HERE IS MY SITUATION. I HAVE APPROX 6-7 CLIENTS WHO HAVE ALL TAKEN LARGE LOSSES ON THEIR 09 1040, ALL REAL EST. PROFESSIONALS AND SO ON THEIR 4797 ARE LOSSES ON THEIR 4797 LARGE ENOUGH TO CARRY FORWARD, OR BACK. I WANT TO DECLARE THEY ARE OPTING TO GO BACK, SOME HAVE LARGE TAX LIABILITIES THAT THEY HOPE WIRLL BE REDUCED AND SOME HAVE PAID LARGE TAX BILLS WHICH THEY HOPE TO RECOUP SOME IF NOT ALL THE MONEY. THERE HAVE BEEN SPIRITED DEBATE (AMONG TAX ATTORNEYS IRS TAX LAW SPECIALIS, EA'S AND CPA'S) AS TO WHAT THE LAW IS, WHAT FORMS TO USE ETC; MY POSITION ON GOING BACK IS. THEY CAN TAKE 1/2 OF THE LOSS AND GO BACK A MIN. OF 2 YRS AND A MAX OF 5 YRS. IN THE CASE OF THE 5 YR LOSS CARRYBACK (LOSS TOTAL 160K) I WANT TO GO TO TAX YR 04 AND DROP 80K ON 04 AND THEN USE UP WHAT IT TAKES TO EITHER GET THEIR MONEY PD. OR USE UP THE MONEY TO ELIMINATE THE TAX BILL, MY QUESTION IS WHAT FORM AND WHERE/HOW DO I GET STARTED IN THE PROCESS. I WOULD LIKE TO USE A 1040X, BUT IN 04 WHERE DO I PUT THE 80K TO START WITH IN ORDER TO MAKE THE ADJ. ON THE 1040X

 THANKS  DAVE HUNTER
    THE HUNTER CO.

LAS VEGAS NV.

asked 16 May '10, 04:10

dave%20hunter's gravatar image

dave hunter
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If you are carrying back a 2009 Net Operating Loss (NOL) and you file your tax return by the due date, including extention, then you have until 12/31/2010 to file for a refund using Form 1045.

If you do not file by 12/31/2010, then you must use Form 1040X to file for a refund of prior year taxes due to an NOL. However, if you are within the time frame, Form 1045 is easier, I believe, and the client receives a faster refund.

If you have opted for a 5 year carryback, 2004 would be the 1st carryback year for a 2009 NOL. See the instructions for Form 1045

You can opt to carryback 3, 4, or 5 years rather than the default 2 year carryback, but that election must be taken on the 2009 tax return when filed. If you have already filed and failed to opt, you must file an amended 2009 return in order to opt for the 3,4 or 5 year carryback.

The first step is to complete Schedule A of Form 1045 to determine the NOL.

You will also find that states vary significantly on how they handle NOLs. For instance, California does not allow NOL carrybacks at all. All NOLs must carryforward regardless of how the NOL is handled for Federal purposes. Plus for 2008 and 2009, even paying out carryforwards has been suspended. They just aren't paying them; the amounts must carryforward to another year when the State will presumably have more money.

I'd be happy to take any further questions on or offline.

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answered 16 May '10, 13:37

Lance%20W%20Gurel%20CPA%203's gravatar image

Lance W Gure...
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accept rate: 17%

The election as to what year the NOL is carried back to is made on the 2009 1040. You can elect to go back from 2 to 5 years. The NOL will be worked forward from the election year to the next year etc. until totally used up or if appro carried forward to 2010.

The form generally utilized is the 1045. The entire amount of the NOL will be utilized first in the carryback year. You cannot allocate how much to carryback to each year. It all goes back to the first elected year. You will need to re-prepare the entire return for the carryback year utilizing the NOL as though it were a carryyover from the previous year. You will need to submit as backup to the 1045 each of the forms that changed in the return for the carryback and mark them as Attachments to Form 1045 - DO NOT PROCESS. Be certain that you include all alternative minimum tax worksheets in addition to the Form 6251.

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answered 16 May '10, 13:48

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Eddie Douglas 1
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First - learn a little netiquette. ALL CAPS is shouting and it is hard to read. I also believe you need to pay more attention to punctuation - do try to make it EASY for US to help you.

When a tax return generates an NOL you have a chance on that return to forego the carryback period and carry the NOL forward. If you fail to make that election then you MUST carry the NOL back. Normally that would be back 2 years. However, there was a provision for 09 that allowed you to elect to carry back an NOL up to 5 years, but again you had to make that election on the NOL return itself. So check to see what you did on the 09 returns. If you want to carryback 5 years and failed to make that election, I think you can amend 09 to include the election.

Next - you must carryback the FULL amount of the NOL to the earlist year - in your case that would be either 07 (for a 2 year carryback) or 06, 05 or 04 (for a 3, 4 or 5 year carryback) - and use it up from that point forward.

You also have to be very careful about calculating the AMTNOL - many times this is overlooked and it comes back to bite you later. If you fail to properly calculate the AMTNOL you can be sure the IRS will catch it. This could easily reduce or even negate the benefit you THINK you're getting.

Try explaining to a client that you MISSED the AMT calculation and now he not only doesn't get that refund you promised him but you've used up an NOL that he might have been able to carryforward and use to offset income in the future. The AMTNOL is one of the most overlooked items I've seen when addressing how to best use a NOL - not to mention that if your error costs the client to lose a benefit, you could be opening yourself up to a legal suit. BE CAREFUL.

Once you think you know how to handle the Federal NOL issue, you'll need to look into the state side of things. Some states do NOT follow the extended NOL provisions and I've heard that some states don't allow a NOL carryback at all. This means that you'll have to use different periods for the states then you do for the IRS - KEEP GOOD WORKPAPERS.

Remember that the IRS regularly sends information to all the states with summary information from every Federal return filed with address from that state. So if you carryback the Federal NOL 5 years but have to carryFORWARD the state NOL it is quite possible you'll get a letter from the state asking you to explain why your state return differs from the Federal return. I've had this problem with Maryland when the Federal NOL went back 5 years but the Maryland only allowed us to go back 2 - we had to carry some of the NOL forward for state purposes and it caused letters until the NOL got used up.

The National Association of Tax Practitioners had a GREAT article on the AMT NOL in their October 2008 issue. It included a worksheet for the calculation including an example that makes it very easy to follow AND it included a sample tax return, complete with numbers, so you can actually SEE how its done. As an NATP member I have access to this webpage but I'm not sure the general public does. You can try a google search or you can go to www.NATPTAX.com and try to search for the AMT NOL and see what you get. Whatever you do REMEMBER to calc the AMTNOL as part of your work.

Lastly, if you're new to this you may want to consider working with a more experienced preparer to get some experience with this. I frequently help other tax professionals with issues they've not had experience with before. In fact, I'm working with a local CPA on the very same issue - his client has a HUGH NOL that he wants to carryback. I charged an hourly rate and he came to my office and I walked him through all the calculations. I'm sure you can find somebody near you that offers such a service to other professionals. If not, contact me backchannel and I'll work something out with you privately.

Good luck.

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answered 19 May '10, 18:14

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EAgent
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accept rate: 6%

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Asked: 16 May '10, 04:10

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Last updated: 19 May '10, 18:14