IRS Clarifies Guidance on Small Business NOL Carrybacks

By Alistair M. Nevius, J.D.

The IRS has issued Rev. Proc. 2009-26, which clarifies the guidance in Rev. Proc. 2009-19 on how small businesses can elect to carry back 2008 net operating losses (NOLs) for three, four, or five years, as provided for by Sec. 172(b)(1) (H) (instead of the usual two years).

The change to the NOL carryback for small businesses was enacted by the American Recovery and Reinvestment Act of 2009, P.L. 111-5, on February 17, 2009—after the 2008 filing season was under way. Rev. Proc. 2009-19 (released in March) provided procedures for eligible taxpayers to properly make the election with their 2008 return. Taxpayers who had already filed a 2008 return had to file an application for tentative refund or an amended return. Not surprisingly, given the late date on which this guidance was released, many taxpayers failed to make the election. So the IRS has modified the election procedure to allow eligible taxpayers who missed the original deadline to file their application for tentative refund or amended return within six months of their original return due date and make the election.

Rev. Proc. 2009-26 also provides a procedure for eligible taxpayers who originally elected to forgo the extended NOL carryback but have changed their minds. Such taxpayers can revoke their original election by filing an application for tentative refund or amended return and writing across the top of the appropriate form: “Revocation of NOL Carryback Waiver Pursuant to Rev. Proc. 2009-19.”

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