Hertsel Shadian, Attorney at Law, LLC

Expanded Loss Carryback Option Available for Businesses Under New IRS Procedure

1 March 2010

Most businesses now may use losses incurred during the recent economic downturn to reduce income from prior tax years, under an IRS revenue procedure issued in late 2009 which implements relief provided by the Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA). The relief provided under the WHBAA differs from similar relief issued earlier in 2009 under The American Recovery and Reinvestment Act (ARRA) in that the previous relief was limited to small businesses. (See link, Questions and Answers on WHBAA NOL provisions.) The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program (TARP). The relief also applies to a loss from operations of a life insurance company.

Taxpayers under the revenue procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year. This limitation does not apply to the fourth or third preceding year.

The revenue procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.  For more information, consult your professional tax advisor or tax preparer.