Alternative Tax Net Operating Loss (ATNOL)

Alternative tax net operating loss (ATNOL) is the excess of deductions allowed over the income recognized for alternative minimum tax (AMT) purposes. It is calculated the same way that net operating losses (NOL) are, but with additional rules covering deductions, exclusions and preferences related to AMT.

A net operating loss (NOL) is a loss taken in a period where a company's allowable tax deductions are greater than its taxable income. When more expenses than revenues are incurred during the period, the net operating loss for the company can generally be used to recover past tax payments. In effect, NOL can be used to offset positive taxable income, reducing taxes payable.

When corporations reach a certain size, they can become subject to an alternative minimum tax. A business that is subject to the alternative minimum tax (AMT) will have a limited number of deductions that it can take. For instance, it will not be allowed to deduct state and local taxes from its income, and all miscellaneous itemized deductions are disallowed. However, if the business has a net operating loss, it can carryover its NOL up to 90% of AMT taxable income. That is, it can deduct up to 90% of the loss against its income under AMT rules.

While an NOL is the excess of a taxpayer’s deductions over its gross income, an alternative tax net operating loss (ATNOL) is the excess of a taxpayer’s deductions allowed in determining AMT income over the income that is included in calculation of the taxpayer’s alternative minimum taxable income, calculated with the modifications in Code Section 172(d). Section 56 of the Internal Revenue Code (Title 26) permits taxpayers to substitute the net operating loss with ATNOL when calculating alternative minimum tax. A taxpayer calculating the alternative minimum tax amount must take the alternative tax net operating loss deduction. The amount of ATNOL that can be deducted when calculating AMT income cannot exceed 90% of the obligation.

If ATNOL deduction exceeds this limit it can still be carried back or forward, but the ATNOL limit will still apply to the carryback or carryforward year. Unlike the standard NOL deduction, however, the alternative net operating loss deduction does not allow an entity to factor in many common expenses, such as investment fees, state and local taxes the company paid, and accelerated depreciation of equipment and other business property.

Only years in which a corporation is subject to AMT rules will ATNOL rules also apply. When reporting ATNOL, taxpayers file Form 1045 and Form 6251.