Nol Tax Attribute Form 982

[GTS1101]

My client did a short sale on his rental property in 2009. He is insolvent by 284,000. He has had an NOL every year since 2005 all the way up to this year 2009. The NOL's from prior years are being carried forward but cannot be used because you can't increase a current year NOL by prior NOL's.

On Form 982 Line 6 it states "Applied to reduce any net operating loss that occurred in the tax year of the discharge or carried over to the year of discharge."

I understand that this years NOL which is 173,000 will be reduced by this tax attribute so he cannot carryforward to future years.

My question is the NOL's from prior years 2005,2006,2007,&2008 that cannot be used or carried forward to 2009 as you are not allowed to increase a current year NOL do I have to reduce the remainder of the insolvency amount by the prior year NOL's. My thought is that no I only reduce it by the current year NOL because my client cannot use the prior year NOL's yet. They will be carried forward to future years.

Thank You!
GTS1101

[JG EA]

Form 982

Applied to reduce any net operating loss that occurred in the tax year of the discharge or carried
over to the tax year of the discharge

Since in theory it is carried over even though not used (in order to keep carrying it over) - it would be any NOL attribute.

[GTS1101]

Nol

Thank You for your quick response. After your answer it made me think about something else. Because the way I understood the calculation of the NOL each time the client had a new NOL I did not carryforward the prior year NOL because I thought it could not be used and could not be added to the current NOL. But from looking at the worksheet again it looks like each year I should have carried it forward and whatever wasn't used will be carried forward up to 20 years. NOL's are confusing. Am I thinking about this correctly? And if yes what should I do now? Just show the full carryover amount from prior years on the 2009 return? I haven't filed yet for 2009 because amount due is zero.

Thanks!

GTS1101

[JG EA]

Well, I'm not sure. You may need to amend to establish the Carryforwards. Maybe someone else will know. Do you have CFS? They have great modules for NOL and NOL carryovers. Or just get worksheets from the internet maybe. I do a worksheet for each year of loss and a carryover over worksheet for each loss year to the current year, until I I'm sure I understand it and also so I understood what the program is doing and if it is correct.

If you think just correcting the prior carryovers will be enough and just start with the right amount maybe by using your tax attributes up on the old ones will work.

[Maribeth]

Thank You for your quick response. After your answer it made me think about something else. Because the way I understood the calculation of the NOL each time the client had a new NOL I did not carryforward the prior year NOL because I thought it could not be used and could not be added to the current NOL. But from looking at the worksheet again it looks like each year I should have carried it forward and whatever wasn't used will be carried forward up to 20 years. NOL's are confusing. Am I thinking about this correctly? And if yes what should I do now? Just show the full carryover amount from prior years on the 2009 return? I haven't filed yet for 2009 because amount due is zero.

Thanks!

GTS1101

The NOL's will carryforward until they are used up or the 20 years expires. Even though you did not reflect them on the tax return -- which, by the way, is the correct way to show an NOL carryforward in a loss year -- they are still available to your client and the time statute continues to roll.

If 2009 is a loss year, then you will not show any amount of NOL carryforward on line 21, but you will have your carryforward schedules in your workpapers and hopefully in the return.

Fix it for 2009, do not amend any prior years. Reduce the tax attributes accordingly for your client's insolvency.

Maribeth