NOL carrybacks: recent changes allow longer carrybacks.

• Author: Josephs, Stuart R.
• Position: FedTax

The 2009 American Recovery and Reinvestment Act (ARRA), PL. 111-5, enacted Feb. 17, 2009, allowed an eligible small business (ESB) to elect to carryback an "applicable 2008 net operating loss" for three, four or five years.

An ESB is a corporation or partnership meeting IRC Sec. 448(c)'s gross receipts test for the tax year of the NOL or a sole proprietorship, which would meet this test if it were a corporation--but substituting $15 million for $5 million each place it appears in Sec. 448(c).

An applicable 2008 NOL is an NOL for any tax year ending in 2008 or, if the taxpayer elects, an NOL for any tax year beginning in 2008.

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Expanded Relief

The 2009 Worker, Homeownership, and Business Assistance Act (WHBAA), P.L. 111-92, enacted Nov. 6, 2009, expanded ARRA's carryback provisions to allow all businesses, except those that received certain benefits (whether or not repaid) under the Troubled Assets Relief Program (TARP), with an "applicable NOL" to carryback that NOL to the prior five tax years.

An applicable NOL is an NOL for a tax year ending after 2007 and before 2010.

Generally, a taxpayer may elect an extended carryback period for only one tax year. However, an ESB that made, or makes, a timely election under the law in effect before Nov. 6, 2009--for an applicable 2008 XOL--also may elect for a 2009 NOL.

Rev. Proc. 2009-26 prescribes procedures for making ARRA elections by ESBs.

There is no limit on carrybacks to the first four preceding years. For the fifth year, the carryback is limited to 50 percent of that year's taxable income (without the NOL for the loss year or any tax year thereafter).

This limitation does not apply to an ESB's applicable 2008 NOL for which an ARRA election is made--even if it is made after Nov. 6, 2009.

For the tax years ending after 2002, WHBAA suspends the 90 percent limitation on using any alternative minimum tax NOL deduction attributable to the carryback of an applicable NOL for which the extended carryback period is elected.

Rev. Proc. 2009-52 prescribes how and when to elect to carryback an applicable NOL.

Making the Sec. 172(b)(1)(H) Election

This election can be made on an original or amended federal income tax return for the tax year of the applicable NOL by attaching a statement indicating the taxpayer is electing to apply Sec. 172(b)(1)(H) under Rev. Proc. 2009-52, and that the taxpayer is neither a TARP recipient nor, in 2008 or 2009, a TARP recipient affiliate. This...