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Net Operating Loss Carrybacks Extended
Now all taxpayers can carryback net operating losses five years!  The
Worker, Homeownership, and
Business
Assistance Act of 2009 (WHBA), enacted
on November 6, 2009, amends § 172(b)(1)(H) election of the Internal
Revenue Code to allow all taxpayers to elect to carry back an
applicable
net operating loss (NOL) for a period of 3, 4, or 5 years, or a loss
from operations for 4 or 5 years, to offset taxable income in those
preceding taxable years. This election traditionally provided
that an NOL for
any taxable year could be carried back to each of the 2 years preceding
the taxable year of the NOL. The American Recovery and
Reinvestment Act (ARRA), enacted earlier this year, allowed the
election only for small companies (those with less than $15
million in revenues) to carry back a 2008 applicable NOL for a period
of 3, 4, or 5 years; the ARRA
election was irrevocable and could be made for only one taxable year.
Those restrictions made carryback useless for many of the companies
that were not eligible
small businesses (ESB) and needed it the worst, especially
those in the heavy equipment, construction, transportation and leasing
industries. Now this newly amended NOL provision, by not limiting the
election to an ESB, will be helpful to those
companies that find themselves with significant losses in either 2008
or 2009 since it will allow such companies to carryback (instead of
forward)
these losses to offset taxes paid in prior years. By offsetting
previously
paid taxes, these companies will receive a tax refund from the IRS,
thus
creating an immediate cash infusion. Moreover, these companies
are now eligible to revoke the election to forego a 2008 NOL carryback
until the due date of their 2009 tax return.Unlike the ARRA, however, the WHBA limits the amount of an NOL that a taxpayer elects to carry back to the 5th taxable year preceding the taxable year of the loss to 50 percent of the taxpayer’s taxable income for the carryback taxable year. The excess of the amount of the loss over 50 percent of the taxable income for the carryback taxable year is carried to later taxable years. This 50 percent limitation does not apply to any eligible small business that elected to carry back its 2008 NOL under ARRA 2009. However, the 50 percent limitation will apply to any 2009 NOL incurred by an eligible small business. A taxpayer may make the election by attaching a statement to the taxpayer’s federal income tax return for the taxable year in which the applicable NOL arises. A taxpayer that filed its federal income tax return for the taxable year of the applicable NOL may make the election by attaching a statement to an amended return for the taxable year of the applicable NOL. The election statement must state that the taxpayer is electing to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The statement must specify the length of the NOL carryback period the taxpayer elects (3, 4, or 5 years). If the taxpayer previously had foregone the election for 2008, the statement also should include a revocation of the waiver of the carryback election. A taxpayer must file the election statement with the taxpayer’s original or amended federal income tax return for the taxable year of the applicable NOL on or before the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009. For corporate taxpayers, the appropriate tax form is Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U.S. Corporation Income Tax Return. For individuals, the appropriate tax form is Form 1045, Application for Tentative Refund, or Form 1040X, Amended U.S. Individual Income Tax Return. Because the WHBA requires the election on or before the due date (including extensions) of the taxpayer's 2009 tax return, it would be advisable for most taxpayers to file an extension for their 2009 tax returns, in order to lengthen the NOL deadline by six months. Normally taxpayers have three years to file an NOL carryback claim. This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant. Have a tax or an accounting question? Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants. For information and assistance on any tax and accounting issue, please visit our website: Accountants CPA Hartford. If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein. The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor. |
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