Check out what I read in a recent edition of the NATP’s TaxPro Weekly publication about Net Operating Loss Carry backs (NOL)….
“Chief Counsel Advice (CCA) 201049035 cleared theÂ air regarding whether there is any limitation period applicable to reducing a taxpayerâ€™s tax liability based on aÂ net operating loss (NOL) carry back.
Generally, a claim for credit or refund of an overpayment must be ï¬led by the taxpayer within three yearsÂ from the time the return was ï¬ led or two years fromÂ the time the tax was paid, whichever is later [Â§6511(a)].Â Â However, Â§6511(d)(2) provides an additional specialÂ period of limitation for a claim for a refund or credit relating to an over payment attributable to an NOL carryback.
The relevant portion of Â§6511(d)(2) provides, inÂ lieu of the three-year period of limitation prescribed inÂ Â§6511(a), the period shall be the period ending threeÂ years after the due date of the return (plus extensions)Â for the taxable year of the NOL.
In this case, the IRS disallowed the taxpayerâ€™s claimÂ for credit because it determined the claim was untimely. However, the NOL carry back, if allowed, wouldÂ not result in an over payment, which would generate aÂ credit or refund, but would simply reduce the taxpayerâ€™s outstanding tax liability.
The CCA concluded that even though there areÂ restrictions on the time within which the IRS may allowÂ a claim for credit or refund, no such statutory limitationÂ exists to prevent the carry back of an NOL to reduce aÂ taxpayerâ€™s outstanding tax liability. Therefore, if an NOLÂ has not been claimed and the taxpayer has an outstanding
tax liability, the statute of limitations may prevent a refund but will not prevent the NOL carryback from beingÂ applied to reduce the taxpayerâ€™s outstanding tax liability.”