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 Newton case presented the worst-case scenario, in which the taxpayer failed to carry back an NOL; by the time the error was discovered, the taxpayer had lost any ability to utilize it.
They have until April 5 to make a contribution and the deadline for them to make the election to carry back or carry forward is January 31, 2007."
(8) Thus, when deciding whether to carry back the NOLs, a company should consider the detriment of permanently losing the Sec.
This is known as carry forward and be combined with carry back to enable a client to effectively open up the previous seven tax years.
Taxpayers may use these forms to correct previously filed returns or to carry back losses to an earlier year.
More specifically, the IRC allows taxpayers to carry back NOLs and deduct them in the two preceding tax years and to carry forward the remaining balance and deduct it from taxable income in the 20 succeeding tax years.
Closely related to the OID provision is a rule that will restrict a highly leveraged corporation's ability to carry back NOLs--and thus obtain tax refunds--attributable to the interest expense generated by its borrowings.
1212(b) allows noncorporate taxpayers to carry forward unrecognized capital losses to subsequent tax years, but it does not allow them to carry back unrecognized capital losses to prior tax years.
The default position is to carry back an NOL for two years, with any unused NOL carried forward; see Sec.
NOLs arising in 2003 will carry back to a 39.1% rate in 2001.
The RRA Committee reports state that corporations' ability to carry back NOLs created by certain debt-financed transactions is contrary to the purpose of Sec.
However, generally, it cannot carry back an NOL, a capital loss or a general business credit from the short period.