NOL Carryback

kfoltz · #1 (**permalink**) 10-22-2012, 03:56 AM

My new client has an NOL on their 2008 tax return, which was filed in 2010. There as no statement that they were foregoing the carryback and instead, electing to carry forward. Besides, since the return was late filed. They did not have the right to carry forward. Additionally, the 2006 and 2007 years are, to my understanding, closed years. Meaning they cannot be amended to get any refunds. However, had they carried back they would have used some of the NOL up, but would have ended up not using the entire NOL and they would be entitled to carry the unused amounts forward to 2009 and 2010, etc.

How should I address this situation? File amended returns for 2006 & 2007, and let the IRS deny the claims, but then carry the unused amounts forward to 2009 and forward ? Or, what is the best way to handle this situation? They will lose a considerably amount of their NOL to 2006 & 2007, if they must first carry back and apply the NOL to those years.

Thanks for any suggestions, or recommendations.

Wnhough · #2 (**permalink**) 10-22-2012, 03:07 PM

“My new client has an NOL on their 2008 tax return, which was filed in 2010. There as no statement that they were foregoing the carryback and instead, electing to carry forward. “----->Tough question. A you can see, TPs elect to forgo the carryback period by attaching a stmt to the tax return that produced the NOL. Once made, the election to forgo the carryback of an NOL is final; when 2008 return showing a NOL is filed without such a stmt. IRS assumes the TP is carrying back the NOL to the 2006 tax year.
“Besides, since the return was late filed. They did not have the right to carry forward. Additionally, the 2006 and 2007 years are, to my understanding, closed years. Meaning they cannot be amended to get any refunds. However, had they carried back they would have used some of the NOL up, but would have ended up not using the entire NOL and they would be entitled to carry the unused amounts forward to 2009 and 2010, etc.”-----> I guess so.

“How should I address this situation? File amended returns for 2006 & 2007, and let the IRS deny the claims, but then carry the unused amounts forward to 2009 and forward ?”-----> I wouldn't think the taxpayer has foregone the ability to carry back the NOL if the 2008 return has been filed in 2010 however, the TP needs to be within the 3 year statute of limitations to file the 2008 return and claims the benefits of related NOL's
“ Or, what is the best way to handle this situation? They will lose a considerably amount of their NOL to 2006 & 2007, if they must first carry back and apply the NOL to those years.”----->I guess the TP has no choice in this situation; as described above, UNLESS there is a stmt to forego the carry back of the NOL, the IRS assumes the TP is CARRYING BACK the NOL to the 2006/2007 tax years. And as long as the TP is within the 3 year SOL to file amended return for 2008, the TP ‘bd be able to carry forward to 2009 and 2010 returns. As said, if the TP filed his/her return before April 15th, the three-year period begins from April 15th. If the TP requested an extension, the three-year period runs from October 15 , 2009 OR within 2 years from the date the TP paid the tax, whichever is later. I guess you need contact the IRS for more info in detail.

kfoltz · #3 (**permalink**) 10-23-2012, 02:11 AM

Quote:

Originally Posted by Wnhough

“My new client has an NOL on their 2008 tax return, which was filed in 2010. There as no statement that they were foregoing the carryback and instead, electing to carry forward. “----->Tough question. A you can see, TPs elect to forgo the carryback period by attaching a stmt to the tax return that produced the NOL. Once made, the election to forgo the carryback of an NOL is final; when 2008 return showing a NOL is filed without such a stmt. IRS assumes the TP is carrying back the NOL to the 2006 tax year.
“Besides, since the return was late filed. They did not have the right to carry forward. Additionally, the 2006 and 2007 years are, to my understanding, closed years. Meaning they cannot be amended to get any refunds. However, had they carried back they would have used some of the NOL up, but would have ended up not using the entire NOL and they would be entitled to carry the unused amounts forward to 2009 and 2010, etc.”-----> I guess so.

“How should I address this situation? File amended returns for 2006 & 2007, and let the IRS deny the claims, but then carry the unused amounts forward to 2009 and forward ?”-----> I wouldn't think the taxpayer has foregone the ability to carry back the NOL if the 2008 return has been filed in 2010 however, the TP needs to be within the 3 year statute of limitations to file the 2008 return and claims the benefits of related NOL's
“ Or, what is the best way to handle this situation? They will lose a considerably amount of their NOL to 2006 & 2007, if they must first carry back and apply the NOL to those years.”----->I guess the TP has no choice in this situation; as described above, UNLESS there is a stmt to forego the carry back of the NOL, the IRS assumes the TP is CARRYING BACK the NOL to the 2006/2007 tax years. And as long as the TP is within the 3 year SOL to file amended return for 2008, the TP ‘bd be able to carry forward to 2009 and 2010 returns. As said, if the TP filed his/her return before April 15th, the three-year period begins from April 15th. If the TP requested an extension, the three-year period runs from October 15 , 2009 OR within 2 years from the date the TP paid the tax, whichever is later. I guess you need contact the IRS for more info in detail.

I did not realize, I had three years after the 2008 filing date,or extended date, to file amended returns for the two years prior to 2008. However, it is still too late, to file 1040Xs for 2006 and 2007. I suppose, we should show what amount of NOL would have been used in those years and carry the unused NOL amount to 2009. Also, it is required for us to show that computation in the 2009 tax return.

Your imput was much appreciated. Does anyone else have a comment or ideas? Thank you.

Wnhough · #4 (**permalink**) 10-23-2012, 04:22 AM

“I did not realize, I had three years after the 2008 filing date,or extended date, to file amended returns for the two years prior to 2008. However, it is still too late, to file 1040Xs for 2006 and 2007.”----->Correct. As described previously, to amend most tax returns, you can file an amended return at any time, however you only have three years from the date of your original return or two years from the date you paid the tax--whichever is later--to file and receive a refund..
Section 6511 of the IRC sets the following deadline
To claim a refund, an amended tax return (Form 1040X) must be filed:
You have until the LATER of:
1) three years from the date the return was filed, or
2) two years from the date the tax was paid.
It doesn't say whether that applies even when someone is as late as he is.
For example, assume that a TP wants to file 6 years of tax returns: 2004 through 2010. Also assume that in all those years he has refunds. If he files late return by April 15th, 2011, the TP will receive refunds for the years 2007 through 2010 as those years are still open under the 3-year time limit. Refunds from earlier years 2004, 2005, and 2006, however, have expired and the IRS won't send him a refund check.

"I suppose, we should show what amount of NOL would have been used in those years and carry the unused NOL amount to 2009. Also, it is required for us to show that computation in the 2009 tax return."----->If you carry forward an NOL, things are a little simpler. You would list your NOL figure as a negative amount on the "other income" line of Form 1040, and attach a statement showing how you computed the NOL. I guess you can contact the IRs for more info in detail.