Ponzi scheme NOL - is 2-year carry back permitted?

[Tom Healy CPA]

I know that a "normal" theft loss has a 3-year carry back provision
IRC §172(b)(1)(F). And a business net operating loss normally has a 2-
year carry back IRC §172(b)(1)(H). But a Ponzi theft loss is treated
as a "sole proprietorship" that can elect up to a 5-year carry back if
it meets income limits. So my question is: can the Ponzi loss be
carried back 2 years because it's treated as a business instead of 3
as for a theft loss? It would make a big difference to my client.

 

[Alan]

I know that a "normal" theft loss has a 3-year carry back provision
IRC §172(b)(1)(F). And a business net operating loss normally has a 2-
year carry back IRC §172(b)(1)(H). But a Ponzi theft loss is treated
as a "sole proprietorship" that can elect up to a 5-year carry back if
it meets income limits. So my question is: can the Ponzi loss be
carried back 2 years because it's treated as a business instead of 3
as for a theft loss? It would make a big difference to my client.

I noticed your post in LinkedIn on this issue. I have to agree
with Christopher A's answer. I.e., the theft loss carries a
minimum carryback of 3 years. When Congress changed the law from
2 back to 3 back, it kept 3 years for theft losses.
(Christopher's reference to Sec. 172(b)(1)(F).) In other words,
if a there is a business loss that creates an NOL, the normal
carryback would be 2 years or forward 20 years. A theft loss
still uses 3 back. In addition, if the NOL consists of both a
business loss and theft loss, I believe the taxpayer has to make
an allocation.

I don't have any IRS Guidance on this issue (must I go back 3 or
may I use 2 when there is a theft) in my files.

 

[Alan]

I noticed your post in LinkedIn on this issue. I have to agree with
Christopher A's answer. I.e., the theft loss carries a minimum carryback
of 3 years. When Congress changed the law from 2 back to 3 back, it kept
3 years for theft losses. (Christopher's reference to Sec.
172(b)(1)(F).) In other words, if a there is a business loss that
creates an NOL, the normal carryback would be 2 years or forward 20
years. A theft loss still uses 3 back. In addition, if the NOL consists
of both a business loss and theft loss, I believe the taxpayer has to
make an allocation.

I don't have any IRS Guidance on this issue (must I go back 3 or may I
use 2 when there is a theft) in my files.

I should have said "When Congress changed the law from 3 back to
2 back.. "