Above the Line $300 Charitable Contribution Increasing NOL

[HPMCPAs]

The above the line $300 charitable contribution is increasing net operating losses.  Also, for taxpayers that don't otherwise have an NOL, if the standard deduction is greater than AGI, a $300 NOL is being generated.  Did the IRS intend for the $300 charitable contribution to generate or increase an NOL or is this a software problem?  Can't find any guidance that indicates the IRS allow this.

[gabletax]

Haven't dealt with an NOL yet this year, but ProSeries used to have an NOL worksheet where amounts could be allocated to business or personal. Maybe there it could be moved to the personal column.

[HPMCPAs]

Thanks!  I was able to adjust the $300 contribution on the NOL classification worksheet and work out the problem.

[mysanity88]

I ran into this issue today. After a far bit of reading, I cannot find any guidance on how the IRS intended for this to interact with NOLs. 

Can I ask where you made the adjustment to eliminate the NOL?

[HPMCPAs]

On the NOL Classification Worksheet, I entered a ($300) adjustment on line 19 under Column B for nonbusiness income and it worked my NOL back to $-0-.

[vscpanm]

Ok, that worked. Thank you.

[vscpanm]

I am thinking the NOL has something to do with a lost contribution deduction. If we were able to itemize and not be able to use up all the contribution deduction, in a normal year we would be able to carryover any deduction not actually used. Maybe IRS is treating this as a contribution deduction carryover and it shouldn't be adjusted. Just thinking.

[mdpizzuto1]

I encountered the same issue today. After performing some research, including relevant provisions of the CARES Act, Although defined as non-substantial legal authority, I turned to IRS Publications (i.e., charitable contributions, NOLs) to gain a general and practical understanding of the issues and the IRS' position.

See, pp. 2-3 of IRS Publication 536, "How To Figure an NOL" and "Non-business deductions (outlined in the Worksheet at line 6)." Regarding line 6, the instructions specifically indicate to enter as positive numbers certain deductions including: (1) the standard deduction (if you do not itemize deductions) AND (2) charitable contributions if you take the standard deduction.

Unfortunately, pro-series tax software only adds back the standard deduction but not the related above the line charitable contributions deduction thus generating an NOL carryover equal to the amount of such deduction. To eliminate the NOL carryover, I entered the following overrides on the NOL Classification Worksheet in the relevant taxpayer's 2020 proseries tax software file: (1) at line 44, in the amount of the "above the line" charitable contribution deduction; and (2) at line 49, I added the line 44 override amount to the system generated Deductions Total. Then, I deleted the NOL from the taxpayers 2021 proseries tax software file.

Although IRS Publications are non-authoritative, the instruction to add back "charitable contributions if you take the standard deduction" appears to evidence the IRS position on the matter, in particular that  such above the line deduction cannot be used to generate an NOL carry-forward. 

Although I hope the above comments help, this posting is not tantamount to providing tax or legal advice, but merely memorializing my comments on the issue for others to consider. Please perform your own research and formulate your own conclusions on the matter.

[Camp1040]

For 2021 taxes the deduction is below the line.

[mdpizzuto1]

Thank you for your reply.

For the avoidance of doubt, the issue I referred to in my previous post does not relate to whether a charitable contribution is an "above" or "below" the line deduction for the taxable year ended December 31, 2021. Rather, my issue relates to the taxable year ended December 31, 2020, it being understood that during such year taxpayer claimed the standard deduction together with an "above the line" charitable deduction, which resulted in the creation of of an NOL carryover from 2020 into 2021 upon transferring the taxpayer's 2020 tax info into the 2021 taxpayer file. I believe the creation of an NOL carryover from 2020 into 2021 is not correct for the reasons set forth in my previous post.

[Camp1040]

It sounds like a worksheet adjustment is in order and to move on, you may never find out or know what the IRS intent was.

[mdpizzuto1]

Thank you for your reply. I am not concerned about discovering IRS intent, which is not relevant to me. I was merely interested in researching: (1) primary sources, (2) secondary sources,  or (3) IRS practical guidance on the topic. Having resolved the issue to my satisfaction, I thought I would share my thoughts in the Community, after which I moved on to other matters.

Have a great w/e.