TurboTax is not following the IRS rule of only including an NOL amount equal to 80% (or less) of my taxable income. Is there some way to submit a bug report?

[C_Nagy]

I am amending my 2023 taxes, but TurboTax 2023 does not appear to be following IRS rules for my new situation. I am amending my return because I received a Schedule K-1 which included a "Net Operating Loss Carryforward" (NOL) of $100,000. IRS documentation says that this NOL amount is subject to the "80% rule" which means that I can only use an amount of the NOL equal to 80% of my taxable income. My Taxable Income before adding in the NOL was $50,000. TurboTax should therefore have used no more than $40,000 of the NOL in my return. When I enter the Schedule K-1 information, including $100,000 for the NOL amount, TurboTax uses the entire NOL of $100,000 on Schedule 1, line 8a, and then enters that amount on Form 1040-SR, line 8. This causes my Adjusted Gross Income (AGI) to be computed as -$50,000, and my Taxable Income to be $0. If I remove the NOL amount from Schedule K-1, and enter it instead into "Business Deductions and Credits" as a "Business Loss Carryover" NOL, TurboTax does exactly the same thing with the NOL amount as it did when I entered it into the Schedule K-1 information. I have spent a couple hours speaking with TurboTax support people (2), but they could not help me.

[M-MTax]

Read the posts in the thread below:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-to-get-turbo-tax-...

Note that TurboTax does NOT make the 80% calculation for you.

[C_Nagy]

Thank you for confirming that.

Unfortunately, TurboTax includes an NOL deduction with out limiting it to 80%.  I did not understand that I needed to calculate how much of the NOL deduction I could include, so I entered the entire amount.  Now I have to redo two years of past returns (and may have to pay someone else to do it) in order to correctly claim the NOL deduction correctly.

[M-MTax]

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@C_Nagy wrote:

Unfortunately, TurboTax includes an NOL deduction with out limiting it to 80%.  I did not understand that I needed to calculate how much of the NOL deduction I could include, so I entered the entire amount. 

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Yeah, unfortunately, you would never know not to do that unless you clicked on the little blue, "learn more", link that leads to the Guidance, which states:

The Program will determine your current year Net Operating Loss (NOL) and this amount will flow automatically to the Federal Carryover Worksheet. HOWEVER THE PROGRAM DOES NOT SUPPORT THE CALCULATION OF NOL CARRYOVERS. THIS INCLUDES THE 80% LIMITATION PURSUANT TO THE TAX CUTS AND JOBS ACT.

Obviously, statements such as those SHOULD be displayed much more prominently to give proper notice to users.

[MarilynG1]

When a net operating loss (NOL) is initially entered or carried over, TurboTax will incorporate that into the current tax return.  It will also know if any of the NOL was used on your tax return.  What TurboTax will not do is to calculate an NOL.

The NOL must still be calculated and entered/edited in TurboTax each year. Use the  IRS Publication 536 to access the worksheets.  

Here's info on How to Amend a Prior Year Return.

@C_Nagy 

[M-MTax · Accepted solution]

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@MarilynG1 wrote:

When a net operating loss (NOL) is initially entered or carried over, TurboTax will incorporate that into the current tax return...

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Correct, however, when an NOL carryover is entered into TurboTax, the program makes no adjustment for the 80% limitation imposed by the TCJA. Many users seem to simply enter the entire NOL carryover unaware that TurboTax does not automatically make that adjustment. 

Rather than prominently displaying a warning on the NOL carryover entry page, TurboTax places that information in the On Demand Guidance which requires clicking a somewhat obscure link on the page. The warning needs to be place prominently on the NOL carryover page OR the developers could program TurboTax to make the adjustment automatically.

[C_Nagy]

Do you have a copy of  IRS Publication 536?  If so, I would appreciate you posting it or sending me a copy.  If I go to the IRS website and search for "Publication 536", I get "Error 404, Page Not Found".  Apparently that document no longer exists.

[C_Nagy]

I agree that the NOL calculation should be fixed.

But, how is it OK for TurboTax to knowingly add incorrect amounts to my tax return in the first place?  That sounds to me like an obvious bug in the software.

[M-MTax · Accepted solution]

According to the IRS:

Publication 536 will no longer be revised after tax year 2023. Instead, information for net operating losses is now included in the Instructions for Form 172. Prior revisions of Publication 536 will remain on IRS.gov.

See https://www.irs.gov/instructions/i172

[M-MTax]

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@C_Nagy wrote:

I agree that the NOL calculation should be fixed.

But, how is it OK for TurboTax to knowingly add incorrect amounts to my tax return in the first place?  That sounds to me like an obvious bug in the software.

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It's not technically a bug because the program is working as designed. It could be termed a design flaw, though, as in the correct calculation should be added.