Amend Prior Year Return for NOL

[CAErinB]

Question for anyone who can help: I have a new client. The TP filed his 2006-2013 returns, all as MFS, in late 2014. The 2010 return generated a NOL but the preparer neglected to carry it anywhere. The TP has a large (unpaid) multi-year balance, and the spouse's 2010 return had a (paid) sizable tax liability.

Is there any way to either:

(a) amend TP's 2008 return (since a late-filed return cannot waive the carryback provision) to include the carryback, and reduce the TP's overall multi-year balance due, or
(b) amend TP's 2010 return to MFJ status to offset some of the spouse's income? Since TP is within the time frame for amending his 2010 return, can he amend his filing status, and thereby amend the spouse's return as well? If amending to MFJ is possible, then their joint AGI would be low enough as to produce no joint 2010 tax liability, so could the tax the spouse paid in be credited to TP's multi-year balance?

Also, the 2009 return was filed without any Schedule C expenses, but now the TP has located his records. Deducting the expenses in TP's records would generate a NOL, whereas the original return showed a small income & small tax liability. If we amend the 2009 return to include his expenses, can the 2007 return be amended to include that carryback, and reduce TP's 2007 income, thereby reducing the balance originally shown on that return?

I know those questions are similar, but one refers to fixing a NOL not carried anywhere, while the other is regarding amending to declare a NOL and then carrying it somewhere, so I figured they might be different issues with different rules.

The TP isn't requesting (or under the illusion that he'll receive) a refund in any of these scenarios. But can he use what would have produced a refund to reduce his overall 2006-2013 balance due? Or is that what they mean with the use of the word "credit" in the rule describing a*TP's allowable time frame to "request a refund or claim for credit"?

Thanks for your help.

[New York Enrolled Agent]

(b) amend TP's 2010 return to MFJ status to offset some of the spouse's income? Since TP is within the time frame for amending his 2010 return, can he amend his filing status, and thereby amend the spouse's return as well? If amending to MFJ is possible, then their joint AGI would be low enough as to produce no joint 2010 tax liability, so could the tax the spouse paid in be credited to TP's multi-year balance?

§6013(b)(2)(A) sets a limitation for filing a joint return after a separate return(s) has been filed. The election to file jointly may not be made after the expiration of 3 years from the last day prescribed by law for filing the return for such taxable year (extensions not considered). For 2010, the day prescribed by law was April 15, 2011. It does not appear you can file an amended return for 2010 for purpose of changing the filing status.

[JudyL]

this might answer some of your issues

Question for anyone who can help: I have a new client. The TP filed his 2006-2013 returns, all as MFS, in late 2014. The 2010 return generated a NOL but the preparer neglected to carry it anywhere. The TP has a large (unpaid) multi-year balance, and the spouse's 2010 return had a (paid) sizable tax liability.

Is there any way to either:

(a) amend TP's 2008 return (since a late-filed return cannot waive the carryback provision) to include the carryback, and reduce the TP's overall multi-year balance due, or
(b) amend TP's 2010 return to MFJ status to offset some of the spouse's income? Since TP is within the time frame for amending his 2010 return, can he amend his filing status, and thereby amend the spouse's return as well? If amending to MFJ is possible, then their joint AGI would be low enough as to produce no joint 2010 tax liability, so could the tax the spouse paid in be credited to TP's multi-year balance?

Also, the 2009 return was filed without any Schedule C expenses, but now the TP has located his records. Deducting the expenses in TP's records would generate a NOL, whereas the original return showed a small income & small tax liability. If we amend the 2009 return to include his expenses, can the 2007 return be amended to include that carryback, and reduce TP's 2007 income, thereby reducing the balance originally shown on that return?

I know those questions are similar, but one refers to fixing a NOL not carried anywhere, while the other is regarding amending to declare a NOL and then carrying it somewhere, so I figured they might be different issues with different rules.

The TP isn't requesting (or under the illusion that he'll receive) a refund in any of these scenarios. But can he use what would have produced a refund to reduce his overall 2006-2013 balance due? Or is that what they mean with the use of the word "credit" in the rule describing a*TP's allowable time frame to "request a refund or claim for credit"?

Thanks for your help.

With a quick search I found this IRS manual, the Examining Officers Guide. Sorry I don't have the actual code sections to back this up, but this should lead you to the answers you seek.

First, you might want to concentrate specifically on the section 4.11.11.6 - Statute of Limitations for Assessment. It will answer your question about the Schedule C expenses that weren't reported. There are different methods of handling errors and omissions or barred deductions in the year of carryback that will depend on whether the year being carried back to is an open or closed year. That same section has examples and numbered points with different scenarios that you should find helpful.

The other section in this guide with specific relevant information is under 4.11.11.11 - Election to Forgo Carryback. "Item #7 - If both the NOL year and the carryback year statute of limitations have expired, the NOL cannot be carried back for a refund. However, a taxpayer must calculate the "correct" application of NOL to prior years’ taxable income in compliance with IRC 172(b)(2). Only the excess of the NOLD over the taxable income in those carryback years can be carried forward and utilized. "

My final piece of advice is that if this taxpayer has ANY item at all that would appear on Form 6251, you must include the form and all of the AMT calculations. This is true even if the taxpayer wasn't subject to AMT or if there is no effect, because without include those calcs the IRS will not accept it.

Here's the link to that IRS guide, and again, sorry I don't have the actual code secs or regs, but hope this gets you started: https://www.irs.gov/irm/part4/irm_04-011-011.html