IRS Extends Tax Breaks From Net Operating Losses

The Internal Revenue Service (IRS) is extending the time period for claiming tax breaks made available in March 2002 to individuals and businesses with net operating losses in tax years ending in 2001 or 2002.

Because of the timing of the Job Creation and Worker Assistance Act of 2002, many taxpayers filed their tax returns before this new law was passed and have not yet filed for refunds. Some may have been unaware that they could carry their losses back for five years, instead of the two year maximum allowed under prior law. Others may have felt time or cost pressures to make elections to forego the 5-year carryback. As a result, Revenue Procedure 2002-40 gives taxpayers additional flexibility and more time to take advantage of the new 5-year carryback.

An extended filing deadline of October 31, 2002 is designed to help taxpayers in a variety of situations:

  • Taxpayers who made elections to forego the 5-year carryback can still revoke their elections.
  • Taxpayers who simply applied the former 2-year period without making any elections can still apply for tentative carryback adjustments, even if the 12-month period for filing the application has expired.
  • Taxpayers who neither made elections to forego the 5-year carryback, nor used the 2-year carryback period, can still make their elections to keep the 2-year period.

To make an election or apply for a refund, corporations should file Form 1139, "Corporation Application for Tentative Reform" or Form 1120X "Amended U.S. Corporation Income Tax Return." Individuals should file Form 1045, "Application for Tentative Refund," or Form 1040X, "Amended U.S. Individual Tax Return." Estates and Trusts should file a Form 1045 or amended Form 1041, "U.S. Income Tax Return for Estates and Trusts." Write across the top of the form, "Revocation of NOL carryback waiver under Rev. Proc. 2002-40" or "Amended refund claim under Rev. Proc. 2002-40," as applicable.

Download Announcement 2002-66 and Rev. Proc. 2002-40.

-Rosemary Schlank

You may like these other stories...

Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
By Cathy Stopyra and Todd SimmensUnderpayment interest, refund interest, and penalties charged to businesses are just a few of the considerations the IRS calculates when determining taxation for a given company. Though...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.