IRS Unveils Guidance on Net Operating Loss Carryback For Small Firms
On March 16, the Internal Revenue Service (IRS) issued guidance on a net operating loss (NOL) tax provision under the new economic stimulus law allowing small businesses with deductions exceeding their income in 2008 to get a refund of taxes paid in prior years. The IRS said it will work to get businesses accelerated refunds under the new provision, in 45 days or less where possible.
To accommodate the change in tax law, the IRS updated the instructions for Forms 1045 and 1139, which small businesses can file to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payments of refunds, IRS said. The agency also issued Rev. Proc. 2009-19 and a set of questions and answers on the NOL carryback.
The new provision enables small businesses with a NOL in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years.
Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years, the agency said.
One Month to Make Election for Some Companies
Under the guidance, some taxpyaers must amke the election to use this special carryback by April 17, 2009, the IRS said.
There are several methods that a small business can use to elect the new provision. If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback.
However, this election revocation must be made on or before April 17, 2009. Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund, the IRS said.
Corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms, it said.