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 ?
Although any publisher can choose to forego the five-year carryback period, the election, once made, is irrevocable.
Moreover, the new law allows an NOL deduction attributable to NOL carrybacks arising in tax years ending in 2001 and 2002, as well as NOL carryforwards to these years, to offset 100 percent of AMTI.
Section 867 of the Senate bill would limit the carryback to one year and extend the carryforward to seven years.
172(b)(1)(H) for (1) taxpayers that have not claimed a deduction for an applicable NOL; (2) taxpayers that previously claimed a deduction for an applicable NOL; and (3) taxpayers that previously filed an election to forgo the NOL carryback period.
This limitation on carrybacks applies to losses incurred in the year of the CERT and the two subsequent tax years.
TIGTA also found that the IRS does not monitor the amount of interest paid in NOL carryback cases or its compliance with the 90-day period for processing Forms 1045, Application for Tentative Refund.
The capability to assess the impact for each carryback period - be it two, three, four, five, or even ten years - is unique to CTA.
Lengthen the Net Operating Loss Carryback Period to Five Years
Extending the carryback period "provides financial support for (corporate) taxpayers who are experiencing large losses," said Leslie Samuels, an assistant Treasury secretary for tax policy in the Clinton administration, now a partner at the law firm Cleary Gottlieb Steen & Hamilton in New York.
So does extending the net operating loss carryback period from the current two years to five years.
6 million of taxes paid in prior years due to the recent enactment of House Bill 3548, which includes an extension of the tax net operating loss (NOL) carryback period from two to five years.
The taxpayer may benefit in these circumstances by electing to waive the carryback period.