Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Because of the unusually tight credit markets we now face, the greatest opportunity for many small businesses to generate cash soon may be with a refund application to the Internal Revenue Service. The act will allow many taxpayers far greater loss recoveries than otherwise would have been available.
A net operating loss is generally the excess of business deductions over gross income for a particular tax year. Most losses can be carried back two years to be offset against income from two years ago with any remaining loss carried forward up to 20 years from the loss year until fully used. An election can be made to only carry forward the loss.
Only an income tax-paying entity such as an individual or a C corporation (and in some cases an estate or trust) reports net operating losses and makes any needed net operating loss elections. Pass-through entities such as S corporations, partnerships and limited liability companies taxed like partnerships cannot have net operating losses but their taxpaying shareholders, partners and members can.
The act allows eligible small businesses the opportunity to elect to carry back a net operating loss three, four or five years. The election is available to eligible small businesses that have net operating losses arising in tax years ending in 2008, or if the taxpayer elects, tax years beginning in 2008.
When the increased carryback length is elected instead of the normal two-year carryback, any remaining loss is carried forward up to 20 years from the loss year until fully used, as is normally allowed.
An eligible small business for this purpose is a business with average annual gross receipts of not more than $15 million for the three tax years ending the year the loss occurred. Receipts of certain related entities must be aggregated when calculating gross receipts for this test.
A taxpayer must affirmatively elect the desired carryback period in a statement citing the applicable Internal Revenue Code section with the loss year tax return.
The statement must also include the year to which the loss is being carried back and, if applicable, the fact that a tax year beginning in 2008 is being used.
The election normally must be made on an original timely filed tax return through the tax return’s due date (including extensions). Once made the election is irrevocable.
An already made election to waive the carryback for the 2008 loss could only have been revoked to use the new increased carryback period when the revocation occurred before April 18, 2009. Of course, consult your own tax adviser before taking any of these actions.
Taxpayers carrying back losses can apply for a “quick” refund using a special application form when filed in a timely manner. Normally, a taxpayer must file the application for a quick refund within 12 months from the end of the loss year.
Improved cash flows are more important than ever for many businesses in this unique economic environment. While operating losses are rarely the goal, thanks in part to this new act for some they are the surest path to needed cash.
