Net Operating Losses

Today TaxMama hears from Judy in Kansas who tells us, “I had a house fire in 2004 and I am just now filing an amended return for 2004 for the casualty losses. They resulted in a net operating loss (NOL). It is past the 3 year timeframe for filing a 1040x for 2002 and 2003. Can I carry the NOL to 2005 without having first carried it back to 2002 and 2003 since it is too late to file amended returns for those two years?”

Dear Judy,

Well, that must have been a fun experience. You’re probably thrilled to have that behind you.

And here’s another thing to be thrilled about. Read this little excerpt from page 8 of IRS Publication 536, which contains the instructions on net operating losses:

    http://www.irs.gov/publications/p536/ar02.html#d0e1417
    Form 1040X. If you do not file Form 1045, you can file Form 1040X to get a refund of tax because of an NOL carryback. File Form 1040X within 3 years after the due date, including extensions, for filing the return for the NOL year. For example, if you are a calendar year taxpayer and filed your 2004 return by the April 15, 2005, due date, you must file a claim for refund of 2002 tax because of an NOL carryback from 2004 by April 15, 2008.
    http://www.irs.gov/pub/irs-pdf/p536.pdf

It almost specifically covers your own example, doesn’t it?

As long as you file the 1040X by April 15th of this year, (or a little later, if you filed with an extension) you can carry the loss back to 2002. You see, the you can amend prior year returns for a bit longer, with you’re dealing with an NOL.

Can you elect to waive the carryback period? Typically, the law says that you must make the choice to waive the carryback period on a timely-filed return. So, is an amended return considered timely filed? Sigh, apparently, only if you file it within 6 months of the original return.

    http://www.irs.gov/publications/p536/ar02.html#d0e1169
    If you filed your return timely but did not file the statement with it, you must file the statement with an amended return for the NOL year within 6 months of the due date of your original return (excluding extensions). Enter “Filed pursuant to section 301.9100-2” at the top of the statement.

So you have no choice but to go backwards. – to the past. At least, you’ll get refunds with more interest due to the longer time-frame.

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

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