Net Operating Loss (NOL) Carryback Allowed to Reduce Outstanding Tax Liability - John R. Dundon II, Enrolled Agent
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Net Operating Loss (NOL) Carryback Allowed to Reduce Outstanding Tax Liability

Net Operating Loss (NOL) Carryback Allowed to Reduce Outstanding Tax Liability

Generally, a claim for credit or refund of an overpayment must be filed by the taxpayer within three years from the time the return was fi led or two years from the time the tax was paid, whichever is later [§6511(a)].  There are exceptions for example, §6511(d)(2) provides an additional special period of limitation for a claim for a refund or credit relating to an overpayment attributable to an NOL carryback.  The relevant portion of §6511(d)(2) provides, in lieu of the three-year period of limitation prescribed in §6511(a), the period shall be the period ending three years after the due date of the return (plus extensions) for the taxable year of the NOL.

However, according to recent Chief Council Advice (CCA) (#20104903) if an NOL carryback, would not result in an overpayment, which would generate a credit or refund, but would simply reduce the taxpayer’s outstanding tax liability it would be allowed.  So even though there are restrictions on the time within which the IRS may allow a claim for credit or refund, no statutory limitation exists to prevent the carryback of an NOL to reduce a taxpayer’s outstanding tax liability.  Said differently …

If an NOL needs to be claimed and the taxpayer has an outstanding tax liability, even though the statute of limitations may prevent a tax refund it will not prevent the NOL carryback from being applied to reduce the taxpayer’s outstanding tax liability.



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