Anschutz v. Department of Revenue.
2022 COA 132. No. 21CA1242. Colorado Income Tax Act of 1987—Federal Taxable Income—Coronavirus Aid, Relief, and Economic Security Act—Excess Business Loss.
November 17, 2022
In April 2020, the Anschutzes filed amended federal and Colorado income tax returns for tax year 2018. They claimed the entirety of their “excess business loss” and sought income tax refunds based on the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Colorado Department of Revenue and its executive director (collectively, Department) rejected the Anschutzes’ state income tax refund claim based on its Emergency Rule 39-22-103(5.3). The Anschutzes appealed the refund denial to the district court, which granted the Department’s motion to dismiss.
On appeal, the Anschutzes argued that the state statutory definition of “internal revenue code” automatically incorporates congressional amendments to the Internal Revenue Code (IRC), even if such changes relate to previous tax years. CRS § 39-22-103(5.3) defines taxable income for state income tax purposes by reference to federal taxable income under federal tax law. This section unambiguously states that “internal revenue code” includes IRC provisions “as amended . . . for the taxable year,” without limitation as to when an amendment is enacted or becomes effective. Thus, a taxpayer can rely on any amendment that is in effect for, not just in, a taxable year. As relevant here, the CARES Act modified the IRC to suspend the “excess business loss” deduction limits for tax years 2018 through 2020, which allows taxpayers with losses in excess of the threshold to claim the entirety of the loss. In June 2020, the Department adopted Emergency Rule 39-22-103(5.3) to provide that “federal statutory changes enacted after the end of a taxable year do not impact a taxpayer’s Colorado tax liability for that taxable year.” However, this rule’s interpretation of “internal revenue code” is contrary to the statute’s plain language and is thus not entitled to deference. Further, the General Assembly’s 2020 and 2021 amendments to the state income tax code, which affect taxpayer use of certain CARES Act provisions in calculating their Colorado taxable income, expressly apply only to later tax years, so they do not impact the Anschutzes’ amended 2018 tax return. Accordingly, the CARES Act allowed the Anschutzes to reduce their 2018 taxable income by the amount of their excess business loss, and the district court erred.
The judgment was reversed and the case was remanded for further proceedings.