Close
Close

IRS issues guidance on NOLs and liability losses

RFP
Tax Hot Topics newsletter The IRS recently released guidance (TAM 202120015) addressing whether a taxpayer electing to waive a right to carry back an entire net operating loss (NOL) under Section 172(b)(3) and Treas. Reg. Sec. 1.1502-21(b)(3)(i) can make a separate 10-year carryback election for specified liability losses not composed of product liability losses (PLLs).

The IRS determined that a separate election to carryback specified liability losses cannot be made, except for the 10-year carryback period for product liability losses.

The taxpayer addressed by the TAM was the parent of an affiliated group that files a consolidated return that incurred consolidated NOLs. The taxpayer, however, made valid elections waiving its right to carryback these losses. Subsequently, the taxpayer discovered it had specified liability losses (SLLs) and filed an amended return to make a 10-year carryback election. In the explanation of the claim, the taxpayer stated that it had intended only to waive the general two-year carryback for NOLs provided by Section 172(b)(1)(A), but not the 10-year carryback period for SLLs provided by Section 172(b)(1)(C).

Section 172(b)(3) provides that a taxpayer entitled to a carryback period under Section 172(b)(1) may elect to relinquish the entire carryback period with respect to a NOL and that once made shall be irrevocable for that year.

Teas. Reg. Sec. 1.172-13(c)(4) provides that if a taxpayer sustains during the taxable year both a NOL not attributable to product liability and a product liability loss, an election pursuant to Section 172(b)(3)(C)—relating to election to relinquish the entire carryback period—does not preclude the product liability loss from being carried back 10 years under Section 172(b)(1)(l) and paragraph (a)(1).

Teas. Reg. Sec. 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable election under Section 172(b)(3) to relinquish the entire carryback period with respect to a consolidated NOL for any consolidated return year.

In reaching its conclusion, the IRS stated that Treas. Reg. Section 1.172-13, by its terms, only applies to PLLs, not SLLs, and that no statutory or other binding authority exists to expansively apply the regulatory exception to carryback periods for loss types not mentioned in the regulation. However, this conclusion does not appear consistent with the legislative or regulatory history of Section 172, nor the regulations thereunder.

Contact:
Greg Fairbanks
Managing Director
Washington National Tax Office
T +1 202 521 1503

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.