IRS Releases Guidance on Expanded NOL Carryback Rules

The IRS on Friday provided guidance on the new expanded five-year net operating loss (NOL) carryback rules, which were recently amended by the Worker, Homeownership, and Business Assistance Act, PL 111-92. The guidance is contained in Revenue Procedure 2009-52, and it explains how a taxpayer elects to carry back an NOL for three, four or five years.

In February, the American Recovery and Reinvestment Act, PL 111-5, amended IRC § 172 to allow eligible small businesses to carry back 2008 NOLs for a period of three, four or five years (instead of the usual two-year limit). The Worker Act expanded this treatment to include NOLs incurred in 2009 and allowed all businesses—not just eligible small businesses—to make the election. The Worker Act limits the amount that can be carried back to the fifth year to 50% of the taxpayer’s taxable income for that carryback year. The election is not available to TARP recipients or members of a TARP recipient’s affiliated group.

A taxpayer makes the election by attaching a statement to the taxpayer’s return (or amended return) for the tax year in which the NOL arises. Details are provided in section 4 of the revenue procedure.

The election must be made by the return filing due date (including extensions) for the taxpayer’s last tax year beginning in 2009. The election is irrevocable.