Net Operating Loss Treatment One Carryover Basis Issue Puzzling Treasury

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One of the many issues the Treasury Department has been dealing with in finalizing guidance on electing into the carryover basis regime for 2010 decedents is explaining how to handle net operating losses in relation to the increase in basis, says Cathy Hughes, Treasury estate and gift tax attorney-adviser. Many questions have arisen on how to make the tax code Section 1022 election to have carryover basis apply instead of the estate tax, Hughes says. She says that in addition to determining what kind of property can attract the $1.3 million basis adjustment and the $3 million spousal basis adjustment, there are significant questions about how the executor should compute NOLs and unrecognized losses, and how the IRS will audit them.

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