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Obama Signs Bill Expanding the Corporate Net Operating Loss Carry Back

November 6, 2009

The Worker, Homeownership, and Business Assistance Act of 2009 (the "Act") signed today by President Obama allows corporate taxpayers with net operating losses ("NOLs") in 2008 or 2009 to elect to carry back such NOLs up to five years. Previously, corporations, other than certain eligible small businesses, generally were permitted to carry NOLs back only two years with the excess carried forward up to twenty years. NOLs that are carried back offset taxable income earned in prior years and result in a refund of taxes paid. The ability to extend the carry back period may provide significant value to corporations with 2008 or 2009 losses that exceed their federal taxable income in the prior two years by allowing such losses to offset taxable income in three additional tax years, resulting in a greater current refund. 

There are limitations on a corporation's ability to carry back 2008 or 2009 NOLs for a full five years. The election applies with respect to NOLs incurred in either 2008 or 2009, but not both years. In addition, 2008 or 2009 NOLs can be used to offset only fifty percent of the taxable income earned in the fifth prior taxable year. Generally, the extended NOL carry back election is not available for TARP recipients or corporations that, at any time during 2008 or 2009 were, or are, a member of an affiliated group including a TARP recipient. 

The Act also increases the use of NOLs to offset a corporation's alternative minimum taxable income by the NOLs the taxpayer elects to carry back up to five taxable years.