Rev Proc 2009-52, 2009-49 IRB

IRS has explained how businesses can elect the new optional longer net operating loss (NOL) carryback period that was provided by the Worker, Homeownership, and Business Assistance Act of 2009 (the Act, P.L. 111-92), which signed into law on Nov. 6, 2009.

Prior law background. Under pre-Act law, NOLs generally could be carried back two years and forward 20 years. However, under the American Recovery and Reinvestment Act of 2009, (ARRA, P.L. 111-5), eligible small businesses (ESBs) can elect to increase the NOL carryback period for an applicable 2008 NOL from 2 years to 3, 4, or 5 years. An ESB is a corporation or partnership that meets the gross receipts test of Code Sec. 448(c)) (applied by substituting $15 million for $5 million) for the tax year in which the loss arose, or a sole proprietorship that would meet that test if the proprietorship were a corporation.

New law gives most businesses longer carryback option. As discussed in detail in Newsstand e-mail 11/10/09 (or Federal Taxes Weekly Alert 11/19/2009), under the Act, all taxpayers (except certain taxpayers getting help from the Federal government under the Emergency Economic Stabilization Act of 2008, i.e., TARP recipients) may elect to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years. (Code Sec. 172(b)(1)(H)) An applicable NOL means the taxpayer's NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. (Code Sec. 172(b)(1)(H)(ii))

Generally, an election may be made for only one tax year. (Code Sec. 172(b)(1)(H)(iii)(I)) However, an ESB that made or makes an election under the Code as in effect before Nov. 6, 2009 (the enactment date) may make an election for 2 tax years instead of just 1. (Code Sec. 172(b)(1)(H)(v)(I))

For losses from operations arising in tax years ending after Dec. 31, 2007, the Act also allows life insurance companies to elect to carry back an applicable loss from operations for 4 or 5 years and not just 3 years as is provided under pre-Act law. (Code Sec. 810(b)(4))

The amount of the NOL that can be carried back to the 5th tax year before the loss year may not be more than 50% of the taxpayer's taxable income for that 5th preceding tax year determined without taking into account any NOL for the loss year or for any tax year after the loss year. (Code Sec. 172(b)(1)(H)(iv)(I)) The 50% limitation does not apply to an eligible small business with respect to an election made under pre-Act law. (Code Sec. 172(b)(1)(H)(iv)(III))

The extended carryback election under the Act must be made in such manner as IRS determines, and must be made by the due date (including extensions) for filing the taxpayer's last tax return for a tax year beginning in 2009. (Code Sec. 172(b)(1)(H)(iii)(II))

Once made, the extended carryback election is irrevocable. (Code Sec. 172(b)(1)(H)(iii)(II))

Under transition rules, a taxpayer may revoke any election to waive the carryback period under either Code Sec. 172(b)(3) or Code Sec. 810(b)(3) with respect to an applicable NOL or an applicable loss from operations for a tax year ending before Nov. 6, 2009, by the extended due date for filing the tax return for the taxpayer's last tax year beginning in 2009. Similarly, any application for a tentative carryback adjustment under Code Sec. 6411(a) with respect to such loss is treated as timely filed if filed by the extended due date for filing the tax return for the taxpayer's last tax year beginning in 2009. (Act Sec. 13(e)(4))

Choices for making the election. A taxpayer may make the election under Code Sec. 172(b)(1)(H) or Code Sec. 810(b)(4) by following the procedure described in either Rev Proc 2009-52, Sec. 4.01(3) or Rev Proc 2009-52, Sec. 4.01(4). Rev Proc 2009-52, Sec. 4.01(3) explains how to elect on a federal income tax return for the tax year of the applicable NOL and Rev Proc 2009-52, Sec. 4.01(3) explains how to elect on an appropriate form.

Electing on a return for the tax year of the applicable NOL. A taxpayer may make the election by attaching a statement to its return for the tax year in which the applicable NOL arises. A taxpayer that filed its return for the tax year of the applicable NOL may make the election by attaching a statement to an amended return for that tax year. The election statement must state that the taxpayer is electing to apply Code Sec. 172(b)(1)(H) or Code Sec. 810(b)(4) under Rev Proc 2009-52, and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The statement must specify the length of the NOL carryback period the taxpayer elects (3, 4, or 5 years).

The election statement must be filed with the taxpayer's original or amended return for the tax year of the applicable NOL on or before the due date (including extensions) for filing the return for the taxpayer's last tax year beginning in 2009.

A taxpayer that makes the election under Rev Proc 2009-52, Sec. 4.01(3) must attach a copy of the election statement to the taxpayer's claim for tentative carryback adjustment (Form 1045, Application for Tentative Refund; or Form 1139, Corporation Application for Tentative Refund) or amended return applying the applicable NOL to the carryback year. The due date for timely filing a claim for tentative carryback adjustment on Form 1045 or 1139 for a taxpayer that makes the election is extended to the due date (including extensions) for filing the return for the taxpayer's last tax year beginning in 2009. (Rev Proc 2009-52, Sec. 4.01(3))

Electing on an appropriate form. A taxpayer may make the election by attaching an election statement to the appropriate form the taxpayer files applying the NOL carryback period the taxpayer elects. Here, too, the election statement must state that the taxpayer is electing to apply Code Sec. 172(b)(1)(H) or Code Sec. 810(b)(4) under Rev Proc 2009-52 , and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. It also must specify the length of the NOL carryback period being elected. The appropriate form is:

• For corporations: Form 1139, Corporation Application for Tentative Refund, or Form 1120X, Amended U.S. Corporation Income Tax Return.
• For individuals: Form 1045, Application for Tentative Refund, or Form 1040X, Amended U.S. Individual Income Tax Return.
• For estates or trusts: Form 1045, or amended Form 1041, U.S. Income Tax Return for Estates and Trusts.
• For tax exempt organizations with unrelated business income, Form 1139 or amended Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e))

The taxpayer must file the form on or before the due date (including extensions) for filing the return for the taxpayer's last tax year beginning in 2009. The time for claiming a tentative carryback adjustment on Form 1045 or 1139 also is extended to this date. (Rev Proc 2009-52, Sec. 4.01(4))

Taxpayers that previously filed a carryback application or claim. A taxpayer that previously filed an application for a tentative carryback adjustment (whether or not IRS has acted upon the application) or an amended return (except to the extent that the application or claim was for an applicable NOL for which an ESB made an ARRA election) may make the election by following either of the procedures discussed above. The election statement must state that the election amends a previous carryback application or claim. (Rev Proc 2009-52, Sec. 4.02)

Revocation of the election to waive NOL carryback period. A taxpayer that previously elected to forgo the carryback period for an applicable NOL for a tax year ending before Nov. 6, 2009, may revoke that election and make the election under Code Sec. 172(b)(1)(H). The taxpayer may make the revocation and the election by following either of the procedures discussed above. The election statement must state that the taxpayer is revoking an NOL (or loss from operations) carryback waiver and electing to apply Code Sec. 172(b)(1)(H) or Code Sec. 810(b)(4) under Rev Proc 2009-52 and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The statement must specify the length of the NOL carryback period the taxpayer elects (3, 4, or 5 years). The taxpayer must file the revocation and the election before the due date (including extensions) for filing the return for the taxpayer's last tax year beginning in 2009.

Source:  Federal Tax Updates on Checkpoint Newsstand tab 11/23/09