NOL Carryforward

[Deborah]

Client has a NOL carryforward from 2003. We attached the statement to the tax return stating it would be carried forward, not back. The 2003 tax return was timely filed.

The 2004 tax return has just been prepared. Once again there is a NOL. The IRS instructions are pretty clear that the return must be timely filed if a NOL is being claimed. Obviously all extension have expired and the 2004 is not being timely filed. But is the timely filed just for a carryback - the instructions don't talk much about the carryforward only issue?

It will be the same for 2005 - there will probably be NOL. But no timely filing.

And then there is 2006. Best guess is that it will not get done by Oct 15.

So my question is - can the NOL from 2003 be used in the first year applicable?
Is the NOL for 2004 moot? same with 2005?
The NOL for 2005, if any, will be moot.
And 2006 probably won't have a loss and probably won't be done on time anyway.


Thanks for any help offered.

[abby]

carryback vs carryforward

An NOL isn't forfeited until the year the NOL is incurred is closed. So, the 2004 NOL could be fully used if the return is filed by April 15, 2008.

The timely filed return issue does apply to the election to forgo the carryback period.

So:
You would have to take the 2004 NOL back to 2002 first before carrying it forward since the election to forgo can't be made. If none is used in 2002, then you will likely still have 100% available to carryforward.

Even in a closed year, I believe you could possibly use an NOL if anything is left to carryforward to open years after applying whatever would have been used up in the closed years.

Hope that helps.

[Deborah]

NOL Carryback

Abby
Thank you.. Your response was most helpful.
I suspect that my client had no tax liability in 2002 as they did not want to carryback their 2003 NOL
I was told earlier today in another forum that it is possible the carryback to 2002 will create a NOL for that year - and then I would take that NOL back to 2000 - Is that correct?

[abby]

2004 Nol?

If you are meaning the 2004 NOL will create a 2002 NOL, then not to worry. Only 2002 can create a 2002 NOL. The NOL is identified by the year it is created.

If none of the NOL is used up in 2002, then you can start carrying it forward.

If 2002 did indeed have an NOL of its own, then it is too late to carry it back to 2000 because 2002 is a closed year (again, the closure is identified by the year of the NOL - so its OK to carryback a 2004 NOL to 2002 because 2004 isn't closed).

If that's not what you meant, my apologies - let me know what I'm missing.

[Deborah]

Abby

Thank you again.
I am going to try restating this - but I think I understand.
What I was told was that carrying the 2004 NOL back to 2002 could create a NOL for 2002.
I think this advice is incorrect.
From what you have stated, you start by carrying back the 2004 NOL to 2002 - if it is cannot be used in 2002 or not all of it is used in 2002 - you then move on to 2003 and fo
rward from there.

If there is any case where carrying a NOL back can create a NOL in the year it is carried back to - I apologize to the person who gave me that advice. .

Thank you again.
If I don't have it yet - please let me know.

[abby]

that's it

To the best of my knowledge. It could be the advisor was simply saying that it might not all be used up, so you create a negative that you can carryforward - as you say - through 2003 onward. But I can't think of a circumstance where you'd take it back again to 2000.

Of course, I may be missing something, too! Still, the basic rule is as we've discussed.

[Deborah]

Thank you very much.

You have been a big help. You have a very clear and precise way of stating things. Thank you.