The IRS Wants to Give You Money for Your 2008 or 2009 NOL

Several businesses in our economic environment are getting crushed with banks not lending to them and consumers tightening their spending belts. Congress wants to give you back some of your money. What? Congress wants to give me back money? Yes, Congress passed a new law extending and expanding the treatment of net operating losses (NOLs) for corporations and flow-thru entities(S-corporations & Partnerships). Before this law was enacted, a business with a NOL could carry back two years and carry forward 20 years of its NOLs to offset taxable income incurred in those years. In addition, there is one temporary rule for small business. Under present law, an eligible small business with annual gross receipts of $15,000,000 or less over a three year period can carry back a 2008 NOL up to five years. The new law allows all companies to carry back its NOL in 2008 or 2009 for five years preceding its current year NOL. However, with any good law, it has limitations. Let’s take a look at these new laws and see if you are eligible to receive money from the IRS for a 2008 or 2009 NOL.

This law allows all businesses to carry back its 2008 or 2009 (not both) NOL for five years. For example, a company has taxable income of $100,000 each year from 2004 through 2008. In 2009, the company incurs a $350,000 NOL. The company can elect to carry back its 2009 NOL five years, to 2004 and the remaining four years. However, the law limits your NOL carry back to the fifth year proceeding the current year NOL to 50% of taxable income. So, in our example, a 2009 NOL carried back to 2004 is limited to 50% of taxable income. The remaining $300,000 NOL balance can offset taxable income in years 2005, 2006, 2007.

There is one exception when carrying back a NOL for 2008 or 2009. If an eligible small business elected to carry back a 2008 NOL, it can also make the election for 2009. If it elects to make the election in 2009, it will have to follow the 50% limitation for the fifth year.

The election under the new law must be made by the due date (including extensions) for the tax return filed for the taxpayer’s last taxable year beginning in 2009. Keep in mind that the election is irrevocable. Fiscal year taxpayers can make the election for tax years beginning or ending in 2008 or 2009.

If you know now you are going to have a NOL in 2009, please notify your tax consultant so he or she can start to prepare your timely refund claim to the IRS.

If you have any questions or concerns, please contact me by phone or e-mail.
561.686.8666
mstevens@rdwarnercpa.com