Loss Carry Back Option Deadline Looming

8/17/2009

Time is running out for many small businesses wishing to take advantage of the expanded business loss carry back option included in this year’s recovery law, the Internal Revenue Service said today. Eligible individuals have until October 15 to choose this expanded carry back option. Eligible calendar-year corporations have until September 15.

This carry back provision offers small businesses that lost money in 2008 a quick way to get 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 is too late.

Under the American Recovery and Reinvestment Act (ARRA), enacted in February, 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 (NOL) 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 also the refund could be larger, because the loss is being spread over as many as five tax years, rather than just two.

This option may be particularly helpful to any eligible small business with a large loss in 2008. 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,
Using up part or all of the loss now, rather than waiting to claim it on future tax returns.

Individuals can accelerate a refund by filing Form 1045, Application for Tentative Refund. Similarly, corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. Normally, refunds are issued within 45 days. These forms, along with answers to frequently asked questions about this special carry back, and other details can be found on the IRS Web site www.irs.gov.