Daily Tax Update - February 10, 2005

Treasury, IRS Issue Guidance on Net Operating Loss Carrybacks

Today, the Treasury Department and the IRS issued Notice 2005-20, which provides guidance on carrybacks of net operating losses (NOLs) that arise in taxable years ending prior to October 22, 1998. 

  • In general, a taxpayer must first carry a NOL back to each of the three taxable years preceding the taxable year of the loss.  However, any portion of a NOL that qualifies as a "specified liability loss" may be eligible to be carried back to each of the ten taxable years preceding the taxable year of the loss.
  • Prior to 1998, the portion of a taxpayer's NOL attributable to expenses incurred with respect to certain liabilities arising under a Federal or State law or, in certain circumstances, a tort of the taxpayer constituted a "specified liability loss" under section 172(f)(1)(B). That section was amended by the Tax and Trade Relief Extension Act of 1998
  • According to the Treasury Department, Notice 2005-20 "will help taxpayers determine whether a loss may be eligible for the ten-year net operating loss carryback period in light of recent court decisions" interpreting former section 172(f)(1)(B).  The notice provides questions and answers that address what losses may be eligible and illustrative examples of the types of losses that qualify for the ten-year carryback period.
  • The notice can be accessed here.  

Tax Bills Introduced February 9:

  • H.R. 703 sponsored by Rep. Scott Garrett (R-NJ) would modify the alternative minimum tax on individuals by permitting the deduction for State and local taxes and adjust the exemption amounts for inflation.
  • H.R. 713 sponsored by Rep. Ron Lewis (R-KY) would provide a credit to certain agriculture-related businesses for the cost of protecting certain chemicals.
  • H.R. 720 sponsored by Rep. Jerrold Nadler (D-NY) would provide for income tax treatment relating to certain losses arising from, and grants made as a result of, the September 11, 2001, terrorist attacks on New York City.
  • H.R. 726 sponsored by Rep. Loretta Sanchez (D-CA) would require the abatement of interest on erroneous refund checks without regard to the size of the refund.
  • H.R. 727 sponsored by Rep. Loretta Sanchez (D-CA) would allow the deduction for health insurance costs of self-employed individuals to be allowed in computing self-employment taxes.
  • S. 327 sponsored by Sen. Rick Santorum (R-PA) would expand the tip credit to certain employers and promote tax compliance.

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