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Friday, June 3, 2011

Clarification Needed on Amendment to Code Section 56(d)(1)(A)(2)

Uncertainties surrounding the amendment to §172(b)(1)(H) by the 2009 Worker, Homeownership, and Business Assistance Act (WHBAA) are mentioned in another blog post. WHBAA’s related amendment to §56(d)(1)(A) compounds the confusion.

WHBAA removed language from §56(d)(1)(A) that had tracked the pre-ARRA (not just pre-WHBAA) version of §172(b)(1)(H), and inserted in its place a phrase suspending the 90%-of-AMTI limitation for a deduction attributable to an “applicable net operating loss with respect to which an election is made under section 172(b)(1)(H).”

But which version of §172(b)(1)(H)? On the one hand, “applicable net operating loss” is a term defined only in WHBAA’s version §172(b)(1)(H), suggesting that the 90% limitation in §56(d)(1) was not suspended for elections under ARRA’s pre-WHBAA version. On the other hand, WHBAA goes out of its way to give the §56(d)(1)(A) amendment a special applicability date:taxable years ending after December 31, 2002. See P.L. 111-92, §13(e)(2). What was the point in extending applicability back that far, if not to pick up earlier versions of §172(b)(1)(H)?

If the latter interpretation is correct—i.e., if the 90% limitation is now suspended for deductions attributable to NOLs for which an ARRA election is made as well as those for which a WHBAA election is made—are eligible small businesses that made the ARRA election well advised to go back and amend their returns to obtain the 100% offset?

Any thoughts? Best guesses may not be necessary for long; the IRS has promised guidance on the WHBAA amendments shortly.

For more on the WHBAA amendments to §56(d)(1)(A), see 541 T.M., 587 T.M., and 752 T.M.

--Allen Calhoun, Managing Editor (Business Entities & Tax Accounting), and Karen Fickes, Managing Editor (U.S. Income)

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