Question

How can a Net Operating Loss be used to offset previous or future income?

Select one:

a. As a carryback of 3 years and then a carryforward of up to 5 years.

b. As a carryback of 2 years and then a carryforward of up to 20 years.

c. As a carryforward of up to 20 years only.

d. As a carryback of 2 years and then a carryforward of up to 5 years.

Answer 1

Under U.S. Federal income tax law, a net operating loss (NOL) occurs when certain tax-deductible expenses exceed taxable revenues for a taxable year.[1] If a taxpayer is taxed during profitable periods without receiving any tax relief (e.g. a refund) during periods of NOLs, an unbalanced tax burden results.[2] Consequently, in some situations, Congress allows taxpayers to use the losses in one year to offset the profits of other years.

Generally the NOL must be carried back to the two tax years before the NOL year. For example, the tax loss from 2015 must be carried back to 2013 or 2014. Any remaining amount can be carried forward for up to 20 years

So the correct answer is option B

ie

As a carryback of 2 years and then a carryforward of up to 20 years