AMT Net Operating Loss Deduction (ATNOLD)
Just as a taxpayer can take a net operating loss deduction (NOLD) in calculating regular income tax liability, under Code Section 56(a)(4), a taxpayer can take an alternative tax net operating loss deduction (ATNOLD) in calculating their alternative minimum taxable income (AMTI).
NOTE: As described below, an alternative minimum tax net operating loss (ATNOL) is not the same thing as an ATNOLD. Be careful to keep these separate concepts straight.
An ATNOL is the AMT version of the NOL. Under Code Section 172(c), an NOL is the excess of a taxpayer’s deductions over the taxpayer’s gross income. This excess is calculated with the modifications in Code Section 172(d).
Similarly, a taxpayer’s ATNOL is the excess of a taxpayer’s deductions allowed in determining alternative minimum taxable income (AMTI) over the income that is included in the taxpayer’s AMTI, calculated with the modifications in Code Section 172(d). In calculating the Code Section 172(d) modifications for ATNOL purposes, the Code Section 56(d)(2) AMT adjustments and preferences are taken into account.
EXAMPLE: In calculating an ATNOL for a year, the limitation of nonbusiness deductions to the amount of nonbusiness income must be calculated separately, using only nonbusiness income and deductions that are included in AMTI.
However, an AMT preference is only taken into account to the extent the preference increased the amount of the taxpayer’s NOL for the taxable year.
A taxpayer’s ATNOLD for a taxable year is the total of its ATNOL carrybacks and ATNOL carryovers (see below) to that year, limited to:
2. the lesser of—
NOTE: Part (2) above allows a taxpayer that made an election to use the extended carryback period for an ATNOL to offset the ATNOL against 100% of the ATNOL instead of 90% of AMTI. If a taxpayer did not elect an extended carryback period for any NOLs, his or her ATNOLD is simply limited to 90 percent of alternative minimum taxable income determined without regard to the ATNOLD and the Code Section 199 domestic production deduction.
ATNOLS, like regular tax NOLs, are carried back and carried forward to other tax years according to the rules Code Section 172(b). Under this code section, generally an ATNOL for any taxable year is an ATNOL carryback to each of the 2 taxable years preceding the loss year and an ATNOL carryforward to each of the 20 taxable years following the loss year.
Special rule for 2008 and 2009 ATNOLs: For 2008 and 2009, a taxpayer could elect an extended carryback period (3-
Election to forgo carryback period: A taxpayer can elect to forgo the carryback period, but to forgo the carryback period, the taxpayer must also forgo the carryback period for his or her NOLS (i.e., a taxpayer must treat NOLs and ATNOLs the same for carryback purposes).
Amount of ATNOL Carried Back or Forward to a Year
The entire amount of the ATNOL for any taxable year must be carried to the earliest of the taxable years to which the loss may be carried (unless an election is made to forgo the carryback period). The portion of the ATNOL that is carried to each of the other taxable years is the excess, if any, of:
NOTE: An ATNOL carried back or forward to a year for which taxpayer is not subject to the AMT is still considered to be used to reduce AMTI for that year. Therefore, in calculating the carryback or carryforward to subsequent years, the taxpayer must take into account the allowable ATNOLD for the year.
EXAMPLE: Arthur had AMTI of $100,000 in 2013, but was not subject to the AMT in that year. In 2015, he has a loss which causes him to have an ATNOL of $10,000. Arthur carries back this ATNOL to 2013. After applying the full amount of the carryback is applied against his 2013 income, he is still not subject to the AMT. Nonetheless, the full amount is considered absorbed in 2013 and cannot be carried forward to another year.
Order of Use of ATNOLs
The ATNOLD deductions for the earlier years is computed with the modifications specified in Code Section 172(b)(2), taking into account the ATNOLD limitation described above. One of these modifications is that the ATNOLD for a prior taxable year does not include the loss year ATNOL or ATNOLs from any years after the loss year. Accordingly, in general, ATNOLs are absorbed in chronological order, i.e., ATNOLs from earlier years are absorbed before ATNOLs from later years.
CAUTION: As discussed above, ATNOLs for which the extended carryback period election was made can be used to offset 100% of AMTI instead of 90% of AMTI. This rule led some practitioners to claim that with respect to ATNOLS for which the extended carryback period had been made, the order of use rules had been changed. Under this argument, an ATNOL for which the election had been made must be used after all other ATNOLs, regardless of the years in which those other ATNOLs arose. Applying this modified order of use will provide a more favorable result for the taxpayer.
The IRS strongly disagrees with this argument, and has stated in guidance that the chronological order of use rule applies to all ATNOLS, including those from 2008 or 2009 for which the extended carryback period election was made
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