I'm wondering how the audit statute of limitations apply to this scenario:
A taxpayer files their 2008 return on April 15, 2009, and that return has a very large deduction that creates a very large net operating loss. With their timely filed 2008 return, the taxpayer files a statement that they are electing to waive the two year carryback period under U.S.C. 26 ยง172(b)(3). This election allows the taxpayer to not use the net operating loss on their two previous taxable years, but instead to carry it forward for up to 20 years, or until the amount is exhausted.
The statute of limitations on the taxpayer's 2008 return will expire on April 15, 2012, since no extensions will be made. The deduction is in somewhat of a gray area, but is genuinely presumed to be correct by the taxpayer and his tax preparer.
Since the net operating loss is very large, it likely won't be exhausted for five to seven years.
My question is: can the IRS audit the taxpayer's future returns to try to disallow the net operating loss, after the statute of limitations on the return which created the net operating loss had expired? For example, can the IRS audit the taxpayer's 2009 on April 10, 2013, to disallow using the net operating loss on the 2009 return -- when the statute of limitations on the 2008 return which created the net operating loss had already expired on April 15, 2012?
A taxpayer files their 2008 return on April 15, 2009, and that return has a very large deduction that creates a very large net operating loss. With their timely filed 2008 return, the taxpayer files a statement that they are electing to waive the two year carryback period under U.S.C. 26 ยง172(b)(3). This election allows the taxpayer to not use the net operating loss on their two previous taxable years, but instead to carry it forward for up to 20 years, or until the amount is exhausted.
The statute of limitations on the taxpayer's 2008 return will expire on April 15, 2012, since no extensions will be made. The deduction is in somewhat of a gray area, but is genuinely presumed to be correct by the taxpayer and his tax preparer.
Since the net operating loss is very large, it likely won't be exhausted for five to seven years.
My question is: can the IRS audit the taxpayer's future returns to try to disallow the net operating loss, after the statute of limitations on the return which created the net operating loss had expired? For example, can the IRS audit the taxpayer's 2009 on April 10, 2013, to disallow using the net operating loss on the 2009 return -- when the statute of limitations on the 2008 return which created the net operating loss had already expired on April 15, 2012?
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