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taxmap/pubs/p536-002.htm#en_us_publink1000177352

When To Use an NOL(p7)


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Generally, if you have an NOL for a tax year ending in 2009, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). You can, however, choose not to carry back an NOL and only carry it forward. See Waiving the Carryback Period, later. You cannot deduct any part of the NOL remaining after the 20-year carryforward period.
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NOL year.(p7)


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This is the year in which the NOL occurred.
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Exceptions to 2-Year Carryback Rule(p7)


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Exceptions to 2-Year Carryback Rule

Eligible losses, farming losses, qualified disaster losses, qualified GO Zone losses, qualified recovery assistance losses, qualified disaster recovery assistance losses, 2008 or 2009 NOLs, eligible small business losses, and specified liability losses, defined next, qualify for longer carryback periods.
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Eligible loss.(p7)


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The carryback period for eligible losses is 3 years. Only the eligible loss portion of the NOL can be carried back 3 years. An eligible loss is any part of an NOL that:
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Qualified small business.(p7)
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A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL. If the business did not exist for this entire 3-year period, use the period the business was in existence.
An eligible loss does not include a farming loss, a qualified disaster loss, a qualified GO Zone loss, a qualified recovery assistance loss, or a qualified disaster recovery assistance loss. An eligible loss also does not include an eligible 2008 or 2009 loss for which you choose a 3, 4, or 5-year carryback period under section 172(b)(1)(H) of the Internal Revenue Code.
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Farming loss.(p7)


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The carryback period for a farming loss is 5 years. Only the farming loss portion of the NOL can be carried back 5 years. A farming loss is the smaller of:
  1. The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account, or
  2. The NOL for the tax year.
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Farming business.(p7)
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A farming business is a trade or business involving cultivation of land, raising or harvesting of any agricultural or horticultural commodity, operating a nursery or sod farm, raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. The raising, shearing, feeding, caring for, training, and management of animals is also considered a farming business.
A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. It also does not include a business in which you merely buy or sell plants or animals grown or raised by someone else.
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Waiving the 5-year carryback.(p7)
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You can choose to figure the carryback period for a farming loss without regard to the special 5-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 farming losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177361

Qualified disaster loss.(p7)


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The carryback period for a qualified disaster loss is 5 years. Only the qualified disaster loss portion of the NOL can be carried back 5 years. A qualified disaster loss is the smaller of:
  1. The sum of:
    1. Any losses attributable to a federally declared disaster and occurring in the disaster area, plus
    2. Any allowable qualified disaster expenses (even if you did not choose to treat those expenses as deductions in the current year), or
  2. The NOL for the tax year.
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Qualified disaster expenses.(p7)
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A qualified disaster expense is any capital expense paid or incurred in connection with a trade or business or with business-related property which is: Business-related property is property held for use in a trade or business, property held for the production of income, or inventory property.
Note.Internal Revenue Code section 198A allows taxpayers to treat certain capital expenses (qualified disaster expenses) as deductions in the year the expenses were paid or incurred.
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Excluded losses.(p7)
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A qualified disaster loss does not include any losses from property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store for which the principal business is the sale of alcoholic beverages for consumption off premises.
A qualified disaster loss also does not include any losses from any gambling or animal racing property. Gambling or animal racing property is any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet.
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Waiving the 5-year carryback.(p7)
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You can choose to figure the carryback period for a qualified disaster loss without regard to the special 5-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 qualified disaster losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
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Qualified GO Zone loss.(p7)


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The carryback period for a qualified GO Zone loss is 5 years. Only the qualified GO Zone loss portion of the NOL can be carried back 5 years. A qualified GO Zone loss is the smaller of:
  1. The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or
  2. The total of any qualified GO Zone casualty loss and any depreciation allowable for any specified GO Zone extension nonresidential real property and residential rental property placed in service in 2009 (even if you elected not to claim the special GO Zone depreciation allowance for such property).
For a list of counties and parishes included in the GO Zone, see Notice 2007-36, 2007-17 I.R.B. 1000, available at http://www.irs.gov/irb/2007-17_IRB/ar12.html.
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Waiving the 5-year carryback.(p7)
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You can choose to figure the carryback period for a qualified GO Zone loss without regard to the special 5-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 qualified GO Zone losses without regard to the special 5-year carryback rule. If you filed your original return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
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Qualified recovery assistance loss.(p7)


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The carryback period for a qualified recovery assistance loss is 5 years. Only the qualified recovery assistance loss portion of the NOL can be carried back 5 years. For the definition of qualified recovery assistance loss, see page 2 of Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.
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Waiving the 5-year carryback.(p7)
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You can choose to figure the carryback period for a qualified recovery assistance loss without regard to the special 5-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 qualified recovery assistance losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177370

Qualified disaster recovery assistance loss.(p8)


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The carryback period for a qualified disaster recovery assistance loss is 5 years. Only the qualified disaster recovery assistance loss portion of the NOL can be carried back 5 years. For the definition of qualified disaster recovery assistance loss, see page 5 of Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.
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Waiving the 5-year carryback.(p8)
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You can choose to figure the carryback period for a qualified disaster recovery assistance loss without regard to the special 5-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 qualified disaster recovery assistance losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
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Special Rules for 2008 or 2009 NOLs.(p8)


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A 2008 or 2009 NOL is a NOL arising in a taxable year ending after December 31, 2007, and beginning before January 1, 2010. To the extent you have a 2008 or 2009 NOL, you can elect to apply a 3, 4, or 5-year carryback period instead of the general 2-year carryback period. Once made, this election is irrevocable. Any such NOLs not used in the 3rd, 4th, or 5th preceding tax year (depending on which carryback period you elect) are carried to the next more recent preceding tax year (either the 2nd, 3rd, or 4th preceding tax year, whichever applies) and then applied consecutively forward through the 1st preceding tax year.
Generally, this election is available for only 1 tax year (either 2008 or 2009). If you made an election under Rev. Proc. 2009-26 for a 2008 NOL attributable to an ESB (see later on this page), you can make this election for a NOL that was not covered by your previous election made under Rev. Proc. 2009-26. A NOL carried back to the 5th preceding tax year under these special rules can offset no more than 50 percent of your taxable income for the 5th preceding tax year (computed without regard to the NOL carryback for the loss year or any tax year thereafter). This limitation does not apply to the 3rd or 4th preceding tax year nor does it apply to the portion of the loss carried back under another provision of the law, such as a specified liability loss, farming loss, or qualified disaster loss. Any loss not used in the carryback years can be carried forward up to 20 years.
You make this election by filing an election statement with (1) your Form 1045 or amended Form 1045, (2) your income tax return or amended tax return for the loss year, or (3) your amended income tax return for the earliest carryback year.
The election statement must state:
  1. You are electing to apply section 172(b)(1)(H) under Rev. Proc. 2009-52,
  2. You are not a Troubled Asset Relief Program (TARP) recipient nor were you, in 2008 or 2009, an affiliate of a TARP recipient, and
  3. The carryback period (3, 4, or 5 years) you are electing for your 2008 or 2009 NOL.
An election to apply a 3, 4, or 5-year carryback period must be filed by the due date (including extensions) for filing your 2009 return. If you filed your return on time without making the election, you can still make the election on an amended return filed within 6 months of the due date of the return (excluding extensions) by attaching the election to the amended return, and writing "Filed pursuant to section 301.9100-2" on the election statement.
EIC
If you make the election to carry back a 2009 NOL, you must use 2009 Form 1045 to claim the deduction. To make a 2008 NOL claim, you must use the 2008 Form 1045. However, if you elect a 5-year carryback for a 2008 NOL under the special rules explained above, you must follow the Special Rules for Certain 5-Year NOL Carrybacks explained on page 13 of this publication.
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Changing your carryback period.(p8)
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You can elect to use a 3, 4, or 5-year carryback period for a 2008 or 2009 NOL even if you (a) previously filed Form 1045, or (b) made an election to waive the carryback period for a NOL arising in a tax year ending before November 6, 2009. To make the election, attach an election statement to (a) an amended Form 1045, (b) an amended return (using Form 1040X or Form 1041) for the loss year, or (c) an amended return for the earliest carryback year. The election statement must include the three items listed under Special Rules for 2008 or 2009 NOLs discussed above. If you previously filed a Form 1045 or amended return without making the election, you must state that the election amends a previous carryback application or claim. If you previously made an election to waive the carryback period, you must also state that you are revoking a NOL carryback waiver. Generally, the Form 1045 or amended return must be filed by April 15, 2010 (or by October 15, 2010, if an extension is filed).
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Eligible small business (ESB) loss.(p8)


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In 2008, you could elect a 3, 4, or 5-year carryback period for an ESB loss under Rev. Proc. 2009-26. The 3, 4, or 5-year carryback period applies only to the ESB loss portion of the NOL. An ESB loss is the smaller of:
  1. The amount that would be the 2008 NOL if only income, gains, losses, and deductions attributable to ESBs were taken into account, or
  2. The 2008 NOL.
An ESB is a sole proprietorship, partnership, or S corporation that has average annual gross receipts (reduced by returns and allowances) of $15 million or less during the 3-year period ending with the tax year of the NOL. This gross receipts test is applied at the sole proprietorship, partnership, or corporate level, and the aggregation rules of Internal Revenue Code section 448(c)(2) apply. If the business did not exist for this entire 3-year period, use the period the business was in existence.
A 2008 NOL is any NOL for a tax year ending or beginning in 2008. For a fiscal year taxpayer with a tax year beginning in 2007 and ending in 2008, see 2008 Publication 536 for further details.
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Carryback under Rev. Proc. 2009-52.(p8)
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If you elected a 3, 4, or 5-year carryback period for a 2008 NOL attributable to ESBs under Rev. Proc. 2009-26, you may not revoke that election to make an election under Rev. Proc. 2009-52. However, you can make an election under Rev. Proc. 2009-52 for a NOL that was not covered by your election under Rev. Proc. 2009-26. See the 2008 Instructions for Form 1045 for more information on electing a 3, 4, or 5-year carryback period for a NOL attributable to ESBs.
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Specified liability loss.(p8)


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The carryback period for a specified liability loss is 10 years. Only the specified liability loss portion of the NOL can be carried back 10 years. Generally, a specified liability loss is a loss arising from:
  1. Reclamation of land,
  2. Dismantling of a drilling platform,
  3. Remediation of environmental contamination, or
  4. Payment under any workers compensation act.
Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual method of accounting throughout the period in which the act (or failure to act) occurred. For details, see section 172(f) of the Internal Revenue Code.
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Waiving the 10-year carryback.(p8)
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You can choose to figure the carryback period for a specified liability loss without regard to the special 10-year carryback rule. To make this choice for 2009, attach to your 2009 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2009 specified liability losses without regard to the special 10-year carryback rule. If you filed your original return on time, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return and write "Filed pursuant to section 301.9100-2" at the top of the statement. Once made, this choice is irrevocable.
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Waiving the Carryback Period(p8)


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Waiving the Carryback Period

You can choose not to carry back your NOL. If you make this choice, then you can use your NOL only in the 20-year carryforward period. (This choice means you also choose not to carry back any alternative tax NOL.)
To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. This statement must show that you are choosing to waive the carryback period under section 172(b)(3) of the Internal Revenue Code.
If you filed your return timely but did not file the statement with it, you must file the statement with an amended return for the NOL year within 6 months of the due date of your original return (excluding extensions). Enter "Filed pursuant to section 301.9100-2" at the top of the statement.
Once you choose to waive the carryback period, it generally is irrevocable. If you choose to waive the carryback period for more than one NOL, you must make a separate choice and attach a separate statement for each NOL year.
EIC
If you do not file this statement on time, you cannot waive the carryback period.
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How To Carry an NOL Back or Forward(p9)


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How To Carry an NOL Back or Forward

If you choose to carry back the NOL, you must first carry the entire NOL to the earliest carryback year. If your NOL is not used up, you can carry the rest to the next earliest carryback year, and so on.
If you do not use up the NOL in the carryback years, carry forward what remains of it to the 20 tax years following the NOL year. Start by carrying it to the first tax year after the NOL year. If you do not use it up, carry the unused part to the next year. Continue to carry any unused part of the NOL forward until the NOL is used up or you complete the 20-year carryforward period.
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Example 1.(p9)

You started your business as a sole proprietor in 2009 and had a $42,000 NOL for the year. No part of the NOL qualifies for the 3-year, 5-year, or 10-year carryback (and you did not choose a 3, 4, or 5-year carryback period for 2008 or 2009 losses). You begin using your NOL in 2007, the second year before the NOL year, as shown in the following chart.
Year   Carryback/
Carryover
Unused
Loss
2007$42,000$40,000
200840,00037,000
2009 (NOL year)  
201037,00031,500
201131,50022,500
201222,50012,700
201312,7004,000
20144,000-0-
If your loss were larger, you could carry it forward until the year 2029. If you still had an unused 2009 carryforward after the year 2029, you may not deduct it.
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Example 2.(p9)

Assume the same facts as in Example 1, except that $4,000 of the NOL is attributable to a casualty loss and this loss qualifies for a 3-year carryback period. You begin using the $4,000 in 2006. As shown in the following chart, $3,000 of this NOL is used in 2006. The remaining $1,000 is carried to 2007 with the $38,000 NOL that you must begin using in 2007.
Year   Carryback/
Carryover
Unused
Loss
2006$4,000$1,000
200739,00037,000
200837,00034,000
2009 (NOL year)  
201034,00028,500
201128,50019,500
201219,5009,700
20139,7001,000
20141,000-0-