New NOL Carryback Rules

Stealing again.

NOL Carryback
The IRS recently posted to its Web site a question-and-answer page explaining the 2008 and 2009 5-year NOL carryback rules that were extended and expanded by the Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA).

What wording is required in the NOL election? The IRS provides this example: "The ABC Company is electing to apply Section 172(b)(1)(H) under Rev. Proc. 2009-52. ABC Company is not a TARP recipient and was not an affiliate of a TARP recipient during 2008 or 2009. We are electing a 4-year (for example) carryback period."

When is the NOL election due? The election must be made by the due date (including extensions) for filing the tax return for the taxpayer's last taxable year beginning in 2009. This is true whether the election is for losses incurred in 2008 or 2009.

Note: This extends the 2008 NOL election deadline for an individual to October 15, 2011 (was October 15, 2010). So, if you, the tax practitioner, missed making a 2008 NOL election (or if you wish you had done something differently), you have a reprieve.

More: The deadline for filing a tentative carryback application, using Form 1045 or 1139, also has been extended. WHBAA allows you to make the 2008 election and file a tentative carryback application by the due date (including extensions) of the 2009 federal income tax return. So instead of a December 31, 2009, deadline for filing Form 1045, the WHBAA deadline is April 15, 2010 (or up to October 15, 2010, if an extension is filed). If we have clients that are going to file an NOL under the new rules, the information below will help in completing the carryback request.

If the taxpayer previously filed a 5-year ARRA carryback for losses he or she had in 2008, can the taxpayer take advantage of WHBAA for 2009 net operating losses? An eligible small business that made a timely ARRA election for tax year 2008 also may make a WHBAA election for tax year 2009.

Warning: But remember, if the taxpayer did not file timely for the 2008 NOL 5-year carryback, you must choose between 2008 and 2009. The extended carryback election is only valid for one of the years. In other words, if the taxpayer now makes an election to carryback his 2008 NOL for 5 years (or 4 or 3 years), he or she will be limited to the "normal" 2-year carryback for the 2009 NOL.

For many more details see Questions and Answers for The Worker, Homeownership, and Business Assistance Act of 2009 5-year Net Operating Loss (NOL) Carryback.