If you run a small business and you had a loss in 2008 you can now carry that loss back for up to five years rather than the normal two year period. This could be huge. If you have unfiled returns for any of those periods this could be your get out of jail free card. If you do not have unfiled returns, you could receive refunds of taxes for as far back as 2003. This would normally be limited to 2005 under normal circumstances.

So how do you go about this?  Prepare and file the old returns as normal, based on the laws that were in place at the time. You then prepare the 2008 return. After all returns are completed, get your hands on IRS form 1045 .  Begin  by looking at taxable income for 2003.  You can offset that number with the loss from 2008.  If there is any loss left, move up to 2004 and so on until your entire 2008 loss is used up. Regardless of when you stopped filing returns you should always go back to the earliest year in order to create overpayments for following years. This strategy will reduce penalties and interest on unfiled years. Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.  (Corporations use Form 1039.)

This tentative refund claim generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 is filed. However, if you have previously filed an election to forgo the NOL carryback, you must file by April 15, 2009!   Form 1045 should be filed at the same address your return is filed, as listed on the return instructions. Accelerated refunds paid via Form 1045 are described as “tentative” because the applications for refunds are potentially subject to review at a later date

This provision of the American Recovery and Reinvestment Act of 2009 is available if you own a small business that does not average greater than $15 million in gross receipts over a three-year period ending with the tax year of the NOL.  Unless you have some tax background, you should probably seek professional assistance in getting this done.

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