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General Rules of the Election
Generally, a net operating loss is either a business loss or a casualty loss. A carry over is created when the loss is so large that it cannot be fully used in the year of the loss.
For NOLs arising in 2008, the general carry back period is two years, although carry back periods of three and five years apply to losses attributable to certain eligible losses, farm losses, and disaster losses. Depending on the causes of a taxpayer?s NOL, it is possible that more than one carry back period applies. A taxpayer can elect to forgo the NOL carry back period or periods if more than one applies.
A taxpayer entitled to either carry back period can elect to waive the carry back period and only carry the loss forward. By carrying the loss back, an immediate refund of prior year taxes is possible. By forgoing the carry back period, no refund of prior year taxes is possible.
The taxpayer must attach a separate election statement to the return for the year of the NOL in order to make a valid election. The election must be made by the due date (including extensions) for filing the return for the loss year; if the return is timely filed, an automatic six-month extension period (from the original due date of the return, excluding extensions) for making the election is allowed.
Once the election is made, it is generally irrevocable.
Warning: An election to forgo the carry back period applies to both the regular tax NOL and the Alternative Minimum Tax NOL. If the taxpayer attempts to make a split election (e.g., forgo the AMT NOL, but not the regular NOL), the entire election could be held invalid because it is ambiguous and equivocal on its face.
When Should the Election Be Made?
Taxpayers should consider making the election if:
Please call us if you have any questions about this election.