Question regarding NOL’s: Have I screwed myself due to late filing of my returns?

[ignorant1ontaxes]

CIRCUMSTANCES:

I had NOL’s from 2009, 2010, & 2011. Those NOL’s were used up in 2012. There are no further NOL’s to carry forward from 2012. (FYI: my 2012 return showed NO taxable income after using up the prior NOL’s.)

I filed my 2012 tax returns in August of 2012. I have not filed any returns since then; I will be filing 2013, 2014, & 2015 in January of 2016.

I have a large NOL in 2013 that I would like to carry forward.

I have had no W-2 or Schedule C income during this entire time.

PREMISES:

A.) I missed the deadline for timely “election to carryforward” NOL’s from 2013. Therefore, I must first use the 2013 NOL towards 2011 & 2012.

B.) The NOL carryback from 2013 would have no effect on 2011 - 2011 itself generated an NOL. 2012 shows NO income taxes due after using up the prior NOL’s. So it appears that there would have been no benefit (or detriment) to carrying back 2013’s NOL to 2011 & 2012.

QUESTIONS:

1.) Am I still eligible to claim 2013’s NOL as a carryforward into 2014 & 2015?

2.) What do I need to file with my 2013 return (if anything) to allow me to carry forward the 2013 NOL?

3.) Do I need to somehow show the IRS that carrying back 2013’s NOL would have not effected 2011 & 2012?

I’d like to thank you in advance for your input! Your help is TRULY appreciated!

[ScruffyCurmudgeon]

The IRS regulations provide for only a "3-year look-back" meaning that one can only amend or late file to claim a refund for years that fall no more than 3 years from the deadline for filing, or from the actual date filed if earlier. This means, given we are at the end of 2016, the only tax years for which the IRS will accept amendments or late filings are 3 years back from October, 2016 :  Tax Years 2015, 2014, 2013  - for late filing.

For you this means that you can still, and immediately, file an amended Form 1040x for Tax Year 2013.  That said, whether you choose to accumulate all of the NOLs or only report the NOL relevant to 2013 is your choice.  Do be aware that all amended filings Form 1040X are processed manually, not by computer, and this more likely to be reviewed.

So in answer to each question:

QUESTIONS:

1.) Yes, by filing Forms 1040X for 2013, 2014, and 2015 to accomplish the carryforwards.

2.) see #1

3.) No longer relevant

[TaxGuyBill]

So you don't technically carry it forward, you carry it back to 2011.  Then you do some math, and it carries to 2012.  Then you do a bunch of math and it carries to 2014.  Depending on the details of "no taxable income", 2012 could slightly alter the NOL.

Perhaps it MIGHT not be required, but I think you should amend 2011 and 2012 to show the carryback.  That will document things if they every question your carryforward to 2014 or 2015.

[ScruffyCurmudgeon]

Amending and creating Form 1040X for 2011 and 2012 would be only for user's own documentation.  The IRS will neither accept nor process those years as they are beyond the 3-year look-back.

[TaxGuyBill]

The 3 year limit is for refunds, not for amending tax returns (although the IRS sometimes dislikes processing them past 3 years).

Also, the Statute of Limitations for NOLs is 3 years back from the NOL year.  So as long as the NOL year is within 3 years, you can amend (and get refunds) for 3 years before THAT.  See Section 6511(d)(2).
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/uscode/text/26/6511#d">https://www.law.cornell.edu/uscode/text/26/6511#d...>

[ScruffyCurmudgeon]

Actually, the 3 year look back is pretty much for all aspects of processing with the exception of gross underreporting, which is 6 years and requires DC authorization.  2012 last filing date would be October, 2013, if extended, and that is now more than 3 years ago.  As said, I suspect the 2011 and 2011 would be only useful as documentation.  User could probably bundle and file 2013 1040X as if.   Problem with expecting processing beyond 3 years is the issue of IRS archiving.

[TaxGuyBill]

As I pointed out before, there are specific exceptions for some things (in regards to refunds), including NOLs.

Do you have any citations for a 3 year limit for processing (other than the specific exceptions)?

I've heard others claim the 3 year limit, but nobody has ever been able to find any cite yet for me (if it exists, it would be in the Internal Revenue Manual).

[ScruffyCurmudgeon]

Personal experience in attempting to get look back for entities, misapplied payments by the Service, failure to inform SSA of payments, etc.  It would appear, at least through last year, the service reps ("agents") have access online only that far - and once you go beyond that, a request to locate archive is a matter of "good luck and wait."

[TaxGuyBill]

Yeah, I have heard of others that have trouble amending older than 3 years too.  However, I've also heard of others successfully doing it.

[ignorant1ontaxes]

Thanks for the feedback everyone!  In my particular circumstances, I am NOT seeking any refunds for 2011 or 2012, as those years generated NOL's themselves.  QUESTION: Is there any credence to the thought that the Election to Carry Forward applies only to the desire to NOT carry back to the prior years - and that the ability to carry forward is automatic (doesn't require an election)?  As an alternative to amending returns, what about filling out a form 1045 to calculate that there would be no effective changes to the prior years?  I could theoretically send that to the IRS even though there would be no refund. (since no income taxes were paid in those years.)

[TaxGuyBill]

In order to carry forward, you need to make an election, and it is too late to do that now.

So the only option is to carry it back.  In your case, the carryback will not save any income taxes, so it effectively will be carried forward (but the amount COULD change when you do the math for each year).  Although the 1045 will give you the amount of the NOL, that would not 'officially' show you are doing it properly.  In my opinion it would be best to amend to show the NOL carryback, then carry the proper amount to 2014.

[ignorant1ontaxes]

Thanks TaxGuyBill.  You make a very good point that the 1045 won't show the entire picture.  The problem is that 2011 & 2012 are now "closed" years if I understand that concept correctly.  So if I prepare 1040X's, but don't file them - I could keep them available to show the correct carryforward if asked later.  Do you feel that is my best and only option at this point?

[TaxGuyBill]

They are NOT closed for purposes of an NOL.  Amend.