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Matthew WaitingOnWA2BaCPA

NOL Carryover Reporting Per IRS or as intended?

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We picked up some returns recently. As a result, I have a few 1040X's to do this year to carry back NOL's. In reading the 1040X and 1045 instructions, as well as Pub 536, I am interpreting that I file the 1040X for the carryback year since the 1045 was not timely submitted (or at all). With the 1040X I will also attach the 1045 Sch A and Sch B (though not the actual 1045 to avoid confusing the IRS agents and getting an automatic rejection). 

2016 (w/NOL) was filed - no election made

2017 (w/NOL) was filed - no election made

I am a bit confused on the reporting piece of this however. It appears that in the year of the NOL we prepare the 1045 Sch A and B. In the instructions they all seem to say to attach Sch A to the 1040X and Sch B too if the carryback is then carried forward. What is unclear is what year the Sch B is prepared in. Interpreting the instructions strictly I would say one for each year of NOL (year of NOL and years of carryback/carryforward). I haven't found anything online backing this up or refuting it.

To complicate matters, there was an NOL in 2016 and 2017 (no forego election for either).

 

The complicated way (Read as, no IRS agent will ever understand this)

It appears I would do the following per instructions

2014 - Carryback 2016 NOL and use a portion. Attach 2016 Sch A/B showing use and carryforward

2015 - Carryforward 2016 NOL and carryback 2017 NOL. Use a portion of the 2016 NOL. Attach 2016 Sch A/B showing use and carryforward. Attach 2017 Sch A/B showing carryforward (No use).

2016 - It was already filed. I was assuming no changes to original, however the original did not include on line 21 the carryforward of 2017's NOL.

  • I obviously wouldn't want to double count the 2016 NOL, but should it be amended to include the 2017 NOL carryforward from 2015?
  • Also, if I need to amend for the 2017 NOL carryforward, would it stand to reason that I actually SHOULD cary the 2016 NOL to the 2016 1040X on line 21, and somehow now double count it?
  • Am I including the 2017 1045 Sch A/B, or should two new Sch B's be prepared in 2016 for 2016 and 2017 carryforwards respectively (that would put me up to 3 total if counting the original Sch B for the initial carryback)?

2017 It was already filed. - It's getting fun now right!?! I was assuming no changes to original, however the original did not include on line 21 the carryforward oof 2016 and 2017.

  • I obviously wouldn't want to double count the 2017 NOL, but should it be amended to include the 2016 NOL carryforward from 2014-2016 on Ln 21?
  • Also, if the 2017 NOL carryforward SHOULD have been included, how would I keep from double counting this with the actual 2017 NOL?
  • Am I including the 2017 1045 Sch A/B, or should two new Sch B's be prepared in 2017 for 2016 and 2017 carryforwards respectively (that would put me up to 4 total if counting the original Sch B for the initial 2016 and 2017 carryback, and then the two for the two carryforwards)?

2018 - File a standard return, and carry the unused 2017 NOL's forward to ln 21

  • Attach 2 1045 Sch B's for the original 16/17 NOL's and then 2 additional ones for the 2018 carryforwards of those remaining NOL's 

 

The less complicated way (Read as, It might give the IRS a reason to reject the returns)

I would like to

Amend 2014 and use a portion of the 2016 NOL. Report 2016 NOL on Ln 21. Attach the 2016 1045 Sch A/B. Carry forward through 2018.

Amend 2015 and use a portion of the 2016 NOL. Report 2016 & 2017 NOL on Ln 21. Attach the 2016 (Same one used in 2014) & 2017 1045 Sch A/B. Carry forward through 2018. 

2016/2017, just use the software to create the 1045 sch A/B. No additional filing required.

2018 File original return. Show 2016 remaining NOL and 2017 Unused NOL on Ln 21 as a total number only (They won't use it in 2018 due to income level). Keep an internal schedule showing remaining NOL available for carryforward.

 

Side not, Pub 536 seems to say if you have a Sch F operator running at a loss, and with an overall NOL on 1040, you must allocate the Sch F loss as a carry back up to the lesser of the Sch F loss or NOL per 1040. This is the default treatment UNLESS you remember to make the election to forego the carryback. Does anyone see this differently?

 

Sorry for the HUGE question. I spent a ton of time on this barely chargeable project already and am at the point I just have to close my eyes and pick the most logical option. I'm hoping one of you will have a better understanding of this ridiculously complex process.

 

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I'd pick the second way, myself.  Yes, the IRS might reject something but that's always a possibility and a lot of time "rejections" are simply requests for more documentation.

The way I address such issues is to send as much documentation as I can with the amended return, and include a letter or 8275 (is that the right number - taxpayer disclosure stmt form) that gives them enough information to be sure that (1) the end-effect of all the changes is CORRECT in terms of tax, (2) there are a lot more documents that could be submitted to support the return as-submitted, leading to (3) just accept this as-is 'cuz it's right and it's a LOT more work for YOU (IRS) if you don't.  They're overworked; if they have a legitimate way to agree and CLOSE the issue, they'll frequently accept it.

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