Questions and Answers for ARRA - Section 1211 5-year Net Operating Loss Carryback Election for Small Businesses
Q1: Do I have to carry back my net operating loss (NOL) for the full five year period?
A: No. You can elect to carryback the loss for any number of years from three to five, but remember that this is an irrevocable election.
Q2: Can I waive the carryback period and instead carry the full loss forward for the next 20 years?
A: Yes. You can waive the carryback period and instead carry the full loss forward for the next 20 years, but remember that this is an irrevocable election.
Q3: If my business operates on a fiscal year that ended in the middle of 2008, which year do I use?
A: You may elect for either 2008 or 2009, but not both. Whichever you choose, remember that this is an irrevocable election, and can be made for only one tax year.
Q4: Can you explain what an irrevocable election is?
A: Basically, it means that once you select how you are going to handle your NOL, whether to carry back a certain number of years or to only carry forward the losses, then you may not change this selection.
Q5: I had slightly more than $15 million in gross receipts last year, am I eligible for the five-year carryback?
A: It depends. To qualify for this particular five-year carryback election the law says that the business must have an AVERAGE of less than $15 million in gross receipts over a three-year period ending with the year giving rise to the loss. If your business gross receipts average more than $15 million over the three-year period, the normal two-year carryback applies.
Q6: I filed my 2008 return already, but now, in light of the new law, I want to amend it, can I do this?
A: If the 2008 return has already been filed, you may still make the election by using the appropriate carryback form for your business. The appropriate form must be filed on or before the later of the date that is six months after the due date (excluding extensions) for filing the taxpayer’s return for the taxable year of the applicable 2008 NOL or April 17, 2009.
If you previously elected on that return to waive the normal two-year NOL carryback, you may revoke that election in order to elect the three- to five-year carryback, provided you make your revocation and new election on or before April 17, 2009. (Updated 9/2/09)
Q7: Can I use this for a 2009 return?
A: The law specifically states that the election is available for the tax year ending in 2008, unless the taxpayer elects this carryback for the tax year beginning in 2008. A calendar year taxpayer can elect only for 2008. A fiscal-year taxpayer whose year ends in 2008 can elect either for its fiscal year ending in 2008 or its fiscal year beginning in 2008 and ending in 2009, but not both.
Q8: When is the deadline for taking advantage of this NOL provision?
A: For a taxpayer who already has filed a return for the year of the loss for which the taxpayer wants to elect the special 2008 NOL carryback, see question and answer six.
If a taxpayer has not filed a return for the year of the loss, the taxpayer has until the later of (A) the due date (including extensions of time) of the return for the year of the loss or (B) April 17, 2009. The law will not allow for any extension of this deadline. After the later of these dates, you will have to use the current law provision of a two-year carryback.
Most taxpayers still have time to choose this special carryback and get a refund. A calendar-year corporation that qualifies as an Eligible Small Business (ESB) must file a claim by Sept. 15, 2009. For individuals, the deadline is Oct. 15, 2009. This includes a sole proprietor that qualifies as an ESB, an individual partner in a partnership that qualifies as an ESB and a shareholder in an S corporation that qualifies as an ESB. Deadlines vary for fiscal-year taxpayers, depending upon when their fiscal year ends and whether they are making the choice for the tax year that ends or begins in 2008.
Individuals can accelerate a refund by filing Form 1045, Application for Tentative Refund. Corporations with NOLs may accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. Normally, refunds are issued within 45 days. (Updated 9/2/09)
Q9: How long will this law be in effect?
A: The law is in effect for a taxpayer's NOL for any taxable year ending in 2008, or if elected by the taxpayer, the NOL for any taxable year beginning in 2008. However, any election under this provision may be made only with respect to one taxable year.
Q10: Are there any exceptions for which the IRS will accept an election after the due dates described in Q&A #8?
A: Generally no. However, if the taxpayer has timely filed its return without making the election, an automatic six-month extension from the return due date (excluding extensions) is available.
Q11: Assuming the taxpayer makes an election for the tax period ending January 2008, may the taxpayer make the election for the tax period ending January 2009?
A: No, a taxpayer may make the election for only one tax year, either beginning or ending in 2008.
Q12: If the taxpayer makes an unallowable second election on a tentative carryback what will happen?
A: If the taxpayer makes an unallowable second election on a tentative carryback claim (Form 1139), a letter with specific language will be used to reject the claim.
Q13: What else should the taxpayer do when it makes the election on the return for the tax year of the loss? (05/07/09)
A: The taxpayer should attach a statement to the return saying that the taxpayer is electing to apply section 172(b)(1)(H), and describing the length of the carryback period elected (3, 4, or 5 years).
Q14: If the taxpayer already filed its return for the tax year of the loss without making the election, what should the taxpayer do to make the election?(05/07/09)
A: The taxpayer should file an application for tentative refund (Form 1045 or Form 1139) or an amended return for the earliest tax year of the carryback period elected by the taxpayer (3, 4 or 5 years). No statement is required to be attached to these forms. The form must be filed by the later of – (A) six months after the due date of the return for the tax year of the loss (determined without extensions), or (B) April 17, 2009.
Q15: The Internal Revenue Service issued new guidance (i.e., Rev. Proc. 2009-26) for 5-year NOL carryback election. If I followed the old guidance (i.e., Rev. Proc. 2009-19) to make the election, do I need to do anything? (05/07/09)
A: No. If you made the election pursuant to Rev. Proc. 2009-19, your election is valid and you do not need to do anything.
- News Release 2009-26, New Law Extends Net Operating Loss Carryback for Small Businesses; IRS to Ensure Refunds Paid Timely