NOL carry back to a year not filed yet

[Gretel]

I never had this situation. Normally you do an amended tax return or use form 1045.

I have to file several years of tax returns, some with high income, at least one with a sizable loss. I am thinking I just can carry this loss back to the return I am also filing, or do I need to file an original return first not including the NOL and then file an amended tax return? Weird situation.

[Koss]

NOL Carryback

I have limited experience with this, but another guy that I work with has done this sort of thing.

Most people who work at the IRS do not understand NOLs. They have difficulty processing them. Anecdotal experience suggests that returns involving an NOL are more likely to wind up in a correspondence audit.

To us it may be fairly intuitive, but I'm not sure the IRS, or their computer systems, will be able to process an NOL carryback on an original return. If nothing else, the computer system will resist it, because an application that prepares or processes a 2007 return is written with code that assumes that 2007 is the current filing year. The program can't grasp the concept that a later year has already been filed.

My recommendation is that not only should you first file an original return, but that you should file the returns in chronological order, leaving time between each return that is filed, so that when you file a later year return, the prior year return has already been processed.

At the risk of stating the obvious, doing it this way will require an extension for 2010.

To answer your other question, once the original return for the earlier year is filed, you have to use 1040X to carry back the NOL. Form 1045 can only be used to address an NOL that has occurred in the current year, on a timely filed return.

BMK

[Bees Knees]

In my opinion, late filed returns are not going to be processed in the same way as a current year return. Whenever I do multiple prior year returns, I have the client physically hand deliver all returns at the same time to the local IRS office. They will then stamp the returns as filed.

I don't believe the returns are split up and individually processed like they would have been if filed on time. I think they are handled like amended returns where a real human actually looks at the returns. I think this because the client usually gets adjusted penalty notices for all the late returns at the same time, as if the same person processed each return all at once. Thus, I would tend to put the NOL carrybacks all on the original returns that are being filed late.

[Gretel]

Very informative. Yes, I will have these tax returns hand delivered. Client did already with 3 even older tax returns some months ago. He was in deep financial trouble and was thinking he better files the tax returns after he knows how to pay. I already printed out previous threads that deal with the issue of penalty abatement and will try to get this for my client.

I am sure the tax returns will be combed, since for at least one of the older years the IRS did a substitute tax return. I am still at the investigation stage and will need to talk to the IRS very soon to keep them from levying.

This is a real refreshing client, who wants to come clean and has the funds to pay now. After an initial request of a retainer for $1,000 and him realizing that he needs much more help then he thought, he increased the retainer to $2,500. I really look forward to do these tax returns.