If your corporation owes significant federal income taxes for its just-ended tax year and can already estimate that the current tax year is bringing in a net-operating loss, you may be able to offset some of this year's tax liability.

Ordinarily the current-year net-operating loss (NOL) could not be utilized until the 1120 form was filed and the NOL carry-back claim was prepared. Now there is a step you can take to extend the time to pay the tax by filing the Form 1138.

Form 1138 uses projected current-year NOL to offset the amount owed for the previous year. This is an extension form that extends the time for payment of taxes by a corporation expecting a net operating loss carry back. However, the extension is only good for tax payments that are due after the Form 1138 is filed.

The Form 1138 should be filed after the beginning of the tax year for which the NOL is expected but before the due date for paying the previous year's federal income tax bill. This form can be filed with the Form 7004. For calendar year-end clients this due date would be March 16th.

Since estimates are known to change there can be many filings of the Form 1138 as the year goes on. Each time the form is filed it will replace the pre existing form. The extension expires at the end of the month that the Form 1120 is required to be filed (including extensions). Keep in mind that there is an interest charged on the amount of postponed tax for tax underpayment, but there is no penalty if the form 1138 was filed.

Contact your SS&G representative with any questions.