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Robin D.
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Can a personal service corporation have a NOL carryforward

Resolved Question:

Can a personal service corporation have a NOL carryforward or carryback?
Can a PSC have a fiscal year end 7/31?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D :

A personal service corporation may not carry back an NOL to or from any tax year to which an election under section 444 to have a tax year other than a required tax year applies. Research indicates that there is only one special rule affecting the net operating loss carrybacks and carryovers of personal service corporations. That rule is Section 280H(e) which denies any NOL carryback to or from a tax year in which a personal service corporation has made an election under Section 444 to have a tax year other than the required calendar year.


Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444. The following discussions provide the rules for partnerships, S corporations, and PSCs.


A PSC must use a calendar tax year unless any of the following apply.





  • The corporation makes an election under section 444.




  • The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444.




  • The corporation establishes a business purpose for a fiscal year.
    Example of making the election:


    B is a corporation that first becomes a PSC for its tax year beginning September 1, 2007. B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2007. B must file Form 8716 by December 17, 2007, the due date of the income tax return for the short period from September 1, 2007, to September 30, 2007.

    So the B corp would be allowed an NOL because it elected a Sec 444 change.




Customer:

Please clarify the last sentence that the NOL woul be allowed because it elected Sec 444? Do you mean it would not be allowed, which is consistent with the first paragraph?


 


Also, what about having a 7/31 fiscal year?

Robin D :

Yes that should have read "not" I appologize for that.

Robin D :


PSCs may still qualify to use a fiscal year other than a calendar year by establishing a business purpose for such a year, making the Section 444 election to use a fiscal year other than a calendar year, or making the election to use a 52-53-week tax year that ends with reference to the calendar year. But they can not have an NOL and a fiscal year.


Robin D :

If they elect to use the 444 for the fiscal year they cannot have the NOL.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7872
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
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15years with H & R Block. Divisional leader, Instructor