Regular tax and AMT NOLs subject to single carryback waiver election.

In 1983, P reported an alternative mininum tax (AMT) liability. In 1984, he sustained a net operating loss (NOL) and an AMT NOL. On his 1984 return, he stated that he elected to forgo the regular NOL carrybac period; P, however, attempted to carry back his AMT NOLs. The IRS refused to allow this carryback and determined a deficiency against P. The Tax Court (opinion Baum, J.) agrees with the Service. Both the regular tax and AMT NOLs are governed by a single carryback period, to which a single election may apply. However, P's attempted election was invalid. As such, he was entitled (and actually required) to carry back to his AMT NOLs before carrying them forward; at the same time, he was also required to carry back his regular tax NOLs.

At issue is the efect of P's attempt under Sec. 172(b)(3)(C) to relinquish the entire carryback period with respect to his regular NOL for the tax year while at the same time preserving the right to carry back the AMT NOL for the same year. The case involves the interplay between the Sec. 172 NOL carryback and carryover provisions and the Sec. 55 AMT.

Sec. 172(a) grants an NOL deduction for a tax year in an amount equal to the sum of the NOL carryovers and carrybacks to that year. Sec. 172(b)(2) establishes the manner in which NOLs are carried backward and forward from the year in which they were incurred. In general, the NOL is required to be carried back to the earliest available year of the carryback period, and then (to the extent not absorbed) to be carried over successively to the next year or years all the way through the remainder of the carryback period and the full carryover period until completely absorbed.

A taxpayer may elect to relinquish the carryback period with respect to the loss sustained in a given year (Sec. 172(b)(3)(C)). If the taxpayer so elects, he does not carry back the NOL sustained in that year to any year in the carryback period, and no part of such loss is allowed as a deduction in any year in that period. Accordingly, no part of the NOL is absorbed by taxable income in the carryback period. The entire NOL is instead carried forward to the earliest year in the carryover period. An election under Sec. 172(b)(3)(C) is irrevocable, and applies to all of the carryback years relating to the loss year for which the election is made.

Sec. 55 imposes an AMT on noncorporate taxpayers. See. 55(a) provides that the AMT is equal to 20% of so much of the alternative minimum taxable income as exceeds an exemption amount, less the regular tax for the year. It is at this point that Sec. 55 interacts with Sec. 172, because Sec. 55(b) defines AMT as adjusted gross income (determined without regard to the Sec. 172 deduction) as modified in several respects, one of which involves the AMT NOL deduction.

Sec. 55(d)(1) states that "[t]the term 'alternative tax net operating loss deduction' means the NOL deduction allowable for the tax year under Sec. 172," subject to the exceptions contained in Sec. 55(d)(1)(A) and (B). This definition thus requires that the amount of the AMT NOL deduction for a particular tax year must equal the amount of the regular NOL deduction for that year, except to the extent that Sec. 55(d)(1)(A) and (B) require a difference between the two amounts. Neither of these provisions, however, states or implies that a separate carryback period exists with respect to the AMT NOL. Indeed, Sec. 55(d)(1)(A) and (B) do not relate in any way to the existence or length of the carryback period, or to the Sec. 172(b)(3)(C) election to relinquish such a period. We find no basis for according different treatment to an AMT NOL than to a reguar NOL with respect to the election provided by Sec. 172(b)(3)(C). We hold that the general rule contained in Sec. 55(d)(1) requires that an effective election under Sec. 172(b)(3)(C) must apply to both types of NOLs.

Sec. 172(b)(3)(C) speaks in terms of "relinquish[ing] the entire carryback period with respect to a net operating loss." It does not mention either a regular NOL or an AMT NOL. It is concerned simply with relinquishing the entire carryback period, without in any way distinguishing between a regular NOL and an AMT NOL. Certainly, nothing in Sec. 172(b)(3)(C) suggests that it provides for two elections. The statute deals with but a single carryback period of three years. An effective election under Sec. 172(b)(3)(C) must of necessity relate to that carryback period, and would preclude any carryback whether it be the regular NOL or the AMT NOL. Had Congress intended to make available two elections, with such potentially disparete results, one would certainly have expected that it would have explicitly so statd in the 1982 legislation, which for the first time permitted carrybacks and carryovers of AMT NOLs. In the absence of any such clear expression of legislative intention in so complex a field, we hold that there is but a single election contemplated by Sec. 172(b)(3)(C), and that an effective election made thereunder must be applicable to both the regular NOL and the AMT NOL. To the extent that P has attempted to limit the election merely to the regular NOL, the election may be invalid and not only would the carryback sought by P for his AMT NOL be permissible, but the regular NOL would also have to be carried back before it could be carried forward.

A statement made in the legislative history of the Tax Reform Act of 1986 confirms our conclusion that only one carryback period exists. The Conference Report relating to that act stated that "[i]t is clarified that an election under section 172(b)(3)(C) to relinquish the carryback period applies both for regular tax and for minimum tax purposes." We recognize of course that this statement could be interpreted differently. Thus, the statement can be read as an attempt by the Congerence Committee to clarify that the Sec. 172(b)(3)(C) election could be made for the AMT NOL as well as the regular NOL. However, in view of the language used by the committee, we think that such interpretation is rather strained. We adhere to our conclusion that the election under Sec. 172(b)(3)(C) governs both types of taxes.

A taxpayer who attempts to make an election that is not legally available to him will be treated as having made no election, and accordingly may be allowed to make another election as though the original election had not been made. P, however, does not seek to make another election. Instead, he argues (1) that if only one carryback period exists for both regular and AMT NOLs, an attempted election under Sec. 172(b)(3)(C) was invalid, and (2) that this invalid election could nothave affected his right, indeed his obligation (under Sec. 172(b)(2)), to carry back both regular and AMT NOLs prior to carrying them forward. We agree with P.

Each of P's returns contained only one statement purporting to be an election. That statement was: "Taxpayers elect to forego [sic] the carryback period for the regular NOL in accordance with Sec. 172(b)(3)(C) and will carry forward this NOL." The use and underlining of the word "regular" is significant in establishing that P intended to make an election that was unavailable to him. Furthermore, shortly after filing his tax returns, he filed requests for tentative refunds relating only to the carryback of his AMT NOLs. Such requests were entirely inconsistent with the only permissible elections under Sec. 172(b)(3)(C), which would have required P to relinguish the carryback period applicable to both types of NOL.

In this case, the elections consisted of explicity statements made by P on his returns, and both such statements contthe underlined word "regular." Thus, the very statements by which P attempted to make the Sec. 172(b)(3)(C) election made clear his intent to make a limited election that was unavailable to him.