Congress has resurrected a prior Stimulus Act proposal allowing most taxpayers, not just small businesses, to extend the NOL carryback period under section 172 for up to five years for 2008 and 2009 NOLs. However, the extended carryback election is only available for either 2008 or 2009 NOLs (not both) and limits the amount of NOL that can be carried back to the fifth year to 50 percent of taxable income.
On November 6, 2009, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law. Notably, the act provides an election for most taxpayers to carry back net operating losses (NOLs) from 2008 or 2009 for up to five years, thereby increasing the carryback period for such NOLs from the general two-year carryback period. The increased carryback period was previously proposed by the U.S. House of Representatives and the U.S. Senate in the American Recovery Reinvestment Act of 2009 (the Stimulus Act). However, as finally signed into law by President Obama on February 13, 2009, the Stimulus Act limited the increased NOL carryback period to small businesses. For a detailed discussion of the business tax incentives contained in the Stimulus Act, see McDermott Will & Emery's On the Subjects "Comparison of Business Tax Incentives in U.S. House and U.S. Senate Stimulus Packages" and "Final $787B Stimulus Package Does Not Include Certain Proposed Business Tax Incentives".
The act amends section 172(b)(1)(H) by allowing most taxpayers to elect to extend the two-year NOL carryback period in section 172(b)(1)(A) to three, four or five years, for any "applicable net operating loss." The increased NOL carryback period does not apply to Troubled Asset Relief Program (TARP) recipients or certain taxpayers related to TARP recipients. The term "applicable net operating loss" is defined as the taxpayer's NOL for a taxable year ending after December 31, 2007, and beginning before January 1, 2010.
Section 172(b)(1)(H)(iii) describes the election to increase the NOL carryback period. Most importantly, the election is generally limited to one taxable year. Thus, the increased carryback period is only available for either 2008 or 2009 NOLs, but not both. The one-year limitation does not apply to any "eligible small business," with such taxpayers being able to make the election for two taxable years during the applicable period. An "eligible small business" is any corporation or partnership with average gross receipts over the...