The American Recovery and Reinvestment Tax Act of 2009 adopted a special rule allowing some taxpayers to carry back net operating losses incurred in 2008 for up to five years instead of the normal two years. In order to qualify for the extended carry back period, the taxpayer had to be an eligible small business, which was generally a business with not more than $15,000,000 in annual gross receipts.
On November 6, 2009, President Obama signed H.R. 3548, the Worker, Homeownership and Business Assistance Act of 2009 (“Act”). One of the provisions of the Act makes the extended carry back available for 2008 or 2009 losses and eliminates the $15,000,000 gross receipts limitation. In general, a business can use the extended carry back in only one of the years, i.e., either 2008 or 2009, but not both. However, if a taxpayer made an extended carry back of a 2008 loss under the prior law in effect for small businesses, then it may also make an extended carry back of a 2009 loss. If a taxpayer elects to carry a loss back to its fifth prior year under this new provision, only 50% of its taxable income in the fifth prior year can be offset by the loss carried back.
If an alternative minimum tax net operating is carried back, it normally can only be applied to offset 90% of alternative minimum taxable income in the carry back year. However, for 2008 or 2009 losses eligible for the extended carry back, this 90% limitation is suspended.