An eligible small business (a business with 3-years of average annual gross receipts of $15 million or less for the years 2006 -2008) can now carry back its net operating loss as far back as year 5, instead of just 2 years per the old rules.

How to elect a longer carryback period:

A statement attached to the 2008 tax return is required to make the election to receive a longer than 2 year carryback.

The statement must indicate that the taxpayer is adopting the longer carryback period. As well as indicating the number of years the loss will be carried back. Once a taxpayer makes the election, it can not be revoked. (See the specific language for the election included in Revenue Procedure 2009-19) See below updated Revenue Procedure 2009-26 available May 2009

What if the taxpayer forgets to make the election?

If the taxpayer does not attach the proper election statement to the return, a late election can be obtained by using the procedures in Reg. 301.9100-2(b).

How to file for relief – a late election:

Options:

1. File an application for tentative refund (Individuals, Estates & Trusts – Use form 1045; Corporations – use form 1139

2. File an amended return which includes the proper election statement

When to file for relief:

Relief MUST be requested within six months of the due date of the 2008 return (including extensions.)

Here is what to do if a carryback was already filed but the election was not made to use the longer carryback provisions.

If a carryback claim was already filed (on an amended return or via an application for tentative refund) but the taxpayer used the 2-year carryback rule instead of the new 3, 4 or 5 year carryback period, the taxpayer should re-file the carryback claim and include the following language at the top of the form:

“Amended NOL Carryback Election Pursuant to Rev. Proc. 2009-19”

What to do if the NOL carryback was waived but now the taxpayer wants to use the 3, 4 or 5 year carryback period.

If the taxpayer waived the carryback period, the waiver may be revoked by filing an amended return or an application for tenative refund and making the proper election. The taxpayer must include the language at the top of the amended return or application for tentative refund:

“2008 NOL Carryback Election and Revocation of NOL Carryback Waiver Pursuant to Rev. Proc. 2009-19”

Note:

If the election to use the longer carryback period was timely made then the taxpayer has until the end of the next succeeding year to file form 1045 or form 1139 (whichever is applicable.)

If the election was not timely made, then the application for tentative refund must be filed by within six months of the due date of the return (September 15th for calendar year corporations, October 15th for Individuals; Estates & Trusts – Assume September 15th as that is the last date due for an extended return despite that the regulation provides for an automatic 6-month extension.)

References:

IRC §172(b)(1)(F) & (H)
Rev. Proc. 2009-19
Reg. §301.9100-2

Revenue Procedure 2009-26 provides guidance under § 1211 of the American Recovery and Reinvestment Tax Act of 2009 on how a taxpayer that is an eligible small business makes an election to carry back a net operating loss (NOL) for a taxable year ending after 2007, for 3, 4, or 5-years instead of the normal 2-years. Rev. Proc. 2009-26 modifies the election procedures in Rev. Proc. 2009-19, 2009-14 I.R.B. 747. A taxpayer may make the election by attaching a statement to the taxpayer’s original income tax return for the taxable year of the 2008 NOL or by claiming the NOL carryback on the appropriate form (Form 1045, Form 1139, or an amended return).

Revenue Procedure 2009-26 will appear in IRB 2009-19, dated May 11, 2009.