NOL Carryback requirement

[thomtax]

I am preparing several years back returns for individual. I believe that I have everything covered, but would appreciate second opinions. Also, if you know of any exceptions that I have overlooked, please let me know.

From reading TTB and other, here is my understanding:
1. Since the return was not filed on time, there is no option but to carry back two years and then carry forward.
2. The loss was in 2004. Therefore, the first application must be made to the 2002 return, even if there is not tax benefit in using it that year.
3. The NOL never affects the SE Tax.

Thanks for looking.

LT

[erchess]

Hesitant Questions

First, is it not the 2004 law rather than current law that is in effect for the return in question?

When did the carryback period change from three years to two? Wasn't that after 2004?

For O4, doesn't the year to which you carry back have to be an open year in order to actually save the client money? (In other words are you not simply calculating wasted NOL so that you can see whether anything carries forward and potentially saves the client some money?)

I can't put my hands on my 04 reference materials but those are my thoughts. Best wishes to you and I hope you charge the client out the wazoo for these late returns.

[Bees Knees]

I agree with all three, except for the following:

The statute of limitations for amending a return to apply for a refund is 3 years. In the case of an NOL, you are amending the return based upon the year the NOL was incurred. So for example, your situation is an NOL incurred in 2004, being carried back to 2002. The 2002 return can be amended for the NOL carryback as long as the 2004 tax year is still open. The statute of limitations for 2004 ended on April 15, 2008, unless the 2004 tax return was properly extended. If your 2004 return is beyond the statute of limitations, you can’t carry an NOL from 2004 to any other year.

IRS Pub 536, page 8 says:

Form 1040X. If you do not file Form 1045, you can
file Form 1040X to get a refund of tax be-
cause of an NOL carryback. File Form 1040X
within 3 years after the due date, including ex-
tensions, for filing the return for the NOL year.
For example, if you are a calendar year taxpayer
and filed your 2004 return by the April 15, 2005,
due date, you must file a claim for refund of 2002
tax because of an NOL carryback from 2004 by
April 15, 2008.

[thomtax]

Thanks fellows

I was so wrapped up in the details of the returns that I completely overlooked the time frame.
You know the old saying "When you are up to your rear in alligators, it's hard to remember that your original intention was to drain the swamp."

That's one of the things I appreciate about this board, my dumb mistakes get pointed out.

It will not affect the money he owes, but will simplify my part.

LT