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FedTax: NOL Carrybacks
California CPA March/April 2010
Recent Changes Allow Longer Carrybacks
By Stuart R. Josephs, CPA
The 2009 American Recovery and Reinvestment Act (ARRA), P.L. 111-5, enacted Feb. 17, 2009, allowed an eligible small business (ESB) to elect to carryback an “applicable 2008 net operating loss” for three, four or five years.
An ESB is a corporation or partnership meeting IRC Sec. 448(c)’s gross receipts test for the tax year of the NOL or a sole proprietorship, which would meet this test if it were a corporation—but substituting $15 million for $5 million each place it appears in Sec. 448(c).
An applicable 2008 NOL is an NOL for any tax year ending in 2008 or, if the taxpayer elects, an NOL for any tax year beginning in 2008.
The 2009 Worker, Homeownership, and Business Assistance Act (WHBAA), P.L. 111-92, enacted Nov. 6, 2009, expanded ARRA’s carryback provisions to allow all businesses, except those that received certain benefits (whether or not repaid) under the Troubled Assets Relief Program (TARP), with an “applicable NOL” to carryback that NOL to the prior five tax years.
An applicable NOL is an NOL for a tax year ending after 2007 and before 2010.
Generally, a taxpayer may elect an extended carryback period for only one tax year. However, an ESB that made, or makes, a timely election under the law in effect before Nov. 6, 2009—for an applicable 2008 NOL—also may elect for a 2009 NOL.
Rev. Proc. 2009-26 prescribes procedures for making ARRA elections by ESBs.
There is no limit on carrybacks to the first four preceding years. For the fifth year, the carryback is limited to 50 percent of that year’s taxable income (without the NOL for the loss year or any tax year thereafter).
This limitation does not apply to an ESB’s applicable 2008 NOL for which an ARRA election is made—even if it is made after Nov. 6, 2009.
For the tax years ending after 2002, WHBAA suspends the 90 percent limitation on using any alternative minimum tax NOL deduction attributable to the carryback of an applicable NOL for which the extended carryback period is elected.
Rev. Proc. 2009-52 prescribes how and when to elect to carryback an applicable NOL.
Making the Sec. l72(b)(1)(H) Election
This election can be made on an original or amended federal income tax return for the tax year of the applicable NOL by attaching a statement indicating the taxpayer is electing to apply Sec. 172(b)(1)(H) under Rev. Proc. 2009-52, and that the taxpayer is neither a TARP recipient nor, in 2008 or 2009, a TARP recipient affiliate. This statement also must specify the length of the NOL carryback period that the taxpayer elects.
The statement must be filed with this original or amended return by the due date, including extensions, for filing the taxpayer’s return for the last tax year beginning
Carryback Applications or Refund Claims: A taxpayer making this election, as described above, must attach a copy of the election statement to a claim for tentative carryback adjustment, Form 1045 (individuals and fiduciaries) or Form 1139 (corporations), or to an amended return—applying the applicable NOL to the carryback year.
The due date for timely filing these documents for an electing taxpayer is extended to the due date, including extensions, for filing the taxpayer’s return for the last tax year beginning in 2009.
Electing on an Appropriate Form: Instead of electing as described above, a taxpayer may elect by attaching the election statement to Form 1045 or Form 1139, or to an amended return. These documents must be filed by the due date, including extensions, for filing the taxpayer’s return for the last tax year beginning in 2009.
Previous Carryback Applications or Claims
A taxpayer that previously filed a carryback application (whether or not the IRS acted on it) or an amended return (except applications or claims for an applicable
NOL for which an ESB made an ARRA election) may make a Sec. 172(b)(1)(H) election by following the above procedures and adding to the election statement that the election amends a previous carryback application or claim. This amendment also applies for AMT purposes.
Revocation of Previous Election to Waive an NOL Carryback
A taxpayer that previously elected under Sec. 172(b)(3) to waive the carryback period for an applicable NOL for a tax year ending before Nov. 6, 2009, may revoke that election and make a Sec. 172(b)(1)(H) election. This revocation also applies for AMT purposes.
The revocation and election are made by following the above procedures and adding to the election statement that the taxpayer is revoking an NOL carryback waiver. This revocation and election must be filed before the due date, including extensions, for filing the taxpayer’s return for the last tax year beginning in 2009.
Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients’ tax questions and problems. Josephs also is chair of the Federal Subcommittee of CalCPA’s Committee on Taxation.