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December 31, 2009

NOL Carry Back Rules in the Worker, Homeownership, and Business Assistance Act of 2009

Guest Author: M. Pilar Puerto, Esq., Columbus, Ohio

The ''Worker, Homeownership, and Business Assistance Act of 2009'' (the “Act”), signed into law on Nov. 6, 2009 as P.L. 111-92  now expands the 5-year carryback's availability to include most businesses, not just eligible small businesses (ESBs), and extends the 5-year carryback of net operating losses (“NOL”) to 2009 NOLs.  The Act also provides greater flexibility to ESBs who made elections pursuant to the American Recovery and Reinvestment Act of 2009 (the “2009 Recovery Act”), which  allowed only ESBs to elect to carry back NOLs from tax year 2008 for up to 5 years.

In general, NOLs may be carried back two years and forward 20 years. The Act now allows most businesses to increase the carryback period for applicable NOLs from 2 to 3, 4, or 5 years. See Code Sec. 172(b)(1)(H)(i)(I).  The Act imposes a 50-percent income limitation on NOL offsets in the fifth preceding tax year. But, this limitation does not apply to ESB’s that elected to carry back 2008 NOLs under the 2009 Recovery Act; however, the limitation will apply if those businesses have 2009 NOLs.  Also, the election may be made for only one tax year. See Code Sec. 172(b)(1)(H)(iii)(I).  But, again an ESB that made an election pursuant to the 2009 Recovery Act may make an election for 2 tax years instead of just 1. See Code Sec. 172(b)(1)(H)(v)(I). Finally, the Act affects the alternative minimum tax (AMT) by suspending the 90-percent income limitation on the use of NOLs for determining AMT for an extended carryback year.

For further details see the attached Worker, Homeownership, and Business Assistance Act of 2009 H.R. 3548.Download HR 3548

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December 31, 2009

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