FOCUS on Small Businesses

IRS Allows Additional Time for Small Businesses to Make NOL Carryback Election

On April 24, 2009, the Internal Revenue Service (IRS) issued Rev. Proc. 2009-26 to supersede previous guidance issued in March regarding the net operating loss (NOL) carryback election for “electing small businesses” (ESBs). This new guidance was issued in an apparent response to a large number of NOL carryback claims that were not appropriately elected on original tax returns.

The new pronouncement allows additional time to make important NOL elections in many scenarios, specifically for tax returns that were filed by either the March 15th corporate deadline or the April 15th individual deadline. If the NOL carryback election was not appropriately made on a taxpayer’s original return, the election can be made by filing either Form 1045, Application for Tentative Refund, for an individual return, or Form 1139, Corporation Application for Tentative Refund, for a corporate return. However, the election must be filed via these forms no later than six months after the original due date. Forms 1045 and 1139 are normally due by December 31st for calendar year taxpayers.

As a result of this guidance, if an NOL election was not appropriately made on an already filed return, taxpayers have additional time to make the NOL carryback election as long as the Form 1139 or 1045 is filed by September 15th or October 15th, respectively, for calendar year taxpayers.

Please note that the Rev. Proc. does not change the initial guidance that allowed taxpayers who had already elected to forgo the NOL carryback period to unwind that election – as long as it was done by April 17th. No additional time was added to the April 17th deadline for that issue.

For more information, please contact your local CB&H tax specialist.