Check out what I read in a recent edition of the NATP’s TaxPro Weekly publication about Net Operating Loss Carry backs (NOL)….
“Chief Counsel Advice (CCA) 201049035 cleared the air regarding whether there is any limitation period applicable to reducing a taxpayer’s tax liability based on a net operating loss (NOL) carry back.
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)]. However, §6511(d)(2) provides an additional special period of limitation for a claim for a refund or credit relating to an over payment 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.
In this case, the IRS disallowed the taxpayer’s claim for credit because it determined the claim was untimely. However, the NOL carry back, if allowed, would not result in an over payment, which would generate a credit or refund, but would simply reduce the taxpayer’s outstanding tax liability.
The CCA concluded that even though there are restrictions on the time within which the IRS may allow a claim for credit or refund, no such statutory limitation exists to prevent the carry back of an NOL to reduce a taxpayer’s outstanding tax liability. Therefore, if an NOL has not been claimed and the taxpayer has an outstanding
tax liability, the statute of limitations may prevent a refund but will not prevent the NOL carryback from being applied to reduce the taxpayer’s outstanding tax liability.”