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Questions and Answers for The Worker, Homeownership, and Business Assistance Act of 2009 – Section 13 5-year Net Operating Loss (NOL) Carryback

Q1. How is this legislation different from The American Recovery and Reinvestment Act (ARRA) legislation affecting carrybacks that was passed earlier this year?

A. ARRA legislation allows certain taxpayers to make an irrevocable election to carry back applicable 2008 losses for up to five years (the normal carryback period is two years). The applicable 2008 losses are losses incurred in one year (either beginning or ending in 2008) by eligible small businesses (those whose average gross receipts are equal to or less than $15 million over a three-year period).  

WHBAA legislation allows almost all taxpayers with business losses to make an irrevocable election to carry back losses incurred in one year (ending after 2007 and beginning before 2010) for up to five years. WHBAA also allows life insurance companies to carry back losses from operations for either four or five years (the normal carryback period is three years). Unlike ARRA legislation, a taxpayer that elects a five-year carryback under WHBAA legislation will have a limitation in the amount that it may carry back.

Q2. Who cannot make an extended carryback election under WHBAA? 

A. Taxpayers that received certain benefits (whether or not they were repaid) under the Emergency Economic Stabilization Act of 2008 (TARP recipients) or any taxpayer that was a member of the TARP recipient’s affiliated group during 2008 or 2009 may not make a WHBAA election.

Q3. How do I make an irrevocable WHBAA election?

A. You can make the election using either of these two methods: 1) Attach an election statement to the federal income tax return or amended return for the tax year in which the loss is incurred; or 2) Attach an election statement to the carryback form itself (Form 1045, 1139, 1040X, 1120X or amended 1041 or 990-T).   

Q4. If I make the election by attaching the election statement to the federal income tax return for the tax year in which I incurred the net operating loss, do I have to do anything special when I file the carryback? 

A. Yes. You must include a copy of the election statement with the carryback form.

Q5: If I make the election on my tax return for a loss arising in 2009, do I still have until December 31, 2010, to file my carryback form?

A: Yes.

Q6. What do I have to say in the election statement?

A. You must state that you are electing to apply Section 172(b)(1)(H) (or Section  810(b)(4) in the case of a life insurance company) under Rev. Proc. 2009-52. You must also state that you are not a TARP recipient nor were you, during 2008 or 2009, an affiliate of a TARP recipient. And finally, you must specify the length of the carryback period you are electing (three, four or five years). Below is an example of a complete election statement.
 
ABC Company is electing to apply Section 172(b)(1)(H) under Rev. Proc. 2009-52.  ABC Company is not a TARP recipient and was not an affiliate of a TARP recipient during 2008 or 2009. We are electing a four-year carryback period.

Q7. What will happen if I don’t include the election statement with my carryback form or if I don’t make all of the required statements on the election statement?

A. The IRS will not process your carryback. You will receive a letter asking you to resubmit the carryback with the required election statement that includes all of the required statements as provided in Rev. Proc. 2009-52.

Q8. When is the deadline for taking advantage of this NOL provision?

A. You must make a WHBAA election by the due date (including extensions) for filing the tax return for your last taxable year beginning in 2009. This is true whether you make the election for losses incurred in 2008 or 2009.

If you file your 2009 tax return on time (by the due date without extensions) without making the election, you have an additional six months from the normal (unextended) due date of the 2009 tax return to make the election. See Treas. Reg. 301.9100-2 for the requirements for getting this six-month extension.

For example, an individual who files a calendar 2009 tax return by April 15, 2010, without making the election has until Oct. 15, 2010, to make the election for either 2008 or 2009 losses.

Q9. What if I already filed a two-year carryback for net operating losses I had in 2008? Can I still take advantage of the new provision?

A. Yes. You may make the WHBAA election by doing one of the following: either file an amended return for 2008 to make the election (attach the election statement to the amended return) or you may simply file an amended carryback for 2008 using the appropriate carryback form (1045, 1139, 1040X, 1120X or amended 1041 or 990-T). Make sure you include the election statement with the carryback form.

Whichever method you choose, your election statement must include all of the statements from question five above and you must state that you are amending a previous carryback.

Q10. I previously filed a two-year carryback for losses I had in 2008 and received refunds for taxes paid in 2006 and 2007. Now I’m filing an amended Form 1139 to carry back those same losses to 2003, 2004 and 2005. How should I complete the form so the IRS knows that I no longer have losses in 2006 and 2007? Should I send in a check to pay back the refunds issued for 2006 and 2007?

A. First, make sure you include the required election statement, which includes a statement that you are amending a previous carryback. Then, prepare the amended Form 1139 as if it were the first carryback being filed for the 2008 year. In the example you gave, you would show losses in 2003, 2004, and 2005. Since the NOL was used up in 2005, you would have no entries for years 2006 or 2007.

You do not need to send in a check for 2006 and 2007.  Since there are no entries on your Form 1139 for years 2006 or 2007, the IRS will reverse the previous carryback adjustments that were made in those years and offset overpayments from 2003, 2004, and/or 2005 to cover the balances owed in 2006 and 2007 before refunding any remaining overpayment.

Q11. Okay, so how should I complete an amended Form 1139 for 2008, if I’m carrying back losses to 2003, 2004, and 2005 and I have enough remaining NOL deduction that I would still be entitled to the losses I previously claimed in 2006 and 2007?

A. Again, prepare your amended Form 1139 as if it were the first carryback being filed for the 2008 year. In this case, you would show losses in years 2003 – 2007.  The IRS will compare the information you provide on the amended Form 1139 for years 2006 and 2007 (NOL deduction, adjusted gross income, tax after carryback, etc.) with the NOL adjustments previously made to years 2006 and 2007, and if there is no change to those amounts, then the IRS will take no action on those previous adjustments.

Q12. Am I right that I have more time to file a tentative carryback application (Form 1045) for my 2008 losses if I make a WHBAA election?

A. Yes. WHBAA provides an extension of the normal period for filing a tentative carryback application, using Form 1045 or 1139. Normally, the deadline for filing a 2008 tentative carryback for a calendar year taxpayer is Dec. 31, 2009 (12 months after the end of the tax year in which the loss is incurred).

WHBAA allows you to make the 2008 election and file a tentative carryback application by the due date (including extensions) of the 2009 federal income tax return. So instead of a Dec. 31, 2009, deadline for filing Form 1045, the WHBAA deadline is April 15, 2010 (or up to Oct. 15, 2010, if an extension is filed).

Q13. I previously made an irrevocable election to waive the carryback period for my 2008 losses. Can I revoke that election in order to take advantage of WHBAA? And how long do I have to do this?

A. Yes. Taxpayers who previously elected to waive the carryback period for an applicable NOL tax year ending before Nov. 6, 2009, may revoke that election and make the WHBAA election. 

Do one of the following: File an amended return for the NOL tax year (attach the election statement to the amended return) or simply file a carryback for the NOL tax year using the appropriate carryback form (1045, 1139, 1040X, 1120X or amended 1041 or 990-T). Make sure you include the election statement with the carryback form.

Whichever method you choose, your election statement must include all of the statements from question five above and you must state that you are revoking an NOL (or loss from operations) carryback waiver.

You must revoke the previous waiver and make the WHBAA election by the due date (including extensions) for filing the tax return for your last taxable year beginning in 2009. 

Q14. I am an eligible small business and previously filed a five-year ARRA carryback for losses I had in 2008. Can I take advantage of WHBAA for my 2009 losses?

A. Yes. An eligible small business that made an ARRA election for tax year 2008 may also make a WHBAA election for tax year 2009.

Q15. If I elect a five-year carryback, are there any special rules concerning the fifth carryback year?

A. Yes. If a taxpayer elects a five-year carryback, the net operating loss carried back to the fifth year is limited to 50 percent of the taxpayer’s taxable income in that fifth preceding year. The taxable income is determined for this purpose without reduction by the NOL being carried back five years or any later NOL.

For example, assume that in 2003 a taxpayer had taxable income of $100 million, before any NOL deductions (NOLDs). Taxpayer had an unused 2002 NOL of $25 million available to be carried forward to 2003 and an unused 2004 NOL of $35 million available to be carried back to 2003. After utilizing these NOLDs, the taxable income for 2003 at this time would be $40 million ($100 million - $25 million NOLD from 2002 - $35 million NOLD from 2004).

Now assume that the taxpayer has an NOL of $50 million for the 2008 tax year, and the taxpayer elects to carry this loss back to its fifth prior tax year, 2003.

Under these facts, the additional NOLD allowed for 2003 from the carryback of the 2008 NOL would be limited to $20 million, which is 50 percent of the previously-determined taxable income for 2003. Thus, the 2003 taxable income, following the carryback of the 2008 NOL, would be $20 million (the $40 million taxable income determined before consideration of the five-year carryback, reduced by the $20 million NOLD attributable to the amount carried back from 2008).

Q16. If I elect a five-year carryback, is the NOL carried back to the fifth preceding year limited to 50 percent of taxable income or 50 percent of modified taxable income in the fifth preceding year?

A. The amount of the NOL carried back to the fifth year is limited to 50 percent of the taxable income for that year, not the modified taxable income for that year. Fifty percent of the modified taxable income in the fifth preceeding year is used when you calculate the available loss that can be carried forward to the fourth carryback year when completing Schedule B of Form 1045 because the loss is not fully absorbed in the fifth year.

Q17. If I elect a five-year carryback, are there any special rules concerning the carryback of an alternative minimum tax net operating loss to the fifth carryback year?

A. Yes. If a taxpayer elects a 5-year carryback, the alternative minimum tax net operating loss deduction (AMT NOLD) in the fifth preceding year is limited to 50 percent of the taxpayer’s previously-determined alternative minimum taxable income (AMTI) in that year. For this purpose previously-determined AMTI means AMTI for the carryback year determined without reduction for the AMT NOLD deduction attributable to the loss year or any later taxable year.

For example, assume that in 2003 a taxpayer had AMTI of $50 million, before any AMT NOLDs. Taxpayer had $60 million of unused alternative minimum tax net operating losses (AMT NOL) available to be carried forward to 2003. Under IRC §56(d)(1)(A) as in effect at this time, the AMT NOLD would be limited to $45 million (90 percent of the $50 million AMTI, before any AMT NOLDs). The AMTI at this time would be $5 million ($50 million - $45 million AMT NOLD).

Now assume that the taxpayer has an AMT NOL of $8 million for the 2008 tax year, and the taxpayer elects to carry this loss back to its fifth prior year tax year, 2003.

Under these facts, the additional AMT NOLD allowed for 2003 from the carryback of the 2008 AMT NOL would be limited to $2.5 million, which is 50 percent of the previously determined AMTI for 2003. Thus the post carryback AMTI would be $2.5 million (the $5 million AMTI per the original return reduced by the $2.5 million AMT NOLD attributable to the amount carried back from 2008).

Q18. I want to take advantage of WHBAA now and file a tentative carry back application for my corporation’s losses in 2009, but we’re not prepared to file our 2009 tax return yet. We requested an extension to file our Form 1120 until Sept. 15, 2010. Can I file Form 1139 now to get our refunds and then file the 2009 Form 1120 on Sept. 15?

A. No. IRC 6411(a) requires that the tax return generating the net operating loss, net capital loss, or unused business credit must be filed on or before the date a tentative carryback application is filed. You must enter the date you filed your tax return on Line 2b of Form 1139. The IRS will not process a tentative carry back application if the tax return generating the loss has not been filed.
 
Q19. Can I send in our Form 1139 in the same envelope as our Form 1120? 

A. No. Do not send your Form 1120 and your Form 1139 to the IRS in the same envelope. Send Form 1120 to the appropriate processing center. Send Form 1139, with the required attachments, to the same processing center but in a separate envelope.

Page Last Reviewed or Updated: 18-Dec-2014