A WHBAA Primer – Section 13 5-Year Net Operating Loss (NOL) Carryback

June 24, 2010

The Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) legislation allows almost all taxpayers with business losses to make an irrevocable election to carry back losses incurred in one year (ending after 2007 and beginning before 2010) for up to five years. WHBAA also allows life insurance companies to carry back losses from operations for either four or five years (the normal carryback period is three years). Unlike the American Recovery and Reinvestment Act (ARRA), passed earlier this year, a taxpayer that elects a five year carryback under WHBAA legislation will have a limitation in the amount that it may carry back. The amount of NOL that may be carried back to the earliest of the 5 year carryback period is limited to 50% of taxable income.

The ARRA legislation allows certain taxpayers to make an irrevocable election to carryback applicable 2008 losses for up to five years (the normal carryback period is two years). The applicable 2008 losses are losses incurred in one year (either beginning or ending in 2008) by eligible small businesses (those whose average gross receipts are equal to or less than $15 million over a three-year period).

Below are some of the highlights of eligibility and requirements for filing under WHBAA:

    * Taxpayers that received certain benefits (whether or not they were repaid) under the Emergency Economic Stabilization Act of 2008 (TARP recipients) or any taxpayer that was a member of the TARP recipient's affiliated group during 2008 or 2009 may not make a WHBAA election.

 

    * You can make the election by either attaching an election statement to the federal income tax return, or amended return, for the tax year in which the loss is incurred; or attaching an election statement to the carryback form itself (Form 1045, 1139, 1040X, 1120X or amended 1041 or 990-T).

 

    * If you do not include the election statement with your carryback form, the IRS will not process your carryback. You will receive a letter asking you to resubmit the carryback with the required election statement that includes all of the required statements as provided in Rev. Proc. 2009-52.

 

    * The filing deadline for taking advantage of this NOL provision is by the due date (including extensions) for the tax return for your last taxable year beginning in 2009. This is true whether you make the election for losses incurred in 2008 or 2009. If you file your 2009 tax return on time without making the election, you have an additional six months from the normal due date of the 2009 tax return to make the election. For example, an individual who files a calendar 2009 tax return by April 15, 2010, without making the election has until Oct. 15, 2010, to make the election for either 2008 or 2009 losses.

 

    * If you already filed a two-year carryback for net operating losses in 2008 you can make the WHBAA election by doing one of the following: either file an amended return for 2008 to make the election (attach the election statement to the amended return) or you may simply file an amended carryback for 2008 using the appropriate carryback form (1045, 1139, 1040X, 1120X or amended 1041 or 990-T). Make sure you include the election statement with the carryback form. Whichever method you choose, your election statement must include all of the statements from question five above and you must state that you are amending a previous carryback.

For more information regarding carryback losses, including election of a five-year carryback and alternative minimum tax net operating loss, please contact your Perelson Weiner Partner.

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