5-Year NOL Carryback Planning Opportunity
written by: Nicholas H. Perrins
The Worker, Homeownership, and Business Assistance Act of 2009 (the "Act"), which was signed into law on Nov. 6, 2009, provides businesses with the option of electing a longer net operating loss (NOL) carryback period.
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,eligible small businesses (ESBs) - generally those businesses with a 3-year gross receipt average of not more than $15 million - could elect to increase the NOL carryback period for an applicable 2008 NOL from 2 years to 3, 4, or 5 years.
Under the new Act, the carryback provision is available to most taxpayers who may elect to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years. An applicable NOL means the taxpayer's NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.
The Act provides cash-strapped businesses the opportunity in writing off current losses against past profits. The amount of the NOL that can be carried back to the 5th tax year before the loss year generally may not be more than 50% of the taxpayer's taxable income for that 5th preceding tax year. Alternative tax NOL rules have also been amended by this act.
This article is provided for general guidance only, and does not constitute the provision of legal, accounting or other professional advice of any kind. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. Please consult with your Tarpley & Underwood tax professional before taking any action.
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