Extended NOL carrybacks and the AMT.

• Author: O'Connell, Frank J., Jr.
• Position: Alternative minimum tax, net operating loss

Section 13 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92 (WHBAA), expanded the net operating loss (NOL) carryback provisions granted earlier to small businesses by the American Recovery and Reinvestment Act of 2009, P.L. 111-5 (ARRA), for NOLs incurred in tax years beginning or ending in 2008 or 2009. As amended by the WHBAA, Sec. 172(b)(1)(H) allows almost all businesses to make an irrevocable election for an eligible loss year to carry back their NOLs for three, four, or five years. Moreover, Sec. 172(b)(1)(H) allows a taxpayer that made an election to carry back an NOL under the ARRA provisions to also make a carryback election under the WHBAA for another tax year.

As discussed below, what taxpayers may overlook in deciding whether to make this election is the potential future tax benefit when the NOL is not fully utilized in the carryback period and is available to be carried forward to post-loss tax years. Because the Sec. 172(b)(1) (H) election must be made no later than the due date (including extensions) for the taxpayer's tax year beginning in 2009, the opportunity for this future benefit will expire soon for most taxpayers.

The 90% AMT Limitation

In computing alternative minimum taxable income (AMTI), Sec. 56(a)(4) provides that a taxpayer must use the alternative minimum tax net operating loss (ATNOL) deduction in lieu of the NOL deduction allowed for regular tax purposes. Moreover, the ATNOL deduction is generally limited to 90% of AMTI determined without regard to the ATNOL deduction and the deduction under Sec. 199. However, to provide an additional tax benefit to businesses that make the Sec. 172(b)(1)(H) election, the WHBAA amended Sec. 56(d)(l)(A)(ii)(l) to effectively eliminate the 90% limitation for any ATNOL deduction attributable to an NOL for which the Sec. 172(b)(1)(H) election has been made. The WHBAA also amended the normal ordering rules (i.e., the earliest NOLs are used first) for purposes of claiming an ATNOL deduction.

Under Sec. 56(d)(1)(A), as amended, AMTI is first offset by any available ATNOLs up to 90% of AMTI, excluding a Sec. 172(b)(1)(H) NOL and other special case NOLs such as qualified Gulf Opportunity losses. The balance of AMTI remaining for the carryforward year is then offset by the Sec. 172(b)(1)(H) and other special case NOLs. This reordering rule effectively makes the Sec. 172(b)(1) (H) NOL the last in order of use for the first 90% of AMTI and the last in order...