Code Section 172
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 172 | *12/31/2007 | The American Recovery and Reinvestment Act of 2009 (Public Law 111-5) | Five-year carryback of operating losses | -947 |
| 172 | **See Notes Below | The Worker, Homeownership, and Business Assistance Act of 2009 297 | Five-Year Carryback of Operating Losses | -10,407 |
* Effective Date Notes
The provision is effective for NOLs arising in taxable years ending after December 31, 2007.
For an NOL for a taxable year ending before the enactment of the provision (i.e., before February 17, 2009), the provision includes the following transition rules: (1) any election to waive the carryback period under either section 172(b)(3) with respect to such loss may be revoked before the applicable date; (2) any election to increase the carryback period under this provision is treated as timely made if made before the applicable date; and (3) any application for a tentative carryback adjustment under section 6411(a) with respect to such loss is treated as timely filed if filed before the applicable date. For purposes of the transition rules, the applicable date is the date which is 60 days after the date of the enactment of the provision (i.e., 60 days after February 17, 2009).
** Effective Date Notes
The provision is generally effective for net operating losses arising in taxable years ending after December 31, 2007. The modification to the alternative tax NOL deduction applies to taxable years ending after December 31, 2002. The modification with respect to operating loss deductions of life insurance companies applies to losses from operations arising in taxable years ending after December 31, 2007.
Under transition rules, a taxpayer may revoke any election to waive the carryback period under either section 172(b)(3) or section 810(b)(3) with respect to an applicable NOL or an applicable loss from operations for a taxable year ending before the date of enactment (November 6, 2009) by the extended due date for filing the tax return for the taxpayer’s last taxable year beginning in 2009. Similarly, any application for a tentative carryback adjustment under section 6411(a) with respect to such loss is treated as timely filed if filed by the extended due date for filing the tax return for the taxpayer’s last taxable year beginning in 2009.
Five-year carryback of operating losses
Explanation of Provision
The Act provides an eligible small business with an election 87 to increase the present-law carryback period for an applicable 2008 NOL from two years to any whole number of years elected by the taxpayer that is more than two and less than six.88 An eligible small business is a taxpayer meeting a $15,000,000 gross receipts test.89 An applicable NOL is the taxpayer’s NOL for any taxable year ending in 2008, or if elected by the taxpayer, the NOL for any taxable year beginning in 2008. However, any election under this provision may be made only with respect to one taxable year.
Five-year carryback of operating losses
Explanation of Provision
The provision provides an election 312 to increase the present-law carryback period for an applicable NOL from two years to any whole number of years elected by the taxpayer which is more than two and less than six. An applicable NOL is the taxpayer’s NOL for a taxable year beginning or ending in either 2008 or 2009. Generally, a taxpayer may elect an extended carryback period for only one taxable year.
The amount of an NOL that may be carried back to the fifth taxable year preceding the loss year is limited to 50 percent of taxable income for such taxable year (computed without regard to the NOL for the loss year or any taxable year thereafter).313 The limitation does not apply to the applicable 2008 NOL of an eligible small business with respect to which an election is made (either before or after the date of enactment of the Act (November 6, 2009)) under the provision as presently in effect. The amount of the NOL otherwise carried to taxable years subsequent to such fifth taxable year is to be adjusted to take into account that the NOL could offset only 50 percent of the taxable income in such year. Thus, in determining the excess of the applicable NOL over the sum of the taxpayer’s taxable income for each of the prior taxable years to which the loss may be carried, only 50 percent of the taxable income for the taxable year for which the limitation applies is to be taken into account.
The provision also suspends the 90-percent limitation on the use of any alternative tax NOL deduction attributable to carrybacks of the applicable NOL for which an extended carryback period is elected.314
For life insurance companies, the provision provides an election to increase the present-law carryback period for an applicable loss from operations from three years to four or five years. An applicable loss from operations is the taxpayer’s loss from operations for any taxable year beginning or ending in either 2008 or 2009. A 50-percent of taxable income limitation applies to the fifth taxable year preceding the loss year.
A taxpayer must make the election by the extended due date for filing the return for the taxpayer’s last taxable year beginning in 2009, and in such manner as may be prescribed by the Secretary. 315 An election, once made, is irrevocable.
An eligible small business that timely made (or timely makes) an election under the provision as in effect on the day before the enactment of the Act to carry back its applicable 2008 NOL may also elect to carry back a 2009 NOL under the amended provision.316 It is intended that an eligible small business may continue to make the present-law election under procedures prescribed in Rev. Proc. 2009–26 following the enactment of the Act.
The provision generally does not apply to: (1) any taxpayer if (a) the Federal government acquired or acquires, at any time,317 an equity interest in the taxpayer pursuant to the Emergency Economic Stabilization Act of 2008,318 or (b) the Federal government acquired or acquires, at any time, any warrant (or other right) to acquire any equity interest with respect to the taxpayer pursuant to such Act; (2) the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation; and (3) any taxpayer that in 2008 or 2009319 is a member of the same affiliated group (as defined in section 1504 without regard to subsection (b) thereof) as a taxpayer to which the provision does not otherwise apply. An equity interest (or right to acquire an equity interest) is disregarded for this purpose if acquired by the Federal government after the date of enactment from a financial institution 320 pursuant to a program established by the Secretary for the stated purpose of increasing the availability of credit to small businesses using funding made available under the Emergency Economic Stabilization Act of 2008.
87- For all elections under this provision, the common parent of a group of corporations filing a consolidated return makes the election, which is binding on all such corporations.
-Return to Explanation of Provision
88- The provision was modified and extended by section 13 of the Worker, Homeownership, and Business Assistance Act of 2009, Pub. L. No. 111–92, described in Part Five of this document.
-Return to Explanation of Provision
89- For this purpose, the gross receipt test of section 448(c) is applied by substituting $15,000,000 for $5,000,000 each place it appears.
-Return to Explanation of Provision
297- H.R. 3548. The bill passed the House on the suspension calendar on September 22, 2009. The Senate passed the bill with an amendment on November 4, 2009. The House agreed to the Senate amendment on the suspension calendar on November 5, 2009. The President signed the bill on November 6, 2009. For a technical explanation of the bill prepared by the staff of the Joint Committee on Taxation, see Technical Explanation of Certain Revenue Provisions of the ‘‘Worker, Homeownership, and Business Assistance Act of 2009’’ (JCX 44–09), November 3, 2009.
-Return to Explanation of Provision
312- For all elections under this provision, the common parent of a group of corporations filing a consolidated return makes the election, which is binding on all such corporations.
-Return to Explanation of Provision
313- The taxable income limitation only applies to that portion of an applicable NOL that is carried back to the fifth preceding taxable year under subparagraph (H) of section 172(b)(1). The limitation does not apply to the portion of the loss carried back under another subparagraph of section 172(b)(1), such as a specified liability loss, farming loss, or qualified disaster loss.
-Return to Explanation of Provision
314- It is intended that in applying the 50-percent taxable income limitation with respect to the carryback of an alternative tax NOL deduction to the fifth preceding taxable year, the limitation is applied separately based on alternative minimum taxable income.
-Return to Explanation of Provision
315- It is anticipated that the procedures for making the election will be substantially similar to those prescribed for eligible small businesses under present law. See Rev. Proc. 2009–26, 2009–19 I.R.B. 935.
-Return to Explanation of Provision
316- Present law section 172(b)(1)(H)(iii) provides that an eligible small business must make the election by the extended due date for filing its return for the taxable year of the NOL. An eligible small business that did not (or does not) timely elect to carryback its applicable 2008 NOL under present law is subject to the general provision (i.e., election available for either 2008 or 2009 NOL and 50 percent of taxable income limitation applies for the fifth taxable year preceding the loss year).
-Return to Explanation of Provision
317- For example, if the Federal government acquires an equity interest in the taxpayer during 2010, or in later years, the taxpayer is not entitled to the extended carryback rules under this provision. If the carryback has previously been claimed, amended filings may be necessary to reflect this disallowance. Additionally, if the Federal government acquired an equity interest in the taxpayer pursuant to the Emergency Economic Stabilization Act of 2008 and the taxpayer has repaid that investment, it is not entitled to the extended carryback rules under this provision.
-Return to Explanation of Provision
318- Pub. L. No. 110–343.
-Return to Explanation of Provision
319- For example, a taxpayer with an NOL in 2008 that in 2009 joins an affiliated group with a member in which the Federal government has acquired an equity interest pursuant to the Emergency Economic Stabilization Act of 2008 may not utilize the extended carryback rules under this provision with regard to the 2008 NOL. The taxpayer is required to amend prior filings to reflect the permitted carryback period.
-Return to Explanation of Provision
320- As defined in section 3 of the Emergency Economic Stabilization Act of 2008.
-Return to Explanation of Provision