IRS Update - Extended Carry back for Small Businesses

FACT SHEET UPDATE

NET OPERATING LOSS (NOL)

Extended Carry back for Small Businesses

The American Recovery and Reinvestment Act of 2009 (ARRA)

February 26, 2009

and the

The Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA)

November 6, 2009

NOL Carry Back or Carry Forward Under Current Law:

• The existing IRS tax code (26 USC 172(b)) permits most businesses to carry back current

year net operating losses to a previous profitable year up to two years back. The amended

tax filing for that year then results in a tax refund. Alternatively, current year net operating

losses can be carried forward to profitable years up to 20 years.

• These tax code provisions are in effect for eligible businesses regardless of size.

• Using this provision can result in a tax refund and immediate cash for a business.

The Provision for a Small Business Extended Carryback:

• The new provision under the ARRA applies only to qualified small businesses. That is those

businesses with annual gross receipts averaged over the previous three tax years that are

$15 million or less.

• The new, extended carryback means that losses can be carried
back to a previous profitable

year three to five years back, not just two years. This is applicable ONLY to the business’s tax

year beginning or ending in calendar year 2008. Small businesses that have already

elected to carry back 2008 losses under the ARRA now (as of passage of the WHBAA)

are permitted to carry back losses from tax years beginning or ending in 2009, also.

• The purpose of the extended carry back period in the Stimulus Bill is to account for the fact

that many small businesses might not have had a profitable year in the past two years, but

likely did have a profitable year(s) in the prior three to five years.

• Using this new provision to amend returns from previous profitable years can result in a tax

refund and immediate cash for a small business.

• The “carry forward” provision for up to 20 years is not changed.

• A taxpayer must make the election by the extended due date for filing the return for the

taxpayer’s last taxable year beginning in 2009. The election, once made, is irrevocable.