NOL carryback is directly assessable until passive-loss issues remain

Plain-English summary

Chief Counsel advised that a net operating loss carryback could be directly assessed when it was a purely computational result of partnership losses. NOL carryovers are generally computational adjustments and therefore ordinarily fall outside affected-item deficiency procedures. If part of the NOL remained after that computation and passive-loss rules were then used to eliminate the balance, affected-item procedures would apply to that remaining amount. A notice of deficiency would address whether the partner materially participated and any other passive-loss limitation.

Ruling snapshot

• Question: When does an NOL carryback tied to partnership losses require affected-item deficiency procedures?
• Outcome: Advice given that direct assessment generally applies, but affected-item procedures apply to a remaining passive-loss disallowance
• Key authorities: IRC § 6230(a)(2)(A)(i); Cummings v. Commissioner; Bob Hambric Chevrolet v. United States; Olson v. United States

Full text (IRS public release)

ID: CCA_2014102110431801 [Third Party Communication:

UILC: 6230.01-00 Date of Communication: Month DD, YYYY]

Number: 201447037
Release Date: 11/21/2014
From:
Sent: Tuesday, October 21, 2014 10:43:18 AM
To:
Cc:
Bcc:
Subject: RE: SNOD on Affected Item to a C/B year

The carryback can be directly assessed to the extent it is purely computational based on
the amount of the partnership losses in ------and ------, without regard to whether it is
passive or not.
NOL carryovers are computational adjustments that generally may be directly
assessed. Thus, they are generally not subject to affected item deficiency
procedures. At least three courts have so held. The cases are Cummings v.
Commissioner, T.C. Memo. 1996-282; Bob Hambric Chevrolet v. U.S., 849 F.Supp 500
(Wd Tex. 1994); Olson v. U.S., 172 F.3d 1311, 83 A.F.T.R.2d 99-759, 99-1 USTC P
50,241 (Fed.Cir. Feb 08, 1999), affirming 37 Fed.Cl. 727, 79 A.F.T.R.2d 97-2175, 97-1
USTC P 50,375 (Fed.Cl. Apr 21, 1997).
To the extent the computational adjustment allows some of the NOL to survive, and the
passive loss rules are then applied to eliminate the remaining amount, affected item
deficiency procedures apply to disallow this remaining amount. Specifically, the notice
of deficiency would determine that the partner did not materially participate and any
other limitation on passive losses. I.R.C. 6230(a)(2)(A)(i)