The IRS has issued guidance on the new expanded five-year net operating loss (NOL) carryback rules, which were recently amended by the Worker, Homeownership, and Business Assistance Act, P.L. 111-92 (the Worker Act). The guidance is contained in Rev. Proc. 2009-52 and covers how a taxpayer elects to carry an NOL back for three, four, or five years.
Last February, the American Recovery and Reinvestment Act, P.L. 111-5, amended Sec. 172 to allow eligible small businesses to carry back 2008 NOLs for a period of three, four, or five years (instead of the usual two-year limit). The Worker Act expanded this treatment to include NOLs incurred in 2009 and allowed all businesses—not just eligible small businesses—to make the election. The Worker Act limits the amount that a taxpayer can carry back to the fifth year to 50% of the taxpayer’s taxable income for that carryback year. The election is not available to TARP recipients or their affiliates.
A taxpayer makes the election by attaching a statement to its return (or amended return) for the tax year in which the NOL arises. Section 4 of the revenue procedure provides details.
The election must be made by the return filing due date (including extensions) for the taxpayer’s last tax year beginning in 2009. The election is irrevocable.