2001 Changes

New 5-Year Carryback Rule for Net Operating Losses (NOLs)

If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). However, you can still choose to use the previous carryback period. You also can choose not to carry back an NOL and only carry it forward.

Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Corporations can file Form 1139, Corporation Application for Tentative Refund. The instructions for these forms will be revised to reflect the new law.

Electronic Form 1099

For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way.

Tax Incentives for New York Liberty Zone

New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan.

Tax benefits for the New York Liberty Zone include the following.

• A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. It is allowed for the year the property is placed in service.
• No alternative minimum tax depreciation adjustment for qualified Liberty Zone property.
• Classification of Liberty Zone leasehold improvement property as 5-year property.
• Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone.
• An increased section 179 deduction for certain Liberty Zone property.
• Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts.

In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later.

For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002.

Other 2001 Changes

Other changes are discussed in the following chapters.

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