Net Operating Losses

LossesToday TaxMama® hears from Jean in the TaxQuips Forum, with this problem. “I have a client that hasn’t filed his personal tax returns for 8 years. He is currently under audit, and I am preparing the returns. Can I carryback net operating losses (NOLs) from 2012 to 2010, and forward from 2009 to 2010? Since these tax returns have never been filed to begin with, does that allow me to go that far back?”

Hi Jean

You don’t have any choice, actually.

To waive the carryback period, the taxpayer would have had to have filed a TIMELY return and they must have included the election to waive the carryback.
http://www.irs.gov/publications/p536/ar02.html#en_US_2014_publink1000177379
To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. This statement must show that you are choosing to waive the carryback period under section 172(b)(3).
The bad news is – even if you use the carryback (and you must), he won’t get any refunds from those closed years. The good news is – the NOLs can potentially eliminate all the taxes due.

But this is interesting…what can he possibly be audited for if he hasn’t filed a tax return for 8 years?

And remember, you can find answers to all kinds of questions about net operating losses and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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