21 Jan Net Operating Loss Carry Over and Carry Back – IRS Publication 536 – IRC 172 + 6511
Generally speaking a net operating loss (NOL) for any tax year may be carried back two years and forward 20 years under Internal Revenue Code Sec. 172(b)(1)(A). A three-year carry back period applies to NOLs arising from property losses of individuals due to fire, storm, shipwreck, or other casualty, or from theft. It also applies to small businesses (average annual gross receipts under Code Sec. 448(c) are $5 million or less), farmers, and NOLs attributable to Federally declared disasters.
Chief Counsel advice (CCA) 201049035 states “Even though there are restrictions on the time within which the Service may allow a claim for credit or refund, no such statutory impediments exist to prevent the carry back of an NOL to reduce a taxpayer’s outstanding tax liabilities.” This advice was addressing a claim for refund, which actually has separate statute of limitation under §6511 – generally the longer of 2 years from date taxes were paid or 3 years from due date of return.
Carry backs of NOL’s are controlled by a separate statute of limitations (§172). What the rules are saying is that if you qualify to carry back an NOL and file the amended return timely, you can still (sometimes) qualify to get a refund even if §6511 may otherwise block the normal statute. You need to look at both statutes separately: First the 172 NOL law, then the 6511 timing of refunds law. Together what these laws are saying is that you can carry back an NOL and reduce taxes, but if you file the carry back too late for a refund, but still within the statute for carrying back the NOL, you can still reduce income for that carry back period, but may not be entitled to a refund.
IRS Publication 536 is a good next read on the specifics of NOL’s.