Loss Deduction in Case of Abandonment of Self-Employed Activity and Commencement of New Self-Employed Activity

Facts

The tax authority of the canton of Solothurn determined a taxable income for the tax period 2002 of CHF 61,177.-- for state tax and CHF 62,200.-- for direct federal tax for the married couple [X.] and [Y.] . It did not consider the claimed loss carryforwards of CHF 1,051,168.-- (state tax) and CHF 985,195.-- (direct federal tax). An appeal against this assessment was rejected by the tax authority, as the interperiod loss offset requires an unchanged continuation of the entrepreneurial activity in the subsequent period. The tax court of the canton of Solothurn overturned this decision and granted the appeal.

[X.] was a commercial real estate trader until 2001 and sold his last property at a loss in that year. He was heavily indebted and had no more real estate since 2001. His single-member company "Immobilien [X.] ", still registered in the commercial register, was inactive. On July 25, 2001, [X.] and [Y.] registered the limited partnership "[F.] & Co" in the commercial register, with [X.] as unlimitedly liable partner and [Y.] as limited partner with a limited partnership of CHF 1,000.--.

The limited partnership generated revenues between CHF 2,000.-- and CHF 3,800.-- in the years 2001 to 2006 and accordingly reported modest profits. In 2008, the company was deleted from the commercial register.

Considerations

The Federal Court had to decide whether the loss deduction according to Art. 211 DFTA is also permissible if the self-employed activity is abandoned and a new self-employed activity is commenced. The lower court had granted the appeal because it was of the opinion that [X.] had continued his self-employed activity unchanged in the tax year 2002.

The Federal Court did not share this opinion and stated that the question to be answered was whether the appellant was still or newly self-employed in 2002. It concluded that the appellant had abandoned his original self-employed activity as a real estate trader in 2001 with the sale of the last property, but had simultaneously commenced a new self-employed activity with the establishment of the limited partnership.

The Federal Court found that the existence…