The American Recovery and Reinvestment Act of 2009 (ARRA) extended the general carryback period for net-operating losses (NOL) generated in 2008 from two years to up to five years for eligible small businesses.  The Worker, Homeownership and Business Assistance Act of 2009 (WHBA) further expanded that benefit to permit individuals, estates and trusts, exempt organizations and corporations of all sizes to elect to carry back applicable NOLs to up to five years. NOLs generated in a tax year either beginning or ending in 2008 or 2009 would qualify for the extended carryback election.

The Internal Revenue Service recently issued Revenue Procedure 2009-52 to outline when and how to make the election allowed by these two tax acts, This revenue procedure provides guidance for filing elections for obtaining tentative refunds of taxes previously paid, Some taxpayers may not yet be in a position to make an informed decision regarding which applicable NOL should be included in the election.  In some circumstances, the decision should be delayed until the 2009 tax return is filed.  

The revenue procedure details when and how an election for extended carryback treatment should be made regarding an applicable NOL for the following taxpayers:

• Those who have not yet claimed an NOL carryback deduction;
• Those who have claimed an NOL carryback deduction; and
• Those who have elected to forego the NOL carryback period.

The election for the extended carryback can be made on either:

1. The original or amended return for the tax year of the applicable NOL; or
2. A carryback application or claim made on the appropriate form (e.g., Form 1139 for corporations, or Form 1045 for individuals).

Election Statement

The election in the form of a statement attached to either the tax return or carryback application.  The following information must be included:

1. A statement that the taxpayer is electing to apply Sections 172(b)(1)(H) or 810(b)(4) under Revenue Procedure 2009-52;
2. A statement that the taxpayer is not a TARP (Troubled Asset Relief Program) recipient and in 2008 or 2009 is not an affiliate of a TARP recipient;
3. A statement of the period of the NOL carryback period elected (three years, four years or five years);
4. If applicable, a statement that the election amends a previous carryback application;
5. If applicable, a statement that the election is revoking an NOL carryback waiver.

Situation 1: An Original or Amended Return

According to Revenue Procedure 2009-52, a taxpayer may make the appropriate carryback election under Section 172(b)(1)(H) by attaching an election statement including the first three items above to their original or amended federal income tax return for the tax year in which the applicable NOL arose.  The deadline for making the election on an original or amended return is the due date, including extensions, for the last tax year beginning in 2009.  For a calendar-year corporation with a timely filed extension, the deadline would be September 15, 2010.  For elections made in this manner, the deadline for filing a Form 1045 or Form 1139 would also be extended to this date. 

Situation 2:  Carryback Application or Claim

As an alternative to electing on an original or amended return, the taxpayer may file a carryback application or claim on the appropriate form the taxpayer files applying the NOL carryback period the taxpayer elects by attaching the election statement including the first three items listed above. Under this method, the appropriate form with the election statement attached, must be filed on or before the due date, including extensions, of the taxpayer’s federal income tax return for the last tax year beginning in 2009.

Situation 3:  Amending Previously Filed Carryback Application or Claim

In the case of a previously filed application or claim, a taxpayer may elect to extend the period of the carryback claim under Section 172(b)(1)(H).  Under Revenue Procedure 2009-52, the taxpayer may follow the procedure described in either Situation 1 or Situation 2.  In addition, the election statement must indicate that a previous carryback application or claim is being amended (item four above). When filing an amended carryback application or claim, the 90-day period described in Section 6411(b) begins on the date the taxpayer files the amended application.

Situation 4:  Revoking Election to Forego the NOL Carryback Period

Prior to the enactment of the extended carryback provisions, some taxpayers may have already elected to forego carrybacks, based on the inability to absorb losses in the applicable two-year period previously allowed for NOL carrybacks.  A taxpayer who made that election for a tax-year ending before November 6, 2009 may revoke that election and make a Section 172(b)(1)(H) election by following the procedures in either Situation 1 or Situation 2.  In addition, the election statement must indicate that the taxpayer is revoking an NOL carryback waiver and electing to apply Section 172(b)(1)(H) under Revenue Procedure 2009-52 (item five as noted above).  The revocation and election of the extended carryback period must occur before the due date, including extensions, of the taxpayer’s federal income tax return for the last tax-year beginning in 2009.

Filing Tips

• Due to the heavy volume of claims being filed, it may help to identify the tentative refund application by indicating “Filed under Revenue Procedure 2009-52” at the top of the form.  Although this is not required, it may expedite processing.
• When deciding which form to extend the carryback period on — original, amended or carryback claim — keep in mind that the latest date for making the election is the due date including extensions for the return of the last tax year beginning in 2009.  For most loss years beginning in 2009, this deadline will be earlier than the due date for filing a tentative carryback claim.  In those cases, the election should be made on the income tax return.
• A revocation of a previous election to forego the NOL carryback period must be made before the due date, including extensions, of the return for the last tax year beginning in 2009.
• Calendar-year corporations with only 2008 losses have a deadline of December 31, 2009 to timely file a two-year carryback claim for tentative refund on Form 1139.  The corporation would then have until the due date, including extensions, of the 2009 tax return to amend the carryback claim to elect the extended carryback period for the 2008 loss.  If the corporation also incurred a loss in 2009, the extended carryback period could be claimed for that loss, in addition to the two-year carryback of the 2008 loss.

Conclusion

As there are considerable complexities involved with the interaction of the alternative minimum tax (AMT) limitations,  taxable income limitations, qualified disaster losses, to name a few, additional guidance from the IRS (Internal Revenue Service) regarding the extended loss carryback provisions would be welcomed.