Manufacturing & Distribution Industry Insight

	1st Quarter, 2010

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about the Author

Lori has over 10 years of professional experience and serves as a Senior Tax Manager in the Dallas office of HEIN & ASSOCIATES LLP. She provides tax consulting and compliance services to both public and private companies in the manufacturing and distribution industry, including mergers and acquisitions. She also specializes in current and deferred taxes (FAS 109), consolidated return issues, and accounting methods.

In addition to her manufacturing and distribution experience, Lori has also developed a focus in the energy and real estate industries. She is a member of the Council of Petroleum Accountants Societies (COPAS), Real Estate Financial Executives Association (REFEA), Texas Society of Certified Public Accountants (TSCPA), and the American Institute of Certified Public Accountants (AICPA). Prior to joining HEIN & ASSOCIATES LLP in 2006, Lori was a Tax Manager with Deloitte, and Director of Tax for Dave & Busters, a Dallas-based restaurant and entertainment company. She received both her bachelor of business administration and her masters of science in accounting from Texas Tech University.

Lori can be reached at 972.458.2296 or lmettille@heincpa.com.

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5-Year NOL Carryback Extended and Expanded

By Lori Mettille, CPA, Senior Tax Manager

On November 6, 2009, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009 (the "Act"). This Act provides cash-strapped businesses the ability to write off current losses against past profits by extending and expanding the 5-year net operating loss ("NOL") carryback provision (from the current 2 years) enacted with the American Recovery and Reinvestment Act of 2009 (the "ARRA"). Under the ARRA, the 5-year carryback was available only to small businesses (those meeting a $15 million gross receipts test) and applied only to the 2008 tax year (with limited exception for fiscal year taxpayers).

The new Act provides that the election is available to all taxpayers. The significant provisions of the Act are as follows:

It applies to NOLs generated during a taxable year ending after December 31, 2007 and before January 1, 2010 (i.e., 2008 or 2009 returns).
The election is available for either the 2008 or 2009 NOLs but not both, except in the case of "Eligible Small Businesses" ("ESBs").
The definition of ESBs is revised to mean those businesses with gross receipts not exceeding $5 million.
The taxpayer may carry back to any of the third, fourth or fifth preceding tax year (i.e. it is not necessary to carry back first to the fifth preceding year and then forward). This election is generally irrevocable.
NOLs carried to the 5th preceding tax year may only offset 50% of the taxable income in that year (with the exception of ESBs electing for their 2008 NOLs) and 100% for each of the four remaining carryback years.
The 90% limitation on use of alternative minimum tax (AMT) NOLs is suspended.

Further, the IRS and Treasury have recently issued Revenue Procedure 2009-52, which provides the detailed guidance on how and when to elect the carryback provisions. In general, taxpayers have until the due date, including extensions, of the last tax year beginning in 2009 to make the election to extend the NOL carryback period as noted above.

There are several tax saving strategies that businesses might consider to generate larger losses in the current year that may be carried back to offset prior year income. However, while the extended carryback period provided in this legislation can be beneficial, it is important to analyze the overall tax implications to your business and its specific situation and tax strategies before making the irrevocable election.