Worker, Homeownership, and Business Assistance Act of 2009 Five-Year NOL Carryback Provision
- Significant Provisions
- Time and Manner of Making the Election
- Planning and Practical Considerations for Corporations
Five-Year Extended NOL Carryback Election-Overview
- The Worker, Homeownership, and Business Assistance Act of 2009 (the “Act”), was signed into law on November 6, 2009.
- The Act enhances the net operating loss (“NOL”) carryback period by allowing most taxpayers an elective carryback of up to five years for NOLs incurred in a tax year beginning or ending in 2008 or 2009.
- The election is irrevocable.
Five-Year Extended NOL Carryback Election - Significant Provisions
- Most taxpayers can elect to extend the general two-year carryback period for losses generated in 2008 or 2009
- Taxpayer cannot be a Troubled Asset Relief Program (“TARP”) recipient or an affiliate of a TARP recipient
- Carryback period may be extended to a three, four or five-year period
- Generally, only one Election may be made (i.e., a calendar year taxpayer generating an NOL in 2008 or 2009 may elect longer carryback period for either 2008 or 2009)
- If the five-year carryback is elected, only 50 percent of taxable income in the fifth prior year may be offset by a loss carryback from 2008 or 2009. Any remaining NOL is available for carryover to subsequent years.
- Example- If a calendar year taxpayer incurred a $2,000,000 NOL in 2008, they may elect to carryback that NOL to 2003. If taxable income in 2003 was $1,000,000, only $500,000 of the 2008 NOL can be used to offset 2003 income. The remaining 2008 NOL of $1,500,000 can be carried over to 2004 and later years.
- Separate guidance is expected regarding conditions under which a carryback waiver election can be made or revoked for a consolidated NOL attributable to a member acquired from another affiliated group.
- If the election is made, the 90 percent limitation for use of alternative minimum tax (“AMT”) NOL is suspended for any NOL to which this Election applies.
Five-Year Extended NOL Carryback - Time and Manner of Making the Election
- Revenue Procedure 2009-52 provides the time and manner for electing to carryback an applicable NOL, including relief for taxpayers that previously claimed a deduction for an applicable NOL or those who elected to forgo the NOL carryback period.
- Generally done by either Electing on an originally filed federal Income tax return (or amended return) for the taxable year in which the applicable NOL arises or by electing on an appropriate IRS Form (Form 1139 or Form 1045).
- Due date for either method of election is the date (including extensions), for filing the return for taxpayer’s last taxable year beginning in 2009.
Five-Year Extended NOL Carryback Election - Planning and Practical Considerations
- Election to extend the loss carryback for up to five years for NOLs incurred in 2008 or 2009 can create significant opportunities to offset taxable income in prior years and generate current cash refunds.
- Taxpayers with various tax attributes such as foreign tax or AMT credits should analyze whether it is more beneficial to make the election for an NOL incurred in 2008 or 2009 and whether the election period should be three, four or five years.
- Examine impact on financial statements, disclosures and valuation allowances.
- Consider various accounting methods, acceleration of deductions and income deferral opportunities.
- Consider state implications
|Paul Dougherty, Tax Partner
|Lori McMahon, Senior Tax Manager