Tips for avoiding common NOL errors.

• Position: Federal Tax Tips - Net operating losses

TAX PRACTITIONERS CAN SPEED UP the processing of net operating losses by avoiding some common errors.

Individuals, estates and trusts may have an NOL if deductions exceed income for the year. Taxpayers can use an NOL by deducting it from income in another year or years.

If you carry back your NOL, you can use Form 1045, Application for Tentative Refund, or Form 1040X Amended U. S. Individual Income Tax Return. Form 1045 is an application for a quick refund, resulting from a tentative adjustment of tax in a carryback year.

Generally, Form 1045 must be filed after the NOL year tax return was filed, but not later than one year after the NOL year. Any claims filed more than one year after the end of the NOL year must be filed on Form 1040X, or an amended Form 1041, U.S. Income Tax Return for Estates and Trusts.

Here are some common errors that resulted in an NOL rejection.

Failure to provide documentation to support the NOL calculation

Solution: Review the checklist of "What to Attach" in the Form 1045 instructions. Be sure to include all forms or schedules for items refigured in the carryback year. Also, provide a copy of any examination reports if the IRS has previously audited the return.

Failure to separate all items on the return and tax account when an allocation is required because of a change in filing or marital status

Solution: Attach a complete breakdown of each spouse's income; a detailed capital gain calculation; deductions, including a list of total Schedule A Itemized Deductions; exemptions; taxable income; credits; other taxes, including separate Forms 6251, Alternative Minimum Tax; federal tax withheld; payments; offsets; and refunds.

For information about figuring the NOL carrybacks and carryovers for married people whose filing status changes for any tax year involved in figuring an NOL carryback or carryover, see Publication 536, Net Operating Losses for Individuals, Estates, and Trusts.

Incorrect "before carryback" figures on Form 1045 or Form 1040X

Solution: Before carryback figures are the amounts from the original filed return. If there have been any adjustments made to the original tax return amounts, either by the taxpayer or IRS, use personal records or order an IRS transcript of the tax account to identify the before carryback figures.

To order a transcript, call (800) 829-1040 for Form 1040, or (800) 829-4933 for business returns, or file Form 4506-T, Request for Transcript of Tax Return, at...