Below, find helpful details about the net operating loss carry forward substantiation. The IRS has special rules that taxpayers need to be aware of regarding this tax topic.

Clients who carry forward NOLs should be cautioned not to dispose of records that establish the losses and how much of each NOL has been used up until the statute of limitations has expired for the return in which the last of the carryover has been claimed. Depending on the amount of the NOL, this could be many, many years. Taxpayers were denied NOL carry forward deductions because they were not able to provide the IRS and the Tax Court with books, records, bills, or receipts to establish the income and expenses of the business that suffered the losses. To substantiate the claimed NOLs the taxpayers tried to rely exclusively on copies of tax returns, and the court noted that “it is well settled that tax returns alone do not establish that a taxpayer suffered a loss.” (Power v Comm., TCM 2016-157)