NOL Carryback Question

[rfk]

How does one carryback to create an NOL. Is it a portion for the loss of a K-1 amount in forward year? Or... Kind of confused about this.

A new client says that he wants to amend his TY 2005 to reflect a NOL. Wants to carryback TY 2006 NOL to TY 2005. I do not know how to calculate the amount for what the NOL is going to be for TY 2005. It is not straightforward at this point. I feel that I need to quiz the client more. Something seems to be missing.

Any help would be appreciated given a hypothetical example if you do not mind.

Thanks for your help as always in advance.

rfk

[S T]

2006???

Addressing a 2006 carryback now? Or was the 2006 NOL created from a more current return which affects many prior year returns (carryback)

I am sure someone else is better at posting this scenario for you, but generally the NOL is in the current year and you make an election to carry forward or absent election it is carried back to what could be several prior periods.

What year was the NOL created?

Isn't there also a statue of limitations to process the carryback if the NOL is not in the current year?

Guess we need some more information regarding your taxpayer to effectively provide some answers

Sandy

[geekgirldany]

If he filed the return and did not elect to carryforward then he can carryback. But the statue of limitations on a refund come into play. So if he has a 2006 carryback NOL then he will have to go back 2 years, which would be 2004, use it up and then what is left over from the NOL (if any) move on to 2005 and so on. Since it is past the statue of limitations on refunds for those years he would not get any benefit.

Like Sandy said would need more details also on what he is thinking?

[BHoffman]

How does one carryback to create an NOL. Is it a portion for the loss of a K-1 amount in forward year? Or... Kind of confused about this.

A new client says that he wants to amend his TY 2005 to reflect a NOL. Wants to carryback TY 2006 NOL to TY 2005. I do not know how to calculate the amount for what the NOL is going to be for TY 2005. It is not straightforward at this point. I feel that I need to quiz the client more. Something seems to be missing.

Any help would be appreciated given a hypothetical example if you do not mind.

Thanks for your help as always in advance.

rfk

Net Operating Losses are going to appear on your client's 1040 as negative AGI, and can be the result of a flow-thru loss from a K1. As Sandy and Dany said, the loss is either carried back on form 1045 (usually) or make an election - See IRC Sec. 172(b)(3) - to carry it forward. If the election was made, you would see it on a statement attached to the 2006 1040 form.

I guess I'm also curious as to what your result your client is looking for, especially since 2005 is closed.

[WhiteOleander]

If a refund is created by an NOL carryback to a year that is actually a closed year, the refund will be given to the t/p. Since the t/p is forced by statute to go back that far, the gov't has to give the refund.

[BHoffman]

NICE catch, WhiteOleander!!!

[rfk]

IRS Letter to TP

Letter from IRS says: "We have no record of you filing a timely election by Oct 15, 2007 to forgo your carryover NOL. Therefore, you must carryback your 2006 NOL 2 years. You will need to complete a Form 1040X for 2004 and 2005, and 2006 Form 1045 Schedule A-NOL and B-NOL."

At this stage someone else completed amended TY's 2006 and 2007. But I am wondering how to only carryback loss to 2005 to amend it since this is what the TP says needs done. The K-1 stems from a 1120-S with a $624,764 loss, and my client's flow through loss of $-249,809, line 17 (reported on TY 2006), as amended by another tax preparer. But how do I determine what portion of the flow through loss (NOL) is going to end up on line 21 of the 1040 for TY 2005?

Yes a little confusing. What questions should I ask the TP or should I know this stuff based on experience? I do not want to look like I do not know what I am doing though.

Thanks again.

rfk

[geekgirldany]

If a refund is created by an NOL carryback to a year that is actually a closed year, the refund will be given to the t/p. Since the t/p is forced by statute to go back that far, the gov't has to give the refund.

I was wrong thank you for the correction.

RFK, so there 2006 and 2007 was amended to show the loss from the K-1? Sounds like he did not have the K-1 on his original return to report so they amended those years. Is that correct?

[rfk]

There were K-1 figures...

There were K-1 figures for 2006. An S Corp return was amended to reflect a loss. In the beginning preparation, the net value was for only $-6,280 for my client's portion of this. It increased substantially to $-252,974, where a portion of it was carried forward to 2007 ($-80,143) and now it appears (my assumption) wants another potion to be carried back to 2005. Therefore, I will use a number that will give him the rest of the amount of what FIT was withheld. So, year 2006 seems to be the "spinner."

rfk

[thomtax]

Maybe I am overlooking something here, but is the NOL not supposed to be applied to the oldest year first and then carried forward. I'm wondering how they knew the figures to amend the newer year when they did not know how much would be carried forward.

LT

[geekgirldany]

That is what I am thinking Thom.

So they amended 2006 to so the additional loss. 2007 was amended to carryforward some of that loss. But the IRS sent a letter saying "We have no record of you filing a timely election by Oct 15, 2007 to forgo your carryover NOL. Therefore, you must carryback your 2006 NOL 2 years."

So the IRS is disallowing the 2007 carry forward? Is that it?

[rfk]

It's confusing

The TP is supposed to call the IRS tomorrow and find out what his situation is because wondering if time is gone anyway for fling carry back. And to see what is really going on. It is a wait and see.

rfk