss was not subject to tax under article 9-A.

A corporation is incorporated in Pennsylvania in January 1972. During the taxable year 1972, it sustains an operating loss of $10,000. In January 1973, it begins to do business in New York State. For the taxable year 1973, it has entire net income of $10,000. The loss sustained in 1972 shall not be carried forward to taxable year 1973 or to any subsequent taxable year, since the corporation was not subject to the New York State franchise tax in 1972.

(c) The second limitation on the net operating loss deduction for purposes of article 9-A is that any net operating loss which is carried back or forward for Federal tax purposes must be adjusted to reflect the additions and subtractions required by sections 3-2.3 and 3-2.4 of this Part.

For the calendar year 1973, a taxpayer has Federal gross income of $400,000, including $100,000 of dividends from nonsubsidiary corporations. It has deductible operating expenses of $400,000, including $5,000 of New York State franchise tax. Its Federal net operating loss is $85,000, and its net operating loss under article 9-A is $45,000, computed as follows:

If the dividends in Example 2 were from subsidiaries, the New York State net operating loss would be $95,000, computed as follows:

(d) The third limitation on the net operating loss deduction for purposes of article 9-A is that in any year, it may not exceed the deduction allowable for that year for Federal income tax purposes under section 172 of the Internal Revenue Code, or the deduction which would have been allowable if the taxpayer had not made an election under subchapter S, adjusted to exclude any loss or portion thereof arising from any taxable year in which the corporation sustaining the loss was not subject to tax under article 9-A (see subdivision (b) of this section and section 3-8.1(b) of this Subpart).

If the taxpayer in Example 3 had, in taxable years 1970 and 1971, Federal gross income of $500,000, including $100,000 of dividends from subsidiary corporations and expenses of $350,000, including New York State franchise taxes of $5,000, its Federal and State net operating loss deduction would be $65,000 in 1970 and $20,000 in 1971, computed as follows:

Although deductions totaling only $85,000 are allowed for 1970 and 1971 on account of the $95,000 loss sustained in 1973, the $10,000 balance may not be carried back as a deduction in 1972 or carried forward to any year subsequent to 1973. This is because, for Federal income tax purposes, the entire amount of the 1973 loss was used in 1970 and 1971, so no Federal operating loss deduction will be allowed in any other year for such loss, and the deduction for purposes of article 9-A may not exceed the Federal deduction.

(e) Even though a net operating loss is one which is allowable in preceding or succeeding years as a net operating loss carry back or carry forward, such loss must be subtracted in the year the loss was sustained in computing the tax measured by entire net income plus compensation paid to officers and certain stockholders. (See section 3-3.2 of this Part—Computing the tax measured by entire net income plus compensation.)