Category: Individuals; Deductions & Credits
Subject: Self-Employment Tax
Title: Effect of NOL Carryback
IRC Sections: 1401 through 1403, 172
Filename: 1167.html
Date Produced: 8/96

Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com

Issue
Does a net operating loss carryback related to Schedule C activity reduce self-employment tax in the carryback year?

Answer
Self-employment tax liability is not affected by a net operating loss carryback or carryover.

Discussion
IRC Sections 1401 through 1403 control the computation and application of the self-employment tax. IRC Section 1401(a) levies the self-employment tax on net income from self employment as defined in Section 1402. IRC Section 1402(a)(4) provides that for purposes of computing net income from self employment, the deduction for net operating losses provided in section 172 is not allowed.

Regulation Section 1.1402(a)-7 provides that the deduction provided by section 172, relating to net operating losses sustained in years other than the taxable year, is excluded from the computation of net income from self employment.

IRS Publication 536 discusses the recomputation of tax necessitated when a net operating loss is carried back into an earlier tax year. The publication states at page 6 that the self-employment tax liability in the carryback year should not be recomputed as a result of the carryback.