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Interested in Loss Carryback. Owner/manager of a TX LLC

filing Federal tax as a...
Interested in Loss Carryback. Owner/manager of a TX LLC filing Federal tax as a C Corp. Tax year 2016 had net income of about $32k and tax liability of about $6k. For tax year 2017 looks like will have net loss of about $36k. Can the loss be carried back to tax year 2016, and if so will IRS refund the $6k tax it collected for 2016?
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10/25/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting.

Q: Can the loss be carried back to tax year 2016, and if so will IRS refund the $6k tax it collected for 2016?

A: The NOL can be carried back two years. So, yes, the NOL can be carried back to TY 2016. Yes, if properly requested, the IRS should refund the $6k tax from TY 2016. SEE BELOW:

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https://www.bizfilings.com/toolkit/research-topics/managing-your-taxes/federal-taxes/business-losses-can-generate-net-operating-loss-deduction

Additional Info:

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Claiming the NOL Deduction

Generally, a corporation must carry an NOL back 2 years prior to the year the NOL is generated. If the NOL is not used in the prior years, the remaining NOL can be carried forward for up to 20 years after the tax year in which the NOL was generated. Special rules apply to certain losses including a specified liability loss, a farming loss, certain disaster losses, an eligible loss, or an excess interest loss. See the Instructions for Form 1139.

A corporation generally can elect to waive the entire carryback period for the NOL and instead carry the NOL forward to future tax years. Certain corporations can make the election for the loss year by checking the box on Form 1120, Schedule K, line 11, or the comparable line of the corporation's income tax return. Consolidated tax return filers must also attach a statement or the election will be invalid. Once made, the election is irrevocable. See the instructions for the corporation's income tax return. NOL carryback.

The following rules apply.

If a corporation carries back the NOL, it can use either Form 1120X or Form 1139. A corporation can get a refund faster by using Form 1139. It cannot file Form 1139 before filing the return for the corporation's NOL year, but it must file Form 1139 no later than 1 year after the year it sustains the NOL. If the corporation does not file Form 1139, it must file Form 1120X within 3 years of the due date, plus extensions, for filing the return for the year in which it sustains the NOL.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-pdf/p542.pdf

IRS Pub 542/Page 14

Link to Form 1139/instructions:

https://www.irs.gov/pub/irs-access/f1139_accessible.pdf

https://www.irs.gov/pub/irs-pdf/i1139.pdf

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Customer reply replied 1 month ago
Okay... that's good news. One slight mod on my initial question would be: if we decided to "switch" from a C Corp to an S Corp for tax year 2017, would it have any material affect on our ability to take the loss carryback for tax year 2016?

Hello again.

I will check on this and get back with you shortly.

Ask Your Own Tax Question

In brief, S-Corporation cannot claim NOLs. SEE BELOW:

--------------------------------

S-Corporations can't claim NOL's. They may result in an NOL on the shareholder's return if there is no other income, but that would be from a distributable loss of the S-Corporation, not from a prior C--Corporation. Standard advice is to use the NOL if possible before conversion. Otherwise, it is lost.

REFERENCE SOURCE:

https://ttlc.intuit.com/questions/2776228-if-i-convert-a-c-corporation-to-an-s-corporation-can-i-use-the-carryforward-nol-losses-in-the-s-corp

-----------------------------------

Partnerships and S corporations generally cannot use an NOL. However, partners or shareholders can use their separate shares of the partnership's or S corporation'sbusiness income and business deductions to figure their individual NOLs.

Publication 536 (2016), Net Operating Losses (NOLs) for Individuals ...

https://www.irs.gov/publications/p536

Link to Pub 536:

https://www.irs.gov/pub/irs-pdf/p536.pdf

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