Congress has resurrected a prior Stimulus Act proposal allowing most taxpayers, not just small businesses, to extend the NOL carryback period under section 172 for up to five years for 2008 and 2009 NOLs. However, the extended carryback election is only available for either 2008 or 2009 NOLs (not both) and limits the amount of NOL that can be carried back to the fifth year to 50 percent of taxable income.
On November 6, 2009, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law. Notably, the act provides an election for most taxpayers to carry back net operating losses (NOLs) from 2008 or 2009 for up to five years, thereby increasing the carryback period for such NOLs from the general two-year carryback period. The increased carryback period was previously proposed by the U.S. House of Representatives and the U.S. Senate in the American Recovery Reinvestment Act of 2009 (the Stimulus Act). However, as finally signed into law by President Obama on February 13, 2009, the Stimulus Act limited the increased NOL carryback period to small businesses. For a detailed discussion of the business tax incentives contained in the Stimulus Act, see McDermott Will & Emery's On the Subjects "Comparison of Business Tax Incentives in U.S. House and U.S. Senate Stimulus Packages" and "Final $787B Stimulus Package Does Not Include Certain Proposed Business Tax Incentives".
The act amends section 172(b)(1)(H) by allowing most taxpayers to elect to extend the two-year NOL carryback period in section 172(b)(1)(A) to three, four or five years, for any "applicable net operating loss." The increased NOL carryback period does not apply to Troubled Asset Relief Program (TARP) recipients or certain taxpayers related to TARP recipients. The term "applicable net operating loss" is defined as the taxpayer's NOL for a taxable year ending after December 31, 2007, and beginning before January 1, 2010.
Section 172(b)(1)(H)(iii) describes the election to increase the NOL carryback period. Most importantly, the election is generally limited to one taxable year. Thus, the increased carryback period is only available for either 2008 or 2009 NOLs, but not both. The one-year limitation does not apply to any "eligible small business," with such taxpayers being able to make the election for two taxable years during the applicable period. An "eligible small business" is any corporation or partnership with average gross receipts over the previous three years of $15,000,000 or less.
The election is to be made in a manner prescribed by the Secretary of the Treasury, and is to be made by the due date (including extensions of time) for filing the return for the taxpayer's last taxable year beginning in 2009. Any such election, once made, is irrevocable.
The act limits the amount of NOL which may be carried back to the fifth taxable year preceding the taxable year of such loss to 50 percent of the taxpayer's taxable income (computed without regard to the net operating loss for the loss year or any taxable year thereafter) for that fifth preceding taxable year. The limitation does not apply to any eligible small business making the election under section 172(b)(1)(H).
The act also suspends the application of section 56(d), the rule that otherwise limits the use of NOLs to 90 percent for purposes of calculating the alternative minimum tax, to alternative tax NOLs attributable to carrybacks of NOLs for which an extended carryback is elected.
The act amends section 810 to provide rules similar to those described above for losses from operations of life insurance companies.
Finally, the act authorizes the Secretary of the Treasury to issue anti-abuse rules to prevent the abuse of the purpose of the act, incuding anti-stuffing rules, anti-churning rules (including rules related to sale-lease-backs) and rules similar to the rules under section 1091 (relating to losses from wash sales).
The effective date provisions allow taxpayers who previously elected to waive an NOL carryback under section 172(b)(3) or section 801(b)(3) to revoke such an election, if such revocation is made before the due date (including extensions of time) for filing the return for the taxpayer's last taxable year beginning in 2009.
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