Tax Lawyer's Blog

Joe Kristan writes about the temporary expansion of the Net Operating Loss (NOL) carryback period from 2 years to 5 years:

The regular federal net operating loss carryback period is two years. That allows taxpayers to get refunds on taxes paid in the prior two years if they have a business loss in the third year. A special provision allows taxpayers to carryback 2008 NOLs up to five years.

At first the IRS had said that taxpayers wishing to claim extended carryback treatment had to make an election on the tax return giving rise to the loss (i.e. the tax return for the loss year) instead of on the separate carryback claim form itself.

This tricky rule might have caused taxpayers for whom the NOL carryback extension was designed to benefit to accidentally fail to make the required election and, thereby, lose their refunds.

The IRS has fixed the problem by issuing Rev. Proc. 2009-26 which states,

Taxpayers [may] elect the five year carryback on their loss carryback claim – not just the original return. Individuals can claim the five year carryback on Form 1045 or 1040-X; corporations can claim it on Form 1139 or an amended return for the carryback year.

Joe still thinks Congress should move in to fix the bigger problems with the new carryback rule:

This new procedure fixes the IRS problems with the five-year carryback, but only Congress can fix the bigger problems:

• It only apples to businesses with gross receipts up to $15 million.
• It only applies to 2008 losses. All indications are that 2009 will be much worse than 2008 for most businesses. 

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