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Old 06-06-2014, 01:48 PM
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Join Date: May 2014
Location: Sugar Land, TX
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NOL carryback and carry forward dilemma

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.



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Old 06-07-2014, 08:56 AM
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Join Date: Oct 2010
Posts: 5,100
Quote:
Originally Posted by sheekom View Post
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.
§ 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 ?==================>>>>>>>>>>>>>>>>Needless to say,I think so.it’d result into tax liability aslongas NOL deduction amount is lower than your grossincome in 2013 tax year. However, it depends; for reference, to Claim a NOL Refund , as you said above, you may use either Form 1045 or Form 1040X .you can use Form 1045 to apply an NOL to all carryback years,NOT for C/F years. You'll get a faster refund using Form 1045 (usually within 90 days).
However, you must file Form 1045 no later than one year after the NOL year. For example,as you said above, you have an NOL for 2012 ,the NOL year, then, and assume that you're a calendar year taxpayer (Jan. 1 through Dec 31) , then you must file Form 1045 no later than Dec. 31, 2013. You do not file Form 1045 with your original Form 1040. You need to file Form 1045 separately and attach it to a copy of Form 1040. So Form 1045 is not for you.
Instead of Form 1045, you can use Form 1040X to file for a refund. If you choose to use Form 1040X, you must use a separate Form 1040X to amend each carryback year to which you apply an NOL.
It takes longer to get a refund than if you use Form 1045. One advantage is, you have more time to file Form 1040X than Form 1045. You must file Form 1040X within three years after the due date (including extensions) for filing Form 1040 for the NOL year. For example, assume that You have an NOL for 2013 ,the NOL year. You're a calendar year taxpayer. Your Form 1040 is due April 15, 2014. You carry the NOL back to 2011 ,two years prior to the NOL year 2013. You must file Form 1040X no later than April 15, 2017 (the third year after the April 15, 2014 due date, plus extensions). You need to attach a computation of your NOL to Form 1040X using Sch A of Form 1045 and Schedule B for NOL carryovers, if applicable.

SO; Normally, NOLare to be carried back 5/2 years and then forward for 20 years.If you wanted to waive the 5/2 year carryback and only carry this loss forward for the next 20 years ,which is beneficial if your tax liability for those back years( 2010~2012 years) is lower than what you are expecting you tax liability to be in the future, then you are correct. You need to sign a "waiver of 5 year carryback statement". (This is not a specific form, its only a note you include with your tax return.If you did not sign that waiver, and you still want to waive the carryback period and use the loss against future earnings, then you must an amended return within 6 months of the due date of the tax return. (Which would take you to October 15, so you still have time). So as the IRC states, you may file claims to carry back the NOL to the previous two tax years(or 3, 4, 5 years for special cases). These claims must be filed by October 15, 2013(as your NOL year was 2012) to avoid expiration of the refund statute for the 2012 carryback loss. Any unused loss in those years may then be carried forward.
§ Is the approach suggested by IRS the best and only way to resolve my situation ?–===============>>>>>>>>>>>>>>>>I I guess I can’t tell you since I do no know those NOL situations(NOL c/b, c/f situations or AGI or NOL amount s or etc). As it is tough issue to solve yourself, you need to contact a CPA/ an IRS EA in your local a rea for more accurate info/wise decision for your fed/state returns.



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