Operating Losses

1
Operating Losses
Burnet v. Sanford Brooks Co.
year one year two
30,000 expenses 30,000 payment
30,000 net loss
30,000 net profit
Net profit over two years zero
2
Net Operating Losses
172 year one year
two 30,000 expenses 30,000
payment 30,000 net loss
30,000 net
profit 30,000 NOL



0


172 carryover (carryforward)
3
Net Operating Losses
172 year one year 2
60,000 (salary)
60,000 (salary) less 16,000 (itemized
deductions) 15,000 (itemized
deductions) 4,000 (personal
exemption) 6,000 (personal
exemption)
80,000 (business
losses) TI 40,000 (41,000)
negative income 20,000 NOL TI
20,000
net loss from trade or business20,000
172 carryover (carryback)
NOTE personal deductions and exemption cannot
included in computing NOL
4
Net Operating Loss Rank Ordering
Carrybacks and Carryforwards
95 96 97
98 99
00 400 700
(3,000) 700 700
600

- 500


100 remaining NOL
(3,000) - 400
(2,600)
- 700
(1,900)
- 700 (1,200)
-
700 ( 500)

5th
4th
2d
3d
1st
5
Claim of
Right Doctrine North American Oil
Consolidated v. Burnet 1916
1917 1920
1922
TP wins in trial court paid to TP by receiver
earned paid to receiver
TP wins in appellate court - TP keeps
TP wins in Sup. Ct.- TP keeps
6
Claim of Right
Doctrine United
States v. Lewis
Year 1 year 2 50 marginal
rate 50
marginal rate salary 100,000 x .5 50,000
salary 100,000 x .5
50,000 bonus 20,000 (claim of right)
repayment - 20,000 TI 120,000 x
.5 60,000 TI 80,000
x .5 40,000 additional tax from bonus
reduced tax from repayment
10,000
10,000
7
Claim of Right
Doctrine United
States v. Lewis
Year 1 year 2 50 marginal
rate 20
marginal rate salary 100,000 x .5 50,000
salary 100,000 x .2
20,000 bonus 20,000 (claim of right)
repayment - 20,000 TI 120,000 x
.5 60,000 TI 80,000
x .2 16,000 additional tax from bonus
reduced tax from repayment
10,000
4,000