TaxNewsFlash-Cooperatives

November 6, 2009
No. 2009-15

New Law Includes Expanded NOL Provisions; Certain Considerations for Cooperatives

Text of the statutory language of the Act (discussed below) is available electronically: H.R. 3548

President Obama today signed H.R. 3548, The Worker, Homeownership, and Business Assistance Act of 2009, therefore making November 6, 2009, the date of enactment.

The Senate passed the bill on Wednesday evening, November 4, and House passage of the bill followed on Thursday, November 5.

The legislation:

Increases the carryback period for net operating losses (NOLs) arising in either 2008 or 2009 to five years (with some limitations for certain taxpayers and a special rule for life insurance companies)
Delays implementation of worldwide interest allocation until tax years beginning after December 31, 2017
Increases the required amounts of corporate estimated taxes for certain large taxpayers for payments due in July, August, and September 2014 by 33 percentage points
Increases the penalty amounts for failures to file partnership and S corporation returns
Extends and modifies the first-time homebuyer credit to purchases of a principal residence by an individual taxpayer before May 1, 2010

NOL Carryback Provision

The new law includes an expansion of the net operating loss (NOL) provision that applied for small businesses, as enacted earlier this year in the American Recovery and Reinvestment Act (ARRA).

Under the new legislation, all businesses—with exceptions for companies whose stock or rights to an equity interest were acquired by the federal government pursuant to the Emergency Economic Stabilization Act of 2008 and special rules for life insurance companies—can carry back NOLs for up to five years for losses incurred either in 2008 or 2009 (at the election of the taxpayer), but not for both years. Businesses may be able to offset 50% of the available income from the fifth year and 100% of income in the remaining four carryback years.

Small businesses that have already elected to carry back 2008 losses under ARRA may also elect to carry back losses from 2009.

A taxpayer that makes this election will have the same three-, four-, or five-year carryback period for alternative minimum tax (AMT) NOLs as for regular tax NOLs. The new legislation removes the limitation for these AMT NOL carrybacks that only 90% of the AMT income can be offset by the AMT carryback. However, an AMT NOL carryback to the fifth preceding tax year would be limited to 50% of the AMT income in that year.

KPMG Observation

In evaluating whether to elect the five-year carryback for 2008 or 2009, cooperatives need to consider whether the NOL to be carried back is patronage or non-patronage sourced.

Under Subchapter T principles, non-patronage sourced NOLs can generally offset both retained patronage sourced income and non-patronage sourced income in the carryback year. However, patronage sourced NOLs may not offset non-patronage income.

Also, in evaluating whether to make the five-year NOL carryback election, cooperatives need to consider the effect of the election on a section 199 deduction in the carryback year. Such NOL carrybacks would reduce the cooperative's section 199 taxable income limitation—which could potentially reduce the cooperative's section 199 deduction, even if passed through to patrons under section 199(d)(3).

For more information, contact KPMG’s National Director of Cooperative Tax Services:

David Antoni, in Philadelphia, (267) 256-1627, dantoni@kpmg.com

Or Associate National Director of KPMG’s Cooperative Tax Services

Brett Huston, in Sacramento, 916 554 1654, bhuston@kpmg.com

To print a copy of this TaxNewsFlash article, go to: File>Print>Preferences or Properties>Landscape.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in TaxNewsFlash-Cooperatives is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to US-KPMGWNT@kpmg.com. For more information, contact KPMG’s Federal Tax Legislative and Regulatory Services Group at + 1 202.533.4366, 2001 M Street NW, Washington, DC 20036-3310.

To unsubscribe from TaxNewsFlash-Cooperatives, reply to US-KPMGWNT@kpmg.com and type ‘Cooperatives- Unsubscribe' in the subject line, then click on the SEND button.

Privacy | Legal