passive loss carryback

Forum|Forum|5 years ago
June 3, 2021
1 reply
35 views

A new client just received a letter from the IRS for 2017. It states that the tax preparer they had in 2017 did not elect to forego the 2017 net operating loss carryback period. The passive loss they have is a result of years of un-allowed passive losses on a limited partnership K-1. 2017 was the final year of the K-1 which freed all these passive losses. I don't have the K-1 yet, to find out what type of passive loss this is, ( ordinary, capital gain, 1231, 1250 etc.) not sure if that matters, but is there a type of passive loss that does not require it to be carried back. The IRS is giving them 30 days to amend 2015, 2016 and 2017 tax returns to carryback this loss. The passive losses were not allowed in prior years, so I am not sure how amending them will change any prior year return, but wanted to reach out to understand what I might be missing.

Any help is greatly appreciated.

Lacerte Tax

This topic has been closed for replies.

BobKamman

Level 15

You are no longer claiming a passive loss on the 2015 and 2016 returns. You are claiming a net operating loss. Your post states that IRS wants an amended return for 2017, but that's the NOL year, right? What was done with the NOL when it was not carried back? Was it claimed on 2018 on later years? And why is IRS looking at 2017 just now?

J

jlew1229Author

Level 5

The previous tax preparer never said it was the final year K-1, so all the previous years passive loss carry overs just disappeared. We filed an amended 2017 return to indicate it was a final year K-1 to bring forward the prior year passive losses Then we amended 2018 as well, since now the loss was carried forward.

The IRS letter stated they looked at the original return that was filed and no election was made to forego the 2017 operating loss carryback. Any election filed with the 2017 1040x ( filed May 2020) was filed late and can not be allowed. They want the 2017 loss carried back to the correct year.

So the previous year passive loss carryovers not utilized on the 2017 1040X return become NOL losses and we have to amend 2015 and 2016? and start with the total NOL from the 2017 return on the amended 2015 return and keep carrying it forward? It doesn't matter what type of passive loss it was? or that it was accumulated over many years?

sjrcpa

Level 15

Once you have an NOL any passive considerations that generated it are no longer applicable.

The more I know the more I don’t know.

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