Academic journal article Journal of Accountancy

Casualty-And Theft Loss Carrybacks

Academic journal article Journal of Accountancy

Casualty-And Theft Loss Carrybacks

Article excerpt

The Internal Revenue Code (IRC) helps taxpayers who suffer net operating losses (NOLs) by allowing the carryback and carryforward of such losses to offset other years' taxable income. The Taxpayer Relief Act of 1997 amended IRC Section 172(b) governing the carryback/carryforward provision for NOLs. It shortened the carryback to 2 years from 3 and increased the carryforward period to 20 years from 15. However, the three-year carryback period was not changed for NOLs attributed to individual casualty or theft losses or presidentially declared disaster area losses of small businesses or farming operations.

Although guidance exists for the three-year carryback of a NOL entirely the result of a casualty-and-theft loss for tax years beginning after August 5, 1997, there is no guidance on the amount of carryback to the third year if only a portion of the NOL is from a casualty-and-theft loss. For example, a taxpayer with a business loss of $60,000, a casualty-and-theft loss of $40,000 and a salary of $20,000 would have a NOL of $80,000. …

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