The Internal Revenue Service says that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.  The IRS says it will work to issue refunds within 45 days or less “to the degree possible.”  

To accommodate the change in tax law, the IRS updated the instructions for two key forms -- Forms 1045 and 1139 – that small businesses can use to make use of the special carryback provisions for tax year 2008.  These forms are used to accelerate the payment of refunds. 

The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss in 2008 to elect to offset this loss against income earned in up to five prior years.  Typically, an NOL can be carried back for only two years.  The IRS has released legal guidance in Revenue Procedure 2009-19 outlining specific details. 

With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds.  The IRS is introducing special steps to ensure timely processing of these refunds to help small businesses.

 “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits,” said IRS Commissioner Doug Shulman.

Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.  For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008.  Once the election is made, it may not be changed. 

However, if a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback.  The election revocation must be made on or before April 17, 2009.

To qualify for the new provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL.  Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.

Small businesses that are not corporations, including sole proprietorships filing Schedule C with their Form 1040, may accelerate a refund by using Form 1045, Application for Tentative Refund.  Corporations with NOLs may accelerate a refund by using Form 1139, Corporation Application for Tentative Refund.

Frequently Asked Questions have been posted on the IRS.gov Web site. Form 1040 filers can call (800)-829-1040 with NOL questions, while corporations can contact 1-800-829-4933.

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