WHBAA NOL Carryback Option Still Available For Manufacturers

Many manufacturers that incurred net operating losses in recent years due to the economic downturn were able to benefit from favorable temporary tax provisions enacted to help companies sustain themselves during tough times.

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Various measures indicate the economy is in the early stages of recovery. While many related tax benefits have expired, manufacturers may still capitalize on the net operating loss (NOL) carryback provision contained in the Worker, Home Ownership and Business Assistance Act (WHBAA) of 2009.

The WHBAA was signed into law on Nov. 6, 2009. It offers a five-year NOL carryback option to any taxpayer who did not receive certain benefits from the Troubled Asset Relief Program (TARP), or was not a member of a TARP recipient's affiliated group during 2008 or 2009. Taxpayers eligible for the WHBAA carryback can apply a NOL incurred in either 2008 or 2009 tax years to taxable incomes declared in any of the previous five years. To attain that benefit, a company must elect to carry back a NOL incurred in a tax year that began after Dec. 31, 2007, and before Jan. 1, 2010. Companies whose 2008 or 2009 tax years fall within that range may realize considerable savings.

A manufacturer, for example, may have incurred a $5 million NOL for 2009. For its 2005 fiscal year, that same company may have had $5 million in taxable income. If the manufacturer applies that 2009 NOL to its 2005 income tax return, the $5 million in taxable income for that year is subtracted. The manufacturer then gets a refund for taxes paid for 2005.

Apply in multiple years

While the NOL carryback extends to five years, a taxpayer can only apply 50 percent of a 2008 or 2009 NOL to taxable income in that fifth previous year. The manufacturer that had a $5 million NOL for 2009, for example, may have had taxable income of $6 million for 2004. Under WHBAA rules, it can only apply $3 million of that 2009 NOL toward the $6 million in taxable income it had in 2004.

An additional benefit of the WHBAA carryback is that it can be used by taxpayers who already elected to carry back a 2008 NOL under provisions specified in the American Recovery and Reinvestment Act (ARRA). That potential benefit is particularly significant to smaller manufacturers. ARRA was signed into law on Feb. 17, 2009. The ARRA carryback applied to businesses that recorded less than $15 million a year—based on a three-year average—in gross receipts. A taxpayer that incurred a NOL in a tax year that either began or ended in 2008 could apply that NOL toward taxable income reported in any of the previous five years.

A taxpayer who applied a 2008 NOL to a previous year's taxable income under ARRA provisions can still apply a 2009 NOL to a past year using the WHBAA carryback option.

The due date for making a WHBBA NOL carryback election—including extensions—is the tax return deadline for the last taxable year that began in 2009. Taxpayers wishing to make that carryback election can attach an election statement to the federal income tax return or amended return for the tax year in which the NOL was incurred. Taxpayers may also attach the election statement to the carryback form (Forms 1045, 1139, 1040X, 1120X, or an amended 1041 or 990-T form).

Major indicators signal economic recovery. With that recovery, numerous favorable tax provisions enacted to help manufacturers during difficult times are expiring. While the WHBAA NOL carryback provisions are scheduled to expire as well, time remains for manufacturers to investigate that option and pursue a tax refund.

Jeffrey L. Sanders, CPA, jeff.sanders@weaverllp.com, is a partner in Tax and Strategic Business Services at independent public certified accounting firm Weaver, with offices in Dallas, Fort Worth, Houston, San Antonio, Austin and Midland/Odessa.

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