Carryback

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Carryback

Carryback

In accounting, a way for a company to reduce its tax liability by applying a net operating loss to previous years in which it made a profit. If a company deducts more than its net income in a given tax year, it may take the difference between the deduction and the net income (a negative number) and apply it as a deduction on taxable income for the previous five years. For example, if a company makes $1,000,000 in one year, and loses $500,000 the following year, it may only be liable for a $500,000 profit on the year it makes a profit. That is, it may receive a tax refund on part of what it paid for the profitable year. See also: Future Income Tax.

carryback

A business operating loss that, for tax purposes, may be deducted for a certain number of prior years, usually no more than three. A business uses a carryback to recover taxes paid on income earned in prior years. For example, if a firm experiences a year of large losses following a period of profitable operations, it may use the losses to cancel out profits from preceding years on which taxes have been paid. When the taxes a company paid on profits are canceled because of a carryback, the firm is issued a refund by the Internal Revenue Service. Also called carryover, tax loss carryback.
References in periodicals archive ?
The Tax Court ruled that the doctrine of res judicata did not bar a taxpayer from claiming net operating loss (NOL) carrybacks to 1999 and 2000, despite a prior deficiency case involving those years, because the statutory scheme for NOL carrybacks includes Sec.
The Code's special "quickie" refund procedure is not currently available with respect to FTC carrybacks, though no sound policy or administrative reason has been articulated for the limitation.
Some States have limited the use of carryforwards and carrybacks in order to raise revenue.
199-1 (b) (1), the deduction cannot increase an NOL carryover or carryback (there is an exception for expanded affiliated group members in certain situations).
What would be the effect of carrybacks and carryforwards (e.
If the auditor's report includes a paragraph discussing substantial doubt about the entity's ability to continue as a going concern, a valuation allowance is probably required for deferred tax assets not assured of realization by carrybacks or reversals of taxable temporary differences.
A multi-year tax projection that represents the effect of an NOL carryback and carryforward will likely be the best tool to maximize an NOL'S benefit.
Instead, it is common to see multiple years in an examination, carrybacks or carryforwards to years outside the audit cycle, partial agreements with waivers on assessment, and other complicating factors.
For example, only 10 days of overpayment interest (from March 15, 1985-March 25, 1985) was in dispute (albeit on an overpayment of over $21 million), because both the 1981 excessive tentative allowance and the 1978 overpayment were attributable to carrybacks from 1984.
Corporate losses have been so large and the period covered by losses so long (because of the protracted nature of this recession) that many corporations either have not been able or will not be able to avail themselves of the tax benefit of those losses on a current basis through carrybacks to profitable years.
However, that section prohibits only carrybacks to pre-commencement years; it does not place any limit on post-commencement years.
The regulations provide tough rules for the application of the three previously described accuracy-related penalties in the context or carrybacks and carryovers.