Schedule C/All Investment at Risk

[sharpcougar]

Hi All,

I just picked up a new client. Previous tax preparer had box 32b check off (Some investment is not at risk) for prior return and returns. The tax payer operates a garage and he operates it and based on my conversation, box 32a should have been checked (All investment is at risk).

The tax payer has NOL and had form 6198 filled out. I think the proper box to check in 2021 is 32a so what do I do with all the NOLs? Also, he stopped operating the business in September 2021 and is no longer operating the business but has plenty of NOL ~ close to $130k due to covid. He could not sustain the closure and with his age decided to close shop.

Thoughts?

[TaxGuyBill]

I agree that it is unlikely that 6198 should have been used.  Assuming that is the case, the prior tax returns should be amended.

Can you clarify what you mean by NOL?  If they used 6198, that would presumably not have had a NOL (net negative income across the entire tax return) because the 6198 suspends the loss.  If you amend to undo the 6198, that could create an NOL.

If there is a NOL, you just follow the usual rules.  Depending on which tax years are involved, it is carried back 3-5 years.