Rev. Rul. 69-372

Advice has been requested whether, for Federal income tax purposes, a refund of Colorado State income taxes resulting from a net operating loss carryback should be included in the income of a taxpayer using the accrual method of accounting in the taxable year of the loss giving rise to the refund or in a later year in which the claimed refund is approved or received.

For taxable years beginning after December 31, 1964, the State of Colorado permits a net operating loss deduction for State income tax purposes in the same manner that it is allowed under the Internal Revenue Code of 1954. The amount of the net operating loss that may be carried forward and carried back for Colorado State income tax purposes shall be that portion of the Federal net operating loss allocated to Colorado in the taxable year that the net operating loss is sustained. Section 138-1-59, Article 1, Colorado Revised Statutes, as reenacted by Ch. 95, Laws 1964.

In order to obtain a refund, the taxpayer must file a claim for refund not later than one year after expiration of time provided for filing a claim for refund of Federal income tax. Section 138-9-7 of the Colorado Statute. However, for taxable years beginning after December 31, 1967, a taxpayer may file an application for a tentative carryback adjustment for the prior taxable year or years affected by a net operating loss carryback, as determined under section 138-1-59 of the Colorado Statute from any taxable year. Section 138-1-61 of the Colorado Statute. Under the provisions of the Colorado law both the claim and application are generally subject to the same rules as under the Internal Revenue Code.

Section 451 of the Code provides, in part, that the amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period.

Section 1.451-1(a) of the Income Tax Regulations provides, in part, that, under the accrual method of accounting, income is includible in gross income when all the events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy.

The inclusion in gross income will be required even though it may be necessary for additional acts to be performed by third persons, if it is reasonable to expect that these acts will be performed. See Rev. Rul. 65-190, C.B. 1965-2, 150, and the cases cited therein.

Where a net operating loss is sustained for a particular taxable year, the amount of the loss can be calculated with reasonable accuracy from the books and accounts of the taxpayer. If a claim for refund or an application for tentative carryback adjustment is properly submitted, it can reasonably be expected that the claim will be approved by the Colorado taxing authorities.

Accordingly, for Federal income tax purposes, a refund of Colorado income tax resulting from a net operating loss carryback is properly accruable in the income of a taxpayer using the accrual method of accounting for the taxable year of the loss which gives rise to the refund, since all of the events have occurred during such year which fix the right to the refund and the amount can be determined with reasonable accuracy.