NOL Lost?

[Possi]

My new client did not file a return for 2009 and has a NOL.

To take that loss, the return had to be filed on time, or on time with an extension. Just making sure that I am right... he loses that year's losses.

I filed an extension for 2010, and he will have a loss again. If I were to attempt to carryback, would I then be able to capture the 2009 loss?

I truly do not believe he is capable of getting those past returns to me. He's a little like a trainwreck... so I will most likely carry this forward.

[Maribeth]

My new client did not file a return for 2009 and has a NOL.

To take that loss, the return had to be filed on time, or on time with an extension. Just making sure that I am right... he loses that year's losses.

I filed an extension for 2010, and he will have a loss again. If I were to attempt to carryback, would I then be able to capture the 2009 loss?

I truly do not believe he is capable of getting those past returns to me. He's a little like a trainwreck... so I will most likely carry this forward.

The 2009 NOL is still available. However, you cannot elect to carry it forward; you must carry it back. You also cannot use Form 1045 for the 2009 NOL; you must use 1040X.

Maribeth

[Koss]

Agree

Just a few additional observations:

When an NOL is involved, whether it is carried forward, carried back, or both, you really can't have gaps, or it just won't work right. Train wreck is an appropriate metaphor.

Maribeth is correct that if the return on which the NOL occurs (in this case, 2009) is not timely filed with the proper election, then you must carry the NOL back. In most cases, the carryback period is three years, but I'd have to look that up, 'cause they've changed it so many times.

But at least in principle, it is possible that when you carry the 2009 NOL back three years, it may not be completely used up. If that happens, the taxpayer then gets to carry it forward, for up to 20 years.

Therefore, from a theoretical standpoint, he has to file the 2009 return, and go through the motions of carrying back the NOL three years, in order to determine whether any of the NOL remains available to be carried forward. He needs to do this before filing the 2010 return or any later year, otherwise you'll never know if the 2010 return is correct.

Sure, you can go ahead and file 2010 without first doing 2009 and the carryback. But if and when he ever gets his act together, if there is any NOL left to carry forward to 2010 and beyond, you'll end up having to amend 2010 and every subsequent year.

It is something of an understatement to say that it is a domino effect.

If he won't come up with the data you need, it is not unethical for you to prepare the 2010 return without knowing whether an NOL carryforward exists. But I would make sure he understands what he may be losing, as well as how much you'll charge him down the road if 2010 and later years need to be amended.

BMK

[Possi]

Good Answer...

Thanks so much. I'll have a chat with him, but it's not unlike talking to a rock...

Of course, there are days that talking to ME is not unlike talking to a rock!

Thanks again....

[SFBOB]

Ponzi On Amended Return

Any one with experience of amending a 2009 return that was affected by a Ponzi? The previous preparer not understanding the Ponzi as a theft loss selected capital loss treatment in error. This is an example for discussion, not an actual return.
2008 and 2009 Ponzi theft losses had a 5 year carryback option. My guess is that this has happened quite often in the real world. Will appreciate your feed back.