5 year N.O.L. carry back expands - John R. Dundon II, Enrolled Agent
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5 year N.O.L. carry back expands

5 year N.O.L. carry back expands

Large and midsized companies can now take advantage of expanded net operating loss carryback rules to use the losses they incurred during the economic downturn to reduce their income from prior tax years.

The Worker, Homeownership and Business Assistance Act of 2009, which President Obama signed earlier this month, allows midsized and large businesses to elect to use a three-, four- or five-year NOL carryback, instead of the normal two-year carryback. Thus, business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the prior five years.

The provision is expected to put $33 billion of tax cuts in the hands of businesses. The IRS issued a revenue procedure Friday describing how businesses can take advantage of the provision.

In February, the American Recovery and Reinvestment Act provided an expanded NOL carryback, but it was limited to small businesses with average gross receipts of $15 million or less. The new law extends the NOL carryback to larger businesses, including life insurance companies that incurred a loss from operations, but excludes any company that received payments under the Troubled Asset Relief Program.

Taxpayers under the procedure may elect to carry back an NOL for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year. This limitation does not apply to the fourth or third preceding year.

The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.