SECTION 2. BACKGROUND

.01 Section 172(b)(1)(A)(i) generally provides that an NOL for any taxable year must be carried back to each of the 2 years preceding the taxable year of such NOL. Section 172(b)(3) provides that any taxpayer entitled to a carryback period under § 172(b)(1) may elect to relinquish the carryback period with respect to an NOL for any taxable year.

.02 Section 102 of the Act amended § 172 of the Code in two respects. First,

§ 172(b)(1)(H) was added to allow a 5-year carryback period for NOLs for any taxable year ending during 2001 and 2002. Second, § 172(j) was added to allow any taxpayer entitled to the 5-year carryback under § 172(b)(1)(H) from any loss year to elect to relinquish that carryback period with respect to an NOL for any taxable year. A taxpayer making this election generally must apply the 2-year carryback period set forth in § 172(b)(1)(A)(i).

.03 An election to relinquish either the NOL carryback period in general under § 172(b)(3), or just the 5-year carryback period under § 172(j), must be made by the due date (including extensions) for filing the taxpayer’s return for the taxable year of the NOL and in the manner prescribed by the Secretary.

.04 Section 6411(a) provides that a taxpayer may file an application for a tentative carryback adjustment of the tax for the prior taxable year affected by an NOL carryback from any taxable year. Section 6411(a) also provides that the application must be filed on or after the date of filing for the return for the taxable year of the NOL from which the carryback results and within a period of 12 months after such taxable year or, with respect to any portion of a business credit carryback attributable to an NOL from a subsequent taxable year, within a period of 12 months from the end of such subsequent taxable year. Section 6411(b) provides a 90-day period during which the Service will make a limited examination of the application to discover omissions and errors of computation and determine the amount of the decrease in tax attributable to the carryback. The Service may disallow, without further action, any application that contains errors of computation that cannot be corrected within the 90-day period or that contains material omissions. The decrease in tax attributable to the carryback will be applied against unpaid amounts of tax. Any remainder of the decrease will, within the 90-day period, be credited or refunded.

.05 It has been brought to the attention of the Service and Treasury Department that some taxpayers that incurred an NOL in a taxable year ending during 2001 filed returns before the Act became law and either elected under § 172(b)(3) to relinquish the NOL carryback period in gen

eral or applied the 2-year carryback period. In some cases, these taxpayers might have wished to take advantage of the 5-year carryback period, had they been aware of its availability, and apply for a tentative carryback adjustment. The Chairmen and Ranking Members of both the House Ways and Means Committee and the Senate Finance Committee have advised the Treasury Department of their intent that qualifying taxpayers be allowed to take advantage of the 5-year NOL carryback period to the maximum extent possible, and that they intend to pursue technical corrections legislation that will clarify this intent. Specifically, the technical corrections legislation will allow the Service to issue guidance to allow taxpayers to reconsider a previous election under § 172(b)(3) to relinquish the NOL carryback period in general, and to file an application for a tentative carryback adjustment under § 6411(a), to take advantage of the 5-year carryback period, on or before October 31, 2002. When enacted, this legislation will be effective as if originally included in the Act. This revenue procedure describes how the Service is taking into account Congressional intent in administering the provision.