A client has a net operating loss (let's say in 2012 NOL of $1,000 for this discussion) and the election is not made to waive the carryback. There is no benefit to carrying the NOL back for the client. No amended return is done for the carryback years because there is no benefit. In the following year which would be 2013, can this $1,000 be used as NOL carry forward on the Other Income line? I am trying to understand what reporting the IRS is looking for so the client can use the NOL in later years when there is no benefit in prior years. Thanks.
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If you fail to elect to waive the carryback period, then you are unable to carry the loss forward. The only exception that I can think of is in the instance of the initial year of the corporation that results in a loss. In this situation only, there is no year to carryback to or amend so there is no need for a waiver (although I generally do out of habit).
In your situation, it does not matter that there is no benefit to carrying the loss back, if you failed to waive the carryback period on a timely filed return, then you by default must carryback - you can not carryforward.
Incidentally, you can not waive a carryback period on a delinquent return (not sure if this applies).
(This post has been edited below for clarity and MasterTaxGuy does a good job of explaining).Last edited by TXEA; 07-08-2014, 06:30 PM. -
To carry back or not to carry back....
1. Your scenario doesn't specify the type of net operating loss.Originally posted by sali View Post
2. Certain NOL's have longer carryback periods. For example, farm losses (5 years), certain disaster losses (5 years) and something called specified liabilty losses.
3. An earlier reply suggested that failure to carry back means the TP will lose the entire NOL. I don't read the Code or regulations that way. I do think Hall v. US, Fed. Ct. of Claims (July 12, 2013) and Hall v US, Fed. Ct. of Claims (08-09-2011) supports my interpretation.
4. Failure to carry back (and let's assume your situation involves a 2 year carryback situation), means that the loss that could have been used in the earliest year (i.e. the 2nd prior year) would be used up, but any remaining NOL that was carried back would be available for the immediately prior year (i.e. the 1st prior year), and if the balance of the NOL was not used up, then the remaining NOL would be available for subequent year(s) up to 20 years after the NOL year.
5. TTB pp. 8-15-17 has an adequate overview.
6. IRS Publication 536 may be of some help.Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.Comment
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MasterTaxGuy
"4. Failure to carry back (and let's assume your situation involves a 2 year carryback situation), means that the loss that could have been used in the earliest year (i.e. the 2nd prior year) would be used up, but any remaining NOL that was carried back would be available for the immediately prior year (i.e. the 1st prior year), and if the balance of the NOL was not used up, then the remaining NOL would be available for subequent year(s) up to 20 years after the NOL year."
I agree 100%. I did not mean to imply that the loss would be unavailable to carry forward. However, that is what I wrote.
I was trying quickly to make a point that the taxpayer is not able to just put the loss on the next return filed as posed in the question. When the taxpayer failed to elect to waive the carryback period, they lost the ability to ignore the prior years (assuming two). They need to go through the process of filing Form 1040X or Form 1045 to firm up the amount that is eligible to be carried forward.
Sometimes haste in a response is not a good thing.Last edited by TXEA; 07-08-2014, 06:25 PM.Comment
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