may 17 , 2009 - I reported a loss on my business for 2008, and after filing my return, learned that I could have carried the resulting NOL back several years. Is it too late to take advantage of this rule change?

IRS has eased the procedures for eligible small businesses to elect a 3-, 4- or 5-year carryback period for certain 2008 net operating losses (NOLs), as is permitted under a change made by the American Recovery and Reinvestment Act of 2009 (ARRA).

Background. An NOL is the excess of business deductions over gross income in a particular tax year. The loss can be deducted, through an NOL carryback or carryover, in another tax year in which gross income exceeds business deductions. In general, under pre-ARRA law, NOLs may be carried back 2 years and forward 20 years. A taxpayer may elect to forego the entire carryback period for an NOL and instead carry it forward. Different rules apply for certain types of losses.

For NOLs arising in tax years ending after Dec. 31, 2007, ARRA permits an eligible small business to elect to increase the NOL carryback period for an applicable 2008 NOL from 2 years to 3, 4, or 5 years. An eligible small business (ESB) that may elect the increased carryback is any trade or business (including one conducted in or through a corporation, partnership, or sole proprietorship) whose average annual gross receipts (reduced by returns and allowances) for 2006-2008 are $15 million or less.

Missed elections. The IRS notes that it has received many claims from taxpayers that seek a 3-, 4-, or 5-year carryback but that inadvertently have not made a valid election . IRS says these inadvertent failures may be due to the fact that the enactment of the longer carryback provision and the prior guidance for making the election occurred midway through the current tax return filing season.

Changed procedures. To provide certainty to taxpayers and to implement the intent of Congress in providing an extended carryback period, an ESB may elect a 3-, 4-, or 5-year carryback period simply by filing a Form 1045, Form 1139, or amended return that carries back the NOL for 3, 4, or 5 years. Although Forms 1045 and 1139 ordinarily are due within 12 months after the tax year of the NOL, the IRS rules require that the taxpayer elect a 3-, 4-, or 5-year carryback within 6 months after the due date (excluding extensions) of the return for the tax year of the NOL.

Electing on original return. A taxpayer may make the election by attaching a statement to the taxpayer's timely filed federal income tax return for the tax year in which the applicable 2008 NOL arises. If the taxpayer's tax year of the applicable 2008 NOL ends before Feb. 17, 2009, the taxpayer must make the election on or before the later of the due date (including extensions of time) of the taxpayer's return for that tax year or Apr. 17, 2009.

A taxpayer that makes the election by filing an amended return must file the return for the earliest tax year to which the taxpayer is carrying back the applicable 2008 NOL.

The appropriate form must be filed on or before the date that is 6 months after the due date (excluding extensions) for filing the taxpayer's return for the tax year of the applicable 2008 NOL.

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