NOL Carryforward

[David]

I am preparing TP's 2003 - 2006 tax returns. TP was single until 2005. Her Husband filed MFS for 2005 - 2007.

TP had no income in 2007.

TP filed MFJ with husband in 2008 - 2010.

TP has a $150K NOL carryforward from 2006. Since she had no income in 2007, I am planning to amend the MFJ tax returns for 2008 going forward, to take the NOL carryforward.

Can the NOL carryforward be taken from 2008 going forward since the TP had no income in 2007 and since her husband filed MFS in 2007?

Or does the H&W need to amend the H's 2007 MFS tax return and file MFJ and take the NOL beginning in 2007?

Thanks.

[Kea]

I believe if no election is made on a timely filed return, the 2006 NOL has to be carried back first before it can be carried forward. I think the default carryback is usually 2 years, but there have been a few times when it's (temporarily) changed - sometimes in February. Check the latest instructions for 2006. Also since it's been more that the 3 year limit for 2006, the NOL might be lost. I know that's true for refunds, and not true for balance due. Not sure about NOL.

Actually, now that I think about it, I'm pretty sure it's too late.

[David]

I believe if no election is made on a timely filed return, the 2006 NOL has to be carried back first before it can be carried forward. I think the default carryback is usually 2 years, but there have been a few times when it's (temporarily) changed - sometimes in February. Check the latest instructions for 2006. Also since it's been more that the 3 year limit for 2006, the NOL might be lost. I know that's true for refunds, and not true for balance due. Not sure about NOL.

Actually, now that I think about it, I'm pretty sure it's too late.

I don't see anything in my research that indicates the NOL carryforward is lost since the return is not timely filed. I do see that the 1045 has to be filed within 1 year.

In this case, the carryback period is 2 years. The NOL can't be taken back since the previous 2 years, the TP did not have taxable income.

Please let me know if anyone knows a cite that says the NOL carryforward is lost if the return is not timely filed.

Thanks.

[Lion EA]

172(b(3) Election to waive carryback.

Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.

[Kea]

Even if the TP didn't have income in the prior 2 years, you still carry back, show that there is no change, then carry the remaining (whole) amount to 1 year previous. No taxable income = no NOL used and then you can carry forward to the next year. You continue to carry forward until the NOL is used up. But you still have to file the 1045. When you carry to 2007, you can change the MFS to MFJ. I'm sure the husband wouldn't object to getting their getting the refund on an earlier year. Also, since she had no income in 2007, converting to MFJ would probably reduce taxes even without the NOL. However, if the 2007 was filed prior to 4/15/08, the extra refund would be lost anyway. (Actually you have 3 years after date filed if after 4/15/08, so if his was extended you might still have time.)

But, I still say it's a moot point because I'm pretty sure the 2006 NOL is lost at this point. In the few cases where I have filed back taxes for a client, they only had 3 years to claim a refund. I don't know of an exception for NOLs.

Perhaps the husband filed his 2006 very late (after 7/7/08)? If within the last 3 years, you could amend that to MFJ and use the business loss that year (and then use smaller NOL depending on H's income).