Replies to post #22597 on AbitibiBowater, Inc. (fka ABWTQ)

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Internal Revenue Service Addresses Questions
Related to NOL Carryback Provisions
BY MICHAEL D. HAUN & SEAN C. HONEYWILL
In recently released Notice 2010-58, the Internal Revenue Service provides guidance in the form of
questions and answers addressing specific issues related to two net operating loss (“NOL”) provisions
enacted in 2009.
The first provision, aimed at small businesses, was enacted as part of the American Recovery and
Reinvestment Tax Act of 2009, and amended Code Section 172(b)(1)(H) to allow an eligible small
business (i.e., those with gross receipts of no more than $15 million) to elect to carry back an NOL
arising in 2008 for a period of 3, 4 or 5 years (“ARRA election”). The ARRA election is irrevocable and
may be made for only one taxable year.
The second provision, which is not limited to small businesses, was enacted under the Worker,
Homeownership, and Business Assistance Act of 2009, and amended Code Section 172(b)(1)(H) to
allow taxpayers to elect to carry back a NOL arising in 2008 or 2009 for a period of 3, 4 or 5 years
(the “WHBAA election”). Like the ARRA election, the WHBAA election is irrevocable and may be made
for only one taxable year. However, a taxpayer that made or makes an ARRA election may also make
a WHBAA election.
If a WHBAA election is made to carry back an NOL for the full five-year period, the offset amount for
the fifth year is limited to 50 percent of taxable income in such year. The amount of the NOL
otherwise carried to tax years after such fifth proceeding year is adjusted to take this limitation into
account. Further, for purposes of computing the alternative minimum tax (“AMT”), the general rule
that a taxpayer’s NOL deduction cannot reduce its alternative minimum taxable income (“AMTI”) by
more than 90 percent is disregarded for NOLs for which a WHBAA election is made. For NOLs carried
back to the 5th preceding taxable year, the 50 percent limitation is applied separately based on the
AMTI.
Our prior client alerts detailing the form of and timing requirements for the WHBAA election can be
found at:
http://www.paulhastings.com/assets/publications/1444.pdf?wt.mc_ID=1444.pdf and
http://www.paulhastings.com/assets/publications/1457.pdf?wt.mc_ID=1457.pdf.
August 2010