NOL HELP

[TAXMAN]

TP and spouse have run a farm for 30 years. Filed joint in all years. NOL's have been carried forward. TP died prior year with carryover moving forward. Spouse continues to run farm operation. Is spouse entitled to carry over to current year only half of the NOL? My research and thoughts indicates spouse may be able to carry over half. Would you agree?

[Lion EA]

What tax entity is the farm? Partnership? (Any other partners besides H&W?) Form 1040 Schedule F? Other?

[jklcpa]

In general, loss carryovers and other tax attributes are traced back to the individual whose activity or business interest created the loss, and those losses of a decedent are not passed on to the surviving spouse or the estate. In the year of death, a married couple filing a joint tax return, both parties can use the losses, even income attributable to the surviving spouse after the decedent's death because of filing jointly. 

Maybe this article will help:  https://www.thetaxadviser.com/issues/2017/jan/carryovers-death-spouse.html

[TAXMAN]

Farm entity was a schedule F only. No one but tp and spouse ran this farm. No income to carry back to and current year has very little income. Thank you Judy. I had found this earlier. It would appear that since they ran this as a joint ownership TP"s half would be lost but could spouse carry the other half forward?

[jklcpa]

2 hours ago, TAXMAN said:

Farm entity was a schedule F only. No one but tp and spouse ran this farm. No income to carry back to and current year has very little income. Thank you Judy. I had found this earlier. It would appear that since they ran this as a joint ownership TP"s half would be lost but could spouse carry the other half forward?

 

CAVEAT:  Totally unresearched, and I haven't had this exact situation, but this is my thinking -

I think you should review the information in the instructions to Sch F under the heading "Farm Owned and Operated By Spouses" and consider the following  (https://www.irs.gov/instructions/i1040sf )  :

• whether they were a H-W LLC reporting as a disregarded entity,
• whether they were filing/or should have been filing a 1065,
• whether they both materially participated, were actually a joint venture, and if so, did they make the election by dividing all the income and deductions in half, each filing his and her own Sch Fs, and each filing his/her own Sch SE

 

My unresearched reaction is that if they actually met the rules to be a joint venture and properly reported it as such, then the remaining spouse would have that 1/2 of the NOL and the 1/2 that would be attributed to the deceased TP is gone.  But if the entire activity was reported entirely under the TP's name and SSN, then I don't think the spouse can claim the NOL. 

Of course, it is entirely possible that spouse meets all the requirements of ownership and participation but that the tax reporting was incorrectly reported on one Sch F in the TP's name, and in that case, I don't know if there is a remedy that wouldn't look like spouse is now claiming the new fact pattern solely to be able to claim more of the NOL.

Sorry if that isn't very helpful. Maybe someone else with farm reporting experience will chime in. 

 

[TAXMAN]

Thank you. I have come to a conclusion(after previewing past returns that tp provided) that I do not believe in this case the spouse is entitled to the C/O.

[DANRVAN]

19 hours ago, jklcpa said:

  But if the entire activity was reported entirely under the TP's name and SSN, then I don't think the spouse can claim the NOL. 

I have researched this issue before.  In  Rose, T.C. Memo. 1973-207, wife actively participated, but the business was reported under her deceased husband's name and SS#.   Court allowed surviving spouse 1/2 of NOL c/f due to her participation in the business.

 

On 11/23/2021 at 12:26 PM, jklcpa said:

Maybe this article will help:  https://www.thetaxadviser.com/issues/2017/jan/carryovers-death-spouse.html

I believe that article makes an incorrect reference to RR 74-175 in regards to NOL c/f of surviving spouse.  A revenue ruling is an interpretation based on a set of facts.  Rev Ruling 74-175  is vague and does not reflect the situation described by TAXMAN.

The article states "Rev. Rul. 74-175 specifically addressed NOL carryovers, providing that only the taxpayer who sustained the loss can use these carryovers."  

However RR 74-175 actually states:  "Advice has been requested whether, under the circumstances described below, the estate of a decedent is entitled to deduct certain losses sustained by the decedent prior to his death".

[DANRVAN]

On 11/23/2021 at 8:17 AM, TAXMAN said:

indicates spouse may be able to carry over half. Would you agree?

Depending on facts and circumstances she might be entitled to 1/2 of carryforward.