NOL Carryback w/no Basis

[lkaz]

I have a S Corp client who wiped out her basis last year with shareholder distributions. So at the end of 2019 basis was $0. In 2020 she experienced a huge loss. She has a several boutique stores and retail suffered. With the CARES act, I would generally be able to carryback that loss to 2015, 2016, and so on. However, since she has no basis in 2020 the loss is classified as a disallowed loss instead of an NOL for the current year. Can the loss still be carried back to previous years? Thank you so much.

[TAXNJ]

What’s New — Business. TTB 1-10

Net Operating Loss (NOL) Carrybacks See page 8-20 , page 5-28

For an NOL occurring in any tax year beginning after December 31, 2017, and before January 1, 2021, an NOL must be carried back to each of the five tax years preceding the tax year of the NOL. The taxpayer can make an irrevocable election to relinquish the carryback period for an NOL for any tax year and thus only carry the NOL forward. An NOL deduction for the tax year equals the aggregate of the NOL carryovers and carrybacks to the tax year (no 80% limit). Farmers may retain the 2-year carryback

[Anarchrist]

If she doesn't have basis, the loss isn't included in her income. If it's not included, it wouldn't cause an NOL. If there isn't an NOL, there isn't a NOL to carryback.

[TAXNJ]

S Corporation Shareholder’s Basis. See TTB. 19-9

An S corporation shareholder’s basis determines the following:

• The allowance of nontaxable distributions of cash or property, and
• The deductibility of flow-through losses and deductions.

Key points:

• A nondividend distribution in excess of stock basis is taxed as a capital gain on the shareholder’s personal return, usually as a long-term capital gain.
• Nondeductible expenses reduce a shareholder’s stock and debt basis before loss and deduction items (unless shareholder elects to switch the order, see Election to switch order of basis adjustments, page 19-10 ).
• If nondeductible expenses exceed basis, they do not get carried forward unless the shareholder elects to switch the order, see Election to switch order of basis adjustments, page 19-10 . If this election is made, the excess expenses retain their character and are carried forward to the succeeding tax year.
• A shareholder is not allowed to claim losses and deductions in excess of stock and debt basis. Losses and deductions not allowable in the current year are suspended due to basis limitations and are carried over to subsequent years.
• Suspended losses and deductions due to basis limitations retain their character in subsequent years.
• A shareholder is allowed debt basis only to the extent he or she has personally lent money to the S corporation. A loan guarantee is not sufficient to allow the shareholder debt basis.
• If an S corporation repays reduced basis debt to a shareholder, part or all of the repayment is taxable to the shareholder. See Repayment of reduced basis debt, page 19-11 .
• If stock is sold, suspended losses due to basis limitations are lost. The sales price does not have an impact on the stock basis.

Stock basis and debt basis. Stock basis and debt basis are adjusted and applied separately.


Note: Neither basis can be decreased below zero.

All distributions of cash or property and flow-through deductions are applied first against stock basis. If there is sufficient stock basis to absorb the amounts, there is no taxable income to the shareholder, and the losses and deductions are fully allowed on the shareholder’s tax return.