All businesses have a window of opportunity to carry-back losses (known as NOL or Net Operating Losses) to a prior period in which they had earnings (and therefore income tax payments) in order to receive refunds of these amounts. This carry-back period had been only two years under prior tax law. Now the carry-back period has been extended to five years for qualifying small businesses for tax year 2008 only; a major benefit to businesses that have been adversely affected by the recent economic downturn.
In connection with this change, if your company previously elected to forgo the carry-back period because it would not have been beneficial, you can now reverse that election and choose to carry the amounts back to 3, 4 or five years. This is a one-time allowance to reverse your election to forgo the carry-back period.
To make matters better, a non-fiscal year ending business can elect to either use the carry-back provision in the year that begins or ends in 2008. Very good news for those businesses as it gives them the flexibility to plan themselves into a loss for either year and maximize this one-time carry-back extension.
Eligible small businesses are those that have had $5 Million in Gross Receipts or less on average over the last three years ending with the year they are attempting to claim the refunds in question. So if you own a business that has averaged less than five million per year in gross receipts over the last three years you are an eligible small business for purposes of this test. Please note that the rules are not this clear-cut in all cases and certain other businesses may be eligible, and generally the IRS has furthered the definition as Section 172(b)(1)(F)(iii) businesses replacing 15 million with 5 million for purposes of the gross receipts test.
There are also many specific filing requirements that may be pertinent to your specific case, with that in mind please consult a tax professional or consult Rev. Proc 2009-26