NOL Question

[Bob McCoy]

I've pretty much been absent since the end of tax season but recently ran into a situation. I am helping a couple who has unfiled tax returns for years, 2012, 2013, and 2014. The husband was paid with all 1099 income in 2012 and made no estimated payments. The wife had W2 income.

In 2013 they had an NOL generated from his newly formed company. Was a Sole Proprietorship. In 2014 they had a very modest income. Since they had more income in 2012 than in 2014 I believe they would benefit from a carryback.

My question is, if you choose the carryback, can you just go back one year, or do you have to start out by going back the full two years? Also, if you choose the carryback do you have to file the 2012 return (it has not yet been filed) and then file form 1045 afterwards? Sounds like extra work. Hoping for a shortcut.

I think I am on the right track with it (if not tell me where I am going wrong) but was not totally clear from the information in Pub 536. Probably an easy question for the people here who are a bit more cerebral than myself.

Thanks in advance.

[TaxGuyBill]

Unfortunately, you need to carry it back two years by amending the 2011 return.

http://www.irs.gov/publications/p536/ar02.html#en_US_2014_publink1000177352

Although Schedule A of Form 1045 is used to calculate the NOL, you won't actually file the 1045. The 1045 due date for a 2013 NOL was December 31st, 2014, so the only option now is to amend 2011 (and if 2011 doesn't use up the NOL, the unused part would go to 2012).

http://www.irs.gov/publications/p536/ar02.html#en_US_2014_publink1000177392

[Bob McCoy]

Thanks Bill for the information. It was one of those situations where I wasn't able to find in the Pub where it didn't say that you couldn't go back only one year, but it didn't say that you could either, so thanks for affirming the rules, would have hated to guess. Will have to see if they wish to go back and amend 2011, they may or may not wish to dig up that can of worms.

So what it looks like is, they would have to file the unfiled 2012 return, then amend for 2011, and then amend for 2012. So in essence you are filing a 2012 return while knowing you have to turn right around and amend as to include any unused NOL, or such is my interpretation. I guess no going in and just including the amount on line 21 for 2012.

Just a bit of clarification if you would however. I see that you said the 1045 was a worksheet only. When you said you don't file the 1045 were you just talking about the worksheet portion, as I see that page one of the 1045 has a place for a signature, and at the top it says it is a separate mail-in form? I was thinking that was the form you used to amend. Either that or opt for the 1040x. Or maybe you meant not to file in the event of a carry-forward only?

[TaxGuyBill]

I THINK you could just file the original 2012 with the 2013 NOL that was left over after being used in 2011.


When you have a NOL, there are 3 options:

(1) Use Form 1045. You do all of the calculations on it, you can file it by itself, and you don't need to amend anything. That is usually the easiest, BUT you are past the deadline to use it. The deadline was December 31st, 2014, so this is no longer an option.
(2) Waive the carryback. You would not amend anything or file Form 1045. You would only use Schedule A of the 1045 as a worksheet to determine what the NOL is, and use it the following year. HOWEVER, this is also past the deadline. That election is due within 6 months after the due date, so this is no longer an option.
(3) Amend the two prior years using 1040x. This is the only option left. You use Schedule A of Form 1045 to calculate the NOL, but you don't file the Form. It is only used as a worksheet for calculating what the NOL is. I think Schedule B may be needed to be used as a worksheet if 2011 doesn't use up the NOL and the 'left over' goes to 2012.

[Bob McCoy]

Thanks a lot Bill. Good thing I asked. Now I know not to waive the carryback in this situation. So will have to dig up the 2011 can of worms regardless.

Great explanation!