NOL Carryback Rules

[Zee]

I'm worried. I have a client that was not a resident/Citzen of the US in 2004, or earlier . As such, no US tax return was necessary. His 2005 return was filed very late (4/11/07). In 2005, he had an NOL of $20,000. No election was made to waive the carryback period. His 2006 return had huge K-1 NOL of over $300,000. Again, no election was made to waive the carryback. The TaxBook indicates that "If the taxpayer fails to file the return on time with this election, the taxpayer must carrry the NOL back under the carryback rules, even if no benefit is derived by carrying the NOL back". What happens now? Since the carryback is 2 years (and neither would provide a benefit), does the taxpayer now have 18-years carryforward? I sure hope so.

[Gretel]

I'm worried. I have a client that was not a resident/Citzen of the US in 2004, or earlier . As such, no US tax return was necessary. His 2005 return was filed very late (4/11/07). In 2005, he had an NOL of $20,000. No election was made to waive the carryback period. His 2006 return had huge K-1 NOL of over $300,000. Again, no election was made to waive the carryback. The TaxBook indicates that "If the taxpayer fails to file the return on time with this election, the taxpayer must carrry the NOL back under the carryback rules, even if no benefit is derived by carrying the NOL back". What happens now? Since the carryback is 2 years (and neither would provide a benefit), does the taxpayer now have 18-years carryforward? I sure hope so.

Zee, I understand "even if no benefit is derived" as you cannot pick and choose if you did not make the election. If the first tax return was filed in the USA then there is nothing to carry it back to and the NOL is automatically carried forward. Same is true if carried back NOL leaves the same amount of NOL to be carried forward after all calculations are done.

The only thing I would worry about is if taxpayer should have filed an earlier return and didn't.

[Zee]

Zee, I understand "even if no benefit is derived" as you cannot pick and choose if you did not make the election. If the first tax return was filed in the USA then there is nothing to carry it back to and the NOL is automatically carried forward. Same is true if carried back NOL leaves the same amount of NOL to be carried forward after all calculations are done.

The only thing I would worry about is if taxpayer should have filed an earlier return and didn't.

Both 2005 & 2006 had NOL's. 2005 was the first US return, 2006 the second. A carryforward election should have been made in both years. It's now too late.

My understanding is the carryback period is two years and any unused NOL can then be carried forward for up to 20 years until used up.

I'm looking for reassurance that the 2005 loss can be used for the 17 years remaining, and the 2006 for 18 years following the carryback rules.

I sure hope someone can confirm this is ok?

[geekgirldany]

You carryback 2 years and then carryforward 20 years. So from 2005 you have 20 years to carry forward and the same goes for 2006. I think starting in 2007 you would have Tax Year 2005 NOL 19 years carryforward and Tax Year 2006 20 years. That is how I see it.

[Zee]

You carryback 2 years and then carryforward 20 years. So from 2005 you have 20 years to carry forward and the same goes for 2006. That is how I see it.

Yes, that's how I read it also. If the NOL is not used up as a carryback, the remainder is carried forward for up to 20 years following the NOL year. I sure hope that's correct. Since the carryback years were also loss years, the failure to waive the carryback shouldn't make any difference (I hope).

[S T]

Nol

Zee, sorry I didn't post earlier, but up to my neck in W-2 form and 941 problem.

See TTB page 8-2 for the chart. 2 year carryback, if the election is not made on timely filed return.

then starting on page 8-15 more rules about the NOL and on page 8-16 how to carryback and how to carryforward.

So I agree with Dany's post, there is no failure to carryback, the failure is the election to carryforward.

Sandy

[Bees Knees]

Zee, everyone is telling you the truth. You carry it back 2 years first. If it is not used up in that year (because no return was required) then you carry it forward each year until used up, for up to 20 years after the NOL loss year. If you can't use it up by the end of the 20th year, it is lost forever.

[Zee]

Thanks everyone, I needed the reassurance. Now, I just have to figure out to report the net operating loss on each tax return reduced by the required adjustments and limited by the partner's basis (which is less than the loss).