Net operating losses (NOLs) generally may be carried back 2 years and forward 20 years. However, for NOLs arising in tax years ending after Dec. 31, 2007, the American Recovery and Reinvestment Act of 2009 permits an eligible small business (ESB) to elect to increase the NOL carryback period for 2008 NOLs from 2 years to 3, 4, or 5 years. The benefits of the extended carryback include (1) offsetting the loss against income earned in up to five prior tax years, (2) getting a refund of taxes paid up to five years ago, and (3) getting the benefit of part or all of the loss now, rather than waiting to claim it on future tax returns against future income.
ESBs are businesses (whether corporations, partnerships or sole proprieterships) that have no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. The carryback election is made either by making it on a timely filed tax return for 2008 or by filing the appropriate refund forms.
The deadline for calendar year taxpayers to elect to carryback is approaching. For corporations, the election must be made by September 15, 2009, and for noncorporate taxpayers by October 15,2009. Taxpayers who believe they are eligible for the carryback should consult with their tax preparers to make sure that the deadline is not missed.