The Internal Revenue Service today issued a news release reminding eligible taxpayers that they must act soon if they want to take advantage of the expanded business loss carryback option included in this year’s American Recovery and Reinvestment Act (the Act). Eligible calendar-year corporations have only until Tuesday, September 15, to choose this special carryback option. Eligible individuals have an additional month until October 15. Deadlines vary for fiscal-year taxpayers, depending upon when their fiscal year ends, and whether they are making the choice for the tax year that ends or begins in 2008. This choice may be made for only one tax year.

This special carryback provision offers small businesses that lost money in 2008 an excellent way to quickly get some much needed cash if they were profitable in previous years. This option is only available for a limited time, so small businesses should consider it carefully and act before it’s too late.

Under the Act, many small businesses that had expenses exceeding their income for 2008 can choose to carry the resulting loss back for up to five years, instead of the usual two. This means that a business that had a net operating loss in 2008 could carry that loss as far back as tax-year 2003, rather than the usual 2006. Not only could this mean a special tax refund, but the refund could be larger, because the loss is being used over as many as five tax years, rather than just two.

A small business that chooses this option can benefit by:

• offsetting the loss against income earned in up to five prior tax years,
• getting a refund of taxes paid up to five years ago, and
• using all or part of the loss now, rather than waiting to claim it on future tax returns.

Eligible taxpayers generally are small businesses that have no more than an average of $15 million in gross receipts over a three-year period. These includes sole proprietors, individual partners in a partnership, and S corporation shareholders. 

Taxpayers must choose this special carryback by either:

• attaching a statement to an income tax return for the tax year that begins or ends in 2008 or,
• claiming a refund on Form 1045 (Application for Tentative Refund) or Form 1139 (Corporation Application for Tentative Refund), or
• claiming a refund on an amended return for the tax year to which the loss is being carried back.

If you need assistance in determining if your business is eligible for this special carryback option, speak to your tax professional or contact me via email or by phone at 214.957.3366. Time is short, however, and you should act quickly.

Ronnie

Copyright 2009 Ronnie C. McClure, PhD, CPA

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