My client has converted her sole proprietor to an S-Corp in 2012. She has a NOL from 2009 which she has been carrying forward. What happens to that NOL? I know the loss would be suspended if it was incurred as a C-Corp. On the 3805Q for the 1120S it asks if the loss was incurred while the S-corp was a Corporation, S-corp, Exempt Organization or LLC. Since it was none of those does the NOL stay on the personal return then? I can't find an answer to this but it may just a be common sense answer that I am missing lol.

#1;An S corp passes net income, net losses, capital gains and capital losses through to the shareholders each year, no previous year taxable net income exists to offset at the corporation level. However, a shareholder might be able to use a NOL carryforward on his personal income tax return on 1040; s corps and P/S are not entitled to NOL; for corps other than S corps, from year 2010 forward, corporations are entitled to the same NOL rules as individuals. THey carryback is 2 years, and the carryforward is 20 years. A Form 1120X must be filed within three years of the due date of the return for the loss year.


#2; Correct.If your business is organized as a C corp, any NOL it suffers provides no tax benefit to the shareholders. Such a loss can only be used by the corporation itself: it may be offset against the income of its subsidiaries (if any) if a consolidated return is filed, carried back against past income, or carried forward to reduce future income.

A corporation can normally carry a net operating loss back two years and forward 20 years. If net operating losses are anticipated by a corporation, it may be beneficial to elect S corp status and pass the losses on to the shareholders.



#3;Correct. Even if a C Corp makes a S Election ,the C Corpo with a Net Operating loss carryover, can never transfer its NOL to the new S Corp/LLC.