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© 2008 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative liability (―KPMG International‖), a Swiss entity. All rights reserved. 1

TAX

The Worker, Homeownership, and Business Assistance Act of 20095-Year NOL Carryback Provision

June 22, 2010


member firms affiliated with KPMG International Cooperative (―KPMG International‖), a Swiss entity. All rights reserved.

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Circular 230 Disclosure

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.



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Agenda

Overview of Key Provisions

Practical Considerations

Corporate

Tax Accounting Methods

Practice, Procedure & Administration

State and Local

Q&A



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Overview of New Five-Year Extended NOL

Carryback Election

The Worker, Homeownership, and Business Assistance Act of 2009 (the ―Act‖), signed into law on November 6, 2009, allows most taxpayers an extended carryback period of up to five years for net operating losses (NOLs) incurred in a tax year beginning or ending in 2008 or 2009

Key ProvisionsAbility to elect extended carryback period for 2008 or 2009 NOL

50 percent limitation for NOL carried back to fifth year

Removal of 90 percent limitation for AMT NOL carryback

Special rules for small businesses, life insurance companies, and TARP Recipients

Modification of Corporate Equity Reduction Transaction (CERT) rules to conform with the extended carryback provision



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Election to Extend Carryback from 2008 or 2009

The five-year extended carryback period is available for any NOL

incurred in a tax year beginning or ending in 2008 or 2009

The election to extend the carryback period, however, can only be

made for an NOL from one taxable year

A taxpayer must make the election to extend the carryback period by

the due date — including any extensions — for filing the return for the

taxpayer's last taxable year beginning in 2009

Election can be applicable to C corporations, individuals with Schedule

C income, estates and trusts, tax-exempt entities (to the extent of

UBTI)

Guidance in Rev. Proc. 2009-52 issued November 20, 2009



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Suspension of the 90 Percent Limitation for

Alternative Minimum Tax NOL

If the election to use a three, four, or five-year carryback is made, it also extends the carryback period for an alternative minimum tax net operating loss (ATNOL)

For such ATNOL carryback, the Act eliminates the general restriction that an ATNOL can offset only 90 percent of the AMTI in the carryback year

An ATNOL carried back to the fifth previous tax year can only offset 50 percent of the pre-ATNOL AMTI

An ATNOL may be carried forward to offset 100 percent of AMTI



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Exception for TARP Recipients

The extended carryback election is not available for ―TARP Recipients,‖ as defined in the Act

If a taxpayer becomes a TARP Recipient after making the NOL carryback election, the taxpayer is retroactively rendered ineligible for the extended carryback, and may be required to file amended returns

See also section 2.10 in Rev. Proc. 2009-52



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Effect of NOL Carryback on Prior Year Returns

Evaluate potential unintended consequences of carrying

back NOL:

Taxpayer’s ability to claim certain credits, whether with

a limited or unlimited carryforward period

NOL carryback effect on computation of income and

items based on taxable income

Section 199 deduction

Taxpayer’s ability to change from claiming a foreign tax

credit to deducting foreign taxes



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Retroactive Loss Corporation Status

Section 382 applies when taxpayer becomes a ―loss

corporation‖

NOL carryback may reduce taxable income in a prior

year, ―freeing up‖ credits and causing a taxpayer to

retroactively become a loss corporation

A modeling exercise may illustrate the potential for

differing ownership change dates



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Carryover of Recognized Built-In Loss

Disallowed RBIL shall be carried forward under rules

similar to rules for carrying forward NOLs

A taxpayer should consider how extended carryback may

impact the potential for existing (or arising) ownership

changes, where a NUBIL may be present

Consider amount (or existence) of NUBIL as of each

potential ownership change date – see modeling exercise

Circular calculation?



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Right to Refund Claim

Before filing carryback claim, it is prudent to determine who

has the right to any refund

Considerations may include:

Was the company to which the NOL is being carried acquired

during the extended carryback period, and was the right to any

refund claims addressed in a purchase and sale agreement?

Does the year to which (or from which) an NOL may be carried

impact the right to the refund claim?

Also, see Rev. Proc. 2009-52, section 4.01(2), regarding

carryback waiver election described in Treas. Reg. section

1.1502-21(b)(3)(ii)(B)



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Alternative Use of NOLs and Other Attributes

Taxpayers with cancellation of indebtedness income (―CODI‖) need to consider multiple variables, including:

Taxpayers that are insolvent or in a title 11 case may choose:

Normal or extended NOL carryback period; or

Exclusion of CODI with attribute reduction, or CODI deferral

Both NOL carryback period and CODI deferral may be made on a sliding scale

Taxpayers that are solvent may choose:

Normal or extended NOL carryback; or

Current inclusion of CODI, or CODI deferral

Both NOL carryback period and CODI deferral may be made on a sliding scale

NOL carryback generally occurs prior to attribute reduction

Consolidated return rules add further complexity



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Subsidiary Stock Basis Adjustment Consideration

When proposing the sale of subsidiary (S) stock, consider the impact an extended NOL carryback may have on the sale of S:

If S contributed to the consolidated NOL (CNOL), a carryback of such CNOL generally reduces the basis in S stock in the year the NOL was generated

Taxpayer may choose what is more beneficial: Generally, carryback of ordinary NOL versus increase in capital gain (or decrease in capital loss) on sale of S stock

In the case of a loss, consider the impact of Treas. Reg. section 1.1502-36



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Taxpayers with Different Elections Joining One

Consolidated Group (or Merging Together)

A taxpayer that is considering an acquisition or disposition should consider how the extended carryback could interplay with the election of a potential target or acquirer:

Due to the one-year carryback choice (2008 or 2009), what if a target filed a 2008 extended carryback claim for $10, and acquirer is considering filing a 2009 extended carryback period claim for $1,000?

Successor issues may arise for both tax-free mergers and other tax-free reorganizations

In conducting due diligence, certain issues should be considered:

Has target ever been a ―TARP Recipient‖? or

Has target filed an extended carryback claim?



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Tax Accounting Methods Considerations

Overall approach

Accelerate deductions into 2009

Defer income into 2010

Key criteria

Reduction of 2009 taxable income would create or

increase NOL

Taxable income available for offset in earlier year

2009 NOLs otherwise projected to expire based on

future taxable income projections



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Procedural Issues

Non-automatic changes

Form 3115 must be filed by end of year of change, i.e.,

December 31, 2009 for calendar 2009 taxpayers

Rev. Proc. 97-27 (as modified) applies

Automatic changes

Form 3115 must be filed by extended due date of return

for year of change

Rev. Proc. 2008-52 (as modified) applies

Special procedures for taxpayers under examination,

before Appeals, or before federal court



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Examples of Issues to Be Addressed

Tenant allowances

Section 475/mark-to-market

Section 195/start-up expenditures

Section 460/long-term contracts

Fixed assets

Fixed liabilities

Recurring item exception

12-month rule

LIFO/IPIC method

FIFO/lower of cost or market

Inventory obsolescence

Section 263A/uniform capitalization

Advance payments



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State and Local Tax Consequences of Federal NOL

Carryback

States adopt different approaches

Some states will automatically conform to the federal NOL carryback period

Some states might decouple

Other states will update their IRC conformity dates in the future and might decouple

Many states do not currently conform to the federal NOL carryback period

Many states do not conform to all federal deductions

States that conform to deductions based on federal taxable income

(e.g., section 199) could see state taxable income increase

States that do not conform to these deductions (e.g., section 199)

may have the same state taxable income, but items on the state tax

return may change, potentially requiring amended state returns

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