1. Our personal tax returns for 2010, 2011 and 2012 showed negative AGI due to our losses in the restaurant business that we started in 2009 and we both had employment incomes during those years to run the business.
2. We had used turbo-tax for these years as always for last 20 years. We did not use any CPA to file our personal taxes ever and just used turbo-tax. However, we used CPA for our business for 2009-2013 and used entries from schedule K-1's for our personal tax forms. We closed the business in 12/2013 and went back to employment.
3. In 2013 we had a huge tax liability due to substantial employment income and that is when our CPA looked at our personal taxes returns for 2010-2012 and discovered that we had not carried forward any NOL for these years.
4. To my shocked discovery that turbo-tax does not automatically calculate NOL and carry forward, in fact it does not have 1045 form for the purpose.
5. Our CPA then filed amendments for these years to carry forward NOL resulting a huge refund for 2013 instead of a liability.
6. IRS accepted our amendments for 2010-2012 for carrying forward NOL.
7. 3 months later IRS communicated to us that
a. The statute of limitation for NOL carry forward is only 6 months after tax due date for each year (Our CPA did not know this.).
b. Consultation with another CPA/tax attorney suggested his communication with IRS to resolve this, with no guarantees of the outcome, at a very exorbitant fee. Naturally, we did not go for it.
c. IRS suggested that we carryback NOL for previous two years as far as 2010 and carry forward any unused NOL by modifying all tax returns for the respective years and re-file all amended tax returns again. The exact wording of IRS is follows:
An election to carry forward a net operating loss (NOL) has to be filed with the original timely filed loss year return by its due date (or extended due date), or with an amended return filed within six months of the due date of the original timely filed loss year return (determined without regard to extensions). We were unable to locate a valid carry-forward election.
You may file claims to carry back the NOL to the previous two tax years. These claims must be filed by October 15, 2014 to avoid expiration of the refund statute for the 2010 carryback loss. Any unused loss in those years may then be carried forward.
When submitting a carryback claim, please include Schedule A-NOL and Schedule B -NOL of Form 1045. We need these to verify how the loss was calculated and how the allocation was determined.
Also, include copies of all forms that are changed in the gain years as a result of the carryback. Please be sure to sign and date all claims or they will be returned to you as incomplete My question to you, Sir, is that
§ Could any carryback and then carry forward calculations and re-submitting correct tax returns for 2010-2012 have any effect on our 2013 tax refund and result into a tax liability ?
§ Is the approach suggested by IRS the best and only way to resolve my situation ?
I would appreciate your comments.