NOL Carryback Legislation

Author(s): Erica A. Bose, Mathew A. Wyman

Source: CCN Client Alert

11/10/2009

On November 5, 2009, Congress passed H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009'' (the "Act"). The President signed the legislation into law on Friday, November 6, 2009.

One key piece of the Act permits many taxpayers to carry their current net operating losses (“NOLs”) three, four or five years back to offset income earned during those earlier years. Without the Act and the February, 2009, act described below, taxpayers generally could have carried their NOLs back only two years. For taxpayers who report their taxes on the calendar year basis, the new rules apply to NOLs generated during calendar year 2008 or 2009. However, NOLs that are to be carried back to the 5th preceding year may offset only 50% of the income of such 5th preceding year. There are transitional rules and other rules that address situations where taxpayers have previously made certain NOL elections. Some taxpayers with NOLs in both 2008 and 2009 may have to choose between the two years and carry back NOLs from only one of these years.

The Act replaces and in some instances supplements legislation – “the American Recovery and Reinvestment Act of 2009” – that was passed in February, 2009. The February, 2009, act applied only for 2008 and only to certain small (i.e. less than $15 million in annual gross receipts) business taxpayers; furthermore, it expired at the end of 2008.

The provisions of the Act are subtle and complex. Please contact Mathew Wyman or Erica Bose with any specific questions that you might have in this regard.

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