Net Operating Loss & Amended Returns · last day of the year rule, but argued that filing a claim is filing a claim. The Ruling – Failure to file Form 1045 within the prescribed

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Chapter 19: Net Operating Loss (NOL) and Amended Returns

Page 291-298

19: Net Operating Loss (NOL) and Amended Returns

Upon completion of this seminar, participants should be able to—

Learning Objectives

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• Properly calculate a net operating loss.• Calculate carrybacks/carryforwards and apply rules for

changes in marital status.• Meet the deadlines for filing Claims for Refunds and

Amended Returns.

Page 291-298


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Key Developments

• CA 10th 05/30/2017, 119 AFTR 2d ¶ 2017-803, Chan, a late filed return can be amended for a period of three years post filing. Page 293

• DC NY 07/13/2017, 120 AFTR 2d ¶ 2017-5058, Kirsch, during the period of “financial disability” the carryback period stops tolling. Page 293

• Best practices when there is a death of a spouse. Page 295

• How to deal with proof of the carryforward of a deduction or credit. Page 297

• DC NY 07/13/2017, 120 AFTR 2d ¶ 2017-5046, Silipigno, late filing of a Form 1045 did not constitute a carryback claim. Page 297

Page 291-298


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Key Developments

• There is no statutory right to amend a return, it is a creature of administrative grace. Page 298

• Pay careful attention to returns filed near the end of the statutory period and the mailbox rule. Page 298

Page 291-298


I. Introduction

For an individual taxpayer the income and expenses must be separated into two separate categories

Business

Non-Business

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19: Net Operating Loss (NOL) and Amended Returns5

I. Introduction

For an individual taxpayer the income and expenses must be separated into two separate categories

Business

Non-Business

Page 291


I. Introduction

What does your tax software know and not know?

Page 291

Business Non-Business


I. Introduction

What is business and non-business?

Page 291

Business Non-Business

W-2 $2,225Interest $625Schedule C -$8,000Long Term $3,000Short Term -$1,000Std. Deduction $9,350Pers. Exemp. $12,150

$2,225$625

-$8,000$3,000

-$1,000$9,350

$12,150

NOL = $2,775


I. Introduction

What does your tax software not know?Example - is a capital item business or non-business?

Page 291


II. Carrybacks and Carryforwards Page 292

Exceptions to the 2 year carryback rule


II. Carrybacks and Carryforwards

No – The taxpayer cannot elect to carryforward a loss on a late filed return, so carryback only.Oops – Refund claims must be made in compliance with the two/three year rule, the refunds stay with the U.S. Treasury.

Page 292


II. Carrybacks and CarryforwardsD. The election MAY NOT BE REVOKED – In the event

the election was not made on the original return BUT the taxpayer wishes to do so within six months of the original due date they may by making a election under SECTION 301.9100-2

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Filed Pursuant to Section 301.9100-2


Chan, (CA 10 05/30/2017) – Can IRS refuse to process an amended return or refund claim within the statutory period but outside the 3 year / 2 year period of the timely filing of the return.

Courts Answer – Under IRC 6511(a) a refund claim or amended return is a valid filing if: Within three years from the actual date the

return was filed or Within two years from the actual date of

payment

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Estate of Kirsch (DC NY 07/13/2017) Revenue Ruling 99-21 and IRC 6511The tolling period is suspended during the period the taxpayer is “financially disabled”. Financial Disability - Medically determinable mental or physical impairment lasting at least 12 months or resulting in death. The Problem – During the period of the deceased taxpayers “financial disability”, there was a party who held a power to handle the financial disabled taxpayer’s affairs.

Page 293


V. Changes in Marital Status

A. If not married in the year a NOL occurred only the spouse who owns the loss can offset both carryback and carryover periods

B. If a carryback occurs after death or divorce of the taxpayer the carryback will only be applied to the taxpayer’s share of the married year.

Page 295


V. Changes in Marital Status

What about tax attributes who are owned by a deceased spouse? They disappear after the

filing of the final return for that spouse.

Jointly held property or activities will generally be 50/50.

Page 295


VI. Claims for Refund

Filing a claim for refund

Page 296

Filed Return and Paid Balance Due of $200 on or before 10/15/2018

Taxpayer has until 10/15/2021 to file claim for refundDue Date of

Return Including Extensions 10/15/2018


VI. Claims for Refund Page 296

Filed 1040 on 10/31/2018 and paid $200

The claim will be limited to the earliest of amount paid with the return within three years of filing or two years of payment

Due Date of Return Including Extensions 10/15/2018



VI. Claims for Refund Page 296-Update

Paid tax per exam on 11/02/2019 of $200

05/02/2021 claim made will be limited to amounts paid within 2 years of claim, $200

Filed Return 04/15/2018 and paid tax of $500



05/02/2021


Take care when filing NOL carryback as following is at play: NOL year can be examined to determine

correctness of amount of NOL Year NOL is carried to can be examined to

determine correctness of refund claim, however amounts of adjustment will be limited to NOL carryback amounts

Page 297



Record retention is an important issue to consider for documentation of carrybacks/carryovers of any and all kinds.A carryback to a previous year may subject the taxpayer to examination of that return.A carryforward, including a year out of statute may require the “proof” of the carryforward.

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VII. Filing Form 1045 Versus Amended Return

Silipigno (DC NY 07/13/2017)Up to the last day of the tax year following the loss year Form 1045 can be filed to make a claim for a carryback refund. The Argument – Taxpayer failed to comply with last day of the year rule, but argued that filing a claim is filing a claim.The Ruling – Failure to file Form 1045 within the prescribed period is the same thing as not filing a refund claim. The court indicated that the IRS had no responsibility to notify the taxpayer that there was a failure in the timeliness of their filing.

Page 297


VIII. Filing Form 1040X

What can a taxpayer do when the IRS fails/refuses to process an amended return? There is no statutory right to file an

amended return, Badaracco, 464 US 386 1984 it is a creature of administrative grace.

Whether IRS accepts an amended return is at its sole discretion, Fayeghi, 211 F. 3d 504.

If the IRS says no, the taxpayer’s sole recourse is to file suit in District Court, Miskovsky, 414 F 2d 954 (3d Cir 1969)

Page 298


VIII. Filing Form 1040XQuestion 1 – Does IRS ever change their address –Occasionally.Question 2 – If a return is mailed to the wrong address, what does the IRS do – Normally will forward to the correct address.Question 3 – If a return is mailed to the wrong address what is the date of filing:

The date the return was mailed?The date the return was received by the correct address?

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Where to file return


Documents

Net Operating Loss & Amended Returns · last day of the year rule, but argued that filing a claim is filing a claim. The Ruling – Failure to file Form 1045 within the prescribed