Discussion:NOL and Statute of Limitations
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Discussion Forum Index --> Advanced Tax Questions --> NOL and Statute of Limitations
Discussion Forum Index --> Tax Questions --> NOL and Statute of Limitations
| 17 July 2009 | |
| I am currently working on an IRS audit for 2007. A large farm loss was incurred in 2001 and was elected to be carried forward. By 2007 it had not been entirely used. The examiner has sent a document request wanting information for all the intervening years. He states "in order for the NOL to be deductible, we need to verify the income and expenses for all these years. Please provide books and records used to prepare the Sch. F for these years."
My question, does the 3-year statute of limitations have any exceptions due to NOL's? In other words, am I right in thinking this info can be off-limits to him? This audit is one of IRS' NRP audits. It's the third one I had for '07. The previous two were a piece of cake, this examiner has made this particular audit a full-time job for himself. It didn't help that my client failed to report a $15,000 deposit in his records. This still isn't a "substantial omission" (25% or more of gross income). Thanks in advance. | |
| 17 July 2009 | |
| It is not necessarily "off limits." They just can't propose an assessment for 2001 - 2005 if the statute has run on those years. They can, however, make adjustments to the 2001 - 2005 returns years that would effect the amount of carryforward into open years (presumably 2006 and 2007), and they can propose assessments for those open years based on changing the NOL in the closed years. | |
| 17 July 2009 | |
| From the Internal Revenue Manual:
The Service may redetermine correct taxable income in a closed year in order to ascertain either the amount of a NOL, or the amount of a NOL that is absorbed in the closed year for purposes of determining the correct net operating loss deduction for an open year. The authority for doing so is IRC section 7602(a) which states, in part, that "For the purpose of ascertaining the correctness of any return, …the Secretary is authorized to examine any books, papers, records, or other data which may be relevant or material to such inquiry." This jives with what I've been told in the past as well. I've been with startups for several years now, and our tax accountants always told me to disregard "open" or "closed" status for a year, since we had built up large NOLs that hadn't been used. When used, an examiner can ask for supporting documentation on the used NOL. | |
