Tax Article - net operating losses (NOLs)

tax break is available

Target Audience: Business Owners, Small Business Owners, Accounting Department Employees, Financial Managers

Due to the difficult economic times many corporations and individuals are being faced with the harsh reality that they will have net operating losses (NOLs) at the end of their 2008 tax year. Luckily, the American Recovery and Reinvestment Tax Act of 2009  has provided some help for many eligible small business that have incurred NOLs with tax years ending, or under a special election beginning in 2008.

Prior to the American Recovery and Reinvestment Tax Act of 2009, a net operating loss, which is the excess of business deductions over gross income in a given year, could be carried back two years or forward up to twenty years.

Within Section 1211 of the American Recovery and Reinvestment Tax Act of 2009 is a provision to allow any NOL, by an electing eligible small business, be carried back 3, 4 or 5 years. The purpose of this is to infuse companies with cash immediately.

An eligible small business is a company with average gross receipts of less than fifteen million dollars over the prior three tax years beginning with the year of the net operating loss. For this test the gross receipts would be used from tax years 2006-2008.

Rev Proc 2009-26 modifies and simplifies Rev Proc 2009-19 to provide that an Electing Small Business may elect a 3, 4, or 5, year carryback period simply by filing Form 1045, for individuals,  Form 1139 for Corporations, or an amended return. Code Sec. 172(b)(1)(H)(iii) requires that the taxpayer elect a 3, 4, or 5 year carryback within 6 months after the due date (not including extensions) of the return for the tax year of the NOL. This means if you are a calendar year taxpayer you will have until September 15, 2009 to file your claim. If you are an individual your claim must be filed by October 15, 2009.

The American Recovery and Reinvestment Tax Act of 2009 provides an opportunity to get back a large amount of the taxes you have paid in years that prior to this change you were unable to get it.  Being a complex law, please contact Feeley & Driscoll, P.C. (888-875-9770) with any questions regarding its applicability and for analysis on which tax year you would be most beneficial to carry back the loss to.

Find out how our tax expertise can add value to your business. Email us or call us at 1 (888) 875-9770.

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