“NOL Carry Back Allowed to Reduce Outstanding Tax Liability”

21 Jul “NOL Carry Back Allowed to Reduce Outstanding Tax Liability”

Check out what I read in a recent edition of the NATP’s TaxPro Weekly publication about Net Operating Loss Carry backs (NOL)….

“Chief Counsel Advice (CCA) 201049035 cleared theair regarding whether there is any limitation period applicable to reducing a taxpayer’s tax liability based on anet operating loss (NOL) carry back.

Generally, a claim for credit or refund of an overpayment must be ï¬led by the taxpayer within three yearsfrom the time the return was ï¬ led or two years fromthe time the tax was paid, whichever is later [§6511(a)].However, §6511(d)(2) provides an additional specialperiod of limitation for a claim for a refund or credit relating to an over payment attributable to an NOL carryback.

The relevant portion of §6511(d)(2) provides, inlieu of the three-year period of limitation prescribed in§6511(a), the period shall be the period ending threeyears after the due date of the return (plus extensions)for the taxable year of the NOL.

In this case, the IRS disallowed the taxpayer’s claimfor credit because it determined the claim was untimely. However, the NOL carry back, if allowed, wouldnot result in an over payment, which would generate acredit or refund, but would simply reduce the taxpayer’s outstanding tax liability.

The CCA concluded that even though there arerestrictions on the time within which the IRS may allowa claim for credit or refund, no such statutory limitationexists to prevent the carry back of an NOL to reduce ataxpayer’s outstanding tax liability. Therefore, if an NOLhas not been claimed and the taxpayer has an outstanding
tax liability, the statute of limitations may prevent a refund but will not prevent the NOL carryback from beingapplied to reduce the taxpayer’s outstanding tax liability.”