NOL carryforward from newly married spouse

Forum|Forum|2 years ago
February 13, 2024
3 replies
10 views

I have an existing tax client who married in 2023. The new spouse has a significant NOL from prior years. The NOL can only be used against the new spouses income. However, the ProSeries program is applying the NOL to both spouses income. How do I get the software program to only apply the NOL to the new spouse that incurred the NOL?

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Just-Lisa-Now-

Intuit Community Champion

ProSeries is severely lacking in NOL management, you'll probably have to make the adjustment manually somehow.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

Camp1040

Level 10

Some times you can "fix" the issue by using the carryover worsheet and manually enter or override entries.

BobKamman

Level 15

Where are you finding that the NOL can't be applied to the joint income? That might be correct, but all the examples I find involve situations where the couple was married in both the loss year and the carryover year -- just not filing jointly each year. Or, after a divorce the spouse with a loss wants to carryback to a joint-return year. There's no rule requiring one spouse's itemized deductions to be limited to that spouse's income, so is it different for NOL's? (And I hate to ask, if this happened in a community-property state.)

C

Christy HAuthor

Level 2

IRS publication 536 states:

Change in Marital Status

If you and your spouse were not married to each other in all years involved in figuring NOL carrybacks and carryovers, only the spouse who had the loss can take the NOL deduction. If you file a joint return, the NOL deduction is limited to the income of that spouse.

BobKamman

Level 15

And the paragraph that immediately follows that is, "For example, if your marital status changes because of death or divorce, and in a later year you have an NOL, you can carry back that loss only to the part of the income reported on the joint return." And there is a 2004 Chief Counsel memorandum sent to a Service Center that answered that question. It doesn't really cite any authority, it just points out that there is nothing reliable which is why it was asked in the first place. The CCM starts out by noting "conflicting directions in Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts (2003), the instructions to Form 1045, Application for Tentative Refund, and Internal Revenue Manual (IRM) Section 21.5.9."

But you are not asking about a carryback from single to joint. And your clients may have thousands of dollars at stake, depending on what you tell them. If you cite an IRS publication to a judge, you'll be laughed out of court.

Sometimes, what a publication leaves out is the best clue to an answer. Pub 536 doesn't say, "if your marital status changes because of marriage, and in an earlier year you have an NOL" Because IRS doesn't have an answer to that one, and neither do I.

Change in Marital Status

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