Calling on an NOL expert out there.

[JG EA]

Ah, just back from a refreshing weekend and I'm already in trouble. Client's returns need to be done or the IRS is filing Levy through substitute returns. We've been waiting on information - all in now, but I have a few complicated issues to resolve!

Question: Can an NOL occurring in 2001 and 2002 filed now (and therefore late) do an election for 2 years back (instead of the 5 years) or is this a real election that has to be filed timely (like an election to carryforward)?

Related question: Do you actually have to amend if there will be no change on those previous years or can you just carry on?

Another question: Can an NOL be caused just from medical expenses? (e.g. very little income and huge medical bills.)

[Lance Emerson]

Ah, just back from a refreshing weekend and I'm already in trouble. Client's returns need to be done or the IRS is filing Levy through substitute returns. We've been waiting on information - all in now, but I have a few complicated issues to resolve!

Question: Can an NOL occuriing in 2001 and 2002 filed now (and therefore late) do an election for 2 years back (instead of the 5 years) or is this a real election that has to be filed timely (like an election to carryforward)?

Related question: Do you actually have to amend if there will be no change on those previous years or can you just carry on?

Another question: Can an NOL be caused just from medical expenses? (e.g. very little income and huge medical bills.)

I hope you got money up front on this one.

The 5-year carryback for 2001 and 2002 is the default. You can make an election to forgo the carryback, but it must be made by the due date of the return. Out of luck on this one. Your NOL's get carried backwards.

Yes, you'd have to file amended returns. The statute of limitations doesn't start to run until there's a return filed in the first place. Keep in mind that the three-year limit for refunds is gone for 2001, but is still available for 2002, and that also applies to NOL's for that year.

If you're trying to get an NOL from medical expenses, your client is SOL. An NOL is generated by business losses, not personal deductions.

[Bird Legs]

Refunds-NOL Carryback

Lance, it is my understanding that a refund resulting from a NOL carryback is still refundable, even though it is carried back for more than 3 years.
Claim for refund-time limitation-3 years from the date the return was considered filed or 2 years from the date the tax was paid, whichever is later. If no return was filed by the taxpayer, 2 years from the time the tax was paid. Code Sect 6511.
The one question is when was the 2001 tax paid?
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Additional: There is an exception to the statute of limitations. FINANCIALLY DISABLED.
2003 QF Handbook. Page 16-2 - Financially disabled. The running of the statute of limitations for refund claims is suspended for any period during which a medical impairment prevents the taxpayer from managing his or her financial affairs. The impairment must be expected to result in death or must have lasted or be expected to last for a continuous 12-month period. To claim a refund or credit after the ordinary statute of limitations period as expired, follow Rev. Proc. 99-21. A written medical opinion must support the claim. The statute of limitations is not suspended for any period during which another person had authority to act for the taxpayer in financial matters.

[Bees Knees]

Claim for refund

Claim for refund-time limitation-3 years from the date the return was considered filed or 2 years from the date the tax was paid, whichever is later. If no return was filed by the taxpayer, 2 years from the time the tax was paid. Code Sect 6511.
The one question is when was the 2001 tax paid?

Section 6511(b)(1): "Filing of claim within prescribed period. No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period."

That means if no claim for refund was made, you can’t file for one beyond the 3 year statute of limitations. 2001 statutes expired April 15, 2005, unless a valid extension was filed and a return was filed within the time frame for the extension. So any NOL that occurred in 2001 is gone and cannot generate a refund in any other year.

[Mark Goldberg]

Bird Legs point

Bees,
Bird Legs has a point.
In QF page 16-2 IRC 6511(h) is explained.
The SOL for a person who was very ill causing him or her not to file is extended. If this is the case with Lance's client maybe the 2001 refund and NOL are not lost.
It says follow Rev Proc 99-21.

[Bird Legs]

Thanks Bees Knees

For your knowledge and response. Just finished a 2003 return with a large NOL. This was still within the 3 year limitation.
What was puzzling to me was the sentence that read, "or when tax was paid".
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Am getting closer to the 30 mark.

[Bees Knees]

medical

Bees,
Bird Legs has a point.
In QF page 16-2 IRC 6511(h) is explained.
The SOL for a person who was very ill causing him or her not to file is extended. If this is the case with Lance's client maybe the 2001 refund and NOL are not lost.
It says follow Rev Proc 99-21.

Well I agree that under specific circumstances, that might apply. But JG never indicated the return wasn't filed because the taxpayer was in a coma for three years. I think if you read that Rev Proc, we are talking more than just mounting medical bills. I think we are talking about serious stuff where the taxpayer physically cannot be expected to file a tax return.

The Rev Proc says the following:

"- the physician's medical opinion that the physical or mental
impairment prevented the taxpayer from managing the taxpayer's financial
affairs;

- the physician's medical opinion that the physical or mental
impairment was or can be expected to result in death, or that it has
lasted (or can be expected to last) for a continuous period of not less
than 12 months"

[JG EA]

Lance,

I hope you got money up front on this one.

The 5-year carryback for 2001 and 2002 is the default. You can make an election to forgo the carryback, but it must be made by the due date of the return. Out of luck on this one. Your NOL's get carried backwards.

Yes, you'd have to file amended returns. The statute of limitations doesn't start to run until there's a return filed in the first place. Keep in mind that the three-year limit for refunds is gone for 2001, but is still available for 2002, and that also applies to NOL's for that year.

If you're trying to get an NOL from medical expenses, your client is SOL. An NOL is generated by business losses, not personal deductions.

A little, balance to be paid Friday when the returns are done.

So, no election to go back 2 years is possible? Right? That then leaves me out. The client is not inclined to get the information for 5 years ago. So, I am going to file without doing amended returns I guess.

So, since I'm just now filing 2001/2002/2003, amended returns are out of the question anyway. Is waiting to do those amended returns possible? Later maybe the client will want to go 5 years back. We could at least meet the IRS deadline now.

I'm not, I asked that question because one year this was the case and my program said ‘you have an NOL’. But, 2002 is a large loss from sale of rental property and very little other income.

I appreciated the other comments but I didn't see how I could apply them, because there is no question of a refund ever. This client had no income for all the years I’ve seen, and if there was any it was eaten up by medical deductions and previous NOL’s. But, let’s not go into the previous NOL’s - that’s a whole other thing. The NOL in 2002 will just eventually go forward if I can ever go back in order to go forward.

[Unregistered]

[QUOTE=JG EA]
So, no election to go back 2 years is possible? Right? That then leaves me out. The client is not inclined to get the information for 5 years ago. So, I am going to file without doing amended returns I guess.[QUOTE]

No. The carryback is the default. The carryforward is the election. If no election is made, you must carry the NOL back.

[JG EA]

No. The carryback is the default. The carryforward is the election. If no election is made, you must carry the NOL back.[/QUOTE]

I was talking about the election to only go back 2 years. 5 is the number of years for 2002.

[Lance Emerson]

That was an election also. If no election was made by the due date of the return, for 2001 and 2002 the NOL automatically goes back five years. Default carryback for 2003 is two years.