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IRS issues rules for 5-year NOL carryback
March 16, 2009
UPDATE, 4/28/2009: IRS has issued modified rules easing Rev. Proc. 2009-19.
Yes, you can use the new five-year carryback for a net operating loss attributable to a 2008 K-1. The IRS today issued rules (Rev. Proc. 2009-19) explaining the provision, which Congress slapped together in the recent stimulus bill.
The main points:
If a K-1 from a qualifying partnership or S corporation generates a net operating loss for the taxpayer, the K-1 recipient qualifies for the five-year carryback. The amount that can be carried back five years is the lesser of the NOL or the taxpayer's loss from a the K-1.
Only taxpayers with gross receipts averaging $15 million or less for the three-year period ending with the NOL year qualify. Controlled entities are counted together as a single entity.
For losses from pass-through entities, the $15 million gross receipts test is applied at the entity level only. That's a surprise to me, and is a taxpayer-friendly move.
The IRS also explains how to file for the five-year carryback. They have updated instructions for Form 1045, the individual carryback form, and Form 1139, the corporate carryback form, for the new rules. The deadline for claiming the five-year carryback is six months after the due date (including any extensions) for the return for the NOL. That's a bit tricky, because usually you can file a 1045 anytime in the taxable year following the NOL year.
Related links:
IRS Q&As on 5-year NOL carrybacks.
UPDATE: The TaxProf has more.
UPDATE II: We should emphasize that if you haven't already filed, you need to elect the 3-5 year NOL on the actual loss return - the 1040 or 1120 - for the loss year, NOT the carryback Form 1045 of 1139. This is a classic trap for the unwary; there's no policy reason to require it on the original form, rather than the carryback.
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Comments
I don't think you're right on the deadline for the 1045. I think the IRS press release said you still have one year after the end of the tax year of the NOL.
Posted by: Brittney | March 18, 2009 9:50 PM
Brittney, that's what the press release says, and I hope it's right.
The Rev. Proc. says:
"(c) When to file. The taxpayer must file the appropriate form by the later of the date that is 6 months after the due date (excluding extensions) for filing the taxpayer’s return for the taxable year of the applicable 2008 NOL, or on or before April 17, 2009."
That's where I got the six month thing. The usual 1045/1139 filing deadline (12/31 for calendar year filers) would make more sense.
Posted by: Joe Kristan | March 19, 2009 4:59 PM
I think the section you are looking at is under this header, right?
".02 Eligible small businesses that have filed a return for the applicable 2008 NOL
taxable year and did not elect to forgo the NOL carryback period."
So you are right about the due date for the Form 1045/1139 - but only for those taxpayers who didn't make the § 172(b)(1)(H) election on their initial 2008 return.
Section .01 in the Rev Proc is for taxpayers who have not yet filed their 2008 return and still have a chance to make the election. These taxpayers should be able to use the normal due dates for the forms as far as I can tell from the Rev Proc and the instructions.
Why the difference in due dates? I don't know. I think the rules are much too complicated after spending a couple hours going through them and writing a summary for my coworkers.
Posted by: Brittney | March 24, 2009 7:19 PM
I think the section you are looking at is under this header, right?
".02 Eligible small businesses that have filed a return for the applicable 2008 NOL
taxable year and did not elect to forgo the NOL carryback period."
So you are right about the due date for the Form 1045/1139 - but only for those taxpayers who didn't make the § 172(b)(1)(H) election on their initial 2008 return.
Section .01 in the Rev Proc is for taxpayers who have not yet filed their 2008 return and still have a chance to make the election. These taxpayers should be able to use the normal due dates for the forms as far as I can tell from the Rev Proc and the instructions.
Why the difference in due dates? I don't know. I think the rules are much too complicated after spending a couple hours going through them and writing a summary for my coworkers.
Posted by: Brittney | March 24, 2009 7:23 PM
Why the change in making the election via a statement on the income tax return versus on the carryback claim form?
Posted by: Jimmy | July 29, 2009 11:01 AM
The one item I am struggling with is "eligible small business". Does that include losses from rental property either in a partnership or owned directly by the taxpayer and reported on page 1 of schedule E? If not, does it matter if the taxpayer is a fulltime real estate professional?
Posted by: Dan | June 19, 2010 7:10 PM
Dan, the "eligible small business" distinction only applied for 2008 losses. The 2009 carryback isn't limited to small taxpayers.
Posted by: Joe Kristan | June 20, 2010 10:37 AM