IRS Revenue Procedure
2002-40

 Code Sec. 172

<<FULL TEXT>>

26 CFR 601.105: Examination of returns and claims for refund, credit or
abatement; determination of correct tax liability.
(Also Part I, section 172.)


REV. PROC. 2002-40

SECTION 1. PURPOSE

.01 The Job Creation and Worker Assistance Act of 2002 (the Act) added
section 172(b)(1)(H) to the Internal Revenue Code to provide a 5-year
carryback period for net operating losses (NOLs) for any taxable year
ending during 2001 and 2002. Pub. L. No. 107-147, section 102(a), 116
Stat. 21 (March 9, 2002). Consistent with the intent of Congress as
reflected in correspondence to the Treasury Department subsequent to the
Act's enactment, this revenue procedure provides qualifying taxpayers who
filed returns for a taxable year ending during 2001 and 2002 without
taking advantage of the new 5-year carryback with a limited opportunity to
do so and to apply for a tentative carry-back adjustment if they act on or
before October 31, 2002.

.02 Specifically, this revenue procedure allows taxpayers that incurred
an NOL in a taxable year ending during 2001 or 2002 and elected under
section 172(b)(3) to forgo the NOL carryback period to revoke their
elections in order to apply the 5-year carryback period. This revenue
procedure also allows such taxpayers, as well as taxpayers who used a
2-year carryback period for an NOL in a taxable year ending during 2001 or
2002, to file an application for a tentative carry-back adjustment under
section 6411(a) based on a 5-year NOL carryback period even if the
12-month period for filing such an application has expired. A revocation
and/or application for tentative carryback adjustment under this revenue
procedure must be made on or before October 31, 2002. Finally, this
revenue procedure allows taxpayers that filed returns for a taxable year
ending in 2001 or 2002, and who neither elected to forgo the carry-back
period, nor used the 2-year carry-back period, to elect to relinquish the
5-year carryback period (and thereby retain the ability to use the 2-year
carry-back period) if they act on or before October 31, 2002.

.03 In connection with these rules allowing taxpayers to reevaluate
options regarding the carryback period, the Internal Revenue Service and
Treasury Department intend to provide relief for consolidated groups that
failed to waive the portion of the carryback period for consolidated net
operating losses attributable to certain acquired members for which such
members were members of another group. The scope of such relief will be
announced shortly in separate guidance.


SECTION 2. BACKGROUND

.01 Section 172(b)(1)(A)(i) generally provides that an NOL for any
taxable year must be carried back to each of the 2 years preceding the
taxable year of such NOL. Section 172(b)(3) provides that any taxpayer
entitled to a carryback period under section 172(b)(1) may elect to
relinquish the carryback period with respect to an NOL for any taxable
year.

.02 Section 102 of the Act amended section 172 of the Code in two
respects. First, section 172(b)(1)(H) was added to allow a 5-year
carryback period for NOLs for any taxable year ending during 2001 and
2002. Second, section 172(j) was added to allow any taxpayer entitled to
the 5-year carryback under section 172(b)(1)(H) from any loss year to
elect to relinquish that carry-back period with respect to an NOL for any
taxable year. A taxpayer making this election generally must apply the
2-year carryback period set forth in section 172(b)(1)(A)(i).

.03 An election to relinquish either the NOL carryback period in
general under section 172(b)(3), or just the 5-year carryback period under
section 172(j), must be made by the due date (including extensions) for
filing the taxpayer's return for the taxable year of the NOL and in the
manner prescribed by the Secretary.

.04 Section 6411(a) provides that a taxpayer may file an application
for a tentative carryback adjustment of the tax for the prior taxable year
affected by an NOL carryback from any taxable year. Section 6411(a) also
provides that the application must be filed on or after the date of filing
for the return for the taxable year of the NOL from which the carryback
results and within a period of 12 months after such taxable year or, with
respect to any portion of a business credit carryback attributable to an
NOL from a subsequent taxable year, within a period of 12 months from the
end of such subsequent taxable year. Section 6411(b) provides a 90-day
period during which the Service will make a limited examination of the
application to discover omissions and errors of computation and determine
the amount of the decrease in tax attributable to the carryback. The
Service may disallow, without further action, any application that
contains errors of computation that cannot be corrected within the 90-day
period or that contains material omissions. The decrease in tax
attributable to the carryback will be applied against unpaid amounts of
tax. Any remainder of the decrease will, within the 90-day period, be
credited or refunded.

.05 It has been brought to the attention of the Service and Treasury
Department that some taxpayers that incurred an NOL in a taxable year
ending during 2001 filed returns before the Act became law and either
elected under section 172(b)(3) to relinquish the NOL carryback period in
general or applied the 2-year carryback period. In some cases, these
taxpayers might have wished to take advantage of the 5-year carryback
period, had they been aware of its availability, and apply for a tentative
carryback adjustment. The Chairmen and Ranking Members of both the House
Ways and Means Committee and the Senate Finance Committee have advised the
Treasury Department of their intent that qualifying taxpayers be allowed
to take advantage of the 5-year NOL carryback period to the maximum extent
possible, and that they intend to pursue technical corrections legislation
that will clarify this intent. Specifically, the technical corrections
legislation will allow the Service to issue guidance to allow taxpayers to
reconsider a previous election under section 172(b)(3) to relinquish the
NOL carryback period in general, and to file an application for a
tentative carry-back adjustment under section 6411(a), to take advantage
of the 5-year carryback period, on or before October 31, 2002. When
enacted, this legislation will be effective as if originally included in
the Act. This revenue procedure describes how the Service is taking into
account Congressional intent in administering the provision.


SECTION 3. SCOPE

This revenue procedure applies to taxpayers that incurred an NOL for
any taxable year ending in 2001 or 2002.


SECTION 4. TAXPAYERS THAT ELECTED TO FORGO THE CARRYBACK PERIOD

.01 In order to give effect to the intent of Congress to allow
taxpayers a 5-year NOL carryback period, any taxpayer that previously
elected under section 172(b)(3) to forgo the carryback period for an NOL
for any taxable year ending in 2001 or 2002 may revoke such election in
order to apply the 5-year carryback period by following the procedures of
section 7 of this revenue procedure on or before October 31, 2002. Any
revocation of the election to forgo the NOL carryback period will also
apply to a carryback of any alternative tax NOL for the same taxable year.

.02 If a taxpayer that previously elected under section 172(b)(3) to
forgo the carryback period for an NOL incurred in a taxable year ending in
2001 or 2002 does not want to revoke that election in order to use the
5-year carryback period provided by section 172(b)(1)(H), the taxpayer
need not file any additional form or statement. Unless the taxpayer
follows the procedures set forth in section 7 of this revenue procedure,
the taxpayer's previous election applies as well to forgo the 5-year
carryback period.


SECTION 5. TAXPAYERS THAT APPLIED THE 2-YEAR CARRYBACK PERIOD

.01 If a taxpayer that previously filed an application for a tentative
carryback adjustment (whether or not the Service has acted upon such
application) or an amended return using a 2-year carryback period for an
NOL incurred in a taxable year ending in 2001 or 2002, and that did not
elect to forgo the 5-year carryback period under section 172(j), wants to
use the 5-year carryback provided under section 172(b)(1)(H), the taxpayer
may do so by following the procedures of section 7 of this revenue
procedure on or before October 31, 2002. Any amendment of a prior refund
claim will also apply to a carry-back of any alternative tax NOL for the
same taxable year. In the case of an amended application for a tentative
carry-back adjustment, the 90-day period described in section 6411(b) will
begin on the date the amended declaration is filed.

.02 If a taxpayer that previously filed an application for a tentative
carryback adjustment or an amended return using a 2-year carryback period
for an NOL incurred in a taxable year ending in 2001 or 2002 prefers to
apply the 2-year carry-back period, rather than the 5-year carry-back
period provided under section 172(b)(1)(H), the taxpayer need not file any
form or statement in order to satisfy the requirements for an election
under section 172(j) to forgo the 5-year carryback period. Unless the
taxpayer follows the procedures of section 7 of this revenue procedure,
the taxpayer will be considered to have made an election under section
172(j) to forgo the 5-year carryback period in favor of the 2-year
carryback period.


SECTION 6. TAXPAYERS THAT NEITHER ELECTED TO FORGO THE CARRYBACK PERIOD
NOR APPLIED THE 2-YEAR CARRYBACK PERIOD

.01 Any taxpayer that:

(1) filed a federal income tax return for a taxable year ending in 2001
or 2002;

(2) did not elect under section 172(b)(3) to forgo the carryback period
in general for an NOL incurred in such taxable year; and

(3) did not previously file an application for a tentative carryback
adjustment or an amended return using a 2-year carryback period for such
NOL, may apply the 2-year carryback period, in lieu of the 5-year
carryback period, by following the procedures of section 7 of this revenue
procedure on or before October 31, 2002.


.02 For any taxpayer described in section 6.01 of this revenue
procedure that does not follow the procedures of section 7 of this revenue
procedure to apply the 2-year carryback period, the 5-year carry-back
period will apply by operation of law. In that event, the period of
limitations provided in section 6511 will apply in the case of any claim
for refund on an amended return, and the period provided in section
6411(a) will apply in the case of any tentative carryback adjustment, that
is based on the 5-year carryback period.


SECTION 7. PROCEDURES

.01 WHAT TO FILE. A taxpayer described in section 4 or 5 of this
revenue procedure that wants to use the 5-year carry-back period must file
the appropriate form(s) using a 5-year carryback period. A taxpayer
described in section 6 of this revenue procedure that wants to relinquish
the 5-year carryback period (and thus retain its ability to use the 2-year
carryback period) must file the appropriate form(s) using a 2-year
carryback period, even if no refund or change in tax liability is shown on
the form(s). The appropriate form(s) are:

(1) for corporations, a Form 1139, Corporation Application for
Tentative Refund, or Form 1120X, Amended U.S. Corporation Income Tax
Return;

(2) for individuals, a Form 1045, Application for Tentative Refund, or
Form 1040X, Amended U.S. Individual Income Tax Return; and

(3) for estates or trusts, a Form 1045, or amended Form 1041, U.S.
Income Tax Return for Estates and Trusts.


.02 LABELS. Taxpayers described in section 4.01 of this revenue
procedure should type or print across the top of the appropriate form
"Revocation of NOL carryback waiver pursuant to Rev. Proc. 2002-40."
Taxpayers described in section 5.01 of this revenue procedure should type
or print across the top of the appropriate form "Amended refund claim
pursuant to Rev. Proc. 2002-40."

.03 WHEN TO FILE. Any form filed pursuant to this revenue procedure
must be filed on or before October 31, 2002.


SECTION 8. EFFECTIVE DATE

This revenue procedure is effective for NOLs arising in taxable years
ending after December 31, 2000.


DRAFTING INFORMATION

The principal author of this revenue procedure is Martin Scully, Jr. of
the Office of Associate Chief Counsel (Income Tax and Accounting). For
further information regarding this revenue procedure, contact Mr. Scully
at (202) 622-4960 (not a toll-free call).

<<END RULING>>


 

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