NOL Carryback for Federally Declared Disaster Loss

[cfstax1]

I am preparing a 1045 for a federally declared disaster loss for tax year 2015. Can this casualty loss be carried back 5 years or 3 years? 5 years is much better for my client. The 1045 instructions talk about a 5 year carryback but not sure if this casualty loss applies.

[Roland Slugg]

The usual carryback period for an NOL is 2 years (followed by a carryover period of up to 20 years for any unused portion). Assuming your client's loss arose from a storm, the carryback period is 3 years. The 5-year carryback period referred to in the instructions for F-1045 (as well as in Pub 536) was for federally declared disasters that occurred before 2010.

If your client's NOL consists of a business loss in addition to his casualty loss, only the casualty loss portion may be carried back 3 years. The remaining portion of the overall NOL may be carried back only 2 years.

Taxpayers have the option of waiving the carryback, and this must be done by attaching a statement to the taxpayer's timely-filed original return. I assume this election was not made, and that's why you are now preparing F-1045 for that taxpayer.

[cfstax1]

Thank you for your response. I prepared the 1045 (incorrectly) using the 5 year carryback and was rejected by the IRS. I was not sure if they rejected the form because they did not see the casualty loss was from a federally declared disaster. I will resubmit using the correct 3 year carryback.