IRS Urges Small Firms To Use Expanded Loss Carryback

by Mike Godfrey, Tax-News.com, Washington

14 August 2009

Time is running out for many small businesses wishing to take advantage of the expanded business loss carryback option included in this year’s recovery law, the Internal Revenue Service (IRS) has warned.

Eligible individuals have until October 15 to choose this expanded carryback option. However, eligible calendar-year corporations only have until September 15.

“The 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,” the IRS said. “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 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. This option may be particularly helpful to any eligible small business with a large loss in 2008.

The option is available for an eligible small business (ESB) that has no more than an average of USD15m in gross receipts over a three-year period ending with the tax year of the NOL. This choice may be made for only one tax year.

An eligible individual includes a sole proprietor, an individual partner in a partnership and a shareholder in an S corporation, provided that all these enterprises qualify as an ESB.

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.

Normally, refunds are issued within 45 days, but the IRS also reminded taxpayers that there are various ways that they can get their refunds quicker. 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."

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