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New Law Includes Net Operating Loss Provisions

Nov 24, 2009 10:39 AM

The Worker, Homeownership, and Business Assistance Act of 2009 recently was passed by wide margins in both the House and Senate and signed into law. The bill extends unemployment benefits, and also includes added provisions on net operating losses supported by the National Electrical Contractors Association (NECA), Bethesda, Md.

Under previous tax law, a business suffering a net operating loss (NOL) in the current tax year can amend its tax returns for the previous two years in order to offset taxable income from those years and thereby gain a refund which amounts to an immediate infusion of cash into the business. These rules are designed to allow businesses to "smooth out" swings in business income that result from unexpected financial losses. Under the American Recovery and Reinvestment Act (ARRA), the carryback was extended to five years for the 2008 tax year so that previously profitable businesses struggling in the recession would be able to maintain their staffing levels and invest more in purchasing equipment and other capital assets. ARRA limited this relief to small businesses with less than $15 million in annual gross receipts. The new legislation extends that treatment to 2009 NOLs, although it limits the amount of loss than can be carried back to the fifth year. Specifically, businesses can offset 50% of the available income from the fifth year and 100% of all income in the remaining four carryback years. The law also allows all businesses to take the five-year carryback (regardless of annual gross receipts), except those that received funds from the Troubled Asset Relief Program (TARP).

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