Update, 5/6/2010: IRS allows automatic relief for late NOL elections.
The IRS yesterday cleared the way for taxpayers to claim loss carrybacks for up to five years for 2008 and 2009. Rev. Proc. 2009-52 will be good news for taxpayers who were ineligible for the 5-year carryback allowed for 2008 losses for smaller taxpayers, allowing them to get additional refunds based on their 2008 losses.
The news isn't all good for taxpayers, though. The new guidance says that taxpayers who were eligible for the 2008 carryback, but who missed the deadline, must choose between 2008 and 2009 losses for the five-year carryback. This appears correct under the law as written, but it will be a disappointment for those who may have missed the 2008 deadline. Taxpayers whose losses came from companies that were too big to qualify for the 2008 loss carryback also must choose between 2008 losses and 2009 losses for the extended carryback. In contrast, Taxpayers who properly elected the five-year carryback for 2008 will also be allowed the extra carryback period for 2009 losses.
Basics of the new rules
The recently signed unemployment extension bill (PL 111-92) allows most taxpayers to carry back net operating losses 3, 4 or five years back, instead of the standard two years. Unlike the 2008 five-year carryback rule, the new rule is not limited to taxpayers with gross receipts under $15 million. Carrybacks under the new law for AMT are not limited to 90% of the AMT income for the carryback year. All losses carried back to the fifth year can only offset 50% of that year's income; losses carried back 3 or 4 years are not so limited.
Making the Election
- Statement that taxpayer is electing to apply Sec. 172(b)(1)(H) under Rev. Proc. 2009-52
- Statement the taxpayer is not a TARP recipient or affiliate of a TARP recipient.
- Statement of the length of the carryback elected (3, 4 or 5 years).
- If the taxpayer has already filed a carryback claim for 2008 --for example, for losses that didn't qualify for the five year carryback under the $15 million gross receipts rule -- add a line to the statement identifying it as an amended carryback claim.
- If the taxpayer previously waived the NOL carryback for 2008, the statement should also say that the taxpayer is revoking the waiver of the carryback period.
Watch the Deadline!
Normally taxpayers have three years to file an NOL carryback claim. Taxpayers normally have one year after the end of the loss year to file the expedited carryback claim on Forms 1045 or 1139. But taxpayers who want to claim the five-year NOL under the new law have to make their election by the due date of the 2009 return, taking extensions into account. This will lead many taxpayers to file extensions to allow more time to prepare the carryback.
Once again Congress has passed a poorly drafted tax provision. Basing a carryback deadline on whether a return is extended, instead of using the normal three-year NOL carryback deadline, is a chintzy way to limit revenue loss. It will punish earnest or poorly advised taxpayers for filing without an extension; filing with no extension will shorten the NOL carryback deadline by six months, to March 15 or April 15, 2010. It's also cheesy to prevent taxpayers who missed the 2008 deadline from correcting their mistake so they can carry back both 2008 and 2009 losses. It's hard to see a policy argument for this, unless Congress thinks its important for taxpayers to learn to adapt quickly to random tax law changes.
The TaxProf has more.
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