NOL and Trust

[Possi]

I have a new client with a business that closed in 2009, and there is a NOL to carry forward. Last year, her accountant did a carryback for the same business, so I'll go forward.

Her business losses are -2688.00. There is no other income except for $150 interest.

Her K1 losses are all long and short term losses carried forward. The net K1 short term loss is (21,146.00) and the net long term loss is (56,396.00).

My question is this, on the 1045 Sch A line 2, are the K1 losses considered "non-business capital loss before limitation"?? Do I need to enter that figure there?

This NOL is small, but the tax return has been a huge headache. As a matter of fact, my head is screaming today... I need drugs.....

[Maribeth]

My first impression is that the NOL generated for the year is $2688. The other income was offset by the taxpayer's standard deduction.

The capital losses are non-business and have their own carryforward provisions.

If the 2008 NOL carryback did not use up all of the NOL, then I would not elect to carryforward the 2009 NOL. Just carry it forward; no tax benefit to carryback.

Maribeth

[Possi]

NOL pains...

My first impression is that the NOL generated for the year is $2688. The other income was offset by the taxpayer's standard deduction.

The capital losses are non-business and have their own carryforward provisions.

If the 2008 NOL carryback did not use up all of the NOL, then I would not elect to carryforward the 2009 NOL. Just carry it forward; no tax benefit to carryback.

Maribeth

The 2008 was used up in the carryback, so it's done. I believe I do need to take the election to carry forward because of that.

Also, are you saying that the trust losses are "non-business" losses that I need to enter on that 1045 Sch A? I think that is what I am hearing.

Thank you so much for the help!

[Maribeth]

Also, are you saying that the trust losses are "non-business" losses that I need to enter on that 1045 Sch A? I think that is what I am hearing.

I assume from your original posting that your client received a K-1 from a trust that had short-term and long-term capital losses on it. If that is the case, then absent any information to the contrary, the losses are non-business capital losses and are reflected as such on the NOL determination.

Maribeth

[Maribeth]

The 2008 was used up in the carryback, so it's done. I believe I do need to take the election to carry forward because of that.

The way that I was taught regarding NOL's and their carryback & carryforwards:

In a tax year that has generated a net operating loss, you ALWAYS determine if there is any tax benefit to a carryback BEFORE you make any election to carryforward.

If there is no tax benefit to a carryback, then you do not make any election to carryforward. You have determined that no NOL would be used in the carryback period so there is no reason to make any election to carry it forward.

If there is a tax benefit to a carryback, then you determine if the tax benefit of the carryback is more beneficial to the client than the potential of the carryforward. That question then becomes a judgment call. If the tax benefit of the carryback is minimal, then make the election to carryforward. But again, this is a facts & circumstances test, what is best for the client.

And always, always remember that it is the client's election to carryback/carryforward, not the tax preparers.

Maribeth

[Possi]

Thanks!

Thanks Maribeth!

I thought that if you carried it forward for any reason, you had to make the election...

I learn something new every day...

[Possi]

If there is no tax benefit to a carryback, then you do not make any election to carryforward. You have determined that no NOL would be used in the carryback period so there is no reason to make any election to carry it forward.

Maribeth

Maribeth, you do need to make an election to carryforward. The default is to carryback. So the election needs to be made to change direction from the default (back) and go forward.

And now, I have learned that you do need to make an election to carry it back, even though that is the default. Read on....

I have one NOL to carry forward and the verbiage for that election is on TTB 8-16 column 2.

However, I also have a NOL carryback. I thought you did not need to make an election to carryback because that is the default. I have been corrected by the IRS with the following verbiage for the NOL carryback election:

"TAXPAYER ELECTS TO APPLY SECTION 172(B) (1) (H) OR 810 (B) (4) UNDER REV. PROC. 2009-52. TAXPAYER IS NOT A TARP RECIPIENT NOR, IN 2008 OR 2009, AN AFFILIATE OF A TARP RECIPIENT. THE LENGTH OF THE NOL CARRYBACK PERIOD ELECTED IS 5 YEARS."

That would have been helpful knowledge a couple of months ago, and still might be helpful to some of you. I do not see this in TTB.

[Lion]

1-12 & 1-16

See pages 1-12 and 1-16. The two-year carryback is still the default, but 2008 and 2008 offered the election you quoted from page 1-17.

[Possi]

There it is!

I had even highlited it at some point......