Category: Individuals; Tax Returns, Examinations & IRS Procedures
Subject: Net Operating Loss Carryback
Title: Election to Forgo NOL Carryback on Amended Return
IRC Sections: 172(b)(3)
Filename: 1343.html
Date Produced: 09/94

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

Individual taxpayer (TP) timely filed a return for year 19X1 showing positive taxable income. Subsequently, TP amended the return for 19X1 to show a loss.

Issue
Is it possible to make on the amended return an election under §172(b)(3) to forgo the NOL carryback period?

Answer/Discussion
I cannot locate any support in the tax literature for such a position. §172(b)(3) requires the election to be made on a timely filed return or an amended return filed by the due date (including extensions) of the original return. There is no statutory mechanism to deal with the problem that arises when the original return does not show a loss. There are several cases in which taxpayers attempted to forgo the carryback period in amended returns, and the taxpayers were unsuccessful without exception.

While this result may seem (and may actually be) unfair, it is clearly the result based on the law as it is literally written. I did not find a case with TP's fact pattern, and it is possible that a court might look favorably upon this rather novel set of facts. However, it seems to me that taking a position which is clearly contrary to the clear, literal words of the Internal Revenue Code would be extremely risky both to TP as well as the tax preparer involved.