HAR §18-235-7. Amended and renumbered §§18-235-7-01 to 18-235-7-15

[12/8/94] §18-235-7-01 Exclusion of income nontaxable under the Constitution or laws of the United States. (a) Section 235-7(a)(1), HRS, excludes income that is not subject to taxation by the State under the Constitution and laws of the United States, if and to the extent that federal law so requires. (b) Public Law No. 86-272, codified at 15 U.S.C. §§381-384, causes the exclusion under section 235- 7(a)(1), HRS, to apply. Section 235-6, HRS, is a separate provision and shall not be construed to expand in any way the exclusion provided by Public Law No. 86-272 and section 235-7(a)(1), HRS. [Eff 2/16/82; am and ren §18-235-7-01 12/8/94] (Auth: HRS §§231-3(9), 235-118) (Imp: HRS §235-7) §18-235-7-02 Exclusion of benefits under public retirement systems. (a) The rules in this section shall be coordinated with provisions of the IRC. The IRC is operative in chapter 235, HRS, pursuant to sections 235- 2.3 to 235-2.4, HRS, and other HRS provisions. To determine the taxability for state purposes of a distribution from a public retirement system, the taxpayer must first determine the federal income tax treatment for a distribution from such public retirement system. If a distribution from such public retirement system is not subject to federal income taxation, the distribution is similarly exempt from state income taxation under section 235-2.3 or 235-2.4, HRS. If, however, the distribution is partially or totally subject to income taxation under section 235-2.3 or 235-2.4, HRS, the taxpayer may turn to section 235-7(a)(2), HRS, and this section to determine whether the taxpayer is able to claim a total or partial exemption for such taxable portion of the distribution, as the case may be. (b) Section 235-7(a)(2), HRS, excludes from gross income, adjusted gross income, and taxable income, any right, benefit, and other income exempted from taxation by section 88-91, HRS, and comparable rights, benefits, and other income under any other public retirement system. (c) As used in this section, “governmental plan” means a plan established and maintained for its employees by the United States, any state, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any foreign country, any political subdivision of any of the foregoing, or any agency or instrumentality of any of the foregoing. In interpreting this term, the department shall follow Internal Revenue Service interpretations of section 414(d) (with respect to definition of governmental plan), Internal Revenue Code of 1986, including Rev. Rul. 89-49, 1989-1 C.B. 117. HRS §235-7(a)(1) HRS §235-7(a)(2) INCOME TAX LAW §18-235-7-03 235- 35 (Unofficial Compilation as of 12/31/2025) Example: T is a faculty member at W University, a university that is an instrumentality of the State of Washington. T participates in a pension fund established with F, a company selling annuity contracts nationwide. F is not affiliated with or controlled by the State of Washington. The pension fund in which T participates is not maintained by a government or agency or instrumentality thereof. That pension fund is not a governmental plan. (d) Gross income does not include benefits paid by the State of Hawaii Employees’ Retirement System that are described in section 88-91, HRS, benefits paid by the United States Government under the Civil Service Retirement Act, 5 U.S.C. §§8331 et seq., or any comparable benefits paid by a governmental plan. Benefits shall be presumed to be comparable to those described in section 88-91, HRS, if similar benefits paid by a plan other than a governmental plan would qualify for exclusion under section 235-7(a)(3), HRS, and section 18-235-7-03. (e) The exclusion provided by section 235-7(a)(2), HRS, does not apply to benefits attributable to voluntary contributions made by an employee of a government employer under an elective right. Example: The State of Hawaii Deferred Compensation Plan described in chapter 88E, HRS, is a plan described in section 457 (with respect to deferred compensation plans of state and local governments and tax exempt organizations), IRC. Pursuant to section 88E-2, HRS, and section 457(b), IRC, participation in the plan is by written agreement between the employee and the employing government agency, and thus is voluntary. Benefits paid by the plan are not excluded from gross income under section 235-7(a)(2), HRS. (f) Benefits from a governmental plan that are transferred between plans on a nontaxable basis, including amounts paid into a rollover individual retirement account, shall retain their character as benefits from a governmental plan. [Eff 2/16/82; am and ren §18-235-7-02 12/8/94] (Auth: HRS §§231-3(9), 235-118) (Imp: HRS §235-7) §18-235-7-03 Exclusion of pension income. (a) The rules in this section shall be coordinated with provisions of the IRC. The IRC is operative in chapter 235, HRS, pursuant to sections 235-2.3, 235-2.4, HRS, and other HRS provisions. To determine the taxability for state purposes of a distribution from a pension, profit sharing, or similar plan, the taxpayer must first determine the federal income tax treatment for a distribution from such plan. If a distribution from such plan is not subject to federal income taxation, the distribution is similarly exempt from state income taxation under section 235-2.3 or 235-2.4, HRS. If, however, the distribution is partially or totally subject to income taxation under section 235-2.3 or 235-2.4, HRS, the taxpayer may turn to section 235- 7(a)(3), HRS, and this section to determine whether the taxpayer is able to claim a total or partial exemption for such taxable portion of the distribution, as the case may be. In determining whether the taxpayer is eligible to claim an exemption for a distribution under section 235-7(a)(3), HRS, and this section, section 235-7(a)(3) does not adopt the provisions in Subchapter D of the IRC (sections 401 through 424, IRC) which redefine certain amounts as employer contributions, and artificially redefine self-employed persons as employees, for purposes of those IRC sections. If the distribution is subject to income taxation in whole or in part under section 235-7(a)(3), HRS, and this section, the taxpayer shall include the taxable amount of such distribution in determining the taxpayer’s gross income, adjusted gross income, and taxable income. (b) Section 235-7(a)(3), HRS, excludes from gross income, adjusted gross income, and taxable income, any compensation received in the form of a pension for past services. (c) As used in this section: “By reason of retirement, disability, or death” describes benefits paid because of retirement, including attainment of age 70-1/2 (to comply with section 401(a)(9)(C), IRC, with respect to required beginning date); disability as defined in section 72(m)(7) (with respect to meaning of “disabled”), IRC; or death. A benefit payment is not made by reason of retirement, disability, or death if it is actually or constructively received prior to retirement, disability, or death, even though the benefit payment is the same as the amount of benefits which would have been enjoyed upon retirement. A payment made by reason of retirement, disability, or death does not include: (1) An amount paid because of separation from service before retirement; (2) An employer contribution to a non-qualified pension plan that is deemed to be received by the employee upon vesting before retirement under Treas. Reg. §1.402(b)-1(b) (with respect to taxability of employee when rights under nonexempt trust change from nonvested to vested); or (3) An early distribution subject to federal penalty tax under section 72(t) (with respect to 10 per cent additional tax on early distributions from qualified retirement plans), IRC. “Employer contribution” means the aggregate amount of contributions that are either made by the employer, or made for the employer by members of a group of affiliated corporations as provided by section 404(a) (3)(B) (with respect to profit sharing plan of affiliated group), IRC. These amounts are included in the employer HRS §235-7(a)(3) §18-235-7-03 INCOME TAX LAW 235- 36 (Unofficial Compilation as of 12/31/2025) contribution even though section 72(f) (with respect to special rules for computing employees’ contributions) or 101(b) (with respect to employees’ death benefits), IRC, may provide that the amounts are considered employee contributions for some purposes. The employer contribution does not include any amounts included in pretax employee contribution or previously taxed contribution. Employer contribution does not include any amounts contributed by a plan beneficiary under an elective right, provided that an amount otherwise qualifying as an employer contribution shall not be disqualified as to a particular beneficiary solely because (1) the beneficiary determined the contribution amount in his or her capacity as an officer, partner, member, or sole proprietor, or (2) the beneficiary is allowed or is allocated all or a portion of the deduction allowable under section 162 or 404, IRC, attributable to the contribution. “Exclusion ratio” means the ratio described in subsection (e)(1). “Pension.” A pension: (1) Provides an employee with compensation for past services, generally measured by such factors as years of employees’ service and compensation received; (2) May be in the form of a (A) periodic or systematic payment of benefits to the employee over a period of years (e.g., usually for life after retirement), or (B) lump sum in lieu of periodic or systematic payments; (3) Is to be received by the employee by reason of retirement, disability, or death; (4) Is attributable to employer contribution; (5) Includes a stock bonus, pension, profit sharing, or annuity plan, as those terms are defined in sections 401 (with respect to qualified pension, profit sharing, and stock bonus plans) and 403 (with respect to taxation of employee annuities), IRC; (6) Need not be qualified within the meaning of section 401, IRC; and (7) May be paid to the employee, the employee’s spouse upon retirement or disability, or a deceased employee’s beneficiary. “Pretax employee contribution” means the aggregate amount of voluntary contributions made by the employee under any elective right, such as contributions to: (1) individual retirement accounts to which an employer does not contribute (see subsection (d)(2) for rollover individual retirement accounts), (2) IRC section 401(k) plans (with respect to cash or deferred arrangements); (3) IRC section 408(k)(6) plans (with respect to elective salary reduction contributions to simplified employee pension arrangements), or (4) IRC section 457 plans (with respect to deferred compensation plans of state and local governments and tax exempt organizations); but it does not include previously taxed contribution. These amounts are included in the pretax employee contribution even though the IRC may provide that the amounts are considered employer contributions for some purposes. “Previously taxed contribution” means the aggregate amount of contributions that: (1) Were included in the employee’s gross income under the Hawaii Income Tax Law, whether or not Hawaii income tax was actually due or paid; or (2) Would not have been includable in gross income under the Hawaii Income Tax Law applicable at the time of contribution if the employee were a Hawaii resident and the contributions were paid directly to the employee at the time. Previously taxed contribution includes amounts included in the gross income of an employee under section 402(b) (with respect to taxability of beneficiary of nonexempt trust) or 403(c) (with respect to taxability of beneficiary under nonqualified annuities or under annuities purchased by exempt organizations), IRC. (d) The following rules shall be used to determine previously taxed contribution, employer contribution, and pretax employee contribution. (1) The employer and employee shall be assumed to be Hawaii residents throughout the period of employment, regardless of their actual residence. (2) Amounts transferred between plans on a nontaxable basis, including amounts paid into a rollover individual retirement account, shall retain their character, as between employer contribution, pretax employee contribution, and previously taxed contribution. (3) Interim distributions, such as payments made to a spouse or former spouse pursuant to an order described in section 414(p) (relating to qualified domestic relations orders), IRC, hardship withdrawals, and any other early distributions, shall be disregarded in computing the exclusion ratio in subsection (e)(1). (4) Amounts treated as a refund of the consideration paid under section 72(c)(2) (with respect to adjustment in investment where there is refund feature), IRC, shall be subtracted from previously taxed contribution. (5) Previously taxed contribution includes amounts attributable to life insurance protection under Treas. Reg. §1.72-16(b) (with respect to treatment of cost of life insurance protection) that are included in the employee’s gross income at the time of contribution. INCOME TAX LAW §18-235-7-03 235- 37 (Unofficial Compilation as of 12/31/2025) (e) The methods set forth in this subsection shall be used to determine the portion of the amount that is attributable to the employer contribution. These methods shall be applied separately for each pension from which an amount is received. (1) The exclusion ratio shall be the employer contribution divided by the sum of the employer contribution, previously taxed contribution, and the pretax employee contribution. (2) The exclusion ratio shall be computed as of the first day of the first period for which an amount is received as an annuity, or, if the benefit involved is not an annuity, the date when the employee or beneficiary of the employee becomes eligible for the payment by reason of death, disability, or separation from service. (3) The life expectancy of the employee or beneficiary shall be determined using either (A) the methods set forth in section 72(c)(3) (with respect to expected return), IRC, and Treas. Reg. §1.72-5 (with respect to expected return), or (B) the safe harbor method of Internal Revenue Service Notice 88-118, 1988-2 C.B. 450. Once a method is chosen, it must be used for all purposes of chapter 235, HRS, requiring a determination of life expectancy or expected return, and it must be used consistently between taxable years. Example 1: Under the terms of an exempt employees’ pension trust Mr. Andrade has $4,000 of previously taxed contribution and the employer has contributed $6,000. Upon retirement on January 1, 1991, Mr. Andrade is entitled to receive $1,200 a year for the remainder of his life, and he receives $1,200 in 1991. The exclusion ratio is the employer contribution of $6,000 divided by the sum of $6,000 (the employer contribution), the pretax employee contribution of zero in this example, and previously taxed contribution of $4,000. Thus the exclusion ratio is $6,000 / $10,000 or 60 per cent. Hence, 60 per cent of $1,200, or $720, is excluded in 1991 under section 235-7(a) (3), HRS. Assume that Mr. Andrade’s life expectancy determined under this paragraph is ten years. Under applicable federal principles, the $4,000 of previously taxed contribution is prorated over Mr. Andrade’s expected life, yielding $4,000 / 10 years = $400 per year. Thus, an additional $400 is excluded in 1991 as the return of previously taxed income. The remaining $80 is included in gross income. (4) In the case of an annuity, the exclusion ratio, once determined, shall continue to apply to each annuity payment whether or not the cumulative amount excluded under section 235- 7(a)(3), HRS, exceeds the employer contribution. If, after a taxpayer’s death, neither the taxpayer nor the taxpayer’s beneficiary fully recover the employer contribution from a pension, section 235-7(a)(3), HRS, does not permit any additional deduction or exclusion of the unrecovered amount. Example 2: The facts are the same as in Example 1. In 1992 and subsequent years, 60 per cent of each $1,200 payment shall be excluded regardless of how long Mr. Andrade actually lives. Mr. Andrade actually dies in late 1995, after receiving $1,200 from the annuity payor in that year. Under the terms of the annuity, the payor has no further liability to make payments to Mr. Andrade or his beneficiary. Mr. Andrade’s estate is allowed a deduction on Mr. Andrade’s income tax return for 1995 for his unrecovered investment in the annuity under section 72(b)(3) (with respect to deduction where annuity benefits cease before the entire investment is recovered) IRC, as operative under chapter 235, HRS. His estate also is allowed to exclude 60 per cent of the $1,200 paid to Mr. Andrade in 1995 while he was alive, as well as the $400 in previously taxed contribution attributable to that payment, but no further deduction or exclusion for the unrecovered employer contribution is allowed under section 235-7(a)(3), HRS. (5) If property (such as shares of stock) is distributed as a pension instead of money, the distributee’s basis in the property shall be increased by the exclusion under section 235-7(a) (3), HRS, upon distribution of the property. The exclusion under section 235-7(a)(3), HRS, does not apply to dividends or other income produced by the property after distribution. Example 3: Under the terms of an exempt profit sharing plan Ms. Bicoy, an employee, has contributed $4,000 and her employer has contributed $6,000, all while Ms. Bicoy was working in New York. The plan does not accept after-tax contributions from employees. §18-235-7-03 INCOME TAX LAW 235- 38 (Unofficial Compilation as of 12/31/2025) Upon retirement on January 1, 1993, Ms. Bicoy moves to Hawaii and the plan distributes 12 shares of ABC Co. common stock to her. At the time the 12 shares are distributed in 1993, the stock is worth $100 a share, for a total distribution of $1,200. The exclusion ratio is the employer contribution of $6,000 divided by the sum of $6,000 (the employer contribution), the pretax employee contribution of $4,000, and previously taxed contribution of zero in this example. Thus the exclusion ratio is $6,000 / $10,000 or 60 per cent. Hence, $720 is excluded in 1993 under section 235-7(a)(3), HRS, and the remaining $480 is included in 1993 gross income because Ms. Bicoy has no previously taxed contribution. Ms. Bicoy’s basis in the 12 shares of ABC Co. common stock distributed to her would be $480 but for this section. Her basis in the stock is increased by $720, to $1,200. In 1994, the plan distributes to Ms. Bicoy 12 additional shares of ABC Co. common stock, which are then worth $1,500. In 1994, 60 per cent of $1,500, or $900, is excluded under section 235-7(a)(3), HRS, and the remaining $600 is included in her 1994 gross income. The basis of the second 12 shares of ABC Co. common stock in the hands of Ms. Bicoy is increased by $900, to $1,500. The basis of her first 12 shares remains $1,200, and any dividends paid on any shares after distribution to Ms. Bicoy are fully taxable to her. (6) In order to be entitled to the exclusion under section 235-7(a)(3), HRS, the taxpayer bears the burden of proof in establishing the amount of previously taxed contribution and employer contribution. However, where the amount of employer contribution is not determinable the following alternative method may be used: (A) Compute the present discounted value of the payments being made to the employee, as of the payment starting date. The employee’s life expectancy shall be determined under paragraph (3). The interest rate used shall be the rate paid on tax refunds as specified in section 231-23, HRS (8 per cent since January 1, 1968). (B) Determine the future value of all amounts included in previously taxed contribution and pretax employee contribution, as of the payment starting date, using the following assumptions: (i) The interest rate shall be the rate paid on tax refunds as specified in section 231- 23, HRS. (ii) The amounts were paid at the time of contribution. Amounts that are contributed by an employer but are later included in the employee’s gross income shall be considered paid at the time they are included in income. (iii) In computing the interest, the compounding interval shall be the most frequent interval between contributions, but shall not be longer than one year. (C) Subtract the total of the amounts in (B) from the amount in (A). (D) The ratio of (C) to (A) shall be used as the exclusion ratio. Example 4: Under the terms of a qualified defined benefit plan Mr. Corpuz, a male employee aged 66, is entitled to receive $500 a month for the rest of his life beginning on his retirement date of January 1, 1994. He is unable to determine how much his employer contributed, but he contributed $150 a month in pretax income for the past 120 months. Mr. Corpuz has no previously taxed contribution in the plan. Assuming that Mr. Corpuz uses the method of Treas. Reg. §1.72-5, calculation of the excluded amount is as follows. (A) The expected return multiple in Table V of Treas. Reg. §1.72-9 corresponding to Mr. Corpuz’ age is 19.2. Thus, Mr. Corpuz is expected to live 19.2 years, or 12 x 19.2 = 230.4 months. The present value of $500 a month for 230.4 months, discounted at 8 per cent a year, is $58,774. (B) The value of the pretax employee contributions is the future value, as of the annuity starting date, of $150 a month for 120 months at 8 per cent a year, or $27,442. There was no previously taxed contribution. (C) The employer contribution is assumed to be $58,774 - $27,442 = $31,333. (D) The exclusion ratio is $31,333 / $58,774 = 53.3 per cent. Thus 53.3 per cent of every $500 payment, or $267 a month, is considered to be a pension excludable under section 235-7(a)(3), HRS. Example 5: Upon retirement, Mrs. Doo, age 65, begins receiving retirement benefits in the form of a joint and 50 per cent survivor annuity to be paid for the joint lives of Mrs. Doo and her spouse, age 59. Mrs. Doo’s annuity starting date is January 1, 1988. Mrs. Doo is unable to determine how much her employer contributed, but she contributed $50 with each semimonthly paycheck for the past 20 years, totaling $24,000. Her company’s INCOME TAX LAW §18-235-7-03 235- 39 (Unofficial Compilation as of 12/31/2025) retirement plan does not accept pretax employee contributions. Mrs. Doo was paid twice a month. Mrs. Doo will receive a retirement benefit of $1,000 a month, and her spouse will receive a survivor benefit of $500 a month upon Mrs. Doo’s death. (A) Assume Mrs. Doo uses the method in Internal Revenue Service Notice 88-118, 1988-2 C.B. 450. Under that method, the set number of monthly payments for a distributee who is age 65 is 240. That figure also applies to a survivor annuity. The present value of $1,000 a month for 240 months, discounted at 8 per cent a year, is $119,554. (B) The value of the previously taxed contributions is the future value, as of the annuity starting date, of $50 twice a month for 480 semimonthly periods at 8 per cent a year, or $59,098. The pretax employee contribution is zero. (C) The employer contribution is assumed to be $119,554 -$ 59,098 = $60,456. (D) The exclusion ratio is $60,456 / $119,554 = 50.6 per cent. Thus 50.6 per cent of every $1,000 payment, or $506 a month, is considered to be a pension excludable under section 235-7(a)(3), HRS. When Mrs. Doo dies, 50.6 per cent of every $500 payment to her spouse, or $253 a month, is considered a pension excludable under section 235-7(a)(3), HRS, regardless of how long her spouse lives. In addition, $100 ($24,000 / 240 payments) of each payment to either Mrs. Doo or her spouse is excluded from gross income as a return of capital, under federal rules, until 240 payments have been made to either Mrs. Doo or her spouse. (7) If the exclusion of section 101(b) (with respect to employees’ death benefits), IRC, applies, an additional computation shall be made to prevent double exclusion. (A) If an annuity is paid by reason of the death of an employee, the amount of the section 101(b) exclusion is applicable only to forfeitable amounts under section 101(b)(2)(B), IRC, and thus is allocable solely to the employer’s contribution. The section 101(b) exclusion shall be prorated over the expected return of the annuity, and the prorated amount shall be subtracted from the amount otherwise excludable as a pension. (B) If the section 101(b) exclusion applies to a lump sum, the section 101(b) exclusion shall be allocated among all amounts other than previously taxed contribution, and the amount of the section 101(b) exclusion allocable to the employer contribution shall be subtracted from the amount otherwise excludable as a pension. Example 6: Under the terms of an exempt employee’s pension trust, a beneficiary of an employee who dies before reaching retirement age is entitled to receive $1,200 a year for 10 years. Under the terms of the trust, no other benefits are paid to any other beneficiary or to the estate of the deceased employee. Mr. Esaki, an employee, died in January, 1992, before reaching retirement age, and his beneficiary, his daughter Chelsea, receives $1,200 in 1992. As of the date of his death, Mr. Esaki had $4,000 of previously taxed contribution, and his employer had contributed $6,000. If Mr. Esaki had quit in January, 1992, he would have received $5,000 from the trust. Assume that Chelsea is entitled to a death benefit exclusion of $5,000 under section 101(b), IRC. As in Example 1, the exclusion ratio is 60 per cent. Thus, of the $1,200 Chelsea received in 1992, 60 per cent, or $720, would be excluded as a pension absent the section 101(b) exclusion. However, the section 101(b) exclusion amount allocable to 1992, namely $5,000 / 10 years = $500, is subtracted. The remaining $220 is the amount excluded under section 235-7(a)(3), HRS. Under applicable IRC principles (section 101(b)(2)(D), IRC, relating to annuities other than joint and survivor annuities), the $5,000 is treated as an additional contribution of previously taxed income. Because $900 a year ($4,000 + $5,000, divided by 10 years) is excluded as a return of capital, an additional $900 is excluded in 1992. The remaining amount, $1,200 - $220 - $900 = $80, is included in gross income. Example 7: The facts are the same as in Example 6, except that the beneficiary of an employee who dies before reaching retirement age is entitled to receive $12,000 payable in a lump sum. Thus, Chelsea receives $12,000 in 1992. As in Example 6, the exclusion ratio is 60 per cent. Thus, $7,200 is allocable to the employer contribution and would be excluded under section 235-7(a)(3), HRS, but for section 101(b), IRC. Under this paragraph, the $5,000 exclusion applies to all amounts other than the previously taxed contribution of $4,000, which total $12,000 -$ 4,000, or $8,000. §18-235-7-04 to §18-235-7-14 INCOME TAX LAW 235- 40 (Unofficial Compilation as of 12/31/2025) The proportion of the $5,000 allocable to the employer contribution is thus ($7,200/$8,000) x $5,000, or $4,500. This amount is subtracted from the $7,200, yielding $2,700. The amount of $2,700 is excluded under section 235-7(a)(3), HRS.     Under applicable IRC principles, two additional amounts are excluded: the $5,000 under section 101(b), IRC, and the $4,000 as a return of previously taxed income. The remaining $300 is included in gross income. [Eff 2/16/82; am and ren §18-235-7-03 12/8/94, am 1/1/98] (Auth: HRS §§231-3(9), 235-118) (Imp: HRS §235-7) Historical note: §18-235-7-03 is based substantially upon §18-235-7(a)(3). [Eff 2/16/82; am and ren §18- 235-7-03 12/8/94] §18-235-7-04 to §18-235-7-14 (Reserved) §18-235-7-15 Net operating loss deduction. (a) No net operating loss shall be carried back to any taxable year ending prior to January 1, 1967, as provided by section 235-7(d)(2), HRS. (b) In computing the net operating loss to be carried back or carried over, there shall be included in gross income the amount of interest which is excluded from gross income by section 235-7(a), HRS, decreased by the amount of interest paid or accrued which is disallowed as a deduction by section 235-7(e), HRS. (c) A net operating loss carryback shall be limited to three taxable years preceding the taxable year of such loss. (d) A net operating loss carryover shall be limited to fifteen taxable years following the taxable year of such loss. (e) In computing the net operating loss, deductions shall be allowed only to the extent they are connected with and allocable to income taxable in this State under section 235-5, HRS, and section 265 (with respect to expenses and interest relating to tax-exempt income), IRC, as operative under chapter 235, HRS. (f) A taxpayer’s election under section 172(b)(3)(C) (with respect to election to waive carryback), IRC, as operative under chapter 235, HRS, does not extend the net operating loss carryover period beyond fifteen taxable years following the taxable year of such loss. No taxpayer shall make such an election as to a net operating loss of a business where the net operating loss occurred in the taxpayer’s business prior to the taxpayer entering business in this State. The election is made by attaching a statement to that effect to the taxpayer’s return (or amended return) for the taxable year of the loss, and must be made no later than the due date of the return (including extensions) for that year. (g) A refund of Hawaii income tax resulting from a net operating loss carryback is properly included in the gross income of a taxpayer using the accrual method of accounting for the taxable year of the loss which gives rise to the refund. (h) A deficiency attributable to the application to the taxpayer of a net operating loss carryback may be assessed at any time before the expiration of the period within which a deficiency may be assessed for the taxable year of the net operating loss which results in the carryback. (i) For rules governing when a claim for credit or refund attributable to a net operating loss carryback may be filed, see section 235-111(d), HRS, and section 18-235-111(a)(2). (j) For corporations that have elected or are electing under subchapter S, IRC, as operative under chapter 235, HRS: (1) No carryforward, and no carryback, arising for a taxable year for which a corporation is a C corporation may be carried to a taxable year for which the corporation is an S corporation, except as provided in section 235-125.5, HRS. (2) No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which the corporation is an S corporation, pursuant to section 235-7(d)(3), HRS, and section 1371(b)(2), IRC. (3) Nothing in paragraph (1) or (2) shall prevent treating a taxable year for which the corporation is an S corporation as a taxable year for purposes of subsections (c) and (d). [Eff 2/16/82; am and ren §18-235-7-15 12/8/94] (Auth: HRS §§231-3(9), 235-2.5(b), 235-118) (Imp: HRS §§235-7, 235-111) Historical note: §18-235-7-15 is based substantially upon §18-235-7(d). [Eff 2/16/82; am and ren §18-235- 7-15 12/8/94] §18-235-8 to 18-235-11 (Reserved)