How to resolve Diagnostic 55523 in Lacerte

If you're recieving this diagnostic:

The NOL subtraction amount on Schedule CA/CA-NR does not match the NOL amount used on Form 3805-V, Part III, line 2, column (f) for non-disaster losses.

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This diagnostic appears when the California Net Operating Loss (NOL) subtraction on Schedule CA (Form 540 or CA-NR) does not match the NOL utilization reported on Form 3805-V, Part III, line 2(f).

This mismatch will trigger an error preventing electronic filing, as the California Franchise Tax Board requires these amounts to reconcile exactly for non-disaster NOLs.

Follow these steps to resolve:

1. Open Form 3805-V, and scroll to Part III, line 2, column (f).
2. Make note of the NOL amount being used in the current year. This is the official NOL utilization for non-disaster losses.
3. Open Schedule CA (Form 540) or Schedule CA-NR (Form 540NR) depending on the taxpayer’s residency.
4. Locate the NOL subtraction, typically reported in the Other Income Adjustments section (such as line 8d or 21f). Compare this value to the amount used on Form 3805-V.
5. Confirm that the NOL amount on Schedule CA/CA-NR matches the amount on Form 3805-V.
6. If these two values do not match, a reconciliation adjustment is needed.
7. If the amount on Form 3805-V is correct, update the NOL subtraction on Schedule CA or CA-NR:
8. Go to the California Adjustments input screen (Screen 51).
9. Use the field labeled Prior year net operating loss deduction [O] (code 52) to override the amount on Schedule CA/CA-NR, line 8d, and match it to Form 3805-V.
10. If the amount on Schedule CA/CA-NR is correct, you can update the NOL used on Form 3805-V:
11. Go to the California Net Operating Loss (NOL) input screen.
12. Locate the applicable loss year and adjust the “Amount used this year” to match the NOL subtraction on Schedule CA.
13. Recalculate the return after making the necessary updates.
14. Verify that Diagnostic 55523 is cleared, and that the NOL amounts now match on both forms.
15. This diagnostic is informational only and will not prevent electronic filing. However, the mismatch should still be resolved to ensure return accuracy and avoid review delays.