Federal Five-Year Loss Carryback Benefits San Diego Small Businesses
April 15, 2009
By Phillip L. Jelsma
In Revenue Procedure 2009-19, the IRS provided guidance on how an eligible small business may elect a 3, 4 or 5-year net operating loss (“NOL”), carryback for a year ending in 2008 or 2009.
The American Recovery and Reinvestment Act of 2009 (the “Act”) allows an electing small business to carry losses back up to 5 years. An electing small business is generally an S corporation, C corporation, partnership LLC or a sole proprietorship that has less than $15 million of gross receipts. It appears that the definition of electing small business is determined at the entity level. To the extent that the taxpayer owns more than 50% of two or more sole proprietorships, corporations, partnerships or LLCs, the gross receipts of the entities are aggregated for purposes of the $15 million test. If the electing small business has not filed a return for 2008, it may file its return with a statement electing the NOL carryback period (3, 4 or 5 years).
An electing small business that has already filed a return and did not elect to carry its losses forward must either file a Form 1139, Corporation Application for Tentative Refund, or Form 1040X, Amended US Corporation Tax Return. Individuals should file a Form 1045, Application for Tentative Refund, or Form 1040X. In either case, the taxpayer should write across the top of the appropriate form “2008 NOL Carryback Election Pursuant to Rev. Proc. 2009-19”.
The taxpayer must file the appropriate form by the later of (1) 6 months after the due date of the return (excluding extensions) for filing a taxpayer’s return for the applicable 2008 NOL, or (2) before April 17, 2009.
If the taxpayer has elected to forego a carryback claim, that election can be revoked on or before April 17, 2009.
It is important that San Diego small businesses consider the potential benefits of the longer NOL carryback period.