858.367.7676

IRS Places Time Limit on Five-Year Carrybacks

 

May 21, 2009
By Phillip L. Jelsma

In Revenue Procedure 2009-26, the IRS placed a time limit on taxpayers electing to carryback a net operating loss 3, 4 or 5 years. The American Recovery and Reinvestment Tax Act of 2009 provides an electing small business may elect to carry a 2008 or 2009 loss back 3, 4 or 5 years. An electing small business is generally a sole proprietorship, partnership, LLC, S corporation or C corporation that has less than $15 million in gross receipts. If an electing small business has a 2008 net operating loss, it can elect a 3, 4, or 5-year carryback on its original 2008 tax return by including a statement applying Code Section 172(b)(1)(H) and specifying the length of its NOL carryback period (3, 4 or 5 years). If the taxable year for the NOL ends before February 17, 2009, the election must be made on or before the earlier of the due date of the return (including extensions of time) or April 17, 2009. Thus, a C corporation would need to include the election in return filed before September 15, 2009.

If the taxpayer fails to make the election with its originally filed return, an election may be made on one of the following forms:

  1. For corporations: Form 1139; Corporation Application for Tentative Refund; or Form 1120X; Amended US Corporation Income Tax Return.
  2. For individuals: Form 1045, Application for Tentative Refund, or Form 1040X, Amended US Individual Income Tax Return.
  3. For estates and trusts: Form 1045 or Amended Form 1041, U.S. Income Tax Return for Estates and Trusts.

The appropriate form must be filed on or before the date which is 6 months after the due date (excluding extensions) for filing the taxpayer’s return for the taxable year, or April 17, 2009. Thus, for an individual, estate or trust, these returns would need to be filed on or before October 15, 2009.

If the taxpayer had previously elected to forego a carryback period for a 2008 NOL, for a taxable year before February 17, 2009, that taxpayer may revoke the election.

Any taxpayer with a 2008 NOL must be cognizant of these time periods because it appears if the deadlines are missed, it is the IRS’ position that the taxpayer has lost the ability to carryback a 2008 NOL any longer than the normal two years.

If you have any questions, please contact Phil Jelsma at 858.367.7675 or pjelsma@cgs3.com.