Expanded Loss Carryback Rules Create Tax Planning Opportunities

On Nov. 20, 2009, the IRS issued guidance on a new law that expands the ability of most business taxpayers to carry back net operating losses (NOLs) and obtain tax refunds.

Under prior law, business taxpayers were generally permitted to carry back NOLs to the prior two taxable years. The recently enacted Worker, Homeownership, and Business Assistance Act of 2009 expands the carryback period, but only for NOLs that arise in taxable years ending after Dec. 31, 2007 and beginning before Jan. 1, 2010 (hereafter referred to as 2008 or 2009 taxable years). More specifically, the act permits taxpayers to carry back 2008 or 2009 NOLs for two years (as permitted under prior law), or to expand the NOL carryback period to three, four or five years. This change is significant because it enables many companies to increase liquidity by obtaining a refund of previously paid taxes.