Discussion Archives:Check my theory, please, NOL 982

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Discussion Forum Index --> Advanced Tax Questions --> Check my theory, please, NOL 982


Discussion Forum Index --> Tax Questions --> Check my theory, please, NOL 982

Bell (talk|edits) said:

10 April 2010
If your client is insolvent and he has cancelled debt, the theory, if I understand it right, is that he does not have to pay tax on the cancelled debt. But, you do have to fill out Form 982 and make a tax attribute and reduce first, an nol if he has one. The only way that I can get proseries to reduce the NOL is to work the cancelled debt worksheet to say that he will pay tax on the gain. Then it reduces his nol perfectly. If I fill out the insolvency and say that he wishes to exclude the income.....it does not reduce the NOL. What am I missing here? My theory is off or I am not working the software correctly. I hope someone has the time to help me. This is driving me nuts. Where is the tax benefit if he has to reduce the NOL?

Trillium (talk|edits) said:

10 April 2010
Bell, I'm going to pull in the info you posted on your "NOL and F982" discussion that you posted on the Practice Mgt/Bus Growth forum (software questions section), as it has additional info that may be helpful to others addressing the question above. I'll paste your earlier post below, and delete the other discussion - to keep everything together, here.

Also, some related discussions can be found here: Search NOL 982. Start w/#23 and remember, discussions started most recently will be at the bottom of the search results.


Bell (talk|edits) said:

10 April 2010
I am working with a NOL that I have to reduce as a tax attribute. This is amended for 2008. Did F982. Box 2 is 28,172 Box 3 NO Box 6 is for the nol reduction 28,172. I can't see where the NOL has been reduced when I look at the carryforward to 2009. Does proseries do this automatically or do I have to physically change the carryover to 2009? Or have I just not entered enough information somewhere? TP is insolvent.

Trillium (talk|edits) said:

10 April 2010
Pasting in two more posts on same topic found in another existing discussion:

Bell (talk|edits) said:

10 April 2010
Dave, can you make the election to reduce the basis of property on an amended return? Or is this an election that must be timely? My client is insolvent and has negative taxable income for 2008. I want the software to not tax the cancellation of debt due to insolvency. However, it reduces the NOL. When I tell it that the client is insolvent and fill that part of the worksheet out, it returns the NOL to it original amount. No reduction. OK, that seems right as he isn't to be taxed on this...............but the Form 982 says that I should reduce the nol carryover first in the current year and then going forward. Do I do this manually going into 2008. Just so confused with this one. I think it is wierd because he has no income. Would rather do it against the nol as all his properties are being repossessed one by one. I am wondering why I am fooling with the discharge of indebedness. Think it would be easier to tax him on the cancelled debt and proseries automatically adjusts the NOL. What would be the difference?

Bell (talk|edits) said:

10 April 2010
I think I have it. The NOL isn't reduced until the next year. That is why proseries doesn't reduce the NOL. Finally!!!!! I am slow, but do get there eventually. Does the software reduce the NOL in 2009 automatically? Or do I make the adjustment for the NOL? This all seems like alot of work just to reduce the NOL anyway in 2009. Why not tax the cancelled debt and adjust the NOL in that year? It comes out to the same thing???? Right?


DaveFogel (talk|edits) said:

10 April 2010
If the taxpayer uses the insolvency exclusion, the "tax attributes" are reduced after the taxpayer's tax liability has been determined for the taxable year of the discharge. See IRC ยง108(b)(4)(A).

From your messages, I'm not sure where the NOL is coming from. If it's an NOL sustained in 2008, and you are carrying the NOL forward to 2009, then it gets reduced before it gets to 2009. You may have to make a manual change in your carryover worksheet for preparing the 2009 return.

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