The IRS's Small Business and Self-Employed (SB/SE) and Large Business and International (LB&I) divisions have issued guidance to their examiners on scrutinizing tax returns that report net operating losses (NOLs). The guidance focuses on issues related to NOL carrybacks.
Generally, eligible taxpayers that want to carry back an NOL to claim a refund may:
File an application for a tentative refund within 12 months of the end of the loss year, or
Amend the carryback year return within the normal limitations period for filing refund claims.
However, beginning in tax year 2021, NOL carrybacks are limited to farming and insurance company losses.
The New Guidance Provides SB/SE And LB&I Examination Employees With Step By Step Instructions For Examining Tax Returns Reporting An NOL Carryback.
The guidance also reminds examiners that while carrybacks may be limited for 2021 and later years, it is important for examiners to remain aware of carryback losses when examining returns as the rules in this area are often modified.
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