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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4666
Experience:  35 years tax experience, including four years at a Big 4 firm.
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I had a federal disaster loss in 2011, #1976, and had an

Customer Question

I had a federal disaster loss in 2011, #1976, and had an approximate $54,000.00 net operating loss in that year. I have a small home-based business, and normally do a schedule C and 8829, business use of the home. This is set up as a sole proprietor. The net is usually under $20,000.00 My 2011 income tax is filed.
To carryback the loss to 2009 and 2010, I filled out the 1040x that requires you to submit the 1045 Schedule A and Schedule. This was also filed timely.
My understanding of Form 1045, Schedule A, line 6 Nonbusiness deductions says enter as a positive number deductions that are not covered with a trade or business. The include: Most itemized deductions (except for casualty and theft losses). My NOL was because of the loss from the flooding and so, I did not enter anything on that line when I submitted the form. I entered 0.
Further, the instruction say do not include any business deductions. These deductions that are connected with a trade or business. They include: If you itemized your deductions, casualty and theft losses (even if they involve nonbusiness property.) Because I was instructed to use schedule A for casualty and theft losses in 2011, I did use Schedule A in 2011. This is another I entered 0 on line 6.
Now, the IRS has made a mistake, I think. I got a letter back from there yesterday where they entered my NOL, made up of the casualty losses entirely as a positive 37,000.00. This reduced my NOL carryback and also eliminates my carry forward. In other words they entered 37,000.00 on line 6 of Schedule A on the 1045 where I had had 0.
This is important that this correct because it affects my federal returns for several years along with my state returns. The IRS does not give tax advise on NOL's, they say it is now outside the scope of their duties due to their funding cuts. This is what they told me after I waited on hold almost three hours yesterday.
I just need confirmation that I am interpreting the handling of this line 6 correctly. I have the letter and attachments ready to forward to the IRS.
Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax, and can assist.

I will need to ask for a price increase, as this is involved and will require review of all the documents. IRS transcripts too, if available.

I'll do this for 1 hour charged ($300) less your deposit. An offer is forthcoming. Accept, and we work this out tomorrow.

Customer: replied 1 year ago.
I'm sorry I cannot agree to that. My question was very specific and I am not asking for a review just a confirmation of my interpretation. I am an attorney and hold a MBA, so I can read the IRS instructions, I just wanted a tax professional to say if I am understanding the instructions correctly.
Expert:  PDtax replied 1 year ago.

Fair enough. The readers digest version, then.

Unless the casualty loss was directly related to your business, it does not create an NOL.

There is a simple way to check your math for an individual NOL. Business income minus business expenses and losses. The 1045 calculation is an exercise of how to get to the same place by driving, if you will, around the block three times looking for parking. You eventually get there, but the exercise is a pain.

Expert:  PDtax replied 1 year ago.

Use my method to check yours and the IRS revised calculations. If you had wages of $50k, schedule C loss of $25k and itemized of $40k, you have a tax loss and no NOL. If you have wages of 50k, schedule C loss of $72k and itemized of $40, you have a NOL of ($22k).

Expert:  PDtax replied 1 year ago.

I would look at my 1040 and add my wages and other business income, then subtract my schedule C. My best is the IRS NOL calculation fixes what you claimed.

This shortcut was part of a seminar I took at E&* in Florida many years ago. Instead of the instructions method of the NOL, it's business income less business losses.

Thanks from just answer. Positive feedback, and a bonus if warranted, are appreciated. I'm PDtax.