American Recovery and Investment Act of 2009
Page 2 of 2

PROVISION PRIMARILY AFFECTING BUSINESSES

Temporary 5-year carryback of Net Operating Losses.  A NOL generally may be carried back to offset taxable income in the two years before the year of the loss (the 'carryback' period), then carried forward to each of the following 20 years. \

For NOLs generated by an "eligible small business" (an entity with less than $15 million average gross receipts for the three years prior to the loss year) in the tax year ending in 2008, (or the taxpayer may elect for the tax year beginning in 2008), the taxpayer may elect to carry back the NOL for up to 5 years instead of only 2 years.  This election applies only to a tax year ending  or beginning (if elected) in 2008.

This election generally must be made by the due date, including extensions, for filing the income tax return of the NOL entity.  Once made, the election is irrevocable.

 


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Employee Misclassification in the Spotlight

Employee misclassification is int the spotlight as a way to reduce the tax gap.

Employee misclassification of workers as independent contractors is in the spotlight as the Government Accountability Office (GAO) and Congressional Research  Service (CRS) have released reports and recommendations on the issue.  IRS reportedly is embarking on an employment tax audit of selected employers nationwide, and a recently introduced bill would revammp so-called "Section 530" relief.

 The CRS recently summarized the employee-vs-independent contractor issue and reported that the last IRS estimate ws that 15% of employers misclassified 3.4 million workers as independent contractors rather than as employees causing an estimated total loss of $1.6 billion in taxes.  

Representative James McDermott (D-WA) has introduced legislation that would make it more difficult for employers to receive protection from a potentially large employment tax assessment after incorrectly classifying a worker as an independent contractor.  The legislation, if passed, would also increase information reporting penalties.