Is it legal to foego Net operating loss carryback and carry forward?

[Naveen Mohan from New York]

I have a client who had a big net operating loss in 2012. He has no table income in the last three year to carryback Net operating loss and he does not want to use NET Operating loss in future year because it will hinder his ability to get any bank loans in future if his AGI is showing zero in the future tax return.

 

Can he legally skip carry forward of NOL as if it never happened. He would rather pay his tax on future year current income.   

 

thanks for your help.

 

Naveen Mohan

[Jack from Ohio]

Probably will not be a problem for the IRS, but a bank might not appreciate the numbers not flowing from one year to the next.

Not a good plan at all!!

If the bank cannot see that a low or $0 AGI is caused by NOL carryover, he needs to find a real bank.

[michaelmars]

some of my biggest real estate clients have negative agi due to inflation.  no problem ever qualifying for mortgages leased cars etc.

[mcb39]

some of my biggest real estate clients have negative agi due to inflation.  no problem ever qualifying for mortgages leased cars etc.

 

But, your clients have equity.  Naveen never mentioned what type of business her client was in.

[michaelmars]

STILL doesn't matter.  the bank cares about cash flow and infact the nol will increase cash flow since they won't be paying taxes on their income for a while.  Same way that depreciation doesn't affect loan applications.  EBIDTA

[RitaB]

Some of y'all have smarter bankers than we do here.  I'm not saying anything, just saying.

[Lion EA]

The intelligence level of bankers is dropping (just like at the IRS).  I hardly ever meet one who can read a tax return.  I have had to explain my clients' returns many times.  Not understanding why an S-corporation pays no federal income tax, what guaranteed payments are on a partnership return, a zero at the bottom of the first page of a 1040, OIH for a schedule C, depreciation, depreciation, and depreciation.

[Jack from Ohio]

Some of y'all have smarter bankers than we do here.  I'm not saying anything, just saying.

 

 

The intelligence level of bankers is dropping (just like at the IRS).  I hardly ever meet one who can read a tax return.  I have had to explain my clients' returns many times.  Not understanding why an S-corporation pays no federal income tax, what guaranteed payments are on a partnership return, a zero at the bottom of the first page of a 1040, OIH for a schedule C, depreciation, depreciation, and depreciation.

You just keep tossing them out till you find the smart one. If they can't understand this, how can they be anywhere nearly competent at their job.

Plenty of banks that want your business.

[Max W]

It would be foolish not to take the NOL.  As Jack says, keep shopping around until the right bank is found.

[RitaB]

I have a client who had a big net operating loss in 2012. He has no table income in the last three year to carryback Net operating loss

 

 

It would be foolish not to take the NOL.  As Jack says, keep shopping around until the right bank is found.

 

I agree it would be foolish not to take the NOL, taxwise. Well, unless not using it caused the client to receive EIC, which is another can of worms.

 

But even if the bank understands the 2013 return with the NOL on it, I'm not sure a person with no taxable income for 2009, 2010, 2011 and a big loss in 2012 is going to have much success at getting a loan.  Of course, if all the bank wants to see is 2013 and 2014, and the person really needs a loan, I can see why the taxpayer doesn't want to use the NOL.  No explaining past income or lack of same.

[kcjenkins]

And you need to be careful that he's not trying to commit fraud, by lying about his prior business activity success.  At least, you don't want to be part of it if he does.  

[Gail in Virginia]

I agree it would be foolish not to take the NOL, taxwise. Well, unless not using it caused the client to receive EIC, which is another can of worms.

 

But even if the bank understands the 2013 return with the NOL on it, I'm not sure a person with no taxable income for 2009, 2010, 2011 and a big loss in 2012 is going to have much success at getting a loan.  Of course, if all the bank wants to see is 2013 and 2014, and the person really needs a loan, I can see why the taxpayer doesn't want to use the NOL.  No explaining past income or lack of same.

 

If not claiming the NOL would result in EIC, then I think you are required to claim the NOL just like you can't leave expenses off a Sch. C taxpayers return to hit the sweet spot on EIC.

[RitaB]

If not claiming the NOL would result in EIC, then I think you are required to claim the NOL just like you can't leave expenses off a Sch. C taxpayers return to hit the sweet spot on EIC.

 

I would say that is correct. 

 

Do you think it's optional to use the NOL under other circumstances?  Cause I've not been able to find anything on that, and I think that's all Naveen wanted to know.  I got us off on a rabbit trail of sorts.

[kcjenkins]

"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

[RitaB]

"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

 

If your single client donated $12,000 to church and you see the receipt, but they tell you to take the standard deduction, is that an option? Can they chose to pay more tax than they have to because they are afraid of being audited, or because they think that's what "don't let your right hand know what your left hand is doing" means, or whatever reason they have?  Or do you have to send them packing because you know they have that deduction?

[Pacun]

If your single client donated $12,000 to church and you see the receipt, but they tell you to take the standard deduction, is that an option? Can they chose to pay more tax than they have to because they are afraid of being audited, or because they think that's what "don't let your right hand know what your left hand is doing" means, or whatever reason they have?  Or do you have to send them packing because you know they have that deduction?

 

I have a couple of clients who show me cancelled checks and don't want to deduct any church donations because "they give it from their heart to the house of God". So they say that they prefer the standard deduction and I comply with their request. I tell them "about the legal consequences of their actions" and use the standard deduction.

 

I always tell them, "you are correct, I cannot take the deduction if you gave it from you heart. Next time give it from your checking account".

[kcjenkins]

All t/p's have the right to choose to itemize or take the std deduction, except when filing MFS, where they have to itemize if their spouse did.  That is not the same as miscalculating AGI.