Watkins Ludlam Winter & Stennis, P.A.

On November 6, 2009, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 (the "Act") into law. This new law provides new and extended tax incentives for both individuals and business. One great new business incentive is the election of the optional longer net operating loss ("NOL") carryback period allowable for most businesses.

In prior years, NOLs generally could be carried back 2 years and forward 20 years. However, recent legislation expanded these rules to allow certain small businesses--ie. businesses whose average annual gross receipts are $15 million or less--to increase their NOL carryback period from 2 years to 3, 4, or 5 years.

Under the new Act, almost all businesses are now offered this longer carryback option. Under the Act, all taxpayers (except certain taxpayers receiving assistance from the Federal government under the TARP program) may elect to increase their carryback period for an "applicable NOL" to 3, 4, or 5 years. An "applicable NOL" means the taxpayer's NOL for any tax year ending after December 31, 2007, and beginning before January 1, 2010. However, the amount of the applicable NOL that can be carried back to the 5th tax year before the loss year may not be more than 50% of the taxpayer's taxable income for that 5th preceding tax year determined without taking into account any NOL for the loss year or for any tax year after the loss year.

In our current economic state, this new provision will be sure to benefit a large number of businesses, as currently cash-tight companies should be able to profit from an infusion of much needed funds in the form of a special tax refund.

If you have any questions please contact your Watkins Ludlam Winter & Stennis, P.A. attorney or any other member of the Federal, State and Local Taxation group.