NOL carryback...child tax credit

[equinecpa]

I am dealing with an issue I haven't come across before.

I prepared a clients 2008 tax return and they had a NOL. It was a farm nol so we carried it back 5 years to 2003. The NOL reduced the clients tax to nil. They had formerly claimed a child tax credit but since their tax liability was not NIL were not receiving the regular child tax credit. I filed form 8812 with the return to claim the additional child tax credit.

The taxpayer received a refund for the original tax liability but did not receive the additional child tax credit amount. I contacted the IRS and they said because the return is over 3 years old we can't claim additional credits (I guess they are using the 3 year rule for refunds?). This strikes me as odd. Publication 536 says to recalculate any credits...the tax software recalculates the credit...

What do you think?

Thanks

Caorlyn

[Nashville]

Refundable Credits

Carolyn, Snag posted a similar situation back on July 22.

The NOL reduces the income tax to zero, so the Child Tax Credit is lost. If this were to happen on an original return, the taxpayer usually has a shot at the "Additional Child Credit."

However the "Additional" Child Credit is a refundable credit. If you study the design of Form 1045, there is no provision for a change in "payments" (which includes Additional Child Credit) I believe the instructions which say to "recalculate credits" apply only to those which are in the Credits section of page 2 of the 1040.

I believe the auditor told you incorrectly about the three-year period, as the stimulous legislation has enabled a roll-back of prior years.

However, if you read the thread, the conclusion was that the client was estopped from claiming the Additional Child Credit. Doesn't mean that this conclusion was correct, however. If you find out differently, please let us know...