Quick Refunds from NOL Carrybacks?

Blog content provided by Barbara Weltman, Publisher of Big Ideas for Small Business ®

When the year is over and it turns out that your company has lost money in 2009, you may be able to use the loss to recoup taxes paid in prior years. Under the Worker, Homeownership, and Business Assistance Act of 2009 passed in November, businesses with net operating losses (NOLs) in 2009 may be able to elect a five-, four-, or three-year carryback instead of the usual two-year carryback; the carryback offsets income in prior years to generate a tax refund (with a limit on the fifth carryback year). Details about this special NOL carryback are in my blog post on November 5.

A quick refund is great because you get cash now to run your business. With so many businesses experiencing poor sales and other financial difficulties, 2009 is shaping up to a bad year, and many will file for refunds. During an AICPA webcast on December 14, the IRS said that the large number of filers for tax refunds won’t delay them. C corporations, for example, can expect them within the usual 10 to 20 days. C corporations file Form 1139, Corporation Application for Tentative Refund, for a quick refund. Owners of pass-through entities with NOL carrybacks file Form 1045, Application for Tentative Refund.

How to speed a refund. Meet with your tax advisor as soon as possible to assess whether and to what extent you may want to use the longer NOL carryback. Then a refund request can be filed as soon as possible after the close of this year. This is done using a tentative refund application or by filing amended returns for the carryback years (Form 1120X for corporations and Form 1040X for owners of pass-through entities). A statement containing information provided in Rev. Proc. 2009-52 should be attached to the refund request. If a prior carryback claim is being amended, a copy of the old claim should be attached to the new claim.

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