Corporate refund...If you paid tax over the past five years and you now have a loss, you can get a refund

On November 6, 2009, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009 ("WHBAA"), which provided a Net Operating Loss ("NOL") carry back provision for up to 5 years for NOLs incurred in taxable years beginning or ending in either 2008 or 2009 (but not both). This provision provided the following:

  • Applies to all taxpayers (except for those who receive federal assistance from the Troubled Asset Relief Program) and is not limited to eligible small businesses;
  • If an election is made to carry back an NOL to the fifth preceding year, the NOL carryback is limited to 50 percent of the taxable income in the fifth preceding year. The remaining balance of the NOL can be carried forward to the fourth preceding year, and so on until the loss is utilized or expired;
  • Suspends the 90 percent limitation, effective for taxable years ending after December 31, 2002, on the utilization of any alternative tax NOL attributable to carrybacks of the applicable NOL for which an extended carryback period is elected;
  • Eligible small businesses that have already elected to carry back 2008 losses under the American Recovery and Reinvestment Act of 2009 are permitted to carry back losses from 2009 under the WHBAA. For a non-eligible small business, an election may be made for only one tax year;
  • A taxpayer must make the election by the extended due date for filing the return for the taxpayer’s last taxable year beginning in 2009. The election, once made, is irrevocable.

Before a company applies for the carry back claim the management and the tax preparer should consider among other things the following:

a) Impact of IRC Section 199 Domestic Production Activities Deduction,

b) Foreign tax credits,

c) Impact on Sec.965 Repatriation Provision, and

d) IRC Section 382 NOL limitation.

The carry back claim also qualifies for Alternative Minimum Tax ("AMT"). Use of an AMT NOL is limited to 90% of alternative minimum taxable income (“AMTI”) in the carryover or carry back years. The new law suspends the 90% limitation on the use of any AMT NOL for the extended carry back period. Therefore when a company carries back the AMT NOL to the extended carry back period, it is not subject to AMT tax since the new law allows an AMT NOL to fully offset the AMTI in the carry back year. If a company paid AMT tax in any of the extended carry back period, it will be able to make an election to recoup the AMT.

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