Immediate Cash for Businesses With NOLs
The extension of the carryback of net-operating losses (NOL) to up to five years offers businesses access to much needed cash.
December 10, 2009
The American Recovery and Reinvestment Act of 2009 (ARRA) extended the general carryback period for net-operating losses (NOL) generated in 2008 from two years to up to five years for eligible small businesses. The Worker, Homeownership and Business Assistance Act of 2009 (WHBA) further expanded that benefit to permit individuals, estates and trusts, exempt organizations and corporations of all sizes to elect to carry back applicable NOLs to up to five years. NOLs generated in a tax year either beginning or ending in 2008 or 2009 would qualify for the extended carryback election.
The Internal Revenue Service recently issued Revenue Procedure 2009-52 to outline when and how to make the election allowed by these two tax acts, This revenue procedure provides guidance for filing elections for obtaining tentative refunds of taxes previously paid, Some taxpayers may not yet be in a position to make an informed decision regarding which applicable NOL should be included in the election. In some circumstances, the decision should be delayed until the 2009 tax return is filed.
The revenue procedure details when and how an election for extended carryback treatment should be made regarding an applicable NOL for the following taxpayers:
The election for the extended carryback can be made on either:
The election in the form of a statement attached to either the tax return or carryback application. The following information must be included:
Situation 1: An Original or Amended Return
According to Revenue Procedure 2009-52, a taxpayer may make the appropriate carryback election under Section 172(b)(1)(H) by attaching an election statement including the first three items above to their original or amended federal income tax return for the tax year in which the applicable NOL arose. The deadline for making the election on an original or amended return is the due date, including extensions, for the last tax year beginning in 2009. For a calendar-year corporation with a timely filed extension, the deadline would be September 15, 2010. For elections made in this manner, the deadline for filing a Form 1045 or Form 1139 would also be extended to this date.
Situation 2: Carryback Application or Claim
As an alternative to electing on an original or amended return, the taxpayer may file a carryback application or claim on the appropriate form the taxpayer files applying the NOL carryback period the taxpayer elects by attaching the election statement including the first three items listed above. Under this method, the appropriate form with the election statement attached, must be filed on or before the due date, including extensions, of the taxpayer’s federal income tax return for the last tax year beginning in 2009.
Situation 3: Amending Previously Filed Carryback Application or Claim
In the case of a previously filed application or claim, a taxpayer may elect to extend the period of the carryback claim under Section 172(b)(1)(H). Under Revenue Procedure 2009-52, the taxpayer may follow the procedure described in either Situation 1 or Situation 2. In addition, the election statement must indicate that a previous carryback application or claim is being amended (item four above). When filing an amended carryback application or claim, the 90-day period described in Section 6411(b) begins on the date the taxpayer files the amended application.
Situation 4: Revoking Election to Forego the NOL Carryback Period
Prior to the enactment of the extended carryback provisions, some taxpayers may have already elected to forego carrybacks, based on the inability to absorb losses in the applicable two-year period previously allowed for NOL carrybacks. A taxpayer who made that election for a tax-year ending before November 6, 2009 may revoke that election and make a Section 172(b)(1)(H) election by following the procedures in either Situation 1 or Situation 2. In addition, the election statement must indicate that the taxpayer is revoking an NOL carryback waiver and electing to apply Section 172(b)(1)(H) under Revenue Procedure 2009-52 (item five as noted above). The revocation and election of the extended carryback period must occur before the due date, including extensions, of the taxpayer’s federal income tax return for the last tax-year beginning in 2009.
As there are considerable complexities involved with the interaction of the alternative minimum tax (AMT) limitations, taxable income limitations, qualified disaster losses, to name a few, additional guidance from the IRS (Internal Revenue Service) regarding the extended loss carryback provisions would be welcomed.
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Mary F. Bernard, CPA/MST is a tax principal and director of state and local tax services at Kahn, Litwin, Renza & Co., Ltd. in Providence, RI.