US Internal Revenue Service: p536--1998

8/14/2019 US Internal Revenue Service: p536--1998

1/19

ContentsImportant Change for 1998 ............... 1

Introduction ........................................ 1

NOL Steps ........................................... 2

How To Figure an NOL ...................... 2Illustrated Schedule A

(Form 1045) ............................. 2

When To Use an NOL ........................ 6

How To Claim an NOL Deduction .... 6Deducting a Carryback ................... 6Deducting a Carryforward ............... 7Change in Marital Status ................ 7

Change in Filing Status .................. 7

Illustrated Form 1045 ...................... 8

How To Figure an NOL Carryover .... 10

Illustrated Schedule B(Form 1045) ............................. 10

NOL Carryover From 1998 to 1999 .. 13Worksheet Instructions ................... 13

Corporations ....................................... 16Figuring the NOL ............................ 16Claiming the NOL Deduction .......... 16Figuring the NOL Carryover ........... 16

How To Get More Information .......... 18

Index .................................................... 19

Important Changefor 1998

Carryback period extended for farmers.NOLs attributable to a farming business that

occur in tax years after 1997 can be carriedback 5 years, instead of 2. For more infor-mation, see When To Use an NOL, later.

IntroductionIf your deductions for the year are more thanyour income for the year, you may have a netoperating loss (NOL). You can use an NOLby deducting it from your income in anotheryear or years. This publication discussesNOLs for individuals, estates, trusts, andcorporations. It explains how to figure anNOL, when to use it, how to claim an NOLdeduction, and how to figure an NOL carry-over.

To have an NOL, your loss must becaused by one of the following kinds of de-ductions.

From a trade or business.

From your work as an employee.

For casualty and theft losses.

A loss from operating a business is themost common reason for an NOL.

Partnerships and S corporations generallycannot use an NOL. But partners or share-holders can use their separate shares of thepartnership's or S corporation's business in-come and business deductions to figure theirindividual NOLs.

Departmentof theTreasury

InternalRevenueService

Publica tion 536Cat. No. 46569U

Net Operat ingLosses Trade or Business

Employee BusinessExpenses

Casualty and Theft

For use in preparing

1998Returns


2/19

This publication does not discuss bank-ruptcy. If you need information on bankruptcy,see Publication 908, Bankruptcy Tax Guide.

Useful ItemsYou may want to see:

Publication

542 Corporations

Form (and Instructions)

1040XAmended U.S. Individual IncomeTax Return

1045 Application for Tentative Refund

1120XAmended U.S. Corporation In-come Tax Return

1138 Extension of Time for Payment ofTaxes by a Corporation Expectinga Net Operating Loss Carryback

1139 Corporation Application for Ten-tative Refund

See How To Get More Information, nearthe end of this publication for information

about getting these publications and forms.

NOL StepsFigure and use your NOL in the followingsteps:

Step 1. Complete your tax return for the year.You may have an NOL if a negative figureappears on the line below:

Individuals line 39 of Form 1040.

Estates and trusts line 22 of Form 1041.

Corporations line 30 of Form 1120 or line26 of Form 1120A.

If the amount on that line is zero or more,stop here you do not have an NOL.

Step 2. Determine whether you have an NOLand its amount. See How To Figure an NOL,later. If you do not have an NOL, stop here.

Step 3. Decide whether to carry the NOLback to a past year or to forgo any carrybackand instead carry the NOL forward to a futureyear. See When To Use an NOL, later.

Step 4. Deduct the NOL in the carryback or

carryforward year. See How To Claim an NOLDeduction, later. If your NOL deduction isequal to or smaller than your taxable incomewithout the deduction, stop here you haveused up your NOL.

Step 5. Determine the amount of your un-used NOL. See How To Figure an NOL Car-ryover, later. Carry over the unused NOL tothe next carryback or carryforward year andbegin again at Step 4.

Note. If your NOL deduction includesmore than one NOL amount, apply Step 5separately to each NOL amount, starting withthe amount from the earliest year.

How To Figure an NOLIf your deductions for the year are more thanyour income for the year, you have a potentialNOL.

There are rules that limit what you candeduct when figuring an NOL. In general, youcannot deduct the following items.

1) Personal exemptions.

2) Capital losses in excess of capital gains.

3) The section 1202 exclusion of 50% ofthe gain from the sale or exchange ofqualified small business stock.

4) Nonbusiness deductions in excess ofnonbusiness income.

5) Net operating loss deduction.

Schedule A (Form 1045). Use Schedule A(Form 1045) to figure an NOL for an individ-ual, estate, or trust. This discussion explainsSchedule A and includes an illustrated ex-ample.

First, complete lines 13 of Schedule A,using amounts from your return. If line 3 is a

negative amount, you have a net loss and apotential NOL.Next, complete the rest of Schedule A to

figure your NOL. Adjust the amount on line3 for deductions that are allowed when figur-ing your taxable income, but not when figuringan NOL. The following discussions explainthese adjustments.

Adjustment for exemptions (line 4). Youcannot deduct your personal exemption oryour exemptions for dependents. An estateor trust cannot deduct its exemption amount.Your adjustment is the total amount you de-ducted.

Adjustment for nonbusiness deductions

(line 12). You can deduct your nonbusinessdeductions (line 9) only up to the total of:

1) Your nonbusiness capital gains that aremore than your nonbusiness capitallosses (not including any section 1202exclusion shown as a loss on ScheduleD of Form 1040)(line 8), and

2) Your nonbusiness income (line 10).

Your adjustment is your nonbusiness de-ductions that are more than the total of (1)and (2).

Nonbusiness deductions (line 9). Enteron line 9 as your nonbusiness deductionsonly those that are not related to your tradeor business or your employment. For exam-ple, enter your deductions for alimony, con-tributions to an IRA or other retirement plan,medical expenses, and charitable contribu-tions. If you do not itemize deductions, in-clude your standard deduction.

Do not include your deductions for casu-alty and theft losses or for one-half of self-employment tax. Treat these as businessdeductions.

Also do not include your deductions forexpenses that are ordinary and necessary incarrying on your trade or business or youremployment, your deduction for your shareof a business loss from a partnership or Scorporation, or related deductions for the fol-lowing items.

1) Moving expenses.

2) State income tax on business profits.

3) Interest and litigation expenses on stateand federal income taxes related to yourbusiness income.

4) Payments by a federal employee to buyback sick leave used in an earlier year.

5) Loss on property you rent out.

6) Loss on the sale or exchange of busi-

ness real estate or depreciable businessproperty.

7) Loss on the sale of accounts receivable(if you use an accrual method of ac-counting).

8) Loss on the sale or exchange of stock ina small business corporation or a smallbusiness investment company, if treatedas ordinary loss.

9) Unrecovered investment in a pension orannuity claimed on a decedent's finalreturn.

Nonbusiness income (line 10). Enter online 10 only income that is not related to yourtrade or business or your employment. For

example, enter your annuity income, divi-dends, and interest from investments. Also,include your share of nonbusiness incomefrom partnerships and S corporations.

Do not include the income you receivefrom your trade or business or your employ-ment. This includes salaries and wages, self-employment income, and your share of busi-ness income from partnerships and Scorporations. Also, do not include rental in-come or ordinary gain from the sale or otherdisposition of business real estate or depre-ciable business property.

Adjustment for capital losses (line 22). Youcan deduct your nonbusiness capital losses(line 5) only up to the amount of your non-

business capital gains (line 6). If your non-business capital losses are more than yournonbusiness capital gains, you cannot deductthe excess.

You can deduct your business capitallosses (line 14) only up to the total of:

1) Your nonbusiness capital gains that aremore than the total of your nonbusinesscapital losses and excess nonbusinessdeductions (line 13), and

2) Your business capital gains (line 15).

Your adjustment is your nondeductiblecapital losses (line 18) that are more than thenondeductible net capital loss on your return(line 21). (You had a nondeductible net capitalloss if your net capital loss was more thanyour capital loss deduction.)

Adjustment for NOL deduction (line 23).You cannot deduct any NOL carryovers orcarrybacks from other years. Your adjustmentis the total amount of your NOL deduction forlosses from other years.

Illustrated Schedule A(Form 1045)The following example illustrates how to fig-ure an NOL. It includes filled in pages 1 and2 of Form 1040 and Schedule A (Form 1045).

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Glenn M. Johnson

56 0 3 E. Main St reet

Anytown, VA 20 0 0 0

76 5 0 0 4321

1,225425

< 5,00 0 >1,0 0 0 *

< 2,350 >

< 2,350 >

1

1

* Net capit al gain ($2,0 0 0 gain less $1,00 0 loss)

Department of the TreasuryInternal Revenue Service

1040 U.S. Individual Income Tax ReturnOMB No. 1545-0074For the year Jan. 1Dec. 31, 1998, or other tax year beginning , 1998, ending , 19

Last nameYour first name and initial Your social security number

(Seeinstructionson page 18.)

LABEL

HE

RE

Last name SpousessocialsecuritynumberIf a joint return, spouses first name and initial

Use the IRSlabel.Otherwise,please printor type.

Home address (number and st reet ). If you have a P.O. box, see page 18. Apt. no. IMPORTANT!

City, town or post office, state, and ZIP code. If you have a foreign address, see page 18.

PresidentialElection Campaign(See page 18.)

Note: CheckingYes will notchange your tax orreduce your refund.

NoYes

Do you want $3 to go to this fund?

If a joint return, does your spouse want $3 to go to this fund?

1 SingleFiling Status 2 Married filing joint return (even if only one had income)

3

Check onlyone box.

4

Qualifying widow(er) with dependent child (year spouse died 19 ). (See page 18.)5

6a Yourself. If your parent (or someone else) can claim you as a dependent on his or her tax

return, do not check box 6aExemptionsSpouseb

(4) if qualifyingchild for child taxcredit (see page 19)

Dependents:c (2) Dependentssocial security number

(3) Dependentsrelationship toyou(1) First name Last name

If more than sixdependents,see page 19.

d Total number of exemptions claimed

7Wages, salaries, tips, etc. Attach Form(s) W-27

8a8a Taxable interest. Attach Schedule B if requiredIncome8bb Tax-exempt interest. DO NOT include on line 8aAttach

Copy B of yourForms W-2,

W-2G, and1099-R here.

99 Ordinary dividends. Attach Schedule B if required

1010 Taxable refunds, credits, or offsets of state and local income taxes (see page 21) 1111 Alimony received

1212 Business income or (loss). Attach Schedule C or C-EZ

Enclose, but donot staple, anypayment. Also,please useForm 1040-V.

1313 Capital gain or (loss). Attach Schedule D

1414 Other gains or (losses). Attach Form 4797

15a 15bTotal IRA distributions b Taxable amount (see page 22)15a

16b16aTotal pensions and annuities b Taxable amount (see page 22)16a

1717 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E

1818 Farm income or (loss). Attach Schedule F

1919 Unemployment compensation

20b20a b Taxable amount (see page 24)20a Social security benefits

2121

22 Add the amounts in the far right column for lines 7 through 21. This is your total income 22

23IRA deduction (see page 25)23

Medical savings account deduction. Attach Form 8853 2525

One-half of self-employment tax. Attach Schedule SE

26

Self-employed health insurance deduction (see page 28)

26

2727

Keogh and self-employed SEP and SIMPLE plans

2828

Penalty on early withdrawal of savings

2929

Alimony paid b Recipients SSN

32Add lines 23 through 31a

30

Subtract line 32 from line 22. This is your adjusted gross income

31a

AdjustedGrossIncome

33

If you did notget a W-2,see page 20.

Form

Married filing separate return. Enter spouses social security no. above and full name here.

Cat. No. 11320B

Label

Form 1040 (1998)

IRS Use OnlyDo not write or staple in this space.

Head of household (with qualifying person). (See page 18.) If the qualifying person is a child but not your dependent,

enter this childs name here.

Other income. List type and amountsee page 24

Moving expenses. Attach Form 3903

24 24

(99)

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 51.

If line 33 is under$30,095 (under$10,030 if a childdid not live withyou), see EICinst. on page 36.

No. of boxeschecked on6a and 6b

No. of your

children on 6cwho:

Dependents on 6cnot entered above

Add numbersentered onlines above

lived with you

did not live withyou due to divorceor separation(see page 19)

32

31a

1998

Student loan interest deduction (see page 27)

30

33

You must enteryour SSN(s) above.

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< 2,350 >

4,250

< 6,60 0 >

2,700

-0 -

2-5-99 Self-employed

Enter the larger of your itemized deductions from Schedule A, line 28, OR standarddeduction shown on the left. But see page 30 to find your standard deduction if youchecked any box on line 35a or 35b or if someone can claim you as a dependent

Add lines 57, 58, 59a, and 60 through 63. These are your total payments

Page 2Form 1040 (1998)

Amount from line 33 (adjusted gross income)34 34

Check if:35aTax andCredits

35aAdd the number of boxes checked above and enter the total here

Single:$4,250

If you are married filing separately and your spouse itemizes deductions oryou were a dual-status alien, see page 29 and check here

b35b

36

36

37Subtract line 36 from line 3437

38If line 34 is $93,400 or less, multiply $2,700 by the total number of exemptions claimed on

line 6d. If line 34 is over $93,400, see the worksheet on page 30 for the amount to enter

38

39Taxable income. Subtract line 38 from line 37. If line 38 is more than line 37, enter -0-39

40 40

4141 Credit for child and dependent care expenses. Attach Form 2441

43

Credit for the elderly or the disabled. Attach Schedule R

44

Foreign tax credit. Attach Form 1116 if required

45

Other. Check if from

47

48

46

49

Add lines 41 through 47. These are your total credits

47

50

Subtract line 48 from line 40. If line 48 is more than line 40, enter -0- 48

51

Self-employment tax. Attach Schedule SE

49

OtherTaxes

52

Alternative minimum tax. Attach Form 6251

50

65

51

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

54

Tax on IRAs, other retirement plans, and MSAs. Attach Form 5329 if required53

55

Add lines 49 through 55. This is your total tax 56 56

Federal income tax withheld from Forms W-2 and 109957 57

581998 estimated tax payments and amount applied from 1997 return58Payments

59a

59a

61Amount paid with Form 4868 (request for extension)61

AttachForms W-2and W-2Gon the front.

Also attachForm 1099-Rif tax waswithheld. 62Excess social security and RRTA tax withheld (see page 43)62

64

Other payments. Check if from63

66a66a

67 67

If line 64 is more than line 56, subtract line 56 from line 64. This is the amount you OVERPAID

68

68

Amount of line 65 you want REFUNDED TO YOU Refund

69

Amount of line 65 you want APPLIED TO YOUR 1999 ESTIMATED TAX

Estimated tax penalty. Also include on line 68Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge andbelief, they are true, correct, and co mplete. Declaration of preparer (other than taxpayer) is based on all information of which p reparer has any knowledge.

69

You were 65 or older, Blind; Spouse w as 65 or older, Blind.

a Form 3800 b Form 8396

c Form 8801 d Form (specify)

a Form 2439 b Form 4136

Earned income credit. Attach Schedule EIC if you have a qualifying

child b Nontaxable earned income: amount

and type

54

Household employment taxes. Attach Schedule H 55

63

Printed on recycled paper

AmountYou Owe

SignHere

DateYour signature

Keep a copyfor yourrecords.

DateSpouses signature. If a joint return, BOTH must sign.

Preparers social security no.DatePreparerssignature

Check ifself-employed

PaidPreparersUse Only

Firms name (or yoursif self-employed) andaddress

EIN

ZIP code

Your occupation

Spouses occupation

Tax. See page 30. Check if any tax from

If line 56 is more than line 64, subtract line 64 from line 56. This is the AMOUNT YOU OWE.

For details on how to pay, see page 44

b

Have itdirectlydeposited!See page 44and fill in 66b,66c, and 66d.

Routing number

Account number

c Checking SavingsType:

a Form(s) 8814 Form 4972

b

d

64

42

44

Adoption credit. Attach Form 8839

52

53

Advance earned income credit payments from Form(s) W-2

65

Child tax credit (see page 31)

Education credits. Attach Form 8863

42

43

45

46

Additional child tax credit. Attach Form 881260 60

Head ofhousehold:$6,250

Married filingjointly orQualifyingwidow(er):$7,100

Marriedfilingseparately:$3,550

StandardDeductionfor MostPeople

Joint return?See page 18.

Daytime telephonenumber (optional)

( )

Glenn M. Johnson

Page 4


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Proof

asof

Octob

er21

,1998

(subject

toch

ange)

< 2,350 >

4,2502,700

6,950

< 9,300 >

2,700

1,00 0

1,00 0

-0 -4,250

425425

3,825

-0 -

2,0002,000

-0 -1,00 0

1,00 0

7,525

< 1,775 >

Page 2Form 1045 (1998)

Schedule ANet Operating Loss (NOL). See instructions.

1Adjusted gross income from 1998 Form 1040, line 34. Estates and trusts, skip lines 1 and 21

Deductions (individuals only):22aEnter amount from your 1998 Form 1040, line 36a2bb Enter your deduction for exemptions from 1998 Form 1040, line 38

( )2cAdd lines 2a and 2bc

3Combine lines 1 and 2c. Estates and trusts, enter taxable income3Note: If line 3 is zero or more, do not complete rest of schedule. Youdo nothave a net operating loss.

Adjustments:

Deduction for exemptions from line 2b above. Estates and trusts, enter

exemption amount from tax return

44

Total nonbusiness capital losses beforelimitation. Enter as a positive number

55

6Total nonbusiness capital gains6

If line 5 is more than line 6, enter difference;otherwise, enter -0-

77

If line 6 is more than line 5, enter difference;otherwise, enter -0-

88

9Nonbusiness deductions. See instructions9

Nonbusiness income other than capital gains.See instructions10 10

11Add lines 8 and 101112If line 9 is more than line 11, enter difference; otherwise, enter -0-12

If line 11 is more than line 9, enter difference;otherwise, enter -0-. Do not enter more than line 8

1313

1414 Total business capital losses before limitation. Enter

as a positive number1515 Total business capital gains1616 Add lines 13 and 15

17 If line 14 is more than line 16, enter difference;otherwise, enter -0- 17

18 18

19

19

22

Add lines 4, 12, 22, and 23

22

23

Net operating loss. Combine lines 3 and 24. If the combined amount is less than zero, enter ithere and on page 1, line 1a. If the combined amount is zero or more, you do not have a netoperating loss

23

Net operating loss deduction for losses from other years. Enter as a positive

number

Add lines 7 and 17

Subtract line 21 from line 18. If zero or less, enter -0-

24

25

24

25

Enter the loss, if any, from line 17 of ScheduleD (Form 1040). (Estates and trusts, enter theloss, if any, from line 16, column (3), of ScheduleD (Form 1041).) Enter as a positive number. If

you do not have a loss on that line, skip lines19 through 21 and enter on line 22 the amountfrom line 18

Enter the loss from line 18 of Schedule D (Form1040). (Estates and trusts, enter the loss fromline 17 of Schedule D (Form 1041).) Enter as a

positive number

Subtract line 20 from line 19

20

21

20

21

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Example. Glenn Johnson is in the retailrecord business. He is single and has thefollowing income and deductions on his Form1040 for 1998.

Glenn's deductions exceed his income by$9,300 ($12,950 $3,650). However, to fig-ure whether he has an NOL, he must modifycertain deductions. He uses Schedule A(Form 1045) to figure his NOL. See the illus-trated Schedule A (Form 1045) included here.

Glenn cannot deduct the following itemson Schedule A (Form 1045).

When these items are eliminated, Glenn'snet loss is reduced to $1,775 ($9,300 $7,525). This is his NOL for 1998.

When To Use an NOLGenerally, you carry back an NOL to the 2 taxyears before the NOL year (the carrybackperiod), and then carry forward any remainingNOL for up to 20 years after the NOL year(the carryforward period). You may, however,choose not to carry back an NOL and carryit forward only. See Forgoing the carrybackperiod, later. The NOL year is the year inwhich the NOL occurred. You cannot deductany part of the NOL remaining after the20-year carryforward period.

Exceptions to 2-year carryback rule. Cer-tain NOLs occurring after 1997 are eligible forlonger carryback periods. The carryback pe-riods are:

1) Three years for any part of an NOL that:

a) Is from a casualty or theft,

b) In the case of a qualified smallbusiness, is attributable to aPresidentially declared disaster, or

c) Is attributable to a farming busi-ness, and the NOL:

i) Is attributable to aPresidentially declared disas-ter, and

ii) Is not eligible for the 5-yearcarryback period. (See item(2).)

2) Five years for any part of an NOL that:

a) Is attributable to a farming busi-ness, and

b) For which this period has not beenwaived.

Forgoing the carryback period. You canchoose not to carry back your NOL. If youmake this choice, you use your NOL only inthe 20-year carryforward period. (This choicemeans you also choose not to carry back anyalternative tax NOL.)

To make this choice, attach a statementto your tax return for the NOL year or to anamended return for the NOL year filed within

6 months of the due date of the return (ex-cluding extensions). This statement mustshow that you are choosing to forgo thecarryback period under section 172(b)(3) ofthe Internal Revenue Code.

CAUTION

!If you do not file this statement ontime, you cannot forgo the carrybackperiod. If you file the statement with

your return, file it by the due date, includingextensions, for filing your return for the NOLyear. If you filed your return timely but did notfile the statement with it, you must file thestatement with an amended return for theNOL year within 6 months of the due date ofthe return (excluding extensions).

Once you make this choice, you cannotchange it (it is irrevocable). If you want to

forgo the carryback period for more than oneNOL, you must make a separate choice foreach NOL year.

How to use the NOL. If you choose to carryback the NOL, you must first carry the entireNOL to the earliest carryback year. If yourNOL is not used up, you can carry the rest tothe next earliest carryback year, and so on.

If you do not use up the NOL in the 2carryback years, carry forward what remainsof it to the 20 tax years following the NOLyear. Start by carrying it to the first tax yearafter the NOL year. If you do not use it up,carry the unused part to the next year. Con-tinue to carry any unused part of the NOL untilyou complete the 20-year carryforward pe-

riod.

Example. You started your business asa sole proprietor in 1998 and had a $42,000NOL for the year. You begin using your NOLin 1996, the second year before the NOLyear, as shown in the following chart.

If your loss were larger, you could carry itforward until the year 2018. If you still had anunused 1998 carryforward after the year2018, you could not deduct it.

How To Claiman NOL DeductionIf you have not already carried the NOL to anearlier year, your NOL deduction is the totalNOL. If you carried the NOL to an earlier year,your NOL deduction is the NOL minus theamount you used in the earlier year or years.

If you carry more than one NOL to thesame year, your NOL deduction is the totalof these carrybacks and carryovers.

NOL more than taxable income. If your NOLis more than the taxable income of the yearyou carry it to (figured before deducting theNOL), you generally will have an NOL carry-over to the next year. See How To Figure anNOL Carryover, later, to determine how muchNOL you have used and how much you carryto the next year.

Deducting a CarrybackIf you carry back your NOL, you can use ei-ther Form 1045 or Form 1040X. You can getyour refund faster by using Form 1045, butyou have a shorter time to file it. You can useForm 1045 to apply an NOL to both carrybackyears. If you use Form 1040X, you must usea separate Form 1040X for each carrybackyear to which you apply the NOL.

Estates and trusts not filing Form 1045must file an amended Form 1041 (instead ofForm 1040X) for each carryback year towhich they apply the NOL. Use a copy of theappropriate year's Form 1041, check theAmended return box, and follow the Form

1041 instructions for amended returns. In-clude the NOL deduction with other de-ductions not subject to the 2% limit (line 15afor 1996 and 1997). Also, see the specialprocedures for filing an amended return dueto an NOL carryback, explained under Form1040X, later.

Form 1045. You can apply for a quick refundby filing Form 1045. This form results in atentative adjustment of tax in the carrybackyear. See the Form 1045 illustrated at the endof this discussion.

If the IRS refunds or credits an amount toyou from Form 1045 and later determines thatthe refund or credit is too much, the IRS mayassess and collect the excess immediately.

You must file Form 1045 on or after thedate you file the return for the NOL year, butnot later than one year after the NOL year.For example, if you are a calendar year tax-payer with a carryback from 1998 to 1996,you must file Form 1045 on or after the dateyou file your tax return for 1998, but no laterthan December 31, 1999.

Form 1040X. If you do not file Form 1045,you can file Form 1040X to get a refund of taxbecause of an NOL carryback. File Form1040X within 3 years after the due date, in-cluding extensions, for filing the return for theNOL year. For example, if you are a calendaryear taxpayer and filed your 1995 return bythe April 15, 1996, due date, you must file a

claim for refund of 1993 tax because of anNOL carryback from 1995 by April 15, 1999.

Attach a computation of your NOL usingSchedule A (Form 1045) and, if it applies,your NOL carryover using Schedule B (Form1045), discussed later.

Refiguring your tax. To refigure your totaltax liability for a carryback year, first refigureyour adjusted gross income for that year. (OnForm 1045, use lines 10 through 12, column(d) or (f).) Use your adjusted gross incomeafter applying the NOL deduction to refigureincome or deduction items that are based on,or limited to, a percentage of your adjustedgross income. Refigure the following items.

INCOME

Wages from part-time job .......................... $1,225Interest on savings .................................... 425Net long-term capital gain on sale of realestate used in business ............................. 2,000

Glenn's total income $3,650

DEDUCTIONS

Net loss from business (sales of $67,000minus expenses of $72,000) ..................... $5,000Net short-term capital losson sale of stock ......................................... 1,000Standard deduction .................................... 4,250Personal exemption ................................... 2,700

Glenn's total deductions $12,950

Nonbusiness net short-term capital loss ..... 1,000Nonbusiness deductions(standard deduction, $4,250) minusnonbusiness income (interest, $425) .......... 3,825Personal exemption ..................................... $2,700

Total adjustments to net loss $7,525

YearCarryback/Carryover

UnusedLoss

1996 .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. $42,000 $40,0001997 ... ... .. ... ... ... ... ... ... ... ... 40,000 37,0001998 (NOL year) .............1999 ... ... .. ... ... ... ... ... ... ... ... 37,000 31,5002000 ... ... .. ... ... ... ... ... ... ... ... 31,500 22,5002001 ... ... .. ... ... ... ... ... ... ... ... 22,500 12,7002002 ................................ 12,700 4,0002003 ................................ 4,000 0

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1) The special allowance for passive activ-ity losses from rental real estate activ-ities.

2) Taxable social security and tier 1 railroadretirement benefits.

3) IRA deductions.

4) Excludable savings bond interest.

If more than one of these items apply, re-figure them in the order listed above, usingyour adjusted gross income after applying theNOL deduction and any previous item. (Online 10 of Form 1045, column (d) or (f), enteryour adjusted gross income after applying theabove refigured items, but without the NOLdeduction. Enter your NOL deduction on line11.)

Next, refigure your taxable income. (OnForm 1045, use lines 13 through 16, column(d) or (f).) Use your refigured adjusted grossincome (line 12 of Form 1045, column (d) or(f)) to refigure certain deductions and otheritems that are based on, or limited to, a per-centage of your adjusted gross income. Re-figure the following items.

1) The itemized deduction for medical ex-penses.

2) The itemized deduction for casualtylosses.

3) Certain miscellaneous itemized de-ductions.

4) The overall limit on itemized deductions.

5) The phaseout of the deduction for ex-emptions.

Do not refigure the itemized deduction forcharitable contributions.

Finally, use your refigured taxable income(line 16 of Form 1045, column (d) or (f)) to

refigure your total tax liability. Refigure yourincome tax, your alternative minimum tax, andany credits that are based on, or limited to,the amount of tax. (On Form 1045, use lines17 through 26, column (d) or (f).) The earnedincome credit, for example, may be affectedby changes to adjusted gross income or theamount of tax (or both) and, therefore, mustbe recomputed. If you become eligible for acredit because of the carryback, complete theform for that specific credit (such as ScheduleEIC) for that year.

While it is necessary to refigure your in-come tax, alternative minimum tax, andcredits, do not refigure your self-employment tax.

Deducting a CarryforwardIf you carry forward your NOL to a tax yearafter the NOL year, list your NOL deductionas a negative figure on the Other incomeline of Form 1040 (line 21 for 1998). Estatesand trusts include an NOL deduction on Form1041 with other deductions not subject to the2% limit (line 15a for 1998).

You must attach a statement that showsall the important facts about the NOL. Yourstatement should include a computationshowing how you figured the NOL deduction.If you deduct more than one NOL in the sameyear, your statement must cover each ofthem.

Change in Marital StatusIf you and your spouse were not married toeach other in all years involved in figuringNOL carrybacks and carryovers, only thespouse who had the loss can take the NOLdeduction. If you file a joint return, the NOLdeduction is limited to the income of thatspouse.

For example, if your marital statuschanges because of death or divorce, and ina later year you have an NOL, you can carryback that loss only to the part of the income

reported on a joint return (filed with your for-mer spouse) that was your taxable income.After you deduct the NOL in the carrybackyear, the joint rates apply to the resultingtaxable income.

Refund limit. If you are not married in theNOL year (or are married to a differentspouse), and in the carryback year you weremarried and filed a joint return, your refund forthe overpaid joint tax may be limited. You canclaim a refund for the difference between yourshare of the refigured tax and your contribu-tion toward the tax paid on the joint return.The refund cannot be more than the jointoverpayment. Attach a statement showinghow you figured your claim.

Figuring your share of a joint tax li-ability. There are five steps for figuring yourshare of the refigured joint tax liability.

1) Figure your total tax as though you hadfiled as married filing separately.

2) Figure your spouse's total tax as thoughyour spouse had also filed as marriedfiling separately.

3) Add the amounts in (1) and (2).

4) Divide the amount in (1) by the amountin (3).

5) Multiply the refigured tax on your jointreturn by the amount figured in (4). Thisis your share of the joint tax liability.

Figuring your contribution toward taxpaid. Unless you have an agreement or clearevidence of each spouse's contributions to-ward the payment of the joint tax liability, fig-ure your contribution by adding the tax with-held on your wages and your share of jointestimated tax payments or tax paid with thereturn. If the original return for the carrybackyear resulted in an overpayment, reduce yourcontribution by your share of the tax refund.Figure your share of a joint payment or refundby the same method used in figuring yourshare of the joint tax liability. Use your taxableincome as originally reported on the joint re-turn in steps (1) and (2) (above), and substi-tute the joint payment or refund for the refig-

ured joint tax in step (5).

Change in Filing StatusIf you and your spouse were married and fileda joint return for each year involved in figuringNOL carrybacks and carryovers, figure theNOL deduction on a joint return as you wouldfor an individual. However, treat the NOL de-duction as a joint NOL. Figure it from the jointNOLs.

If you and your spouse were married andfiled separate returns for each year involvedin figuring NOL carrybacks and carryovers,the spouse who sustained the loss may takethe NOL deduction on a separate return.

CAUTION

!Special rules apply for figuring theNOL carrybacks and carryovers ofmarried people whose filing status

changes for any tax year involved in figuringan NOL carryback or carryover.

Separate to joint return. If you and yourspouse file a joint return for a carryback orcarryforward year, and were married but filedseparate returns for any of the tax years in-volved in figuring the NOL carryback or car-ryover, treat the separate carryback or carry-

over as a joint carryback or carryover.

Joint to separate returns. If you and yourspouse file separate returns for a carrybackor carryforward year, but filed a joint return forany or all of the tax years involved in figuringthe NOL carryover, figure each of your carry-overs separately.

Joint return in NOL year. Figure eachspouse's share of the joint NOL in the fol-lowing steps:

1) Figure each spouse's NOL as if he orshe filed a separate return. See How ToFigure an NOL, earlier. If only onespouse has an NOL, stop here. All ofthe joint NOL is that spouse's NOL.

2) If both spouses have an NOL, multiplythe joint NOL by a fraction, the numera-tor of which is spouse A's NOL figuredin (1) and the denominator of which isthe total of the spouses' NOLs figured in(1). The result is spouse A's share of the

joint NOL. The rest of the joint NOL isspouse B's share.

Example 1. Mark and Nancy are marriedand file a joint return for 1998. They have anNOL of $5,000. They carry the NOL back to1996, a year in which Mark and Nancy filedseparate returns. Figured separately, Nancy's1998 deductions were more than her income,and Mark's income was more than his de-ductions. Mark does not have any NOL to

carry back. Nancy may carry back the entire$5,000 NOL to her 1996 separate return.

Example 2. Assume the same facts asin Example 1 except that both Mark andNancy had deductions in 1998 that were morethan their income. Figured separately, hisNOL is $1,800 and hers is $3,000. (The sumof their separate NOLs $4,800 is lessthan their $5,000 joint NOL because his de-ductions included a $200 net capital loss thatis not allowed in figuring his separate NOL.The loss is allowed in figuring their joint NOLbecause it was offset by Nancy's capitalgains.) Mark's share of their $5,000 joint NOLis $1,875 ($5,000 $1,800/$4,800) andNancy's is $3,125 ($5,000 $1,875).

Joint return in previous carryback orcarryforward year. If only one spouse hadan NOL deduction on the previous year's jointreturn, all of the joint carryover is thatspouse's carryover. If both spouses had anNOL deduction (including separate carryoversof a joint NOL, figured as explained in theprevious discussion), figure each spouse'sshare of the joint carryover in the followingsteps.

1) Figure each spouse's modified taxableincome as if he or she filed a separatereturn. See Modified taxable incomeun-der How To Figure an NOL Carryover,later.

Page 7


8/19

2) Multiply the joint modified taxable in-come you used to figure the joint carry-over by a fraction, the numerator ofwhich is spouse A's modified taxable in-come figured in (1) and the denominatorof which is the total of the spouses'modified taxable incomes figured in (1).This is spouse A's share of the jointmodified taxable income.

3) Subtract the amount figured in (2) fromthe joint modified taxable income. Thisis spouse B's share of the joint modifiedtaxable income.

4) Reduce the amount figured in (3), butnot below zero, by spouse B's NOL de-duction.

5) Add the amounts figured in (2) and (4).

6) Subtract the amount figured in (5) fromspouse A's NOL deduction. This isspouse A's share of the joint carryover.The rest of the joint carryover is spouseB's share.

Example. Sam and Wanda filed a jointreturn for 1996 and separate returns for 1997and 1998. In 1998, Sam had an NOL of$18,000 and Wanda had an NOL of $2,000.They carry back both NOLs to their 1996 jointreturn and claim a $20,000 NOL deduction.

Their joint modified taxable income (MTI)for 1996 is $15,000, and their joint NOL car-ryover to 1997 is $5,000 ($20,000 $15,000).They figure their shares of the $5,000 carry-over as follows:

Wanda's $2,000 NOL deduction offsets$2,000 of her $3,750 share of the joint modi-fied taxable income and is completely used

up. She has no carryover to 1997. Sam's$18,000 NOL deduction offsets all of his$11,250 share of joint modified taxable in-come and the remaining $1,750 of Wanda'sshare. His carryover to 1997 is $5,000.

Illustrated Form 1045The following example illustrates how to useForm 1045 to claim an NOL deduction in acarryback year. It includes a filled in page 1of Form 1045.

Example. Martha Sanders is a self-employed contractor. Because of a business

loss, Martha's 1998 deductions are more thanher 1998 income. She uses Form 1045 to

Step 1. carry back her NOL and claim an NOL de-duction in 1996. (See the filled in Form 1045included here.) Her filing status both yearswas single.

Martha figures her 1998 NOL on ScheduleA, Form 1045 (not shown). (For an exampleusing Schedule A, see Illustrated ScheduleA (Form 1045) under How To Figure an NOL,earlier.) She enters the $10,000 NOL fromline 25 of Schedule A on line 1a of page 1 ofForm 1045.

Martha completes lines 10 through 26under 2nd preceding tax year ended12/31/96 on page 1 of Form 1045 using thefollowing amounts from her 1996 return.

On line 11, column (d), Martha enters her$10,000 NOL deduction. Her new adjustedgross income on line 12, column (d), is$40,000 ($50,000 $10,000). To completeline 13, column (d), she must refigure hermedical expense deduction using her newadjusted gross income. Her refigured medicalexpense deduction is $3,000 [$6,000 ($40,000 7.5%)]. This increases her totaldeductions to $14,000 [$13,250 + ($3,000 $2,250)].

Martha uses her refigured taxable income($23,450) from line 16, column (d), and thetax tables in her 1996 Form 1040 instructionsto find her income tax. She enters the newamount, $3,521, on line 17, column (d), andher new total tax liability, $9,641, on line 26,column (d).

Martha uses up her $10,000 NOL in 1996,so she does not complete the column for thefirst preceding tax year. The decrease in tax

because of her NOL deduction (line 28) is$2,942.

Martha files Form 1045 after filing her1998 return, but no later than December 31,1999. She mails it to the Internal RevenueService Center where she filed her 1998 re-turn and attaches a copy of her 1998 return(including the applicable forms and sched-ules).

Sam's separate MTI ................................ $9,000Wanda's separate MTI ............................ + 3,000Total MTI ................................................. $12,000

Step 2.Joint MTI ................................................. $15,000Sam's MTI total MTI($9,000 $12,000) ................................. .75Sam's share of joint MTI ......................... $11,250

Step 3.Joint MTI ................................................. $15,000Sam's share of joint MTI ......................... 11,250Wanda's share of joint MTI ..................... $3,750

Step 4.Wanda's share of joint MTI ..................... $3,750Wanda's NOL deduction ......................... 2,000Wanda's remaining share ....................... $1,750

1996 Adjusted gross income ..................... $50,000Step 5. Itemized deductions:Sam's share of joint MTI ......................... $11,250 Medical expenses

($6,000 minus 7.5% ofadjusted gross income) ....... $2,250

Wanda's remaining share ....................... + 1,750Joint MTI to be offset .............................. $13,000

State income tax ................. 2,000Step 6.

Real estate tax .................... 4,000Sam's NOL deduction ............................. $18,000Home mortgage interest ..... 5,000Joint MTI to be offset .............................. 13,000

Total ............................................... $13,250Sam's carryover to 1997 ......................... $5,000Exemption .................................................. $2,550

Joint carryover to 1997 ........................... $5,000 Income tax ................................................. $6,463Sam's carryover ...................................... 5,000 Self-employment tax .................................. $6,120Wanda's carryover to 1997 ..................... $0

Page 8


9/19

Proof

asof

Octobe

r21,

1998

(subject to

chang

e)

Mart ha Sanders

9 8 76 Holly St reet

Yardley, PA 19 0 6 7

123-0 0-45 6 7

0 41 123 -45 67

$10 ,0 0 0

3-5-99

50,000

50,00013 ,250

36,7502,550

34,200

6,463

6,463

6 ,120

12,58 3

9,6412,942

50,000

10 ,0 0 040,00014,0 0 0

26,0002,550

23,450

3,521

3,521

6 ,120

9,641

4-10 -9 9

12-31-9 6

OMB No. 1545-0098Application for Tentative Refund1045Form Before you fill in this form, read the separate instructions.

Do not attach to your income tax returnmail in a separate envelope.Department of the TreasuryInternal Revenue Service For use by individuals, estates, or trusts.

Name (and name of spouse if filing jointly) Social security or employer identification number

Number, street, and apt. or suite no. If you have a P.O. box or a foreign address, see the instructions. Spouses social security number

City, town or post office, state, and ZIP code Telephone no. (optional)

Ple

ase

type

orprint

( )Unused general business creditNet operating loss (from Schedule A, page 2, line 25)

1 This application is filed to carry back: $$

Date tax return was filedFor the calendar year 1998, or other tax year

beginning , 1998, ending , 19 .

2a

If this application is for an unused credit created by another carryback, give year of the first carryback 3

If you filed a joint return (or separate return) for some, but not all, of the tax years involved in figuring the carryback, list theyears and specify whether joint (J) or separate (S) return for each

4

5 If social security number for carryback year is different from above, enter a SSN and b Year(s)

6 If you changed your accounting period, give date permission to change was granted

7 Have you filed a petition in Tax Court for the year(s) to which the carryback is to be applied? NoYes

8 Does this carryback include a loss or credit from a tax shelter required to be registered? Yes No

1st preceding taxyear ended

2nd preceding taxyear ended

3rd preceding taxyear ended Computation of Decrease in Tax

(f) Aftercarryback

(e) Beforecarryback

(d) Aftercarryback

(c) Beforecarryback

(b) Aftercarryback

(a) Beforecarryback

Note: If1a is blank, skip lines 10 through 16.

Adjusted gross income from tax return

or as previously adjusted

Net operating loss deduction aftercarryback. See instructions

11


Deductions. See instructions13


Exemptions15

Taxable income. Line 14 minus line 1516

Income tax. See instructionsattach

explanation

17

General business credit.Caution: see instructions

18

Other credits. Identify19

Total credits. Add lines 18 and 1920


Recapture taxes22

Alternative minimum tax23

Self-employment tax24

Other taxes25

Total tax liability. Add lines 21 through 2526

Enter amount from line 26, cols. (b),(d), and (f)

27

Decrease in tax. Line 26 minus line 2728

Overpayment of tax due to a claim of right adjustment under section 1341(b)(1)attach computation29

Under penalties of perjury, I declare that I have examined this application and accompanying schedules and statements, and to the best of myknowledge and belief, they are true, correct, and complete.

SignHere Your signature Date

Spouses signature (if Form 1045 is filed jointly, BOTH must sign) Date

DateName Preparer OtherThan Taxpayer Address

For Paperwork Reduction Act Notice, see page 4 of the instructions. Form 1045 (1998)

ba

b

Cat. No. 10670A

Keep a copy ofthis applicationfor your records.

9 If you are carrying back a net operating loss, did this cause the release of foreign tax credits or therelease of other credits because of the release of the foreign tax credit? See instructions

Yes No

10

1998

*

*Caution: Donotcomplete columns (a) or (b) for an NOL unless you meet the requirements for an eligible loss. See the instructions for the definitionof an eligible loss.

Mart ha Sanders

Page 9


10/19

How To Figurean NOL CarryoverIf your NOL is more than your taxable incomefor the year to which you carry it (figured be-fore deducting the NOL), you may have anNOL carryover. You must make certain mod-ifications to your taxable income to determinehow much NOL you will use up in that yearand how much you can carry over to the nexttax year. Your carryover is the excess of yourNOL deduction over your modified taxableincome for the carryback or carryforwardyear. If your NOL deduction includes morethan one NOL, apply the NOLs against yourmodified taxable income in the same order inwhich you incurred them, starting with theearliest.

Modified taxable income. Your modifiedtaxable income is your taxable income figuredwith the following changes.

1) You cannot claim an NOL deduction forthe NOL whose carryover you are figur-ing or for any later NOL.

2) You cannot claim a deduction for capitallosses in excess of your capital gains.

When figuring your capital losses, do notinclude any section 1202 exclusionclaimed as a loss on Schedule D (Form1040).

3) You cannot claim your exemptions foryourself or dependents.

4) You must figure any item affected by theamount of your adjusted gross incomeafter making the changes in (1) and (2),above, and certain other changes to youradjusted gross income that result from(1) and (2). This includes income anddeduction items used to figure adjustedgross income (for example, IRA de-ductions), as well as certain itemizeddeductions. To figure a charitable con-

tribution deduction, do not include de-ductions for NOL carrybacks in thechange in (1) but do include deductionsfor NOL carryforwards from tax yearsbefore the NOL year.

Your taxable income as modified cannotbe less than zero.

Schedule B (Form 1045). You can useSchedule B (Form 1045) to figure your modi-fied taxable income for carryback years andyour carryover from each of those years. Donotuse Schedule B for a carryforward year.

If your 1998 return includes an NOL de-duction from an NOL year before 1998 thatreduced your taxable income to zero (to lessthan zero, if an estate or trust), see NOLCarryover From 1998 to 1999, later.

Illustrated Schedule B(Form 1045)The following example illustrates how to fig-ure an NOL carryover from a carryback year.It includes a filled in Schedule B (Form 1045).

Example. Ida Brown runs a small clothingshop. In 1998, she has an NOL of $36,000that she chooses to carry back to 1996. Shehas no other carrybacks or carryovers to1996.

Ida's adjusted gross income in 1996 was$29,000, consisting of her salary of $30,000minus a $1,000 capital loss deduction. Sheis single and claimed only one personal ex-emption of $2,550. During that year, she gave$1,450 in charitable contributions. Her med-ical expenses were $2,725. She also de-ducted $1,650 in taxes and $1,125 in homemortgage interest.

Her deduction for charitable contributionswas not limited because her contributions,$1,450, were less than 50% of her adjusted

gross income. The deduction for medical ex-penses was limited to expenses over 7.5%of adjusted gross income (.075 $29,000 =$2,175; $2,725 $2,175 = $550). The de-ductions for taxes and home mortgage inter-est were not subject to any limits. She wasable to claim $4,775 ($1,450 + $550 + $1,650+ $1,125) in itemized deductions for 1996.She had no other deductions in 1996. Hertaxable income for the year was $21,675.

Ida's $36,000 carryback will reduce her1996 taxable income to zero. She completescolumn (b) of Schedule B (Form 1045) to fig-ure how much of her NOL she uses up in1996 and how much she can carry over to1997. See the illustrated Schedule B shownhere. Ida does not complete column (c) be-

cause the $10,700 carryover to 1997 is com-pletely used up that year. (See the informa-tion for line 8, below.)

Line 1. Ida enters $36,000, her 1998 netoperating loss, on line 1.

Line 2. She enters $21,675, her 1996taxable income, on line 2.

Line 3. Ida enters on line 3 her net capitalloss deduction of $1,000.

Line 4. Although Ida's entry on line 3modifies her adjusted gross income, that doesnot affect any other items included in her ad-

justed gross income. Ida enters zero on line4.

Line 5. Since Ida had itemized deductionsand entered $1,000 on line 3, she completeslines 9 through 33 to figure her adjustment toitemized deductions. On line 5, she enters thetotal adjustment from line 33.

Line 9. Ida's adjusted gross income for1996 was $29,000.

Line 10. She adds lines 3 and 4 and en-ters $1,000 on line 10. (This is her net capitalloss deduction added back, which modifiesher adjusted gross income.)

Line 11. Her modified adjusted gross in-come for 1996 is now $30,000.

Line 12. Her actual medical expenseswere $2,725.

Line 13. She multiplies her modified adjusted gross income, $30,000, by .075. Sheenters $2,250 on line 13.

Line 14. The difference between her ac-tual medical expenses and the amount she isallowed to deduct is $475.

Line 15. On her 1996 tax return, she de-ducted $550 as medical expenses.

Line 16. The difference between hermedical deduction and her modified medicaldeduction is $75. She enters this on line 16.

Line 17. She enters her modified adjustedgross income of $30,000 on line 17.

Line 18. She had no other carrybacks to1996 and enters zero on line 18.

Line 19. Her modified adjusted gross in-come remains $30,000.

Line 20. She now refigures her charitablecontributions based on her modified adjustedgross income. Since she is well below the50% limit, she enters $1,450 on line 20.

Line 21. Her actual contributions for 1996were $1,450, which she enters on line 21.

Line 22. The difference is zero.Lines 23 through 32. Since Ida had no

casualty losses or deductions for miscella-neous items in 1996, she leaves these linesblank.

Line 33. She combines lines 16, 22, 27,and 32 and enters $75 on line 33. She carriesthis figure to line 5.

Line 6. Ida enters her personal exemption

of $2,550 for 1996.Line 7. After combining lines 2 through 6,Ida's modified taxable income is $25,300.

Line 8. Ida figures her carryover to 1997by subtracting her modified taxable income(line 7) from her NOL deduction (line 1). Sheenters the $10,700 carryover on line 8. Shealso enters this $10,700 on page 1 of Form1045, line 11 of column (f), as her NOL de-duction for 1997. (For an illustrated exampleof page 1 of Form 1045, see Illustrated Form1045under How To Claim an NOL Deduction,earlier.)

Page 10


11/19

12-31-9 6

36,000

21,6 75

1,00 0

-0 -

75

2,550

25,300

10 ,700

29,0001,00 0

30,000

2,725

2,250

475

55 075

Page 3

Schedule BNet Operating Loss Carryover. See instructions.

(a) 3rd preceding taxyear ended

(b) 2nd preceding taxyear ended

(c) 1st preceding taxyear ended

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Proofaso

f

Octo

ber21

,1998

(subje

ct to

chang

e)

Form 1045 (1998)

Complete one column before going to thenext column. Caution: Complete column(a) onlyif you have aneligible loss. Seeinstructions.

Net operating loss deduction. Seeinstructions

Taxable income from tax return (or aspreviously adjusted) before 1998

NOL carryback. See instructions

Net capital loss deduction. Seeinstructions

Adjustment to itemized deductions.See instructions

Deduction for exemptions from taxreturn (or as previously adjusted).Estates and trusts, enter exemptionamount

Modified taxable income. Combinelines 2 through 6. If zero or less,enter -0-

Net operating loss carryover.Subtract line 7 from line 1. If zero orless, enter -0-. See instructions

Adjustment to Itemized

Deductions (Individuals Only)

Adjusted gross income per return (or

as previously adjusted) before 1998

NOL carryback

Add lines 3 and 4 above

Modified adjusted gross income. Add

lines 9 and 10

Medical expenses from Sch. A (Form

1040), line 1

Multiply line 11 by .075

Subtract line 13 from line 12. If zeroor less, enter -0-

Medical expenses from Sch. A (Form1040), line 4 (or as previously ad justed)Subtract line 14 from line 15

15

16

Adjustments to adjusted grossincome. See instructions

Complete lines 9 through 33 ONLY if

you itemized deductions in any of the

tax years for which you completed

columns (a) through (c) above.

Page 11


12/19

12-31-9 6

30,000

-0 -

30,000

1,450

1,450

-0 -

75

Proofaso

f

Octob

er21,1

998

(subje

ct to

change)

Combine lines 16, 22, 27, and 32. Ifline 17 is more than $114,700 for1995 ($57,350 if married filingseparately), more than $117,950 for1996 ($58,975 if married filingseparately), or more than $121,200for 1997 ($60,600 if married filingseparately), complete the worksheeton page 4 of the instructions.Otherwise, enter the amount fromthis line on line 5 (page 3)

33

Page 4

Schedule BNet Operating Loss Carryover (Continued)

18

19

20

21

22

Form 1045 (1998)

Add lines 17 and 18

Refigure your charitable

contributions using line 19 as youradjusted gross income. Seeinstructions

Charitable contributions from Sch. A

(Form 1040), line 18


Casualty and theft losses from Form

4684, line 16



Casualty and theft losses from Form4684, line 18 (or as previouslyadjusted)


Miscellaneous itemized deductionsfrom Sch. A (Form 1040), line 23



Miscellaneous itemized deductionsfrom Sch. A (Form 1040), line 26 (oras previously adjusted)


23

24

25

26

27

28

29

30

31

32

(a) 3rd preceding taxyear ended

(b) 2nd preceding taxyear ended

(c) 1st preceding taxyear ended

Complete one column before going to thenext column.

Enter as a positive number any NOLcarryback from a year before 1998

that was deducted in figuring line 9on page 3

Modified adjusted gross income fromline 11

17

Printed on recycled paper

Page 12


13/19

NOL Carryover From1998 to 1999If you had an NOL deduction that reducedyour taxable income on your 1998 return tozero (to less than zero, if an estate or trust),complete Table 1, Worksheet for NOL Carry-over From 1998 to 1999. It will help you figureyour NOL to carry to 1999. Keep the work-sheet for your records.

Worksheet InstructionsAt the top of the worksheet, enter the NOLyear for which you are figuring the carryover.

CAUTION

!More than one NOL. If your 1998NOL deduction includes amounts formore than one loss year, complete

this worksheet only for one loss year. To de-termine which year, start with your negativetaxable income. (An individual's negativetaxable income is figured by subtracting theamount on line 38 of Form 1040 from theamount on line 37 of Form 1040.) Then, be-ginning with the earliest NOL, add each NOL(treated as a positive amount) separately toyour negative taxable income. Complete thisworksheet for the earliest NOL that increasesyour taxable income to zero or more. Yourearlier NOLs will be completely used up in1998. Your NOL carryover to 1999 is the totalof the amount on line 8 of the worksheet andall later NOL amounts.

Example. Your negative taxable incomefor 1998 is ($4,000). Your NOL deduction in-cludes $2,000 for 1996 and $7,000 for 1997.Add your 1996 NOL of $2,000 to ($4,000).This gives you taxable income of ($2,000).Your 1996 NOL is now completely used up.Add your $7,000 1997 NOL to ($2,000). Thisgives you taxable income of $5,000. You nowcomplete the worksheet for your 1997 NOL.

Your NOL carryover to 1999 is the unusedpart of your 1997 NOL from line 8 of theworksheet.

Line 2. Treat your NOL deduction for theNOL year entered at the top of the worksheetand later years as a positive amount. Add it

to your negative taxable income. Enter theresult on line 2.

Line 3. If you have a net capital loss on line13 of Form 1040 and you excluded eligiblegain on the sale of qualified small businessstock, treat the net capital loss as a positiveamount. If the loss is greater than the amountexcluded, enter the difference on line 3. If theamount excluded is greater than the loss,enter zero on line 3.

Line 4. You must refigure the following in-come and deductions based on adjustedgross income.

1) The special allowance for passive activ-ity losses from rental real estate activ-ities.

2) Taxable social security and tier 1 railroadretirement benefits.

3) IRA deduction.

4) Excludable savings bond interest.

5) Student loan interest deduction.

If none of these items apply to you, enterzero on line 4. Otherwise, increase your ad-

justed gross income by the total of line 3 andyour NOL deduction for the NOL year enteredat the top of the worksheet and later years.Using this increased adjusted gross income,refigure the items that apply, in the orderlisted above. Your adjustment for each itemis the difference between the refiguredamount and the amount included on your re-turn. Add the adjustments for previous itemsto your adjusted gross income before refigur-ing the next item. Keep a record of yourcomputations.

Enter your total adjustments for the aboveitems on line 4.

Line 5. Enter zero if you claimed the stand-ard deduction. Otherwise, use lines 9 through

40 of the worksheet to figure the amount toenter on this line. Complete only thosesections that apply to you.

Estates and trusts. Enter zero on line 5if you did not claim any miscellaneous de-ductions on line 15b (Form 1041) or a casu-alty or theft loss. Otherwise, refigure these

deductions by substituting modified adjustedgross income (see below) for adjusted grossincome. Subtract the recomputed deductionsfrom those claimed on the return. Enter theresult on line 5.

Modified adjusted gross income. Torefigure miscellaneous itemized deductionsof an estate or trust (Form 1041, line 15b),modified adjusted gross income is the totalof the following amounts.

1) The adjusted gross income on the re-turn.

2) The amount from line 3 of the worksheet.

3) The exemption amount from Form 1041,line 20.

4) The NOL deduction for the NOL yearentered at the top of the worksheet andfor later years.

To refigure the casualty and theft lossdeduction of an estate or trust, modified ad-

justed gross income is the total of the follow-ing amounts.

1) The adjusted gross income amount youused to figure the deduction claimed on

the return.2) The amount from line 3 of the worksheet.

3) The NOL deduction for the NOL yearentered at the top of the worksheet andfor later years.

Line 9. Treat your NOL deduction for theNOL year entered at the top of the worksheetand for later years as a positive amount. Addit to your adjusted gross income. Enter theresult on line 9.

Line 18. If you had a contributions carryoverfrom 1997 to 1998 and your NOL deductionincludes an amount from an NOL year before

1997, you may have to reduce your contribu-tions carryover. This reduction is any adjust-ment you made to your 1997 charitable con-tributions deduction when figuring your NOLcarryover to 1998. Use the reduced contribu-tions carryover to figure the amount to enteron line 18.

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Table 1.

USE YOUR 1998 FORM 1040 (OR FORM 1041) TO COMPLETE THIS WORKSHEET:

For Use by Individuals, Estates, and Trusts (Keep for your records.)See the instructions under NOL Carryover From 1998 to 1999.

1. Enter as a positive number your NOL deduction for the NOL year entered above from line 21(Form 1040)

NOL YEAR:

2. Enter your taxable income without the NOL deduction for the NOL year entered above or later years.(See instructions.)

3. Enter as a positive number any net capital loss deduction on line 13 (Form 1040)

4. Enter any adjustments to your adjusted gross income (see instructions)

6. Enter your deduction for personal exemptions from line 38 (Form 1040)

7. Modified taxable income. Combine lines 2 through 6. Enter the result (but not less than zero)

8. NOL carryover to 1999. Subtract line 7 from line 1. Enter the result (but not less than zero)

9. Enter your adjusted gross income without the NOL deduction for the NOL year entered above orlater years. (See instructions.)

10. Combine lines 3 and 4 above

11. Modified adjusted gross income. Combine lines 9 and 10 above

ADJUSTMENTS TO ITEMIZED DEDUCTIONS (INDIVIDUALS ONLY):

ADJUSTMENT TO MEDICAL EXPENSES:

5. Enter any adjustments to your itemized deductions from line 30 or line 40 (see instructions)

12. Enter your medical expenses from Schedule A (Form 1040), line 4

14. Multiply line 11 above by 7.5% (.075)

13. Enter your medical expenses from Schedule A (Form 1040), line 1

15. Subtract line 14 from line 13. Enter the result (but not less than zero)


Refigure your charitable contributions deduction using line 11 above as your adjusted gross income.

(See instructions)

Enter your charitable contributions deduction from Schedule A (Form 1040), line 18


ADJUSTMENT TO CHARITABLE CONTRIBUTIONS:

16.

17.

18.

19.

ADJUSTMENT TO CASUALTY AND THEFT LOSSES:

Enter your casualty and theft losses from Form 4684, line 18

Multiply line 11 above by 10% (.10)

20.

21.

22.

Enter your casualty and theft losses from Form 4684, line 16

Subtract line 22 from line 21. Enter the result (but not less than zero)23.

24. Subtract line 23 from line 20

ADJUSTMENT TO MISCELLANEOUS DEDUCTIONS:

Enter your miscellaneous deductions from Schedule A (Form 1040), line 26

Multiply line 11 above by 2% (.02)

25.

26.

27.Enter your miscellaneous deductions from Schedule A (Form 1040), line 23

Subtract line 27 from line 26. Enter the result (but not less than zero)28.


TENTATIVE TOTAL ADJUSTMENT:

Combine lines 16, 19, 24, and 29, and enter the result here. If line 11 above is $124,500 or less($62,250 or less if married filing separately), also enter the result on line 5 above and stop here.Otherwise, go to line 31

30.

Worksheet for NOL Carryover From 1998 to 1999 (For an NOL Year Before 1998)

Note: If you excluded gain on the sale of qualified small business stock, see instructions.

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Table 1. (Continued)

ADJUSTMENT TO OVERALL ITEMIZED LIMIT:

Enter the amount on Schedule A (Form 1040), line 28

Add lines 15 and 23, the amount on Schedule A (Form 1040), line 13, and any gambling lossesincluded on Schedule A (Form 1040), line 28

31.

32.

33.

Add lines 15, 18, 23, and 28, and the amounts on Schedule A (Form 1040), lines 9, 14, and 27

34. Subtract line 33 from line 32. If the result is zero, enter the amount from line 30 on line 5 above andstop here. Otherwise, go to line 35

Multiply line 34 by 80% (.80)Subtract $124,500 ($62,250 if married filing separately) from the amount on line 11

Multiply line 36 by 3% (.03)

Enter the smaller of line 35 or line 37

Subtract line 38 rom line 32. Enter the result (but not less than your standard deduction amount)

Subtract line 39 from 31. Enter the result here and on line 5

35.

36.

37.

38.

39.

40.

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CorporationsA corporation generally figures and deductsan NOL the same way an individual, estate,or trust does. The same carryback andcarryforward periods apply, and the samesequence applies when it carries two or moreNOLs to the same year. See When To Usean NOL and How To Figure an NOL Carry-over, earlier.

A corporation's NOL generally differs from

other NOL's in two ways:1) A corporation can take different de-

ductions when figuring an NOL, and

2) A corporation must make different mod-ifications to its taxable income in thecarryback or carryforward year whenfiguring how much of the NOL is usedand how much is carried to the next year.

A corporation also uses different formswhen claiming an NOL deduction from thoseused by individuals, estates, and trusts.

The following discussions explain thesedifferences.

Figuring the NOLA corporation figures an NOL in the same wayit figures taxable income. It starts with itsgross income and subtracts its deductions. Ifits deductions are more than its gross income,the corporation has an NOL.

However, the following rules apply for fig-uring the NOL that either limit what it candeduct, or permit deductions not ordinarilyallowed.

1) A corporation cannot deduct any NOLcarrybacks or carryovers from otheryears.

2) A corporation can take the deduction fordividends received, explained later,without regard to the aggregate limits(based on taxable income) that normally

apply.3) A corporation can figure the deduction

for dividends paid on certain preferredstock of public utilities without limiting itto its taxable income for the year.

Dividends-received deduction. The corpo-ration's deduction for dividends received fromdomestic corporations is generally subject toan aggregate limit of 70% or 80% of taxableincome. However, if a corporation sustainsan NOL for a tax year, the limit on this de-duction based on taxable income does notapply. In determining if a corporation has anNOL, the corporation figures the dividends-received deduction without regard to the 70%or 80% of taxable income limit.

See Publication 542 for more informationon the dividends-received deduction.

Example. A corporation had $500,000gross income from business operations and$625,000 of allowable business expenses. Italso received $150,000 in dividends from adomestic corporation for which it can take an

80% deduction, ordinarily limited to 80% of itstaxable income before the deduction. It fig-ures its NOL as follows:

Claiming the NOL DeductionThe form a corporation uses to deduct itsNOL depends on whether it carries the NOLback or forward.

For a carryback. If a corporation carries backthe NOL, it can use either Form 1120X,Amended U.S. Corporation Income Tax Re-turnor Form 1139, Corporation Application forTentative Refund. A corporation can get arefund faster by using Form 1139. It cannotfile Form 1139 before filing the return for thecorporation's NOL year, but it must file Form1139 no later than one year after the NOLyear.

If the corporation does not file Form 1139,

it must file Form 1120X within 3 years of thedue date, plus extensions, for filing the returnfor the year in which it has the NOL.

For a carryforward. If a corporation carriesforward its NOL, it enters the carryover onSchedule K (Form 1120), line 15. It also en-ters the deduction for the carryover (but notmore than the corporation's taxable incomeafter special deductions) on line 29(a) of Form1120 or line 25(a) of Form 1120A.

Carryback expected. If a corporation ex-pects to have an NOL in its current year, itmay automatically extend the time for payingall or part of its income tax for the immediatelypreceding year. It does this by filing Form1138, Extension of Time for Payment ofTaxes by a Corporation Expecting a Net Op-erating Loss Carryback. It must explain on theform why it expects the loss.

The extension applies to previously de-termined unpaid tax that must be paid afterfiling Form 1138. This amount cannot exceedthe tax overpayment in the carryback yearsdue to the NOL carryback.

Period of extension. The extension is ineffect until the end of the month in which thereturn for the NOL year is due, including ex-tensions.

If the corporation files Form 1139 beforethis date, the extension will continue until thedate the IRS notifies the corporation that itsForm 1139 is disallowed in whole or in part.

Figuring the NOL CarryoverIf the NOL available for a carryback orcarryforward year is greater than the taxableincome for that year, the corporation mustmodify its taxable income to figure how muchof the NOL it will use up in that year and howmuch it can carry to the next tax year. Its

carryover is the excess of the available NOLover its modified taxable income for thecarryback or carryforward year.

Modified taxable income. A corporationfigures its modified taxable income in thesame way it figures taxable income. But it candeduct NOLs only from years before the NOLyear whose carryover is being figured. Thecorporation must figure its deduction forcharitable contributions without consideringany NOL carrybacks. The modified taxable

income for any year cannot be less than zero.Modified taxable income is used only to

figure how much of an NOL the corporationuses up in the carryback or carryforward yearand how much it carries to the next year. It isnot used to fill out the corporation's tax returnor figure its tax.

Ownership change. A loss corporation thathas an ownership change is limited on thetaxable income it can offset by NOLcarryforwards arising before the date of theownership change. This limit applies to anyyear ending after the change of ownership.

See sections 381, 382, 383, 384, and 269of the Internal Revenue Code and the relatedregulations for more information about the

limits on corporate NOL carryovers and cor-porate ownership changes.

Corporate equity reduction transactions.The portion of an NOL generated by certaininterest deductions attributable to a corporateequity reduction transaction may not be car-ried back to a tax year before the tax year ofthe corporate equity reduction transaction.For more information, see sections172(b)(1)(E) and 172(h) of the Internal Reve-nue Code.

Worksheet for Figuring the NOLCarryover

A corporation without a capital loss carrybackor deduction for percentage depletion for oiland gas wells can use the worksheet in Table2 to figure how much of its NOL is used upin a carryback or carryforward year and howmuch to carry over to the next year.

On line A, PART I, enter the carryback orcarryforward year from which the NOL is be-ing carried. For example, if the worksheet isused to figure the carryover from 1998 to1999, enter 1998. On line B, enter the NOLyear whose carryover must be figured.

More than one NOL. If more than one NOLis available for the carryback or carryforwardyear (year A), complete the worksheet onlyfor one loss year (year B). To determine

which year, start with the earliest NOL andsubtract each NOL separately from the cor-poration's taxable income figured without theNOL deduction. Complete the worksheet forthe earliest NOL that reduces the corpo-ration's taxable income below zero. The ear-lier NOLs are completely used up in year A.The later NOLs are carried over in full.

Income from business ........................... $500,000Dividends ............................................... 150,000Gross income ........................................ $650,000Deductions (expenses) .......................... (625,000)Taxable income beforespecial deductions ................................. $25,000Minus: Deduction for dividends re-ceived, 80% of $150,000 ...................... (120,000)

Net operating loss ($95,000)

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Table 2.

See the instructions under Corporations.

Worksheet for Figuring a Corporations NOL Carryover

A. Carryback or carryforward yearEnter the year from which the NOL is being carried

PART I

B. NOL yearEnter the year in which the NOL occurred (the loss year). If the corporation has morethan one NOL, see the instructions

C. NOL amountEnter the amount of year Bs NOL that was carried to year A

D. If more than one NOL was carried to year A, enter the total of all

1. Taxable income for year A before the NOL deduction and special deductionsEnter the amountfrom line 28, Form 1120 (line 24, Form 1120-A)

PART II

2. Enter the amount from line D1 of PART I


4. If year A is a carryforward year, enter the deduction for charitable contributions figured by using theamount on line 3 as taxable income. Otherwise, enter zero

1. Carryovers of NOLs that preceded both years A and B

2. Carrybacks of NOLs that preceded year B

5. Enter the amount from line D2 of PART I

6. Dividends-received deduction:

a. Subtract line 4 from line 1

b. Dividends-received deduction figured by using the amount on line 6a as taxable income

7. Add lines 4, 5, and 6b

8. Modified taxable incomeSubtract line 7 from line 3. (If line 7 is more than line 3, enter zero.)

9. CarryoverSubtract line 8 from line C, PART I

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How To Get MoreInformationYou can order free publications and forms,ask tax questions, and get more informationfrom the IRS in several ways. By selecting themethod that is best for you, you will havequick and easy access to tax help.

Free tax services. To find out what servicesare available, get Publication 910, Guide toFree Tax Services. It contains a list of free taxpublications and an index of tax topics. It alsodescribes other free tax information services,including tax education and assistance pro-grams and a list of TeleTax topics.

Personal computer. With your per-sonal computer and modem, you canaccess the IRS on the Internet at

www.irs.ustreas.gov. While visiting our WebSite, you can select:

Frequently Asked Tax Questionsto findanswers to questions you may have.

Fill-in Formsto complete tax forms on-line.

Forms and Publicationsto download

forms and publications or search publi-cations by topic or keyword.

Comments & Helpto e-mail us withcomments about the site or with taxquestions.

Digital Dispatchand IRS Local News Netto receive our electronic newsletters onhot tax issues and news.

You can also reach us with your computerusing any of the following.

Telnet at iris.irs.ustreas.gov

File Transfer Protocol atftp.irs.ustreas.gov

Direct dial (by modem) 7033218020

TaxFax Service. Using the phoneattached to your fax machine, you canreceive forms, instructions, and tax

information by calling 7033689694. Followthe directions from the prompts. When youorder forms, enter the catalog number for theform you need. The items you request will befaxed to you.

Phone. Many services are availableby phone.

Ordering forms, instructions, and publi-

cations. Call 18008293676 to ordercurrent and prior year forms, instructions,and publications.

Asking tax questions. Call the IRS withyour tax questions at 18008291040.

TTY/TDD equipment. If you have accessto TTY/TDD equipment, call18008294059 to ask tax questions orto order forms and publications.

TeleTax topics. Call 18008294477 tolisten to pre-recorded messages coveringvarious tax topics.

Evaluating the quality of our telephoneservices. To ensure that IRS representativesgive accurate, courteous, and professionalanswers, we evaluate the quality of our tele-phone services in several ways.

A second IRS representative sometimesmonitors live telephone calls. That persononly evaluates the IRS assistor and doesnot keep a record of any taxpayer's nameor tax identification number.

We sometimes record telephone calls toevaluate IRS assistors objectively. Wehold these recordings no longer than oneweek and use them only to measure thequality of assistance.

We value our customers' opinions.Throughout this year, we will be survey-ing our customers for their opinions onour service.

Walk-in. You can pick up certainforms, instructions, and publicationsat many post offices, libraries, and

IRS offices. Some libraries and IRS officeshave an extensive collection of productsavailable to print from a CD-ROM or photo-copy from reproducible proofs.

Mail. You can send your order forforms, instructions, and publicationsto the Distribution Center nearest to

you and receive a response 7 to 15 workdaysafter your request is received. Find the ad-

dress that applies to your part of the country.

Western part of U.S.:Western Area Distribution CenterRancho Cordova, CA 957430001

Central part of U.S.:Central Area Distribution CenterP.O. Box 8903Bloomington, IL 617028903

Eastern part of U.S. and foreign ad-dresses:Eastern Area Distribution CenterP.O. Box 85074Richmond, VA 232615074

CD-ROM. You can order IRS Publi-cation 1796, Federal Tax Products onCD-ROM, and obtain:

Current tax forms, instructions, and pub-lications.

Prior-year tax forms, instructions, andpublications.

Popular tax forms which may be filled inelectronically, printed out for submission,and saved for recordkeeping.

Internal Revenue Bulletins.

The CD-ROM can be purchased from Na-

tional Technical Information Service (NTIS)for $25.00 by calling 18772336767 or for$18.00 on the Internet at www.irs.ustreas.gov/cdorders. The first release is availablein mid-December and the final release isavailable in late January.

Page 18


19/19

Index

AAssistance (SeeMore

information) ............................ 18

CCarryback period ......................... 6

Carryforward period ..................... 6Carryover from 1998 to 1999:Estates and trusts ................ 13

Worksheet instructions ......... 13Claiming an NOL deduction ........ 6

Corporations:Claiming the NOL deduction 16Figuring the NOL .................. 16Figuring the NOL carryover . 16Worksheet for figuring the NOL

carryover ......................... 16

DDeducting a carryback ................ 6Deducting a carryforward ............ 7

Dividends-received deduction ... 16

FFiguring an NOL carryover ........ 10Figuring an NOL:

Capital losses ......................... 2Exemptions ............................. 2

NOL deduction ....................... 2Nonbusiness deductions ........ 2Nonbusiness income .............. 2

Schedule A (Form 1045) ........ 2Filing status, change in ............... 7Forgoing carryback period .......... 6Forms and schedules:

Form 1040X ........................... 6Form 1045 .............................. 6Form 1120X ......................... 16Form 1138 ............................ 16Form 1139 ............................ 16

Schedule A (Form 1045) ........ 2Schedule B (Form 1045) ...... 10

Free tax services ....................... 18

HHelp (SeeMore information) ....... 18

IIllustrated forms and

schedules:

Form 1045 .............................. 8Schedule A (Form 1045) ........ 2Schedule B (Form 1045) ...... 10

MMarital status, change in ............. 7Modified taxable income ........... 10

More information ....................... 18

NNOL more than taxable income .. 6

PPublications (SeeMore

information) ............................ 18

RRefiguring tax .............................. 6

SSchedule A (Form 1045) ............. 2Schedule B (Form 1045) ........... 10Steps in figuring NOL .................. 2

TTax help (SeeMore information) 18

TTY/TDD information ................ 18

WWhen to use an NOL .................. 6

Worksheet:Carryover for corporations ... 16Carryover from 1998 to 1999 13

Documents

US Internal Revenue Service: p536--1998